VZCZCXYZ0001
PP RUEHWEB

DE RUEHMD #0777/01 2150737
ZNR UUUUU ZZH
P 030737Z AUG 09
FM AMEMBASSY MADRID
TO RUCNFB/FBI WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 1042

UNCLAS MADRID 000777 
 
SENSITIVE 
SIPDIS 
 
FOR STACIE ZERDECKI, EUR/WE 
PM/DTCC FOR BLUE LANTERN COORDINATOR 
TIM MAZZARELLI, PM/DTCC 
LISA STUDTMANN, PM/DTCC 
FOR JOAN VANDERLYKE, L 
 
E.O. 12958: N/A 
TAGS: ETTC KOMC SP
SUBJECT: MORE CONCERNS FOR ELINT, BLUE LANTERN CASE 
05-971940 
 
REF: A. MADRID 453 
     ¶B. 2008 STATE 63427 
     ¶C. INVENTORY SPREADSHEET BY SERIAL NUMBER 
     ¶D. SECSTATE 75563 
     ¶E. STITZIEL-MURRAY E-MAILS 
     ¶F. MAZZARELLI-MURRAY E-MAILS OF 16 JULY 2009 
 
 ¶1. (SBU)  SUMMARY:  After a recent site visit, Post cannot 
account for 111 of the 350 Night Vision Devices (NVDs) bought 
by the Spanish consignee ELINT.  The July 9, 2009 check on 
ELINT highlighted the same lack of compliance with the terms 
of license 05-971940 that Post noted in two February 2009 
visits (ref A); ELINT has sold 13 NVDs to unauthorized end 
users and has kept poor records.  Post is cooperating with 
the Spanish National Police (SNP) in an ongoing criminal 
investigation of ELINT.  In early June 2009, ELINT requested 
a license to import another 862 NVDs; in light of ELINT's 
poor track record, Post does not recommend further licensing 
to ELINT.  END SUMMARY. 
 
//BACKGROUND ON ELINT: TROUBLE FROM THE START// 
¶2. (SBU)  ELINT, S.A. received a license in 2005 to buy NVDs 
from U.S. exporter ITT Industries for immediate sale to the 
SPMC (refs A, B).  In three shipments throughout 2006 and 
2007, ELINT received 350 NVDs under license 05-971940. 
Through numerous sales from 2006 to 2008, ELINT sold 121 NVDs 
to the SPMC.  PM requested Post conduct a post-shipment site 
visit, after ITT Industries had filed a voluntary disclosure 
letter alleging ELINT had stored devices without 
authorization.  During two visits to ELINT headquarters in 
February 2009, Post determined ELINT stored 114 NVDs at its 
warehouse.  ELINT stores the NVDs securely in a locked safe 
to which they claim only two employees have keys.  After 
confirming with the Spanish Ministry of Defense (MOD) the 
serial numbers of the NVDs purchased under license 05-971940, 
Post determined 102 NVDs remained unaccounted after the 
February site visits.  NOTE:  Ref A referred to 102 NVDs 
unaccounted for, and a possible 100 tubes (the sensitive 
technology inside a NVD) transferred to the Spanish Army. 
The serial numbers of the tubes were subsequently determined 
not to match the missing numbers under license 05-971940. 
Further, two of the NVDs reported missing in ref A were 
inventoried at ELINT on July 9.  END NOTE. 
 
//SPANISH NATIONAL POLICE CRIMINAL INVESTIGATIONS// 
 
¶3.  (SBU) Pursuant to Post's queries and shared concerns over 
ELINT's handling of NVDs, the MOD conveyed internal questions 
to the Spanish National Intelligence Center (CNI) - which was 
also buying NVDs from ELINT.  MOD also forwarded the 
information to the Spanish Ministry of Justice, which 
triggered an investigation by the SNP.  The SNP requested a 
meeting with Embassy officials to gather more information for 
a possible investigation into ELINT's actions.  Following 
guidance from L, Pol-mil Officer, ODC Chief, a DOD Amcit 
civilian, and LEGAT met with SNP and CNI on June 18 to 
discuss the case.  The USG delegation participated 
voluntarily, did not waive any immunity, and made it clear 
that the SNP would need to pursue an MLAT should they wish to 
request evidence or testimony in court.  The SNP shared with 
Post the possible charges: export violations, tax evasion 
(untaxed sales), fraud.  The SNP is assisting ITT Industries 
in its intellectual property rights claim against ELINT.  The 
export violations are for a worst case scenario - if ELINT 
has exported the NVDs out of Spain.  Regarding tax 
violations, the SNP explained that ELINT should have charged 
sales tax if the firm were selling materials to another 
Spanish company (para 5).  The meeting closed with the 
understanding that Post would conduct another visit to ELINT 
to see whether anything had changed since the February 
visits, and to assist SNP with grounds for seeking a search 
warrant in pursuit of the missing devices. 
 
