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http://www.washingtonpost.com/wp-srv/WPlate/1998-12/30/081l-123098-idx.html
<A HREF="http://www.washingtonpost.com/wp-
srv/WPlate/1998-12/30/081l-123098-idx.html">Secret Deals, Awkward Bargain</A>
-----
Secret Deals, Awkward Bargain
U.S. Probes Firm's Covert Acquisition of Arms for CIA, DIA
By John Mintz
Washington Post Staff Writer
Wednesday, December 30, 1998; Page A01
The federal agents who burst into the Alexandria office of Vector
Microwave Research Corp. one morning late last year got right to the
point. "This is a court-authorized search," an agent announced. "Stand
up, don't turn off your computers. We'll take care of that."
The raid, which netted U.S. Customs Service and Navy investigators boxes
of records and computer disks, came as a shock to a firm that made a
business of eluding attention. For years, Vector had performed secret
tasks for the CIA and the U.S. military, using guile, experience and
connections, including those of its president, retired Lt. Gen. Leonard
Perroots, a former director of the Defense Intelligence Agency.
Vector was a leading entrepreneur in a classified or "black" specialty
with high stakes and few rules: covertly acquiring foreign missiles,
radar, artillery and other weapons for U.S. intelligence agencies. Its
work was seen as crucial by some U.S. officials who study innovations in
foreign weaponry as part of efforts to protect Americans from the global
spread of ballistic missiles and other arms.
But the rise and fall of Vector illustrates the awkward bargain that can
result when agencies such as the CIA and the DIA privatize covert
operations. When Vector went out of business earlier this year, it left
a trail of mysterious dealings, some that may have run counter to U.S.
policy, according to government officials, former Vector employees and
the firm's competitors.
Today, investigators are trying to determine at whose behest the firm
bid for a batch of North Korean missiles. Also unresolved is whether the
firm, trying to sweeten a deal for the purchase of Chinese missiles,
provided China sensitive technical specifications on the U.S. Stinger
antiaircraft missile.
So complex was the web of connections surrounding Vector that its
founder, Donald Mayes, became a business partner with China's
state-owned missile manufacturer while secretly buying Chinese weapons
for the U.S. government.
Government officials admit they may never know the scope of Vector's
activities. "Where's the reality?" said a U.S. official who has pursued
Vector for years. "We'll never untangle some of this."
No charges have been brought in the federal inquiry, and attorneys for
Vector and its executives deny wrongdoing. The agents who led the Nov.
20, 1997, raid are looking into a number of Vector projects, as well as
a private side deal in which Mayes sold Russian helicopters to the
Mexican navy.
Guidelines for Bribes
The ongoing investigation had not been made public previously, and,
besides scant references in the business press, Vector itself has hardly
been mentioned in print. The firm quietly went out of business recently
after spinning off parts of the company to competitors. Perroots, 65,
did not respond to messages left at his Virginia home. Mayes, 60, who is
living in Mexico, responded through his Washington attorney, Thomas
Green.
"It's hard for me to get into Mr. Mayes' activities, but they were
appropriate and didn't violate any laws," Green said. Green also read a
statement issued by Mayes, which said: "Anything we've done for the U.S.
government was completely approved." Vector's allies said any
prosecution would fail because of Vector's intelligence ties.
Executives of Vector and its competitors in the "foreign materiel
acquisition" business, such as BDM International of McLean and
Electronic Warfare Associates of Dulles, stride the marble halls of
defense ministries from Moscow to Minsk to Beijing competing for
weaponry on secret CIA and DIA wish lists. Because they can deny any
direct tie to the U.S. government, they can buy from people who wouldn't
deal with Washington, or require deniability to do so. The contractors,
in turn, are held to secrecy by the U.S. government.
