Foreign Entanglements
(Text omitted)
Outside the plant, though, there were far more complex issues emerging, caused by the changing nature of our business and our products. These weren't questions or matters of "corporate culture," but of national security.
All the while that Inductotherm had been expanding into overseas markets, I had longstanding misgivings about selling our equipment to buyers in countries with a history of enmity to the United States. My chief concern was the possibility of providing them with equipment that could provide an economic or industrial edge over the United States.
This may have been in Rowan's mind but it never stopped orders from coming in.
The Soviet Union was one of these. Oh, sure, the State Department and the Department of Commerce were encouraging trade with the Soviet Union as a means of easing the tension between the two countries. Yet, there was a difference between sending them Coca-Cola, blue jeans and wheat, and selling them our technology. When this book was published the Soviet Union was history. I had never forgotten what happened when Ajax shared its induction furnace expertise with Japan and Germany, prior to World War II. This was a little slap for the competition who was Rowan's real enemy over the years.
But in my wildest imaginings, I could never have envisioned a scenario like the one chronicled on the front page of the November 8, 1987, edition of New York Newsday.
A special casing used on U.S. nuclear warheads makes them more accurate and has given the United States a decided advantage.
But a U.S.-owned firm has sold the Soviets the means to help make the vital material, and experts say the Soviets may have gained five years or more in research and development time.
With this material, they could improve markedly their "first strike" capability.
I didn't have to turn the page to learn more; the company they were writing about was Consarc.
"The Technobandits" screamed the headline in Time Magazine; "America struggles to stop leakage of its industrial secrets to the East." In the next few weeks, the American public heard of a new secret (not new and not secret) material, "carbon-carbon," a lightweight material with a strength-to-weight ratio many times greater than steel and temperature tolerance that made it ideal for warheads. The key to making carbon-carbon, said the Pentagon, the CIA and Congress, was the furnace. (Any reasonable medium temperature oven would do for a technology that had been perfected in 1896.)
The incident became a political football, not only in the United States, but in England, too, where Prime Minister Margaret Thatcher ordered Consarc's equipment embargoed.
In the United States, there was a congressional investigation. Who were Inductotherm and Consarc? What were these secret furnaces? How long had they been dealing with the Soviets and who else were they selling to? Prompted by Newsday's Knute Royce and timed for Television on the day Reagan and Gorbachev signed the Arms Limitation Agreement in 1987. No record of this investigation exists.
The truth was, the entire affair was less reminiscent of James Bond than it was of Inspector Clouseau, with bureaucratic bungling, indecision, flip-flops, and panic on both sides of the Atlantic. And what the press generally overlooked was the fact that it wasn't the CIA or Congress that had tried to stop this sale in the first place, it was Inductotherm.
In the years following Wooding's departure, Consarc had become the world's undisputed leader in vacuum-arc melting furnaces. The most sophisticated aircraft in the world carried engine rotors, blades and landing gears made of super-alloys born in a combination of Inductotherm and Consarc furnaces.
It was inevitable, I suppose, that the Russians would want our furnaces, too. Nonetheless, neither Inductotherm nor any of our subsidiaries (not true) sought out contracts from behind the Iron Curtain; we might never have dealt (been in that type business) with them at all, if we hadn't acquired Cragmet--and Jimmy Metcalf--back in 1967. Thirteen years afterwards, (factually twenty years) newspapers and magazines on two continents were calling Metcalf a mystery man, a shadowy figure who moved in that gray area between espionage and commerce, but he insisted, "I'm jest plain Jimmy."
At the time we acquired (factually ten years after) the company, Cragmet was engaged in carrying out a sale it had made to a Soviet governmental agency, the Kama River Purchasing- Commission, which had bought a vacuum furnace for a truck plant (a steel plant) it was building near Kramagorsk, (Kramatorsk) in the Ukraine.
Selling to the Russians was different from the way Inductotherm liked to do business--instead of dealing with entrepreneurs, foundry operators and corporate officers, you had to deal with bureaucrats, planning commissions and politicians--men with a totally different set of priorities. While most Russian people couldn't afford a pound of hamburger--if they could even find it in a grocery store--money was no object to the government functionaries and party members who ran their industry. (Russians had plenty of hamburgers but no panty hose) They liked having the biggest, most modern equipment.
