International Signal and Control

International Signal and Control (ISC) was a defense contractor in Lancaster, Pennsylvania that its founder, James Guerin, built into a company reporting about 600 million dollars in annual revenue. Its shares were listed in London, and in 1987 it was merged into the British defense firm Ferranti. Ferranti's restated accounts of 1989 charged 215 million pounds against the group for the carrying value of fraudulent contracts. The company appears in the primary records under several names, among them International Signal and Control Group PLC, International Signal & Control Inc., ISC Technologies Ltd and ISC Technology, and Kenneth R. Timmerman called it "International Signals Corporation."¹²³

Founding and products, 1971 to 1987

Guerin founded the company in 1971 in the basement of his home, and its first assembly line was in a converted chicken coop.¹ Its products included space-vehicle rocket engines, electronic artillery fuzes, cluster bombs, electronic battlefield sensors and build-to-print circuit boards, and it also made bomb and missile fuels and managed defense projects for overseas clients.¹⁴ By 1987 it reported 600 million dollars in annual revenue, with about 1,800 employees in Lancaster County and 5,500 worldwide. Its corporate campus off Donnerville Road in West Hempfield Township was built in the mid-1980s.⁴ The company went public in 1982.⁵

Timmerman wrote that ISC had developed the fuze for the Rockeye cluster bomb on a second-source contract for the U.S. Navy, and that its biggest customers were Carlos Cardoen and the South African Armaments Corporation.³ Robert Clyde Ivy served ISC from 1980 to 1989 as an officer and director, including as president of ISC and chairman of the board of ISC Technologies.⁵ Timmerman wrote that Ivy, whom he called Claude Ivy, had moved to Pretoria in the mid-1970s to help set up a rocket industry for the state-owned Armaments Corporation, whose new rocket company was incorporated on April 1, 1978 as Kentron, and that ISC funneled technology to South African weapons programs through front companies in the United States and abroad.³

The proxy board and Haig, 1985 to 1987

Bobby Ray Inman, a former deputy director of the Central Intelligence Agency and director of the National Security Agency, retired Army general John Guthrie and former assistant secretary of the Navy Barry Shillito served on a special proxy board set up so that ISC could handle classified American defense work although it was foreign-listed.¹ The consulting firm of former secretary of state Alexander Haig, Worldwide Associates, did consulting work for ISC between 1985 and 1987, according to a filing Haig made when running for president in 1988.¹

London listing and the Ferranti merger, 1987 to 1989

Guerin listed the company in London rather than on the New York Stock Exchange. British investors never warmed to the stock, and after it fell in 1987 he merged the company with Ferranti.¹ The merger was announced in September 1987, and Ferranti acquired ISC in November 1987.⁶⁷ The Lancaster newspaper reports a price of 670 million dollars in its 2005 account and a 1.5 billion dollar deal in its 2022 account.⁴⁸ Ferranti's chairman Derek Alun-Jones remained chairman and Guerin became deputy chairman.¹ Peat Marwick, ISC's accountants during the merger, and the London merchant bank Robert Fleming, financial adviser to the company, were expected in 1989 to be asked how they failed to detect any phantom contracts.¹

A Ministry of Defence letter of September 12, 1989 told the Prime Minister's office that when the merger was announced, Sir Clive Whitmore and Sir Peter Levene sought an explanation from Alun-Jones, whose account was "sufficiently unconvincing" for the Ministry of Defence to order secret enquiries. The enquiries showed that ISC and Guerin "had close contacts with the South African government," and that ISC had been involved in "a certain amount of two-way trade in missile equipment and technology." The Department of Trade and Industry was told in May 1988, and Alun-Jones was told of the ministry's concerns in July 1988. The letter states that the divestment of ISC Technologies by Ferranti and Guerin's resignation were, in the ministry's belief, partly a result of that warning, that Ferranti had expected ISC Technologies to take its overseas contracts with it, and that Guerin was unable to raise the funds to finance the acquisition. It records "an alleged connection between ISC and a UK company involved in the European network of companies providing technology for the CONDOR missile programme."⁶

