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Julia Oh

Julia  Oh

On the 5th June 2013, the UN Security Council extended the mandate of the expert panel established to monitor the implementation of Security Council sanctions on the Islamic Republic of Iran, following its failure to cooperate with the International Atomic Energy Agency (IAEA) about its nuclear programme. Dr. Jonathan Brewer, a visiting professor of the Centre for Science and Security Studies in King’s College London, has been a member of the panel since 2010. The new resolution extends the committee’s mandate for one year, through 9 July 2014. A description of the panel’s work can be accessed on this page.

While Iran insists its nuclear program is peaceful in nature, following the discovery in 2003 that Iran had been concealing aspects of its nuclear programme which should have been declared to the IAEA, and subsequent information of involvement in nuclear activities which appeared to have a military dimension, a number of countries have suspected Iran of harbouring intentions to develop nuclear weapons. The Security Council has enforced sanctions on Iran since 2006, including a ban on items which could contribute to its prohibited nuclear programmes and ballistic missile programmes, on arms sales to and from Iran, and a freeze of assets of designated individuals and entities. 

This page provides links to the licensing authorities of countries outside the EU that are a member of one or more of the export control regimes. While it would be too much to assume that the control  lists of these countries align to the EU' s just because the country is a member of one of the regimes, in general it could be expected that the export control lists of these countries should approximately reflect the structure of the EU's lists. 

Links for license authorities of each Non-EU state members:

State Wassenaar Arrangement Australia Group Missile Technology Control Regimes Nuclear Suppliers Group National Authority
Argentina x x x x Ministerio de Relaciones Exteriores, Comercio Internacional y Culto [Direccion de Seguridad Internacional, Asuntos Nucleares y Espaciales]
Australia x x x x Ministry of Defence State[Export Control Authority]
Belarus       x  
Brazil     x x Ministry of Science and Technology[Department of Nuclear Affairs and Sensitive Assets(DNASA)
Canada x x x x Department of Justice
China       x Ministry of Commerce
Croatia x x   x Ministry of Economy, Labour and Entrepreneurship
Iceland   x x x Ministry for Foreign Affairs
Japan x x x x Ministry of Foreign Affairs[Japan’s Policies on the Control of Arms Exports]
Kazakhstan       x  
Mexico x     x Ministry of Foreign Affairs
New Zealand x x x x Ministry of Foreign Affairs&Trade-International Security and Disarmament Division
Norway x x   x Ministry of Foreign Affairs
Republic of Korea x x x x Defence Acquisition Program Administraion
Russian Federation x   x x Federal Service for Technical and Export Control
South Africa x   x x South African Council for the Non-proliferation of Weapons of Mass Destruction
Switzerland x x x x State Secretariat for Economic Affairs
Turkey x x x x Ministry of Foreign Affairs of Turkey, Arms Control and Disarmament Department
Ukraine x x x x State Service of Export Control of Ukraine
United States x x x x Bureau of International Security and Nonproliferation-Office of Export Control Cooperation

 

 Note: there are four multilateral export control regimes(MECR) is aim to promote international cooperation developing a robust and binding export control systems of member states.

  • The Wassenaar Arrangement

  • The Australia Group(AG)

  • The Missile Technology Control Regime(MTCR)

  • The Nuclear Suppliers Group(NSG)

Dual Use Controls and License Authorities of EU States

Dual use items are products and technologies used for civilian purposes but which may have military applications. Export of dual-use items to destinations outside the EU are prohibited unless a licence has been granted by a national authority.

Dual-use export controls in all EU states is guided by Regulation 428/2009. This regulation sets out the list of technologies and controlled items under export control. It can therefore be expected that, in general, any item considered controlled in one EU jurisdiction would also be controlled in the other jurisdictions. 

Fluval Spain S.L

Key Points

 In this case, a firm located in Northern Spain attempted to export controlled dual – use goods, specifically alloy valves, to Iran without a licence, using the UAE as transit country;

 Spanish Authorities undertook a successful operation, seizing the sensitive material during transit and, at the same time, confiscating documents and electronic material which tied the shipment to Iran;

 Export controls worked effectively based on sound intelligence, information sharing between the European and Spanish authorities, and good knowledge of the EU and UN elaborated lists on restrictive measures against Iran;

 If convicted, the Spanish firm could have its export licence suspended or revoked and it could face fines.

Background

Fluval Spain S.L. is part of Valvospain, a European group of valve manufacturers. The other two members of the group are: Lazaro Ituarte Valves S.A. and MTS Valves and Technology S.L.

Fluval Spain S.L. is the Spanish branch of Fluval U.K. Ltd. The firm is located in Amurrio, Vizcaya County, in the North of Spain (Basque Country). In March 2012, Spanish authorities initiated an operation under the name of ‘Operation Alfa’ (Operación Alfa) investigating Fluval Spain S.L.

Operation

On the 11th January 2013 the General Commissary of Intelligence of the National Police Force intercepted a trailer truck at a highway tollbooth in the northern town of Durango. After the investigation, two individuals were arrested and the cargo seized. The vehicle contained 44 valves. According to the official press release by the Spanish Ministry of the Interior:

The merchandise consisted of valves of material know as Inconel 625, material which contains an alloy of more than 25% nickel and 20% chromium in weight, which gives them high resistance to corrosion and makes them particularly apt for use in the nuclear industry.[i]

Inconel valves can be controlled by the Nuclear Suppliers Group, because of potential use in gas handling in an enrichment cascade and by the Australia Group for potential use in handling chemical weapon substances and precursors, both of which environments can be corrosive to more common materials. Nonetheless, there are legitimate uses for such valves in the oil and gas industry.