The Cragmet furnace in this instance was the wrong tool for the job, which we explained to the Soviets (I thought they were buying the wrong size equipment in 1972 five years after Rowan bought stock in my company) once the company became an Inductotherm subsidiary. But the Planning Commission wanted it anyway. They (Cragmet) worked on its purchase (order) for five years before abandoning (completing) the project in 1976. (1978)
The acquisition of Cragmet and Cheston had created some duplication within our group of companies, and under Metcalf's leadership the company was losing money at a pretty good clip. The heating division of Cheston was a weak competitor of IPE in the field of heating for forging; the vacuum division competed with Consarc. The obvious solution was slow in coming, but in 1978 we merged the metal heating operation of Cheston into IPE in Madison Heights, Michigan, and, to consolidate our vacuum efforts, we merged the remaining Cragmet business into Consarc. This reorganization resulted in Metcalf becoming a Consarc vice president under CEO Stan Myers, as well as Managing Director of Consarc Engineering, Ltd. in Scotland. (Factually true but the details and reasons are all wrong.)
The Russians' failure to get the Kama River truck plant into operation didn't inhibit Metcalf's "down home" selling style in the slightest. (Another customer liked what he saw in the completed project in Kramatorsk.) It was his efforts that landed a $17 million contract for 71/2-ton, 15-ton and 30-ton vacuum furnaces to be installed in the Ural mountains, where they would allegedly melt alloys for hydroelectric power plant turbine shafts. (The Kramatorsk job was for steel turbine shafts and the Ural job (Chelyabinsk) was for stainless steel and superalloys.)
Six years later, the furnaces were completed and shipped as ordered.(Two years after the Cheston and Consarc merger.) (The order was taken before the Russians invaded Afghanistan and shipped shortly afterwards.) Metcalf went along to assist the Russian engineers with the installation and start-up. I had a new wife as of the 25th of December 1979 and Vera (BEPA) was Russian.
While there, he was approached by a Russian contact about yet another new job for Consarc. The Russians were building a plant in Khotkovo, a little town about 40 miles south of Moscow, where they planned to manufacture electrodes for power plants and other electrical equipment. Was Consarc interested in building the furnace? As Metcalf would later recall, he not only sold them a furnace, but something he had never seen, didn't know how to make, and had no idea what it was used for--a device called an isostatic press. I knew it was for processing carbon products impregnated with pitch (tar) and a French company was to be the sub supplier. To him, it was a brilliant stroke of salesmanship and the sale was worth $11 million to Consarc.
But to the Russians, both the British and American intelligence sources claimed later, the equipment was priceless. (Overstatement)
Since Metcalf had been the chief architect of this sale to the Russians, Consarc's new President, Ray Roberts, (Stan Myers was now running another subsidiary for us) agreed to let him build the furnaces and the isostatic presses at Consarc Engineering, Ltd., a long, blue-walled plant in an industrial suburb of Glasgow, Scotland, that we had acquired some years earlier. This would be the biggest sale in the history of Consarc's subsidiary; but the Scottish company wasn't equipped to produce components such as the power supply, which Metcalf would generally order from Inductotherm, Europe. It was my plan to use Scotland in part to be my own boss again.
Call it suspicion or call it a premonition, Roy Ruble had given orders that any time Inductotherm Europe received an inquiry from Consarc Engineering, Ltd., he wanted to know about it immediately. In early 1983 Roy got word (Factually I told Ruble and Rowan earlier in a board meeting.) (Roy wanted the Induction equipment order for the US operation in Rancocas.) that the subsidiary in Scotland needed a power system for nine vacuum furnaces and two isostatic presses for a plant in Russia.
Roy didn't like the sound of that. Conceptually, an isostatic press is a long tube which may or may not be heated; hydraulic fluid is pumped in to achieve tremendous pressures--up to 20,000 pounds per square inch or more. The pressure and the heat combine to densify the charge inside the tube, squeezing out any voids and producing materials with unique properties. In the United States isostatic presses played an important part (obsolete by that time) in nuclear research and, though such presses could be sold to foreign interests, they were limited to pressures of 3,500 (5,000) pounds per square inch or less. Actually the tube was a pressure cooker that yielded more carbon from the tar. The FMI trial transcripts show that the product could be produced without this pressure cooker but it required more cycles.
The equipment we supplied was minimum technology. The isopress was a simple large steel forged tube. Plugs were held in on each end using a simple yoke made from simple steel plates welded together. To make the tube stronger we wrapped 3 inch wide steel sheets around the tube and welded the end.
See:
The heater was a simple electric stove type element that that we constructed using resistance sheets as the element.