Operating largely on their own in this shadowy world, people who scour
the globe for arms on the government's behalf acknowledge that they
could face legal trouble if U.S. investigators questioned them about
their methods. U.S. officials say people who bribe foreign officials
while on authorized U.S. government assignment won't be prosecuted under
statutes that prohibit such corrupt practices. But people who bribe
seeking foreign arms "on speculation" -- in the hopes of finding a
government buyer -- may be in legal jeopardy, officials said.
"If you say what you do, you can go to jail" because of U.S.
anti-bribery laws, said a Vector competitor, who acknowledged that
people in his industry commonly retain middlemen to bribe foreign
officials. "The U.S. is paying us to go to a foreign country and find
somebody to do an illegal thing for us. . . . Do you want a Boy Scout
doing it, or somebody who can get the job done to save U.S. lives?"
'Name and Access'
Mayes, who was described by an employee as "one of the most cunning
individuals I've ever met," learned the arms acquisition trade at a
cluster of firms in Virginia's Tidewater area in the 1970s. He founded
Vector in 1984, and it was soon acquiring missiles, electronics and
ships from China, France and elsewhere. Many of Vector's 150 employees
tested the materiel at a California Navy base, or designed classified
computer networks for the government. Other employees worked on purely
commercial projects, such as a plan to bury waste from South Korean
nuclear reactors in the Mongolian desert, and a plan to build a Russian
casino -- until Moscow mobsters seized their slot machines.
In 1989 Mayes hired retiring Air Force Lt. Gen. Perroots, who had spent
three years as DIA director. A favorite of former CIA director William
J. Casey, Perroots had superb intelligence connections. "Mayes told
people, 'We got Len for his name and access,' " a former Vector
executive said. "Len did what he was told" by Mayes, who often left
Perroots in the dark, former employees said.
Several people who worked at Vector's headquarters on South Washington
Street in Alexandria said freewheeling foreign missions brought out a
swagger in Mayes, who cultivated a disdain for law enforcement officials
who wanted to question him about his activities. They said the hulking
6-foot-4 Oklahoman boasted that federal agents were too stupid to nail
him.
"He bragged about how his phone was tapped, and he was outsmarting them,
and they'd never get him," a Vector consultant said of Mayes. Green,
Mayes' lawyer, denied Mayes ever said that.
"Mayes compartmented everything from his own employees," a firm official
said. "We called him 'prince of darkness.' He'd go overseas on a trip,
and no one would know what he was doing." His wife, a former CIA
employee, "would call and say, 'Where's Don?' "
Former Vector associates said the firm performed a variety of "little
tasks" for the government, nearly all of them secret. The company
maintained contact with people the government wanted to keep tabs on,
including a businessman from Bahrain with ties in Iran, a former company
executive said. U.S. officials unsuccessfully used Mayes to try to lure
the man to this country in connection with a Customs investigation, the
former executive said.
Government officials also used Vector to pry information from an Iraqi
official with whom it had grown close: the flamboyant, Rolls
Royce-driving Iraqi Brig. Gen. Nabil Said, military attache at Baghdad's
embassy here in the years before the Persian Gulf War.
Vector also informed intelligence officials about its dealings with
Moscow. In 1990, while trying to buy a supersonic Soviet antiship
missile, officials of the firm met a Soviet general who was defense
attache at the embassy in Washington. The attache, Grigoriy Yakovlev,
ended up working with Vector on numerous deals. "The relationship was
prejudged [by U.S. officials] and guidance was provided" by U.S.
agencies, said Patrick Sweet, who worked with Vector. What guidance did
U.S. officials give? "Our policy is not to get into that," Sweet
replied. Yakovlev later became a paid Vector deal-spotter in Moscow.
In addition, U.S. officials asked traveling Vector executives to make
specific inquiries of Russian space officials about production methods
on new electronic and optical technologies, a former company executive
said.
Vector's practices have earned some enemies within the U.S. government.
