Cablegate: Response to Blue Lantern Level 1 Pre-License

VZCZCXYZ0019
OO RUEHWEB

DE RUEHTV #2654/01 3421323
ZNR UUUUU ZZH
O 081323Z DEC 09
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4516
INFO RUEKJCS/SECDEF WASHDC PRIORITY
RUETIAA/DIRNSA FORT GEORGE G MEADE MD PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY

UNCLAS TEL AVIV 002654

SENSITIVE
SIPDIS

PM/DTCC - BLUE LANTERN COORDINATOR

E.O. 12958: N/A
TAGS: ETTC KOMC IS
SUBJECT: RESPONSE TO BLUE LANTERN LEVEL 1 PRE-LICENSE
END-USE CHECK, GENERAL CORRESPONDENCE GC1964-09

REF: STATE 102524

1. (SBU) Summary: According to owner Zev Kaptowsky, Contact
International is an GOI-authorized dealer registered with the
Israel Ministry of Defense and Israel National Police (INP).
Kaptowsky notes that Contact International answered an INP
tender for 2,500 M-1 carbines with the provision that the
carbines be re-sold and exported overseas within 100 days of
the tender's award. Kaptowsky claims he contacted Century
Arms, Inc, and the two companies reached an agreement for the
carbines. According to Kaptowsky, however, Century Arms
insists on paying the INP directly, despite the fact that
INP's tender is with Contact International. Kaptowsky was
reluctant to provide any correspondence with Century Arms,
and argues that a brokering license is not required for the
transaction to Century Arms because he purchased the carbines
directly from the INP. Emboffs have been unable to verify
Kaptowsky's account with the INP, despite repeated attempts.
An INP letter passed on by Kaptowsky claims that the INP had
the carbines in its possession for the last 30 years, and
that the carbines were not obtained through a U.S. military
assistance or sales program. End summary.

2. (SBU) Per reftel, senior FSC commercial specialist met
with Contact International (Kalia) owner Zev Kaptowsky on
October 28. Kaptowsky said Contact International was
established in 1979; the company's current owners are
Kaptowsky (99 percent) and his spouse Naama (one percent).
Kaptowsky said the company maintains offices in a 400 square
meter warehouse in the Mishor Adumim Industrial Park. He
explained that he is a dual U.S.-Israeli citizen born in Los
Angeles; he moved to Israel in the early 1970's.

3. (SBU) Kaptowsky said Contact International's main business
activity involves buying surplus goods from the Israel
MOD/IDF and the Israel National Police (INP), and the
re-selling them overseas. According to Kaptowsky, 80-90
percent of the surplus goods he buys are exported to the U.S.
and EU commercial markets -- mainly to surplus stores.
Approximately 10 percent of the goods are sold in Israel.
Kaptowsky said Contact International is an authorized dealer
registered with the MOD and INP -- as such, Contact receives
notifications for each surplus goods tender issued by the MOD
and INP.

4. (SBU) According to Kaptowsky, this is the second
transaction between Contact and Century Arms involving M-1
carbines tendered out by the INP. He explained that the
first deal took place in 2007; at that time, the State
Department questioned Century Arms regarding the purchase but
ultimately issued the import license. Kaptowsky said this
transaction involves 2,500 carbines -- not 6,000 as reported
reftel.

5. (SBU) Kaptowsky said the INP tender requires the carbines
to be re-sold and exported to a legitimate party outside of
Israel within 100 days from the date of the tender award.
Kaptowsky said Contact International approached Century Arms
to inquire whether the U.S. company is interested in the
carbines. According to Kaptowsky, Century Arms confirmed its
interest and the two companies reached a sales agreement.
Kaptowsky was reluctant to present any correspondence between
his company and Century Arms; he noted that his Century Arms
points of contact are Brian and Michael Sucher.

6. (SBU) According to Kaptowsky, Century Arms insists on
transferring the total amount payable directly to an INP bank
account -- rather than paying Contact International and
leaving it to the Israeli company to transfer funds to the
INP. Kaptowsky said that according to the agreement between
Contact International and Century Arms, the U.S. company will
transfer the entire amount of the purchase to the INP, and
transfer the "balance of payment" due to Contact
International directly to the company. As such, INP only has
a contract with Contact International, Kaptowsky explained.

7. (SBU) Kaptowsky said the MOD's Directorate for Defense
Exports will not grant an export license to Contact
International unless Contact can produce a valid import
license issued to Century Arms. He said that the INP has not
provided Contact International with re-transfer or re-export
authority for the carbines to the United States. As
documentation in support of the export license, Kaptowsky
provided a copy of the original INP tender (in Hebrew), an
INP declaration (in English) regarding the sale of the
carbines to Contact International, and a copy of Contact

International's export marketing license issued by the MOD's
Directorate for Defense Exports.

8. (SBU) Kaptowsky was well-versed in brokering regulations,
and said he had discussed the nature of the transaction and
the need for a broker's license with his legal advisor.
According to Kaptowsky's lawyer, Contact International does
not require a broker's license to sell the carbines to
Century Arms for the following reasons:

-- Contact International was awarded the INP tender that was
issued to local companies only.

-- The tender requires that the carbines be exported within
100 days from the date of the award.

-- This requirement made it necessary for Contact
International to locate a foreign buyer prior to the tender
bid.

-- Although Century Arms insists on paying the INP directly,
the agreement of resale was between Contact and Century Arms.
At no time did Century Arms have any business dealings with
the INP.

9. (SBU) According to the copy of the original INP police
tender, the INP issued closed tender 64/2009 to licensed arms
dealers on June 4, 2009. The tender's listed bid deadline is
July 28, 2009. Per para 17.b.1-3, the tender stipulates that:

-- The carbines may not be resold in Israel;

-- The carbines may only be sold to Ministry of
Interior-licensed Israeli arms dealers holding an MOD permit
to export defense articles;

-- The carbines will remain in an INP warehouse. Upon
receipt of a valid export license issued by the MOD's
Directorate for Export Controls, the carbines will be
released directly to the port under police supervision; and

-- Payment will be transferred within ten days of the award.
Within 20 days of the award, the awarded party will submit
the list of terms to the Directorate for Export Controls.
The winner will have up to 100 days from the date of the
award to obtain the export license from the Directorate for
Export Controls, and to arrange for transportation of the
carbines directly from the port.

10. (SBU) Emboffs attempted to contact the INP repeatedly for
four weeks to verify Kaptowsky's account. INP
representatives finally contacted the FCS senior commercial
specialist on December 3, and requested any inquiry into the
transaction with Contact International be made in writing in
Hebrew on embassy letterhead. It is not clear how long this
process will take; emboffs have not yet sent to the INP the
written inquiry request. According to the INP letter
provided by Kaptowsky, the INP confirmed the sale of 2,500
M-1 carbines including one 15 round magazine each to Contact
International. Additionally:

-- The carbines were purchased by the INP for its own needs;

-- The carbines were not received as a grant and were not
transferred by the United States to the INP or GOI as part of
an American military assistance program, and were not sold by
the United States to the INP or GOI as part of a military
sales program; and

-- The carbines have been in the sole possession of the INP
for the last 30 years.
CUNNINGHAM

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