See:
Though these presses were specified well within the allowed limits, Roy immediately contacted the Defense Department to advise them of the Russians' interest, then summoned Metcalf to Rancocas. (My home base at that time was Rancocas but I was planning to move to Scotland.) (Roy did not summon me or contact the Defense Department.)
Metcalf arrived on April 14 (1983) to explain to the board of directors what the power systems, furnaces and the isostatic presses were to be used for. There was, he insisted, no problem. (Actually there were a series of communications that preceded this meeting.)
See: http://www.ioa.com/~zero/105-Communications.htm
Rowan and Ruble attended a board meeting on the 8th of February 1983 to go over my sales efforts in the Soviet Union that included the proposed carbon-carbon sale.
See: http://www.ioa.com/~zero/107-ConsarcBoard8Feb83.htm
After the sale was completed a trip was made to the USA primarily to obtain a social security card for Vera and change my IRS tax status as a person working abroad. I also had to set the price and specifications for the equipment to be purchased from Ruble.
Ruble invited Mortimer (his chief engineer) to the technical part of the meeting. Our main concern was that one type of these furnaces was on the control list. They way around this problem was to design the induction system so it could not operate in vacuum at high temperatures. A letter agreement on the price of the equipment and the details to keep it from operating in vacuum was signed by the three of us. A board meeting followed: http://www.ioa.com/~zero/106-ConsarcBoard15Apr83.htm
The following part of this chapter is pure fiction. We had a discussion about the secret list (published in 1985) in Roberts' office almost four years later when Newsday was writing his story. Rowan's primary concern was that we might have to return the insurance money. I was no longer with the company at that time.
"The presses are well within the legal limits, Hank. No need to worry." "Have you checked with the Pentagon to see if any of the equipment is on their 'embargoed' list?" I asked him.
"Shucks, I can check with them, Hank, but those ol' boys won't tell us nothin'."
"Why not?" I asked.
"Because the embargoed products list itself is secret."
"Secret?" My eyebrows shot up. "That doesn't make sense, Jimmy. What's the point of an embargo, if people don't know what's embargoed"
Ray Roberts spoke up. "It may sound crazy, Hank, but what Jimmy says is true. There is a Military Critical Technologies list but the Pentagon won't release it. We've asked for it dozens of times." Ray's integrity and loyalty was without question; he never shot from' the hip, speaking without facts or personal knowledge. His opinions always carried a lot of weight with me.
"Metcalf spoke up again. "Hank, I just don't see what the big fuss is all about. Consarc isn't doing anything illegal; we've already contacted the British Ministry of Trade, and they've told us we don't even require licenses to ship this material. I've even gone down to the United States Department of Commerce and toldÔem all about it; they acted like I was wastin' their time. This ain't the first equipment we've sold to the Russians. Every deal has been on the up and up."
"I wasn't moved by his argument. "This is more than a question of an $11 million sale, Jimmy. This seems to be leading us into a gray area, where there are too many unanswered questions for my liking. I'm sorry; I know you've worked hard on this deal, but I don't see how we can permit Consarc to proceed with this sale."
"Metcalf looked crestfallen and Ray Roberts spoke up again. "Hank, I appreciate your feelings on this matter, but we can't just drop a job we've agreed to do. We signed a legally binding contract. The British have told us the equipment isn't embargoed. We have permission to export the product. It's a big market. If we don't move into it, our competitors will. Both ASEA of Sweden and Leybold of Germany are after this job and their governments impose no restrictions."
"I looked at Roy, who hadn't been saying much, just listening. Now, what the former Naval commander had to say surprised Metcalf as much as it did me. "Hank, this time, I have to agree with Ray and Jimmy. As long as we proceed carefully, making sure to notify the British and American authorities of our every step, I think this sale will reflect creditably on Consarc and Inductotherm."
"But that wasn't all Roy had to say. "It's imperative that we be covered against every contingency; just because a product isn't embargoed today doesn't mean it won't be embargoed tomorrow. Is there any kind of insurance available against such contingencies?"
"There is in England," said Jimmy. "The British government offers it to encourage foreign trade."
"Then let's take it out and move forward," said Roy. "According to the contract, the Russians don't have to pay until the equipment has been shipped and installed. A lot could happen before everything is up and operating.
"I want it understood that we're going by the book on this job, dotting our i's and crossing our t's, with no shortcuts."
Metcalf looked elated and swore to proceed as Roy dictated, obviously eager to get on with the job. Maybe I'd been too hard on him, I thought. After all, he'd just been doing his job. "Well, Jimmy, it looks like you've got yourself an $11 million job. Congratulations."