Ferranti's discovery, 1989

Guerin resigned in May 1989 after seeking unsuccessfully to buy back ISC.¹ Ferranti suspended trading in its shares on September 11, 1989, and told shareholders that its board had come to "suspect significant irregularities" in overseas contracts of ISC Technologies, appointing Coopers & Lybrand to investigate.⁶⁹ The Ministry of Defence letter records that Alun-Jones put the sums at issue at about 200 million pounds, enough to put Ferranti's loan agreement with its bankers in default, and that the contract was supposed to be with Pakistan for "missile know-how," through a series of intermediaries, with the work supposed to have been done in South Africa. The letter describes the nature and substance of the contract as "in considerable doubt," and states that the ministry's Secretary of State regarded it as a matter of considerable concern that a major British company might have links with South Africa in the defense field.⁶

According to British press reports, Pakistan officials claimed the contract never existed, while Guerin's longtime associate Clyde Ivy claimed it did. A former Pakistani official said ISC had held a contract with the Pakistani Air Force for cluster bombs or cluster-bomb technology in 1985 and 1986 that was completed.¹ A Prime Minister's private office note of October 2, 1989 on a meeting of ministers records that the Serious Fraud Office was awaiting the Coopers & Lybrand findings, that Ferranti would probably have to write off about 215 million pounds, some of which might be recovered from Peat Marwick, who had advised Ferranti on ISC's financial position before the merger, and that "there were allegations that ISC had been involved in supplying defence equipment to South Africa, China and Iran among others, although it seemed likely that these activities were confined to the US."⁶

Ferranti's restated accounts of November 1989 charged the fraudulent contracts against the group at 215 million pounds, and recorded that ISC had negative net assets of 15.3 million pounds when Ferranti acquired it in November 1987.⁷ The Science Museum Group describes "three sets of bogus contracts, created in order to make the company more attractive to perspective buyers."¹⁰ A James Shinehouse led Ferranti's internal investigation and directed the litigation to recover money.⁸

Parent Industries and the phantom contracts

Parent Industries, a company of which Guerin was then sole shareholder, was reported in September 1990 to have pleaded guilty to the fraudulent diversion of more than 700 million dollars from International Signal & Control Inc. Parent set up holding companies and bank accounts abroad, awarded the company non-existent Third World contracts and recycled the payments through subcontractors back to the company as staged payments. It agreed to pay 4.4 million dollars to settle the charges.¹¹ The money was looped through 42 front companies in Panama, 53 bank accounts in Switzerland and at least 10 in the United States, and ISC rented warehouses and filled them with crates of phony inventory for outside auditors.⁴

Ferranti reached a litigation settlement with Peat Marwick, which had assisted the acquisition, under which Peat Marwick paid Ferranti 40 million pounds. Ferranti also issued proceedings in the United Kingdom against Stuart Pindell, a former director of ISC, who filed in the United States for Chapter 11 protection.¹² The Lancaster newspaper reports that Ferranti collapsed in 1993 and closed its Lancaster office in 2003.⁴

Indictments and convictions, 1991 to 2002

The Securities and Exchange Commission and the United States Attorney for the Eastern District of Pennsylvania announced on October 31, 1991 the indictment of Guerin and twenty others in "a billion dollars in phony contracts," with "smuggling of weapons and restricted commodities to South Africa and Iraq." The release lists Crim. No. 91-601 against Guerin and Crim. No. 91-602 against Armscor and others.² The Third Circuit describes the second case as a 67-count indictment against 19 codefendants, among them Ivy, covering an 11-year conspiracy to evade the arms embargo on South Africa through front companies, and charging that ISC and Armscor conspired to export American arms and technology to Armscor and to import South African missile components for testing to facilitate the sale of Striker missiles to China.⁵

Guerin pleaded guilty in December 1991 and was sentenced to 15 years in June 1992.⁸¹³ Thomas P. Jasin, president of ISC Technologies from March 1986 to March 1987, was convicted on December 10, 1992 and sentenced on July 16, 1998 to 24 months.⁵¹⁴ Ivy later pleaded guilty and served six months in 1997.⁵ In 2002 Judge Jan E. DuBois vacated Jasin's conviction for ineffective assistance of counsel, and the National Registry of Exonerations reports that prosecutors then dismissed the charges.¹⁵¹⁶

