An international weapons-smuggling ring tapped into the U.S. Navy`s computerized supply system to steal $25 million worth of highly sensitive weapons and spare parts for Iran over four years, according to court records and interviews.
The smuggling ring`s ability to penetrate Navy security at two supply centers and aboard two aircraft carriers has raised serious questions about the adequacy of the Pentagon`s control over its $132 billion inventory of weapons and parts.
The case also represents a stark example of Iran`s extensive efforts to gain access to U.S. military hardware and spare parts to equip its forces in its bitter 6-year-old war with Iraq.
Few of the Iranian smuggling operations were more successful than the San Diego-based ring operated by two Filipino brothers, Edgardo and Franklin Agustin, who specialized in stealing parts for F-14 jet fighters out of the Navy`s $22 billion inventory.
The Navy press office in Washington did not respond to a list of questions from The Tribune concerning the value of the stolen parts and steps taken to improve naval security since the scheme was uncovered.
The Agustin operation described in court records was surprisingly simple. Microfiche copies of Navy supply lists, with each part`s stock number, were provided to an Iranian middleman in London. The middleman used the numbers to order everything from sophisticated navigation systems for F-14s towing panels and tires.
Navy supply specialists at supply centers in San Diego and Norfolk, Va., and aboard two aircraft carriers then stole the parts, either taking them out of stock or ordering them by computer if they were unavailable. The goods were concealed in boxes marked ”automotive parts” and ”medical supplies” and shipped to London, where they were sent to Tehran.
”It was like buying through a Sears catalog,” said John Hensley, a U.S. Customs Service agent who supervised a federal investigation of the ring.
The scheme was uncovered after an anonymous letter to the Customs Service touched off a difficult, two-year investigation that led to eight of the ring`s participants pleading guilty this summer. Without the tip, the operation would have gone undetected, said the regional commissioner of the Customs Service in San Diego.
Iran has emerged as a major buyer on the international weapons market as Ayatollah Ruhollah Khomeini struggles to keep operating the American-made arsenal inherited from Shah Mohammad Reza Pahlavi.
Between 1970 and 1979, the shah ordered $17 billion worth of weapons from the U.S. Among those weapons were 80 F-14 fighters with Phoenix missiles, a system so advanced that the U.S. never has sold it to any other country.
After Khomeini overthrew the shah and seized 52 American hostages in November, 1979, the U.S. stopped all shipments to Iran, including military hardware.
The official flow of American weapons was replaced by a clandestine network of Iranian agents who, with access to seemingly unlimited funds, spread across Europe and the U.S. in search of American spare parts and weapons.
As a result, U.S. law-enforcement agencies are waging a war of their own to prevent Iran from obtaining what the American government once sold it willingly. In the last two years alone, the Customs Service has broken up 20 smuggling rings with links to Iran.
”The Reagan administration cares about not having arms go to Iran, and so we take Iran very seriously,” said William von Raab, commissioner of the Customs Service.
The Agustin brothers and six other people have pleaded guilty to stealing $7.9 million worth of parts and weapons for Iran from 1981 until they were arrested in July, 1985. They are scheduled to be sentenced Sept. 3.
Federal officials say the total amount of parts stolen far exceeded $7.9 million.
Hensley said the ring stole $25 million worth of parts from Navy supply depots and aircraft carriers. Phillip Halpern, the assistant U.S. attorney handling the case, agreed that $25 million was ”in the ballpark.”
When U.S. and British authorities raided the London home of Saeid Asefi Inanlou, the Iranian middleman, they seized $3 million worth of F-14 spare parts. Investigators said they also seized parts stored in the homes of the California participants.
Commodore James Whittaker, assistant commander of the Navy supply system, told a House subcommittee last October that the Navy would place tighter controls on certain items and that storekeepers would be screened because of the thefts of F-14 parts.