//STATUS OF NVDs FROM JULY 9 SITE VISIT TO ELINT// 
 
¶4.  (SBU)  On July 9, Pol-Mil Officer, ODC end-use monitoring 
officer and POL intern visited ELINT to check on the status 
of the NVDs.  Out of the 121 NVDs that the pol-mil delegation 
had observed in secure storage in February, only 110 were 
inventoried at ELINT during this third visit.  As noted in 
para 2, an additional two were counted July 9 that ELINT did 
not appear to have in February (and which had not been 
accounted for by the MOD).  ELINT also showed the USG 
delegation eight broken NVDs that it claimed were returned by 
the SPMC.  However, the USG delegation had seen one of those 
 
eight in the February checks.  ELINT had no comment as to 
that discrepancy.  ELINT employee Santiago Orus, who presided 
over the inspection in the absence of Carlos Dominguez, 
company officer who signed the original DSP-83, speculated 
ELINT might have provided the Spanish Marines with eight 
substitute NVDs to replace the broken returned devices.  Orus 
further  speculated that those would account for eight of the 
11 NVDs seen in February that were not at ELINT during the 
July visit.  ELINT showed no invoice or official document 
detailing the exchange, and Post has not requested 
confirmation from the MOD. 
 
¶5.  (SBU)  Asked why ELINT continued to store 114 devices 
purchased under license for the use of the Marines, Orus 
first expressed surprise about the 111 NVDs that the USG 
considers unaccounted (ref C).  He provided a sheet that 
purported to account for many more NVDs (see para 8).  Orus 
then claimed ELINT had purchased all the observed NVDs in 
connection with its (ultimately unsuccessful) bid for a large 
contract.  Orus seemed defensive and may have attempted to 
distract the delegation by describing "malicious acts" by a 
rival Spanish provider called TCA (NFI), which caused ELINT 
to lose the contract after it had already ordered the NVDs 
from ITT.  He went on to complain that ELINT now has 
"millions" of Euros worth of inventory that is stuck without 
a purchaser.  Orus also attempted to deflect attention away 
from the inventory at hand and the missing NVDs by telling 
Embassy officers about another 170 similar devices, serial 
numbers beginning with 300- (30087 to 30278), suggesting 
perhaps the labels might have been changed, before concluding 
they did not match the list for license 05-917940. 
 
¶6.  (SBU)  Of the 112 NVDs viewed on July 9, ELINT identified 
33 as broken.  There were three categories of broken NVDs: 
significant damage beyond repair, NVDs with slight damage 
pending repair and damaged NVDs returned from the SPMC (para 
4).  Apart from the eight returned by the SPMC, there were 18 
that had slight damage, and were pending repair.  All 18 had 
been at ELINT during the February checks.  Post is unsure 
whether they were in need of repair in February.  Orus told 
the July 9 delegation that the 18 NVDs would each require 4-5 
hours of repair, and that ELINT had not bothered to fix them 
yet because they could more easily sell the other NVDs in 
stock that did not require repair. 
 