Metcalf went back to Scotland where, for a premium of $150,000, he arranged an insurance policy for 90% of the value of the contract with the exports Credit Guarantee Department, an agency of the British Department of Trade and Industry. I saw no reason to purchase the insurance because it had no value. The Russians paid their bills and the British were not going to stop the sale. All the others wanted the policy so I met with the insurance company to go over the details. We were not covered if USA regulations stopped an American company. Since we were going to be buying the isopress from France and planned to buy many other things for America I asked about partial shipments. The answer was that we would be paid 95% of the invoice value even if American regulations stopped the project. I asked that this be confirmed in writing before paying for the insurance. THIS IS WHERE I SOULD BE CONGRATULATED. GETTING OUT PARTIAL SHIPMENTS BECAME MY GAME PLAN. It would take a year to build the furnaces and presses, and many of the vital components-automatic controls, cooling equipment, switch gears, starters and relays--had to be bought from outside vendors in England, West Germany and the United States. And "jest plain Jimmy" didn't make any secret of his big score with the Soviets.
Lord only knows how the story went, by the time he was done adding a little intrigue here, a little mystery there, and after it was passed around within the tightly-knit world of vacuum melting specialists. Ultimately, the grapevine carried the story to U.S. military and intelligence officials. Of course, we had advised the Pentagon of the sale; but that was Pact and nothing stirs the imagination like a rumor.
The busy year passed and in July 1984, Consarc Engineering began shipping the nine furnaces and two presses to the Soviet Union.
By this time, although the U.S. Department of Commerce and the Pentagon had shown little interest in the sale, a separate government agency had begun making its own inquiries--the Central Intelligence Agency. According to the CIA, the Russians had lied to us. Consarc's equipment wasn't going to be used to make carbon electrode material, instead, the furnaces and presses would be used to produce the mythical carbon-carbon.
Carbon-carbon, with its high strength-to-weight ratio and heat resistance, was a vital component in the manufacture of the most sophisticated aircraft and missiles, where it was used primarily for reentry leading edges. But even those of us who had heard of it had no knowledge of the process or equipment that was involved, as it was highly confidential. (Never) In theory, we learned its production involved weaving fibers of carbon-rich material such as rayon into bundles, heating them in a vacuum and carbonizing the fibers, and then immersing them in pitch, which soaks into the open spaces between the weave. The weave is then placed into an isostatic press, where, under heat and pressures of 2,000 pounds per square inch or more, the pitch is forced further into the fibers. Rowan is reading Newsday for technology.
When the isostatic and vacuum induction processes are repeated, the new material becomes increasingly dense and heat resistant. The most dense and heat-resistant form was called "carbon-carbon," When formed into nose cones for missiles, its slow burn rate reduces "wobble" upon reentry into the atmosphere, thus increasing accuracy of "first strike" weaponry.
While I was furious at the thought that Consarc equipment could be used to form and heat treat nose cones, I was astonished that the CIA now ascribed such importance to the equipment our Scottish subsidiary was shipping. While isostatic presses and vacuum furnaces represented steps in the manufacture of carbon, the secret to carbon-carbon lay in the weaving process and the chemistry involved. It was like calling someone a gourmet chef because he owned a skillet. I coined this phrase after the British press reported the embargo in 1985 and used it again in an interview with the Burlington County Times in 1988. From this point onward in "The Fire Within" Rowan and Smith did not use the facts in the files BUT they DID plagiarize the Newsday articles published in late 1987 that were at best only part truths.
Nonetheless, on October 31 of 1984--a year and a half after we'd told the U.S. Department of Commerce about the sale---the Pentagon transmitted an urgent message to the U.S. Embassy in London. The story they told was alarming: Consarc Engineering, Ltd. was shipping an entire plant for processing carbon-carbon to the Soviet Union. Rowan is using Newsday when he had the real facts to use in his book.
The next month, after lengthy meetings between British and American authorities to discuss the alleged carbon-carbon plant and the possibility of Consarc's involvement, British Customs officials arrived at Consarc Engineering to inspect the equipment scheduled for shipment and asked Metcalf to delay further shipments. After the inspection was over, British Customs removed their official "request for delay" and told Consarc to go ahead and deliver the goods.
This didn't satisfy Washington, however. Three weeks later, a delegation of Pentagon, Commerce Department and CIA officials arrived in London to petition the British government to halt any remaining shipments. They acted too late; only a few days earlier the British Department of Trade and Industry echoed the Customs Department's approval of the sale and, even as the Americans were landing in Heathrow Airport, 95% of the equipment was already on its way to the buyers in Khotkovo.
