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22 September 2014

The Toshiba-Kongsberg case

During the cold war, the Soviet Union engaged in a highly organised and sustained effort to procure sensitive technologies from abroad to advance its conventional military programmes. This procurement case study seeks to draw lessons from the Toshiba-Kongsberg case to highlight the financial and reputational risks posed to companies by their subsidiaries and business partners if adequate compliance systems are not in place; it also seeks to draw attention to the potential consequences for broader international security of illicit transfers.

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Key Points

A systematic compliance system with effective oversight mechanisms is needed to manage export control requirements. In this case, not all of the employees of Toshiba and Kongsberg were aware of the actions of their colleagues; however, they were all affected by them. A system with a clearly defined chain of responsibility helps to mitigate risks.

Firms share the risks of their owned subsidiaries, their business partners, suppliers and distributors. The CEO of Toshiba Corporation complained in an interview that he was also ‘misled by Toshiba Machine’.[1] While customer due-diligence is important; knowing your business partners is also crucial.

Cold war Submarine Warfare

Throughout the cold war, large and medium sized powers were looking to build nuclear-powered submarines that were quieter and therefore more difficult to track and intercept. Given the importance of remaining undetected on nuclear deterrent patrols, espionage missions and other activities, the technology needed to make submarine propulsion quieter was much sought after.

In the early 1980s agents acting on behalf of the Soviet government through Tekmashimport – a KGB-linked Soviet trade organisation – were able to procure a selection of highly advanced milling machines which could be used to cut propellers for new submarines from stainless steel or bronze, making them smoother and, subsequently. their operation quieter. The table below details the machinery procured from Toshiba and Kongsberg in the case and where it was obtained from:




Stated technology / end-use

Procured from


April 1981

MBP-110 (x4)

Computerised propeller milling machines (nine-axis simultaneous numerical control); $17.4 million cost; two storeys high and weighing over 220,000kgs each; able to shape 30ft Ø propellers

MITI were told machines were TDP 70/110 model (did not violate COCOM rules); Civilian facility ‘improving the electric power utility’, Leningrad, Russia

Toshiba Machine Company, Japan

2 installed by Dec 1983; others installed later; all installed at the Baltic factory, Leningrad; whereabouts later disputed.

NC-2000 Numeric Controller

Computer equipment and design programmes which can be used to control milling machines

Kongsberg representative told the Norwegian Trade Ministry that numerical controller was for use in conjunction with less sophisticated machinery; labelled ‘spare parts’; headed for a civilian facility in Leningrad

Kongsberg Vaapenfabrik Company, Norway

Computer specialists installed in the factory in Leningrad; configured with tools; 5 year service agreement signed

Software for the design and production of propellers

April 1983

MF Series milling machine (x4)

5-axis numerically controlled giant propeller milling machines; $10.7 million cost

Disguised as drilling machines

Toshiba Machine Company, Japan

All operational by late 1984 in Leningrad

Several entities were involved in the various stages of the deal; these included trading companies, manufacturers and brokers:







A Soviet trade organisation with KGB connections

Approached Wako Koeki

Wako Koeki


A small Japanese trading company with a Moscow office

Approached Toshiba Machine on behalf of Tekmashimport

Toshiba Machine Company


A subsidiary of Toshiba (50.8% Toshiba Corporation owned)

Once approached, sent a representative to Moscow to negotiate the deal

C. Itoh & Company


Export broker – one of Japan’s largest trading houses

Toshiba’s standard export broker; brokered the deal

Kongsberg Vaapenfabrik Company


A Norwegian state-owned manufacturing company

Provided computers and software


There are conflicting accounts of what led to the discovery of these control violations; there may in fact have been more than one reason for them coming to light. According to one account, an employee of Wako Keoki tried to blackmail his colleagues and Toshiba Machine about the illegal sale; he allegedly threatened to, and eventually did, contact COCOM in Paris. A second account suggests the violation was first detected by the US Department of Defense after realising that Soviet submarines were quieter and combining this finding with other pieces of evidence.

Legislation and responsibility

The products which Toshiba and Kongsberg transferred to the USSR were shipped in violation of the Coordinating Committee for Multilateral Export Control (COCOM) rules. Both Toshiba and Kongsberg did seek and gain approval from their national authorities (Ministry of International Trade and Industry (MITI) in Japan and the Norwegian Trade Ministry); however, this approval was only given on the grounds that the companies stated the goods were of a lower specification. The transfer of machine tools with three or more independent axes to the Eastern Bloc and the USSR was prohibited. However, Toshiba alleged that the machine under transfer only possessed two independent axes, and Kongsberg alleged that the computers and software were for this less capable machine.

The question of responsibility is not clear-cut in the Toshiba-Kongsberg case. Toshiba claimed that few of their employees knew of the sales; however, investigators have claimed to the contrary. That the management of Kongsberg knew the shipment was taking place is even more difficult to establish. Kongsberg’s links to the Norwegian state made investigators reluctant to dig deeper.

Consequences for Toshiba

The violation by Toshiba led to a broad spectrum of consequences. At an individual level, the president and a couple of executives from the Toshiba Machine subsidiary resigned. This was followed by two executives from the Toshiba Corporation itself; they were held responsible for the activities of their subsidiary company. Several employees were also arrested at early stages of the investigation.

The Japanese government also imposed harsh economic penalties on the company; as an unnamed Japanese government official noted, ‘short of driving Toshiba into bankruptcy, I think they were the toughest sanctions we could take’.[i] Toshiba Machine was prohibited from exporting to communist countries for a year, a penalty estimated to be worth over $100 million in 1980s prices (or 12% of the company’s total exports at the time).

It was the reputational damage caused to the Toshiba Corporation that was most problematic, although more difficult to measure. Watching the offices of a trusted household brand raided by the police, and hearing allegations of how Toshiba’s actions had benefited the Soviet Navy, were hugely damaging. The Prime Minister of Japan accused Toshiba machine of ‘betraying Japan’, a member of the US congress publically smashed a Toshiba radio, and there were calls to ban the import of Toshiba products to the US.[ii]

Consequences for Kongsberg

In Norway, the Kongsberg trading company was shut down by the Norwegian authorities. The manager of the company was charged for his failure to provide correct information about the products being exported and the alleged end-use.

Consequences for C. Itoh & Company

  1. Itoh was prohibited from exporting machine tools to communist countries for three months.

Broader consequences

The consequences for international security and US-Japan relations must also be considered. In pursuing just $17 million and $10.4 million worth of business, respectively, it has been alleged that Toshiba Machine and Kongsberg caused somewhere between $1 billion and $100 billion (1980s prices) worth of damage to the US Navy. The sale was alleged to have made Soviet submarines twenty-fold quieter and much more difficult to track in a very short space of time. The actual cost of the damage to western interests is difficult to determine. In terms of US-Japan relations, the actions of these companies put the relationship of the two allies under serious strain.

Sources and further reading (used throughout):

‘Soviet Acquisition of Militarily Significant Western Technology: An Update’, Declassified CIA Report , September 1985, available from

Wrubel, Wende A (2011) ‘The Toshiba-Kongsberg Incident: Shortcomings of Cocom, and Recommendations for Increased Effectiveness of Export Controls to the East Bloc’, American University International Law Review, vol.4, is.1,

Gregory, Joseph (1987) ‘Controlling the Transfer of Militarily Significant Technology: COCOM After Toshiba’, Fordham International Law Journal, vol.11, is.4,

[i] ‘A bizarre deal diverts vital tools to Russians’, The New York Times, 12 June 1987.

[ii] ‘Japan ponders the price of Soviet trade’, The New York Times, 19 July 1987.

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