As publically available information does not provide technical specifications for the valves, such as whether they had intended to have bellows-seals fitted or even the sizes and types of the valves, it is not possible to reach conclusions about the true end uses of the valves. 

The targeted firm’s headquarters were in the Basque Country but it used shadow companies in the United Arabian Emirates (UAE) in order to divert the deliveries, channeling cash through banks in third countries. It also maintained business relations with Iranian entities including those designated on EU control lists owing to their links with Iran’s nuclear programme.[ii]

The operation was carried out with the overisght of the Court of Instruction No. 5 of Bilbao, at whose disposal the seized goods have since been placed. In the course of the operation, it transpired that one of the accused, who was responsible for the sales in the UAE and Iran, was connected to the company that made the transactions, located in the industrial area of ​​the town Amurrio Alava in Spain. The operation also revelaed the registration plates of the trailer truck which was intercepted, and from which a total of 44 valves with a variety of uses, were confiscated. Spanish police also got hold of binding hardware for the valves, documentation relating to exports to Iran, associated bank accounts, and various incriminating electronic material.[iii]

The material

Alloy valves have been categorised as dual-use and ‘sensitive’ goods. Both the United States (US) and the European Union (EU) have included them in their list of items which are not to be exported to Iran. They have high resistance to corrosion, as well as erosion, which means that they can sustain high temperatures and possible deterioration when exposed to radioactive material.

Assessment

This case showcases the effective use of export controls, when implemented in conjunction with appropriate intelligence. The press release by the Spanish authorities clearly indicates that the operation was intelligence driven. In past cases of proliferation attempts regarding Iran, US intelligence has informed the states concerned of suspicious transactions undertaken by specific firms. In the present case, no information is yet available on what directed attention towards this firm.

What is clear is that the Spanish authorities scrutinised the activities of the firm for nine months, before undertaking the operation. Preceding the operation, the authorities built up a strong case, discovering: bank accounts through which transactions to Iran were made; the nature of the shipment; and the role of the shadow companies in the UAE. The seizure of the material took place when all of the documentation linking the firm to Iran was inside the transporting vehicle.

The firm was part of a conglomerate called ‘Valvospain’. Another firm in the same group, MTS Valves and Technology S.L., was involved traded with Pars Trash Company in 2003, which is a UN designated entity.[iv] The UN has identified the firm as being part of the Iranian centrifuge programme. However, at the time at which the contract was signed with MTS Valves, the UN and EU sanctions were not in place. The UN has identified the firm as being part of the Iranian centrifuge programme. However, at the time at which the contract was signed with MTS Valves, the UN and EU sanctions were not in place.

A third member of Valvospain, Lazaro Ituarte Valves S.A., had signed a $2.5 million project with the Iranian National Petrochemical Company, to which it will send materials for the Technip-Kharg Ethylene Plant in Kharg Island. If undertaken, such a contract could be in breach of EU sanctions, even if the goods are not subject to control. Again though, when the contract was signed, there was no violation of the sanctions.

Conclusions

Export controls worked effectively in this case because Spanish authorities noticed that the Iranian firm who was referred to as end-user of the valves was designated by the UN.[v] The name of the Iranian firm has not yet been published. In addition, the state has incorporated EU sanctions on Iran into its own domestic legislation. Without these two elements: the information sharing between the EU and Spain, and the strong Euro-Spanish export control legislation, the operation could never have been realised. Finally, Spanish law administers penalties for exporting dual-use items without a licence. Unauthorised exports of these items can result in a prison sentence or a fine up to three to four times the value of the goods involved in the transaction. Moreover, export authorisations can be revoked or suspended if firms are convicted.[vi] However, it is still not clear whether the violation of the sanctions regime will lead to further penalies. [vi] However, it is still not clear whether the violation of the sanctions regime will lead to further penalies. The name of the Iranian firm has not yet been published. In addition, the state has incorporated EU sanctions on Iran into its own domestic legislation. Without these two elements: the information sharing between the EU and Spain, and the strong Euro-Spanish export control legislation, the operation could never have been realised. Finally, Spanish law administers penalties for exporting dual-use items without a licence. Unauthorised exports of these items can result in a prison sentence or a fine up to three to four times the value of the goods involved in the transaction. Moreover, export authorisations can be revoked or suspended if firms are convicted. However, it is still not clear whether the violation of the sanctions regime will lead to further penalies.


[i] Gobierno de España, Ministerio del Interior, La Comisaría General de Información detiene a dos personas y desarticula una red de tráfico de material destinado al desarrollo del Programa Nuclear Iraní’, , accessed 14th January 2013

[ii] Gobierno de España, Ministerio del Interior, Cuerpo Nacional del Policía, ‘La Comisaría General de Información detiene a dos personas y desarticula una red de tráfico de material destinado al desarrollo del Programa Nuclear Iraní’, https://www.policia.es/prensa/20130111_2.html, accessed 14th January 2013

[iii] Ibid.