//POINTING THE FINGER// 
 
¶7.  (SBU) Orus told the USG team that ELINT was seeking 
retribution in the Spanish courts for what the company felt 
was shady business ("malas artes") in a 2006 competition to 
supply a Spanish legion headed for Congo.  The idea of the 
request for bids was to introduce the Spanish Army to night 
vision devices and allow them to train for their deployment. 
According to Orus, ELINT had acquired 167 monocular devices 
before losing the bid.  He said the case was currently before 
Spain's National Supreme Court.  Orus seemed to suggest that 
all 112 NVDs on display for the July 9 delegation had been 
ordered "on spec" in hopes of winning a 2006 contract. 
Without apparent regard for the end-use assurances associated 
with license 05-971940, Orus lamented "millions" in inventory 
stuck at ELINT's facility and concluded it was "for the 
courts to decide." (COMMENT:  At no point in our previous 
dealings with ELINT and with the Spanish MOD on this case had 
any interlocutor mentioned such a competition to supply the 
Spanish Legion.  The deflection and belated expression of 
sour grapes seemed insincere and defensive in the context of 
the third inspection.  End comment.) 
 
//NEW LIST OF ELINT CUSTOMERS// 
 
¶8.  (SBU) At the July 9 site visit, ELINT furnished Embassy 
officials with an updated list of ELINT customers and the 
distribution of 212 of the total 350 NVDs it had purchased 
under license 05-971940.  In addition to MOD entities, 
ELINT's list included a March 2009 sale of 2 NVDs to "MOWAG." 
 MOWAG appears to be a private Swiss company that specializes 
in armored military vehicles.  The list also included the 
Spanish Army and Spanish National Intelligence Center (CNI), 
neither of which were on the license (ref A).  Although ELINT 
provided receipts for many of the sales to the SPMC, Spanish 
Army and CNI, they provided no receipts for any sales to 
MOWAG.  The same document accounts for a total of 83 NVDs 
sold to the Spanish Army (75) and to the SPMC (8) without 
specifying serial numbers.  The license requires strict 
accounting for the serial numbers of NVDs; Post therefore has 
 
to consider those 83 NVDs unaccounted for.  ELINT considers 
the 83 sent to be accounted for.  However, by ELINT 
accounting, there are still 26 unaccounted for.  Orus had no 
response to questioning about the missing NVDs. 
 
//OTHER OBSERVATIONS FROM JULY 9 SITE VISIT// 
 
¶9.  (SBU) ELINT operates out of a facility that appears to be 
a former residence on the outskirts of Madrid.  Although 
ELINT did show the delegation a locked, temperature 
controlled, walk-in safe where they claim to keep NVDs, there 
is no way of assuring that ELINT locks the safe each night or 
follows other safety procedures.  Furthermore, the security 
of the inventory is undermined by evidence that NVDs exported 
under license 05-971940 have come and gone via numerous 
transactions in the five months since February 26, despite 
managers' claims that ELINT is stuck with the stock.  On an 
impromptu tour of the laboratory where ELINT engineers clean 
and repair optical equipment, EMBOFFs noticed two tags marked 
"ITT Night Vision Goggles," similar to the tags bearing 
serial numbers on the NVDs being inspected.  The serial 
numbers on the two tags are 10341 and 10354, neither of which 
correspond to any NVDs on license 05-97Q40.  Once Embassy 
officials noticed the tags, the ELINT employee immediately 
explained that the tags come from two NVDs that are available 
publicly, not from the NVDs under the license.  There were 
two NVDs of another model on the table, but Post cannot 
confirm to which devices the tags correspond. 
 
¶10.  (SBU) COMMENT:  In light of the irregularities reported 
above and in ref A, Post reiterates its unfavorable 
assessment of ELINT, S.A. as a recipient of U.S. Munitions 
List (USML) items.  ELINT staff are evasive, do not keep 
diligent records and disregard the terms of the license. 
Combined with the perception the company has been wronged by 
the Spanish defense procurement system and the considerable 
financial costs associated with not being able to sell what 
appear to be surplus NVDs, the potential exists for diversion 
of extremely sensitive equipment.  Post will continue to 
cooperate voluntarily with Spanish law enforcement, providing 
such documentation as is available from ELINT and defense 
entities on the whereabouts of the 350 NVDs exported under 
license 05-971940.  In early June 2009, ELINT requested a 
license to import another 862 NVDs, ostensibly to fulfill an 
additional order from the SPMC (DTC license application No. 
050177626 - ref D).  Post is pursuing the pre-license check 
requested in ref E. However, given that ELINT claims to be 
unable to sell the 100  devices in stock as of July 9, Post 
questions the validity of an order for 862 more devices and 
urges strong caution in proceeding with ELINT's license 
application 050177626. 
CHACON