Several more weeks passed, with no further action from either government; then, in February 1985, after having told Metcalf three times to proceed, the British government passed an emergency regulation blocking the sale of the rest of the equipment. In the seaport town of Hull, England, a team of British customs agents swooped down on the docks where they seized and destroyed a shipment of Consarc goods destined for Russia, most of it a consignment of standard insulation in which to wrap furnaces, and steel parts for the bottom of the isostatic presses.
Shortly thereafter, finding themselves with a multi-million-dollar vacuum melting facility (It was not vacuum melting) for which they had not paid a cent but couldn't get to work, the Russians cancelled the contract, a move that cost the British national insurance company $9.9 million. They paid Consarc the amount due. It was a fight to get the money.
Consarc and Inductotherm hadn't heard the last of the Soviets, though. "We're going to sue you, Mr. Metcalf," said Nikolai Ivanov, head of the Khotkovo operation and a man whose own future was probably riding on getting the plant running. "We know who owns your company and that company is worth hundreds of millions of dollars. So if you don't get our plant operational, we'll take you to court."
The Soviets knew the law; both the British and American governments permitted engineers to work on equipment in the Soviet Union, even when those products were embargoed. But now, even Metcalf seemed to suspect he was getting in too deep. In April 1985, Metcalf wrote a letter to the U.S. Department of Commerce, advising them of the Russians' demands, and expecting that, under the circumstances, the government would forbid him to work on the plant. This way, he could go to the Soviet Union, drop the letter from Commerce on his client's desk, and say, "I'm sorry, Mr. Ivanov, it's out of my hands. The American government won't let me do what you want me to do."
Only, much to his surprise, in June 1985, the Department of Commerce wrote back saying, in effect, "Sure, go ahead." Could it be that the Pentagon, the CIA and the Department of Commerce had discovered that the Khotkovo plant was harmless, and that the Soviets really were making electrodes there, as they had claimed all along? Why else would Commerce permit Metcalf to go back and get it running?
Back in England, Metcalf stopped off in London, where he showed an official at the British Department of Trade and Commerce the letter of authorization he'd received from that department's American counterpart, hoping perhaps that now the British would provide the taboo he sought.
The Englishman, remembering the intense pressure from the Americans to stop the project at all costs, almost fell off his chair. When he had composed himself, he dashed off an irate letter to Washington, prompting another stream of angry correspondence between the American and British governments. Still, though it was now clear that neither the U.S. nor the British governments wanted the equipment started, neither would issue instructions or a document prohibiting it.
I was now out of patience with Metcalf, the Russians, the British Department of Trade and Commerce, their Customs Department, the U.S. Department of Commerce, the CIA, and the Pentagon. Somebody had to protect Metcalf from himself; and I didn't want Consarc or Inductotherm to get in any deeper, even if just by association.
When I decided what to do, I didn't expect that, years later, Metcalf would leak a copy of my memo to Newsday, which reprinted it two years later in a lengthy, 11-page, two-part series on the affair: (The Newsday articles were much more than 11 pages and there were multiple stories.)
"By now, Henry Rowan, president of Inductotherm, was becoming increasingly annoyed at the indecision of both the United States and Britain.
"Apparently no one in the U.S. government or the British government has the authority, power, or inclination to order us not to send personnel to complete the contract or to start up the equipment,' Rowan wrote to Metcalf on October 4, 1985. "On the other hand, they seem very anxious that these activities not go forward. In view of all this confusion, it would appear that we have to make a decision.
"No Consarc personnel are to do any further work on the contract in Scotland or in the Soviet Union and nothing is to be done that will contribute toward the operation and startup of this equipment.'"
It wasn't long afterward that Metcalf resigned and any association between Khotkovo's alleged carbon-carbon plant and Inductotherm or Consarc came to an end. (I did not resign until more than two years later.)
From a court ruling in December 2003 Rowan was directed that his contract with Iraq was not closed. "First, other courts have held, as a matter of law, that a blocking order is not a closed and completed transaction because it is merely a temporary restriction on the use of property."
I had to complete the contract and Rowan was aware that we shipped important equipment to Khotkovo. We also had other business with the Soviet Union.
So too, did our dealings with the combined bureaucracies of the United States, Great Britain, and Russia. But not our frustrations at the vagaries of governments; six years later, we would find ourselves caught in the middle between two former allies, Iraq's Saddam Hussein and President George Bush.