”This showed us that physical security had to be re-emphasized and our abilities to deter insider theft needed to be strengthened,” Whittaker said. According to an affidavit by Kenneth Kilroy, the Customs Service agent who conducted most of the investigation, the scheme originated in early 1981 when Edgardo Agustin formed a company in New York called Merit Communications. His only customer was Inanlou, who operated a shell company in England called Chandler Trading.
Agustin began shipping legitimate electronics parts to Inanlou, but Kilroy said Agustin soon switched to stolen military parts. The major source of these parts was Franklin Agustin and his Filipino wife, Julie, who were living in San Diego.
Court records indicate Franklin and Julie Agustin used their insurance and travel businesses to recruit at least three Filipinos, two Navy enlisted men and a civilian Navy employee, who worked in the supply area to steal parts.
The supply area is a popular job for Filipinos in the U.S. Navy.
The first Filipino recruit was Antonio Rodriguez, a supply storekeeper aboard the aircraft carrier USS Belleau Wood. Court records show Rodriguez received his first payment of $2,000 for stolen parts on Jan. 28, 1981.
The Agustins later recruited Primitivo Cayabyab, a storekeeper aboard another aircraft carrier, the USS Kitty Hawk, and Pedro Quito, a civilian warehouse worker at the Navy`s fleet supply center in San Diego.
The only non-Filipinos involved were a husband-and-wife team, Virginia and Daniel Wheeler, who worked at the Naval Air Rework Facility in Norfolk, Va., where F-14 parts are repaired.
As described by Kilroy`s affidavit, Inanlou received orders for parts from Iran`s air force procurement center in London and telexed the parts`
stock numbers to the Agustin brothers.
The orders were relayed to the Wheelers, the two sailors and Quito, who then stole the parts from Navy supplies. Though some parts could be concealed in a lunch box, many that were stolen weighed up to 100 pounds.
”There wasn`t really any security on the ships or the docks,” said George Hunt, the lawyer for Cayabyab.
If a part was not in stock, the government said, Rodriguez and Cayabyab used computers on the carriers to order it. In one instance, an F-14 part was sent to a third aircraft carrier that did not even have F-14s aboard.
The ring was so successful in manipulating the system that the Agustins once had more tracking devices for the F-14`s Phoenix missile system in a self-storage unit than the Navy had in its San Diego supply depot.
Justice Department and Customs Service officials were reluctant to criticize Navy security, although Von Raab acknowledged that Navy internal controls are ”a little on the loose side.”
The General Accounting Office, an investigative arm of Congress, was less tactful in criticizing what it views as serious supply control problems in the Navy, Air Force and Army.
The control problems are particularly pressing, because under the Reagan administration`s arms build-up, the military stockpile has quadrupled to $132 billion.
In a May 23 report, the GAO said it had identified ”potentially significant management problems at all levels” of controls over billions of dollars worth of parts and weapons. As a result, the GAO said, the military cannot keep track of its huge inventory, opening the way for large-scale thefts and waste.
The GAO said physical security is so poor that Navy investigators twice drove a Navy pick-up truck on and off a guarded shipyard and no attempts were made to identify the occupants or the cargo. Two buildings in the yard contained classified material, including a repair facility for top-secret coding machines.
After the F-14 case broke, the Air Force inspector general surveyed Air Force security and found little awareness of the potential for theft.
A confidential report on the survey found that ”the vulnerability of the logistics system and weaknesses in supply discipline increase the probability of success for criminals.” The risks were seen as low because missing equipment would be ”written off rather than fully investigated,” the report said.
At a hearing before the Senate Armed Services Committee July 22, Richard Helmer, a GAO official, said the Army could not determine the amount of munitions lost or stolen each year because of inadequate controls over supplies.
Von Raab said the Customs Service and the Defense Department have initiated a joint project, named Operation Retread, to tighten controls over military supplies. But the Agustin smuggling operation indicates the Navy, at least, has a substantial problem to cure.
When authorities raided the Iranian middleman`s London home, they found a broken F-14 part that Customs Service agents think was in the process of being returned to the Navy for repair before being stolen again.