South African shipments and Armscor, 1978 to 1997

The Wisconsin Project reports that the three South African firms were indicted in 1991 for cooperating with ISC to smuggle munitions, restricted commodities and technology to South Africa from 1978 to 1989. It states that ARMSCOR and its subsidiary Kentron acknowledged in the plea agreement that they had obtained shipments from ISC by routing them through front companies, and that Armscor was fined one million dollars and Kentron 500,000 dollars.¹⁷ The Federal Register notice of March 24, 1997 records that the State Department had imposed a policy of denial on Fuchs Electronics in June 1994 after an indictment in the Eastern District of Pennsylvania, and that Fuchs pleaded guilty on February 27, 1997.¹⁸

Open Secrets, which published South African military documents in 2017, reported that in March 1990 the head of Armscor's security department wrote to his counterpart in South African Defence Force counterintelligence with a memorandum from an internal Armscor investigation of ISC. The parties to the purchase and resale of ISC missile technology were Kentron and ISC Technology, which the article calls an ISC cut-out, with communications routed through covert Armscor offices in Italy and Hong Kong, and the resale was to the People's Republic of China.¹⁹

Intelligence ties

Inman acknowledged in 1993 that he had worked secretly with Guerin. He had served on the proxy board, and in an April 27, 1992 letter to Chief Judge Louis Bechtle he called Guerin a patriot and said he had worked in the mid-1970s with U.S. intelligence agencies.²⁰ Inman withdrew his nomination as secretary of defense on January 18, 1994, saying in a letter that he could not take the attacks on his reputation that had accompanied the nomination process.²¹

At Jasin's 1992 trial his lawyer told the jury that Haig and officials of the CIA and the Army knew of the plans to import the Striker components and none objected, and the prosecutor, Robert E. Goldman, replied: "Haig was never told they were bringing in missile parts from South Africa."²² Jasin testified that Guerin told him ISC had "Washington approval,"¹⁴ and Ivy stated in a December 7, 1999 affidavit that Guerin had told him ISC's exports to South Africa "had Washington's approval."⁵ A defense witness, James Shinehouse, testified that Guerin "would state that the CIA is knowledgeable about ISC's activities and that it backs certain activities that ISC had."¹⁵ Guerin's own letter to the court stated that he "implied" ISC had Washington's "blessings," that he "interfaced a lot with Washington contacts and fed them a lot of information," and that he did not have their approval in writing. The government told the jury that Jasin should not have relied on Guerin's statements.¹⁵

Open Secrets asked whether the CIA knew of the ISC trade, and stated that "James Guerin himself used to be a CIA agent." It gives no cited document for that claim.¹⁹ Timmerman wrote that Guerin "knew how to ship American weaponry and technology anywhere in the world, claiming he had received quiet approval from the CIA."³

Iraq and the cluster-bomb trade

A federal grand jury in Philadelphia was reported in September 1989 to be investigating ISC's companies over reportedly illegal sales of arms and weapons technology to Iran, Iraq and South Africa. ISC's lawyer denied that the company had sold to Iran or Iraq during their war, and denied that it had sold cluster bombs or chemical weapons.¹ The SEC's 1991 release named Iraq among the destinations of the smuggling.² The Lancaster newspaper reported in 2022 that federal officials said ISC did not necessarily know that components sold to South Africa would reach Iraq and that there was no evidence ISC sold directly to Iraq.⁸

Timmerman wrote that Cardoen bought fuzes for cluster bombs from ISC despite the United Nations embargo on Chile, and quoted Thomas L. Flannery, who investigated Guerin for the Lancaster Intelligencer Journal, saying that Guerin and Cardoen made a sweeping agreement "to split the world cluster bomb market in two," Cardoen taking Latin America and "special" countries such as Iraq and Guerin the rest of the Gulf, Pakistan and South Africa.³ In January 1993 Representative Henry B. Gonzalez told the House that Terry Byrne, an American who set up and ran the British firm Allivane, whose two former directors had been convicted in Britain in early 1992 of illegal arms shipments related to Iraqi fuse deals, had worked for ISC after working for Rexon Corp. He said that ISC's founder was "serving time in jail after being convicted of, among other things, illegally shipping military technology to Iraq."²³ Paul Foot wrote in 1996 that ISC "had been formed chiefly to supply arms to embargoed South Africa and, later, Iraq."²⁴

Later history

Paul Foot wrote that ISC went bust in 1989 and that Ferranti went bust too, "with the loss of 30,000 jobs."²⁴ The Lancaster newspaper reported in 2005 that ISC was defunct, its 1,800 local jobs all long gone, and that its former campus was home to a magazine and other firms.⁴