In the late 1980s, naval intelligence officials accused the firm of
overcharging for Chinese missiles and delivering Chinese missile
electronics that were different from what the firm had promised. The
Navy refused to pay the firm's $390,000 fee, but after Vector's
sustained lobbying, Navy officials ultimately paid in full, industry
executives said.
In 1993 Navy officials launched a criminal probe of the firm for alleged
fraud, which was later dropped. Mayes wrote an eight-page, single-spaced
letter to Congress complaining that Navy intelligence was out to destroy
Vector by leaking its proprietary proposals to competitors in "a war of
innuendo, investigations and outright abuse."
The resentment flared again last year, when Perroots persuaded the
Pentagon inspector general to investigate Perroots's old agency, the
DIA, for allegedly giving a competitor details of Vector's plan to
acquire Russian missiles. Vector's allies say the current probe of
Vector was engineered by enemies of the firm in DIA and Customs, which
has simmered at the unregulated importing of arms into this country by
firms such as Vector. DIA and Customs declined comment.
Customs is investigating Mayes for a private deal that apparently had no
links to the government. Mayes allegedly lacked a State Department
license when his employees repaired Russian helicopters for the Mexican
navy and trained its pilots to fly them. Mayes sold the Mi-8 copters to
the Mexicans for search-and-rescue work. While the copters lacked
military equipment, Mayes' associates allegedly advised Mexico on how to
outfit them with guns, an industry executive said. Maintaining or
upgrading aircraft without a license could violate U.S. arms exports
law.
"What the Mexican government does with the copters is its business,"
said Green, Mayes' lawyer.
North Korean Missiles
Another investigation by Customs agents has examined Vector's efforts to
acquire a North Korean missile. Vector officials said they had U.S.
approval for a deal, according to industry executives and the National
Security News Service, an independent investigative group that conducted
research on Vector. U.S. officials asked The Washington Post not to
identify the type of missile to avoid jeopardizing future covert
operations.
Industry executives familiar with Vector's work said Perroots arranged
for a South Korean consultant to approach a Seoul company to broker a
$33 million deal to buy four missiles and a launcher from Pyongyang.
They said Vector also had a U.S. consultant pay a Venezuelan military
official $50,000 for a phony "end-user certificate," a document used in
import-export work to indicate an item's destination. In this case, the
North Koreans were meant to think the missiles were headed to Pakistan
and then Venezuela.
Vector never got the missiles. Customs has reviewed the indirect
dealings between Vector and North Korean officials, which took place in
Beijing, since any financial transactions with North Korea would be a
violation of U.S. laws banning commercial ties to the country. Agents
are also looking into whether Vector had approval to seek the missiles,
since some U.S. agencies had said such a mission could be illegal, in
part because it would threaten weapons agreements to which the United
States is a signatory. A U.S. government official said that Vector's
efforts were "amateurish," and that it stumbled into the deal without
U.S. authorization.
"I thought we were doing everything by the book," said a former Vector
executive. "DIA said they needed it."
Perhaps the most baffling and sensitive area of Vector's enterprise has
been in China, which also has sparked the Customs Service's interest.
Chiefly, investigators are exploring whether, in efforts to secure
Chinese missiles in about 1991, Mayes gave Chinese engineers technical
advice that could help them pirate the design of the U.S. Stinger
antiaircraft missile.
Through his attorney, Mayes denied giving China any data; the lawyer,
Green, said "it's a canard circulating for several years." Former Vector
officials said that when Beijing's officials tried to barter sensitive
U.S. data from Mayes as a condition for deals, he play-acted, disclosing
material that already was public. Industry officials said the government
at times allows contractors to give away such "trading material."
Whatever his tactics, sources said, Mayes scored many acquisition
successes in China, at times by telling the Chinese that the weapons
were destined not for this country but for Peru. He obtained the C-801
antiship missile for the CIA around 1987, when Iran was threatening to
fire those weapons at U.S. Navy ships in the Persian Gulf. He also
landed the similar C-601 missile in 1991 for $9.9 million, according to
industry executives and an internal company report.