[iv] SECURITY COUNCIL COMMITTEE ESTABLISHED PURSUANT TO RESOLUTION 1737 (2006), ‘INDIVIDUALS AND ENTITIES DESIGNATED AS SUBJECT TO THE TRAVEL BAN AND ASSETS FREEZE PURSUANT TO RESOLUTIONS 1737 (2006), 1747 (2007), 1803 (2008), AND 1929 (2010) AND TO THE COMMITTEE DECISIONS OF 18 APRIL 2012 AND 20 DECEMBER 2012’, http://www.un.org/sc/committees/1737/pdf/1737ConsolidatedList.pdf, accessed 15th January 2013

[v] Gobierno de España, Ministerio del Interior, Cuerpo Nacional del Policía, ‘La Comisaría General de Información detiene a dos personas y desarticula una red de tráfico de material destinado al desarrollo del Programa Nuclear Iraní’, https://www.policia.es/prensa/20130111_2.html, accessed 15th January 2013 

[vi] Spanish Ministry of Interior, ‘The Spanish Control System on Foreign Trade in Defence and Dual-Use Material’, http://exportcontrol.org/library/conferences/2516/01_Spanish_Export_Control_System--ATERO.pdf, p. 13, accessed 15th January 2013

Li Fang Wei and LIMMT

 

In 2009, Li Fang Wei and his Dalian (China) based LIMMT trading company were indicted by a court in New York (USA) on 118 counts of falsifying business records in order to use US financial institutions to receive payments for proliferation-sensitive goods transferred to Iran and other locations. This procurement case study seeks to provide industry with a concise example of the forms that illicit procurement can take. In particular, this example highlights the concern surrounding China as a possible diversion point and the deceptive and fraudulent methods used by those seeking sensitive technology.

 

Key Points

 

·         The case of Li Fang Wei and LIMMT highlights that there is concern about the potential for Chinese companies (not to be confused with the Chinese state) to divert materials and technologies to Iran and other states seeking WMD.

 

·         Even when those trying to illicitly procure sensitive technologies use false company names, there can be other ways to identify suspicious enquires.

 

o   Enquires may feature addresses that are post office boxes, as did one of Li Fang Wei’s alleged Iranian customers Aban Commercial and Industrial Co.

 

o   It can be helpful to cross-check addresses and telephone numbers for similarities. The post office box used by Aban Commercial and Industrial Co. was also used by Electro Sanam Co., an Iranian entity designated as a front company for Iranian ballistic missile programme entities by the United Nations in 2008.

 

o   It can also be helpful to check that products requested fall within traditional product lines. Li Fang Wei’s attempt to procure gyroscopes should have raised suspicions given LIMMT’s background in metals.

 

Illicit shipments from LIMMT

 

Li Fang Wei and LIMMT are alleged to have shipped a variety of materials to entities in Iran linked to the country’s nuclear and missile programmes. The table below details the materials alleged to have been shipped, the international control regimes these materials are listed under and their possible WMD-related applications.

 

Li Fang Wei’s alleged shipments to Iran

Material [i]

Controls [ii]

Possible applications

Tungsten-Copper Alloy plates (400 pieces / 30,000kg +)

MTCR; Wassenaar

Missile: Materials can be used to make jet vanes and to insulate other components.

Hollow Tungsten-Copper cylinders (200 pieces)

Tungsten Powder (2,000kg+15,000kg)

Purity 99.7%

Particle size 5.5-6.5µm

MTCR

Missile: The powder can be melted down and cast to make nose cones; nozzle throat inserts; missile jet vanes.

Steel plates (8 pieces)

Type unspecified in media reports

Maraging steel rods (24,500kg)

NSG (Maraging steel also controlled under MTCR)

Nuclear: Can be used to make components for gas centrifuges

Missile: Can be used in missile fuselages and solid rocket motorcases, propellant tanks, and interstages.

High strength aluminium alloys (15,000kg)

 

NSG (some alloys also controlled under Wassenaar)

Nuclear: Can be used to make components for use in gas centrifuges.

Missile: Can be used to make motor cases for use in solid fuelled missiles, propellant tanks and rocket inter-stages.

Graphite cylinders for use in Electrical Discharge Machines (EDM-15), (200 pieces / 1,700kg)

Electrical Discharge Machines are listed by the NSG.

Nuclear and Missile: Full machines can be used to cut parts with high accuracy.

High power graphite electrodes (200 metric tonnes)

Graphite of certain purities is controlled by the NSG

Nuclear

Furnace electrodes with 4TPI nipples (450 metric tonnes)

?

?

 


Sourcing other sensitive technologies

 

There are additional allegations, which go beyond the indictment issued by the New York Court, that Li Fang Wei and LIMMT were also involved in sourcing other controlled goods which fell beyond LIMMT’s metal and mineral business area.

 

Further allegations [iii]

Product / Material

Controls

Further details

Possible applications

Computer Numerically Controlled (CNC) Flow Forming Machines

NSG, MTCR, Wassenaar

Allegedly these were procured and transferred to Iran

Missile: capable of manufacturing re-entry vehicle shells and solid rocket motor cases;

Nuclear: of use in the manufacture of centrifuges

Gyroscopes (400)

MTCR

Although not mentioned in the indictment, alleged that Li Fang Wei was ‘engaged in negotiations’ to send [iv]

Missile: can be used in missile guidance systems

Accelerometers (600)

Tantalum (100 pieces)

NSG

Missile: Can be used in high-strength alloys;

Nuclear: used in crucibles resistant to liquid actinides.

Also allegedly of use in roadside bombs

Co-rotating screw extenders

?

