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ILLINOIS COMPANY CHARGES ISRAEL TRIED TO GAIN TECHNOLOGY SECRETS

By RICHARD L. BERKE, Special to the New York Times19 August 1986The New York TimesLate City Final EditionCopyright 1986 The New York Times Company. All Rights Reserved.

WASHINGTON, Aug. 18 -- Justice Department and Customs Service officials said tonight that they wereinvestigating a dispute in which an Illinois company has accused the Israeli Government of trying to take itstechnological secrets.

The company, Recon Optical Inc. of Barrington, Ill., was to produce aerial reconnaissance cameras for Israelunder a five-year, $40 million contract signed in October 1984, according to Larry G. Larson, the company'spresident and chief executive officer.

Mr. Larson said in a telephone interview tonight that the company ended the contract in May and filed a civillawsuit in Federal District Court in Manhattan, charging that Israel had not paid its bills and had breached theagreement in other ways.

In researching the civil case, Mr. Larson said, his company found evidence that undercover agents from Israelhad infiltrated the plant ''and were routinely transferring data to a company in Israel.'' He said Recon had filed asupplemental complaint with those allegations.

Asher Naim, a spokesman for the Israeli Embassy, denied tonight that Israel was looking for secrets. Hedescribed the situation as nothing more than ''an argument between a supplier and an orderer.'' He called thecompany's allegations ''completely groundless.'' Israeli Charges Intimidation

''I personally feel that the whole thing is intimidation by the company,'' Mr. Naim said. ''We do 3,000 purchasingcontracts a year. There's only an argument with about 1 percent or a half percent of them.''

Government officials said they had no evidence of any Israeli violation of Federal law.

''The Israelis had the proper licenses and went through the proper channels in their contract,'' said a JusticeDepartment official.

Nevertheless, Federal officials said they began a preliminary investigation of the dispute because of the sensitivenature of Israeli-American relations on security issues.

''The State Department has a vested interest in this,'' a Federal official said, ''and so does the Justice Department.''

Mr. Larson said he approached Federal authorities after he found documents indicating that Israel was spying onthe company. No Security Breach Is Seen

Federal officials monitoring the dispute said they had found no indication that United States security had beenthreatened.

They speculated that Israel, without breaking any laws, might have been trying to gain more from the contractthan Recon wanted to provide.

''Instead of trying to settle just for the product, they were trying to take the technology, too,'' a United States

Customs official said of the Israelis.

Israeli officials contend that Recon has not fulfilled the contract and must turn over the equipment that it agreedto provide.

Recon specializes in surveillance devices and precision optical lens equipment. It has annual sales of about $100million and employs 1,150 people.

In the past, the company has had many contracts with the United States Government and foreign nations, and ithas done business with Israel for 20 years, Mr. Larson said.

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A12Firm Says Israel Tried to Steal Technical Secrets Embassy Denies Charge Involving

Reconnaissance Camera and Blames Contract Dispute

Charles R. BabcockWashington Post Staff Writer20 August 1986

The Washington Post(Copyright 1986)

A Chicago manufacturer of sophisticated aerial reconnaissance cameras has accused the Israeligovernment of trying to steal the firm's technical secrets and pass them to a competing Israeli company.

The Israeli Embassy yesterday denied the allegations and said the issue was a contract dispute.

Recon/Optical Inc. of Barrington, Ill., sued the Israeli government in May after the firm canceled a $40million contract signed in late 1984 to provide the Israeli air force with new reconnaissance cameras.The cameras, according to company officials, can take detailed photographs of objects on the groundfrom a jet 100 miles away and transmit them instantly to an earth receiving station.

Larry Larson, president of the company, said in a telephone interview yesterday and in a sworn courtstatement that he uncovered evidence of technology theft in late May after examining documents beingcarried out of his plant by three Israeli air force officers after the contract was canceled.

Some of the documents were in Hebrew. Translations attached to the civil suit filed in a New Yorkfederal court said that the Israelis were making plans to pass on the Recon technology to "El Op,"which the company asserts is a reference to Israel Electric Optical Industry, and to arrange to have anEl Op "undercover representative" attend meetings at the American plant and preside over the reviewof the contract for the Israeli air force.

"As they were stealing our data they had an elaborate system set up between the {Israeli} air force anda commercial company including them {El Op representatives} coming in as air force people so they

would know exactly what we were doing," Larson said.The Israelis were entitled to the cameras produced by his company, but not the underlying technology,Larson said. He said that because the technology, although unclassified, is subject to export restrictions,evidence in the case had been given to the U.S. Customs Service. A customs spokesman confirmedyesterday that his agency is reviewing Larson's allegations, which were first disclosed in the ChicagoTribune.

The Israeli Embassy said in statement yesterday that Recon had "repudiated a contract" followings its"failure to extract from the government of Israel compensation for Recon's cost overruns. Israel'sprocurement mission intends to recover the payments made to date, which are protected by a letter ofcredit. Recon/Optical seems willing to do anything to avoid payment . . . including publication of falseaccusations."

Asher Naim, an embassy spokesman, added that Larson's accusation that the Hebrew documentsindicate industrial espionage is "completely baseless."

"If they have proof, I'm sure it will be investigated," Naim said, adding that Israel is ready to argue themerits of the contract dispute in court.

In his affidavit, Larson said the three Israeli officers tried to take 50,000 pages of notes and documents,some of which comprised "the heart of much of our business."

Recon does most of its business for the U.S. and foreign governments, Larson said. The court papers

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indicate that a key part of the system that the Chicago firm was building for Israel was a "charge-coupled device," semiconducter chips that can translate a photographic image into electrons and beamthem to earth instantly.

This adds to the value of the company's basic $5 million-a-copy camera system, which is based on atechnique known as LOROP, or long-range oblique photography. It reportedly allows a plane to flynear the border of a neighboring country and take detailed pictures of targets up to 100 miles away

without entering its airspace.

The disputed contract was being financed by the U.S. government as part of its $3 billion-a-yearprogram of aid to Israel.

There have been three investigations involving Israel in the past 15 months of alleged violations of U.S.technology export laws. They include a case last month involving the alleged illegal export of clusterbomb technology, a case involving technology for the chrome plating of tank gun barrels, and a casethat led to the indictment of a California businessman on charges that he illegally exported to Israelelectronic triggering devices called krytrons, which can be used in nuclear explosions.

NEWSData Theft Laid to Israel

(UPI)218 words20 August 1986NewsdayNDAYNASSAU AND SUFFOLK15English(Copyright Newsday Inc., 1986)

The Israeli government and its air force conspired to steal the technology to construct an aerialreconnaissance system owned by an American company, the president of the company, Recon/OpticalInc., charged yesterday.

"There was a giant conspiracy by the government of Israel and the air force to transfer this data toIsrael with what we presume is the stated goal and objective of setting up an Israeli company," ReconPresident Larry Larson said.

Recon has filed a lawsuit in New York accusing the Israelis of trying to steal the technology used in thesystem the firm was developing for Israel under a $40-million contract fi- nanced by the DefenseDepartment. The system would allow jets flying within Israel to take detailed pictures of military

installations and other targets more than 100 miles outside its borders and transmit them to a groundstation within seconds.

Jeffrey Fillman, a New York attorney representing Israel, said Israel was entitled to the technology aspart of its contract with Recon. The Israeli Foreign Ministry in Jerusalem declined to comment on thereport.

In Washington, intelligence sources said that a report published yesterday in the Chicago Tribune onthe Israeli military officers' alleged attempt to steal plans for the reconnaissance system "is factuallycorrect."