Over the same period, Mayes had developed close ties to China Precision
Machinery Import & Export Corp. (CPMIEC), Beijing's missile builder. A
Vector affiliate, Mayes & Co., became CPMIEC's official, global marketer
of a number of its missiles, including the HN-5A, a crude forerunner of
the shoulder-fired Stinger.
For the Chinese, Mayes' traceable ties to U.S. intelligence made him an
odd choice of a partner. In any case, piles of CPMIEC promotional
materials were stacked inside Vector's offices, and Mayes tried to sell
CPMIEC arms to Saudi Arabia and other nations. At the same time, Mayes
was informing U.S. intelligence about China's missile sales, industry
officials said.
But now investigators are asking whether Mayes, to ingratiate himself
with the Chinese, helped them figure out how to place the Stinger's
electronics in the nose cone of China's primitive shoulder-fired
missile. An industry executive said that around 1991 Mayes boasted that,
with the CIA's approval, he gave the Chinese some of the Stinger's
technical specifications to deepen his relationship with them. The
agency declined comment, but U.S. officials expressed doubt that Mayes
had CIA approval to do so.
A joint promotional brochure of CPMIEC and Mayes & Co., aimed at
marketing China's HN-5As, said the Chinese agency "utilizes the
research, design, marketing and tactical capabilities of Mayes & Co. to
evaluate and improve" Chinese missile designs. "Mayes & Co. is a small
group of highly specialized engineers and technicians that have a unique
understanding of the problems associated with electronic and missile
systems."
The Chinese appear to have incorporated Stinger technology in a new
missile that entered Chinese military service in 1996, called the QW-1
Vanguard, the CIA told a Senate committee two years ago. But it is
impossible to know where the Chinese got the technology because China is
thought to have secured some of the 1,000 or so Stingers the CIA gave
Afghan rebels to repel Soviet troops in the 1980s.
The Pentagon is now concerned the Vanguard could be fired at U.S.
aircraft. CPMIEC, which is notorious for violating global agreements by
distributing Chinese missiles around the world, has sold Vanguards to
Iran and Pakistan.
The Chinese Agent
U.S. aviation officials are "increasingly concerned" for the traveling
public's safety because of the proliferation of such mobile antiaircraft
missiles, said a 1994 State Department report. It noted that rebel
militias around the world have shot down 25 commercial airliners using
these missiles, killing 536 people.
Perhaps the most puzzling aspect of this story, though, is the role
played by a Chinese military intelligence agent stationed at Beijing's
embassy here in the 1980s. The FBI spotted Hou Desheng early on as a
bumbler; there was his odd talkativeness, for example. He complained of
his difficulty surviving on the $75 a month he was paid as assistant
military attache, said a reporter who used to take him to lunch.
Hou showed up weekly at Vector's offices mounting clumsy efforts to
learn classified secrets about a Navy electronics program it worked on,
a Vector official said. U.S. agents urged Vector to play along, and the
firm once left a sensitive-looking file for him, so he would become even
more reckless and blunder into a trap, the official said.
In 1987 Hou was arrested for espionage in a Washington restaurant after
he received what he thought were classified National Security Agency
documents from an FBI agent posing as a U.S. traitor. Days later the
U.S. government expelled Hou as a spy.
Soon after, working out of an office in a Beijing hotel, Hou became
Mayes & Co.'s representative in Beijing. He helped Mayes line up the
missile deals he swung with China's military, industry executives said.
Hou "was a conduit to other people" and remained a Chinese government
employee while working for Mayes, a former Vector executive said. Did
Mayes and Vector employ a Chinese spy as part of a U.S. intelligence
operation? "I can't get into that," he replied.
Green, Mayes' lawyer, declined comment on Hou. "It's too sensitive," he
said.
� Copyright 1998 The Washington Post Company
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