Alleged that LIMMT attempted to acquire from a German firm. There is still uncertainty surrounding success. [v]

Missile

Metering gear pumps

MTCR

Missile: Use in a missile propellant pumping system.

 

Deception
Li Fang Wei and LIMMT are alleged to have used highly deceptive and fraudulent means to supply Iranian entities and circumvent US sanctions. Both the individual and his company used a large number of aliases when attempting to avoid Denied Party Screening systems. After Li Fang Wei and LIMMT were added to the US ‘List of Specially Designated Nationals and Blocked Persons’, a conscious effort - logged in published email correspondence - was made to avoid detection by repeatedly changing the company name and bank accounts. [vi]

 

Lei Fang Wei

Variations on the LIMMT company name

Aliases used by LIMMT

Karl Li

Patric

Sunny Bai

K. Lee

KL

David Li

F. W. Li

Li Fangwei

LIMMT ECONOMIC AND TRADE COMPANY, LTD.

LIMMT (DALIAN FTZ) METALLURGY AND MINERALS CO., LTD.

LIMMT (DALIAN FTZ) MINMETALS AND METALURGY CO., LTD.

LIMMT (DALIAN FTZ) METALLURGY AND MINERALS CO., LTD.

ANSI METALLURGY INDUSTRY CO. LTD

BLUE SKY INDUSTRY CORPORATION

SC (DALIAN) INDUSTRY & TRADE CO., LTD.

SINO METALLURGY AN MINMETALS INDUSTRY CO., LTD.

SUMMIT INDUSTRY CORPORATION

LIAONING INDUSTRY & TRADE CO., LTD.

WEALTHY OCEAN ENTERPRISES LTD.

RWIOT STEEL SERVICE

SUNNY MINERALS COMPANY LIMITED

 

Because the fabricated company names were being used for the first time, denied party screening software was unable to recognise the entities as denied parties. As a result, six large US banks have been named as having processed transactions on behalf of Li Fang Wei and LIMMT. While screening all new customers against those on the various lists is a core element of compliance, it is clear that lists struggle to keep up with new front companies and suspicious commercial entities.

 

While many of the aliases used by Li Fang Wei and LIMMT were completely fabricated, the orders and invoices used were well-produced and professional-looking. The indictment details that Li Fang Wei and LIMMT used five different types of letter head beyond those featuring the LIMMT company name. This shows that, while documents may look authentic, this does not mean that companies are engaged in legitimate business.

 


 

[i] Details of materials taken from Indictment, available from http://graphics8.nytimes.com/packages/pdf/nyregion/08INDICT.pdf and Morgenthau testimony, available from http://www.gpo.gov/fdsys/pkg/CHRG-111shrg52971/html/CHRG-111shrg52971.htm

 

[ii] Derived from the relevant control lists

 

[iii] ISIS, Wikileaks Cables, testimony  

 

[iv] Morgenthau testimony

 

[v] Allegation seen in US State Department Cable released by Wikileaks, available from http://leaks.hohesc.us/?view=09STATE113696

[vi] These can all be read in the original indictment text

Export Control Violation by Japanese Machine Tool Manufacturer

Key Points

·         Directors and senior management should play an active role to ensure that appropriate compliance systems are implemented by their employees to mitigate a wide variety of risks;

·         Extra due-diligence needs to be undertaken to mitigate the risk of diversion to programmes of concern;

·         While China is a huge and growing market for exporters, diversion risks are higher there than in most other countries.

Background

Machine tools can be used for a huge variety of applications in industry. Certain tools are of more use than others in machining parts which could be of use in nuclear or missile programmes (see the technology section of this website for more information). This case study considers the export control violations by Japanese machine tool manufacturer Horkos Corporation; it discusses the products transferred, and the implications and consequences. This case study highlights the potential consequences to companies of being found non-compliant and the difficulties posed by the diversion risk surrounding dual-use machine tools.

Horkos is a Hiroshima-based machine tool manufacturer which produces a variety of different types of machine tools. At the time the violation was uncovered it was noted that Horkos employed around 665 people and collected an annual revenue of ¥20.3 billion. Between 2000 and 2008, Horkos is believed to have exported around 650 ‘Machining Centres’ and other machine tools without an export license. [i] Horkos staff labelled the goods falsely as lower specification machine tools to reduce the risk that they would be snagged by national authorities.

The Technology

‘Machining Centre’ is the commercial name for a self-contained CNC machine tool unit. It is not apparent which types of tools (lathes, milling or grinding machines) were sold without license by Horkos. However, the machines in question appear to have had 5-axis of movement.

Such tools are used widely across the manufacturing sectors around the world, and would be useful for those seeking to produce a large number of similar metal parts. In a WMD programme, such tools could be used to machine metal components for a centrifuge enrichment plant, or for use in ballistic missiles. Machine tools could also potentially be used to machine the hemispheres of fissile material required for use in a basic nuclear explosive device.

Because of these potential uses, machine tools are controlled at a number of levels. In Japan, they are listed under category 2-(12) of the Export Trade Control Order (Appendix 1). [ii] This means that a company seeking to export them in Japan must apply to the licensing authority, METI, for an export license. In the UK, they are listed on the Consolidated Control List in the Dual-use section under Category 2 ‘Materials Processing’. [iii] Because the UK legislation is taken from EU Regulation 428/2009, this is also where it can be found listed in EU legislation. [iv]

Exports to Where?

It has been reported that Horkos exported controlled products without licenses to 16 different countries during the 8 year period outlined. These countries are where the company believed the machines would be installed and used by an end-user. Press reports list a few of these locations:

Selected Locations Exported To (2000- 2008)

South Korea

China

Thailand

France

United States

A further 10 countries

 

Diversion Risk

However, the countries listed are only those that Horkos believed that they were shipping to firms in. The process of applying for a license for controlled goods is essentially a risk assessment. By exporting without licenses, Horkos was not allowing for the national authority to make a judgement on the risk of diversion to other countries and illicit programmes. It is therefore possible that the machine tools that Horkos thought were being exported to a given country could have been diverted to a programme of concern.

Particular concern here relates to the Iranian and North Korean nuclear programmes. The Japanese authorities, when investigating the shipments, expressed particular concern about Horkos’ exports to South Korea and China. While South Korea does not have any programmes of concern, a specific company’s actions in diverting controlled goods may have caused concern here. China has been of particular concern as a diversion hub to illicit programmes in recent years.

Discovery and Liability

On July 31 2008 the offices of Horkos in nine locations were raided by the Japanese police. Some sources also allege that the house of the Chairman of the company was also raided. In March 2009, three employees of Harkos, and one ex-employee, were arrested.

It is apparent from media reports from the time that the initial discovery may have occurred relating to a shipment of 6 Machining Centres to an auto-manufacturer in South Korea in 2004, and a shipment of 10 of the same products to a Chinese auto-manufacturer in 2006. Both these exports occurred without licenses.

It may have been the case that the initial discovery of these shipments prompted the discovery of the systematic violations of export legislation by Horkos spanning 8 years. Alternatively, the exports to South Korea and China may have been citied extensively by the press because these shipments were where the authorities were most concerned about the diversion or transhipments of goods to programmes of concern.

The three employees and one former employee of the firm that were found to be liable under Japanese law held the following positions within the company:

Deputy Chief of Overseas Marketing (former employee)

Sub-section Chief Assistant, Overseas Marketing

Sub-section Chief Assistant, Overseas Marketing

Unknown role


The four were charged with exporting controlled goods without a license and falsifying the export documents to facilitate this. When questioned by Japanese police, the Horkos employees are reported to have said "It takes a long time to obtain the approval" for an export license. [v] They were essentially citing the burdens of the licensing process as a reason for their systemic violation of the export legislation.

Consequences

Following their arrest in March 2009, the 4 were prosecuted and found guilty of the charges in July. Horkos was fined ¥47,000,000 (approximately £350,000). The 4 arrested and charged were given prison sentences of between 1 and 2 years.

METI, the Japanese national export authority also suspended Horkos’ right to export. On August 14 it was announced that Horkos would be unable to export any products to any location for 5 months from 21 August 2009 to 21 January 2010.

Sources (used throughout)

‘Japan’s Struggle to Limit Illegal Dual-Use Exports, Bulletin of the Atomic Scientists, 5 September 2008.

‘Japan Raid over ‘Nuclear Exports’, BBC News, 31 July 2008.

‘Japanese Company Accused of Exporting Nuclear Enrichment Parts’, Bloomberg, 3 March 2009.

‘Japanese Toolmaker Accused of Illegal Exports’, World Nuclear News, 4 March 2009.



[i] Some sources allege more; 650 is the figure given by METI, the Japanese national authority, see http://www.meti.go.jp/english/press/data/20090817_01.html.

[ii] Export Trade Control Order (Appendix 1), available from www.cas.go.jp/jp/seisaku/hourei/data/ETCO.pdf.

[iii] UK Consolidated Control List, available from http://www.bis.gov.uk/assets/biscore/eco/docs/control-lists/12-514-uk-strategic-export-control-list-consolidated.pdf.

[iv] EU 428/2009, available from http://trade.ec.europa.eu/doclib/docs/2009/june/tradoc_143390.pdf.

[v] Japanese Economic Newswire, 4 March 2009.

Toshiba Kongsberg and Illicit Procurement by the USSR

 

 

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.

 

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:

 

Date

Technology

Details

Stated technology / end-use

Procured from

Fate

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:

Entity

Nationality

Description

Role

Tekmashimport

USSR

A Soviet trade organisation with KGB connections

Approached Wako Koeki

Wako Koeki

Japan

A small Japanese trading company with a Moscow office

Approached Toshiba Machine on behalf of Tekmashimport

Toshiba Machine Company

Japan

A subsidiary of Toshiba (50.8% Toshiba Corporation owned)

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

C. Itoh & Company

Japan

Export broker – one of Japan’s largest trading houses

Toshiba’s standard export broker; brokered the deal

Kongsberg Vaapenfabrik Company

Norway

A Norwegian state-owned manufacturing company

Provided computers and software

Discovery

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

C. 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 http://www.foia.cia.gov/docs/DOC_0000500561/DOC_0000500561.pdf

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, http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1673&context=auilr

Gregory, Joseph (1987) ‘Controlling the Transfer of Militarily Significant Technology: COCOM After Toshiba’, Fordham International Law Journal, vol.11, is.4, http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1199&context=ilj


[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

Patterns in Suspicious Enquiries seen by a UK Electronics Company

 

Key Points

 

·         A systematic approach to export compliance is crucial to spotting suspicious enquiries and mitigating risk.

 

·         Sales staff have an important role to play in spotting illicit procurement attempts

 

·         Suspicious enquiries may come in batches from companies and countries with no apparent link to proliferation

 

·         Sector-specific & supply chain knowledge is key to detecting illicit procurement.

 

Background

 

Company A [i] is a UK-based firm which produces unspecified electronic components. These components are of use in a wide variety of applications, both civilian and military. Some of the company’s products are controlled; they are listed on the ‘UK Military List’ and constitute a minority of the company’s business. The majority of Company A’s products are uncontrolled and therefore do not legally require a license for export.

 

The products listed on the ‘UK Military List’ are essentially military-grade versions of those not listed. As with many products which are defined as military grade, they are able to perform whilst withstanding much higher pressures, temperatures and shock. These products are of use in a wide variety of military programmes; in terms of WMD programmes, there are specific concerns relating to the use of these products in missile guidance systems. 

 

Early Illicit Procurement Attempts

 

The firm initially gained an understanding of the risks of illicit procurement when they were contacted in 2005 by their national authority about an order that they had recently fulfilled. This was an order from a firm in Switzerland.

 

This order was for a product not consistent with supposed customer’s product range; marketing data indicated that the company allegedly manufactured optical lenses. The Swiss firm explained this discrepancy by claiming to have recently started a distribution arm to supplement their regular line of business. They claimed that the products obtained from Company A would be distributed to a company which had requested them from Bulgaria.

 

The UK national authorities contacted Company A after this order had been shipped. They indicated that they believed that the shipped goods were destined for Iran. This contact raised Company A’s awareness of the risks associated with illicit procurement, and it led them to put resources into developing an internal compliance system to screen orders as they arrive and mitigate risks effectively.

 

Company A’s Compliance System

 

The nature of Company A’s business largely determines its approach to compliance. Company A receives a relatively small number of orders for its goods which could have a potential application in a military or WMD programme. Orders are screened manually as they come in; sales staff have a good understanding of their products, possible uses and existing customer-base. All new customers are thoroughly screened. Individuals are screened manually against a number of lists, and orders are checked thoroughly for consistencies – for example, whether the desired products are consistent with the buyer’s business line, and whether addresses and contact details are consistent. The buyer’s online presence is vetted, and efforts are made to contact the company’s head-office to validate the order. A systematic approach has allowed Company A to easily spot suspicious enquiries and notice patterns.

 

A Pattern Develops

 

After the initial order in 2005 significantly raised Company A’s suspicions, the Compliance Officer and sales staff were able to log many other suspicious enquiries originating in a large number of diverse locations (see Figure 1). These enquiries started to exhibit several patterns which have both been identified by other companies interviewed, and in the open literature.

 

Figure 1: Selected Suspicious Enquiries Received [ii]

 

 ElectronicsFirmalpha

 

 

 

Products Requested

 

The products requested were a small number of different high-specification models. There was a slight change over time; while orders initially pursued the models which were commercially sought after for missile programmes by western defence companies, enquiries gradually shifted to less obvious models that were still of military-grade. Company A has received suspicious enquiries on 4 main products which could have a potential end-use in missile programmes, and a couple of other specifications. Some orders contained requests for smaller numbers of product, others for larger numbers. Almost all orders considered to be suspicious requested more than one product type.

 

Order size and value

 

The size of these requests was usually similar; enquiries mostly asked for 2-300 units. The orders were often individually valued at between £150,000 and £250,000.  Figure 1 shows the order size in units where Company A kept a record.

 

Order frequency

 

Not all of the orders received by company A are shown in Figure 1. Company A received somewhere in the region of 40 of these suspicious enquiries over the 5 – 6 year period between 2005 and early 2011. During this time the frequency of orders followed a basic pattern. For 2 – 3 months, Company A would receive 3 or 4 orders. This would be followed by a few months of silence, and then several more suspicious enquiries in a period of a few months. The Chart in Figure 2 provides a graphic representation of what this pattern would look like. [iii]

 

Figure 2: Suspicious Enquiry Patterns over Time

 

ElectronicsChart

 

 

 

Company A is not the only firm to have reported such a pattern in suspicious enquiries. The Compliance Officer of Company A has been in contact with another firm (Firm B - a competitor) that manufactures components interchangeable with their own. The Compliance Officer of Firm B has confirmed that his company has also seen a similar pattern. This pattern of suspicious enquiries appears to suggest that multiple entities are seeking the goods in response to a tender raised in the proliferant country. 

 

Origins of Suspicious Enquiries Received

 

The suspicious enquiries received by Company A mostly (approximately 60-70%) came from firms claiming to be distribution companies. The rest (30-40%) came direct to Company A from other firms. This broadly reflects the way in which Company A tends to conduct business; most of its buyers are distributers, although it does also sometimes sell directly to individual firms.

 

The suspicious enquiries for these military-grade components received by Company A have never originated in Iran itself. As Company A’s Compliance Officer noted, ‘there are certain places you look for, but the orders never really originated from there’. In fact, they have sometimes come from countries with a variety of different trade controls in place. Besides Switzerland where the first recognised enquiry originated, the list includes: France, Germany, Bulgaria, Taiwan, South Korea, USA and China.  

 

The Pattern Ends

 

In early-mid 2011, the pattern in suspicious enquiries described above ceased. While company A does still receive a small number of suspicious enquiries, the figure seems to have dropped significantly. However, this is not to say that the pattern will not resume in the near future.

 

When considering reasons for the drop in the number of enquiries, it is logical to conclude that the demand for the components has dropped; in short that those looking for them managed to obtain them elsewhere. While Company A spoke with one competitor about this, there are a series of other companies which could have provided the product on a one-off basis. However, it is likely that if those looking to acquire this technology were successful, they would return to the same vendor.

 

Cost-Benefit Analysis

 

While it may seem that Company A has rejected somewhere in the region of £6 – 10 million worth of business over the past 5 – 6 years, this is likely not a true value. The Compliance Officer of Company A is first to recognise that the true value of rejected orders is much lower. The value is likely to be only a few orders of the £150 – 250,000 size. This is because while many orders were received for the same products, it is likely that many of them originated from the same customer who was seeking the goods through numerous supply routes. For Company A, the costs of being found noncompliant in terms of fines, imprisonment and reputational damage far outweigh the costs of rejecting an order. As the Compliance Officer for Company A noted, merely deleting a suspicious enquiry, in fact, costs nothing.

 

Sources (used throughout)

 

Two interviews with the Compliance Officer of Company A, undertaken in August 2011 and January 2012.

 


 

[i] Company A is used here to allow the firm to retain anonymity; also the exact products and technology in question remain unspecified.

 

[ii] This graphic was created using records kept of enquiries by Company A that were considered suspicious. The graphic does not include all such enquiries because complete records were not kept. However, it does provide an insight into the origins of some of these suspicious enquiries. Some of the enquiries have quantities (in units); data was not available for all listed, because some initial enquiries did not always include quantities. 

[iii] NB. This graphic has not been created using actual data; it is merely a visual representation of the distribution of illicit enquiries. This has been confirmed by Company A’s Compliance Officer.

Israeli Illicit Procurement of Krytron Tubes

Key Points

·         This case highlights the deceptive methods used by those seeking to illicitly procure or transfer technology to WMD programmes;

·         It also highlights the importance of due-diligence when considering new business partners;

·         Firms should ensure that the companies that distribute products on their behalf have active and proliferation-resistant compliance systems in place.


Background

Israel has never officially admitted to possessing nuclear weapons; however, it is widely believed that Israel has run an active programme since the 1950s, and assembled its first device in 1967 on the eve of the Six Day War. Because of the unofficial nature of the programme, and Israel’s status as a Non-proliferation Treaty (NPT) outlier, illicit procurement has been one of the ways that Israel has sought the sensitive technology to supply its programme.

This case study looks at an instance of illicit procurement undertaken in the early 1980s where Israel attempted to acquire Krytron tubes from a US Company. Recently released FBI files, the 2011 biography of Israeli film producer Arnon Milchan and press reports from the time allow a relatively detailed picture to be built up of allegations about the transfer of approximately 800 krytrons.

The case study goes to highlight the deceptive methods used by those seeking to illicitly procure sensitive technologies.

The Technology and its Role

A krytron is a small tube filled with gas which works as a very high-speed switch. It has a variety of possible uses in a wide variety of civil and military applications. Krytrons were first developed in the 1930s for use in photographic equipment. The basic principles underlying their design has barely changed since. In the present day, they are used in scientific equipment and photocopying machines besides a wide variety of other products.

Krytrons are also of use in nuclear weapons in the detonation system in a manner similar to that of a triggered-spark gap. Because of this, krytrons are listed on the NSG’s ‘List of Nuclear-related Dual-use Equipment, Materials, Software and Related Technology’ in section 6 ‘Components for Nuclear Explosive Devices’. [i]

Milco Int. Inc. and Illicit Krytron Tube Shipments

Between 1979 and 1983, a US-based company, Milco Int. Inc. shipped 15 shipments of krytron tubes to Israel without applying for and obtaining the required State Department ‘Munitions License’. The State Department previously rejected a number of these licenses for export of krytrons to Israel. The table below details the entities involved in the transaction and the role that they played:

Entity

Location

Role

Other details

EG&G Company

Wellesley, Mass, USA

Manufactured the krytron tubes; shipped them to Milco Int. Inc.

Shipped approximately 800 tubes to Milco Int. Inc.; Invoices provided by EG&G were clear that export of the tubes required a licence.

Milco International Incorporated

California, USA

Shipped krytrons to Heli Trading Company

Company providing expertise to the US government Department of Defence and facilitates exports; 15 shipments were made of krytrons by Milco Int. Inc. to Heli Trading Company 1979 – 1983.

Heli Trading Company

Israel

Imported the krytrons from Milco Int. Inc.

Company owned by Arnon Milchan, Israeli film producer.

Israeli Ministry of Defence

Israel

Alleged End-user

 


Deceptive Method: ‘Radio Tubes’

Milco International Incorporated deceptively described the shipment as something that it was not; this made it more difficult for the US national authority to intercept. The krytrons were described as ‘pentodes’ or radio tubes. These are components of use in consumer radio and television receivers. These can be shipped without a license; they were marked ‘G-DEST’ for general destinations and therefore rated as no license required.

Other Allegations

According to some reports, the smuggling ring also transferred other controlled technologies; it is not possible to verify these claims. However, it has been alleged that Milco Int. Inc. also transferred the items in the table below:

Further allegations [ii]

Product / Material

Controls

Possible applications

Gyroscopes

MTCR: Listed under Category II, Item 9, ‘Instrumentation, Navigation and Direction Finding’. [iii]

Missile: can be used in missile guidance systems

Computerised Flight Control Systems

MTCR: Listed under Category II

Neutron Generators

NSG: Listed on the NSG ‘List of Nuclear-Related Dual-Use, Materials, Software, and Related Technology’ under Section 6 ‘Components for Nuclear Explosive Devices’. [iv]

Nuclear: Can be used to  produce a burst of neutrons to trigger a fission event.

High-speed Oscilloscopes

NSG (Previously): Up until the mid-1990s, listed on the NSG ‘List of Nuclear-Related Dual-Use, Materials, Software, and Related Technology’ under section 7.1. Removed in 1998 when the list was updated in line with ‘developments in nuclear-related technology’. [v]

Nuclear: Used to record signals omitted during a nuclear weapons test; have to be very high speed.


Discovery

Information relating to the discovery of the illicit krytron transactions is scant, but it appears that the discovery occurred after transfers of over 800 krytrons in 15 shipments had taken place. This is not to say that further transfers were not halted because of the discovery.

Implications and Consequences

Richard Kelly Smyth and Milco Int. Inc.

Richard Kelly Smyth was the President of Milco Int. Inc. and was thus liable for exporting goods without a license under US law. When charged he tried to implicate Arnon Milchan whilst plea bargaining to no avail. He fled while released on bail in 1985 and went on the run with his wife for 16 years. He was arrested in Malaga, Spain in July 2001 and extradited to the US where he stood trial.

He submitted a guilty plea in reference to one of the 30 counts against him. He was eventually sentenced to 40 years in prison and fined $20,000 for his role in the smuggling ring. By 2002 when he was sentenced he was 72 and in poor health; this meant that he was eligible to apply for parole immediately and only served 4 years of his 40 year sentence.

Before being charged, Kelly Smyth provided scientific advice to the US Airforce and NATO. As he later noted ‘I wish I had never done it. My wife, Emilie, and I wish to spend the rest of our lives surrounded by our families and peers’. [vi]

Arnon Milchan and Heli Trading Company

Arnon Milchan, the famous Israeli film director, is known to have played a role in the case because of his ownership of the Heli Trading Company that imported the krytrons. However, it is alleged that his role goes deeper than that in newer accounts of events.

A recent biography has alleged that Milchan was an operative working for LAKAM (Science Liaison Bureau), an organisation allegedly set up by the Israeli state to steal technology for Israel’s nuclear programme. No charges were filed against Milchan.

EG&G Company

EG&G Company were caught up in a case which was not beneficial for its reputation. The invoices produced by EG&G did note that krytrons cannot be exported without an export license. However, this case goes to show the importance to companies of making sure that they carry out due-diligence checks on distributers that they do business with.

While it is not so relevant in this case, where the distributer has blatantly attempted to circumvent export regulations, it is also important that companies check that their distributers have proliferation-resistant compliance systems in place.

Israeli Ministry of Defence

Following the discovery of the illicit procurement, the Israeli Ministry of Defence allegedly returned the majority of the krytrons procured. They denied that the krytrons were meant to be used in a nuclear weapons programme.

Sources

Najwa S’ad, ‘The Great Krytron Caper’, Washington Report on Middle East Affairs, 15 July 1985, available from http://www.wrmea.com/backissues/071585/850715006.html.

‘New Book Recounts Tale of Israeli Agent At Home in Hollywood’, The New York Times, 18 July 2011.

‘FBI Investigates MILCO Nuclear Trigger Smuggling to Israel’, The Institute for Research: Middle Eastern Policy, available from http://www.irmep.org/ila/krytons/.

‘800 Nuclear Triggers Smuggled to Israel, Mastermind Untouchable- Secret FBI Files’, PR Newswire, 22 March 2012.



[i] ‘List of Nuclear-Related Dual-Use, Materials, Software, and Related Technology’, IAEA Website, http://www.iaea.org/Publications/Documents/Infcircs/2006/infcirc254r7p2.pdf

[ii] ‘FBI Investigates Milco Nuclear Trigger Smuggling to Israel’, The Institute for Research: Middle Eastern Policy, available at http://www.irmep.org/ila/krytons/.

[iii] ‘MTCR Equipment, Software and Technology Annex’, MTCR Website, http://www.mtcr.info/english/MTCR-TEM-Technical_Annex_2011-11-18.pdf.

[iv] ‘List of Nuclear-Related Dual-Use, Materials, Software, and Related Technology’, IAEA Website, http://www.iaea.org/Publications/Documents/Infcircs/2006/infcirc254r7p2.pdf.

[v] See IAEA INFCIRC/254/Rev.3/Pt.2, Federation of American Scientists Website, http://www.fas.org/nuke/control/nsg/text/infcirc254r3p2.pdf.

[vi] ‘US Nuclear Parts Trafficker Sentenced’, BBC News, 30 April 2002, available from http://news.bbc.co.uk/1/hi/world/middle_east/1960179.stm.

Illicit Procurement of a Fluid Control Product

 

Key Points

 

·         The robustness of the export compliance systems of distributors is key to preventing proliferation. The lack of awareness held by the stockist about export licensing requirements was shocking; it was Company C’s reputation at risk too.

 

·         Buyers may pursue products with a lower technical specification if it might mean that they can avoid the control list. Companies should be fully aware of their products potential uses and full end-user checks should be carried out to mitigate this risk.

 

Background

 

Company C is based in the UK and manufactures fluid control products that have a wide variety of uses in different industrial sectors; this includes the civil nuclear sector, oil and gas and in the chemicals industry, amongst others. The products that Company C produces are certified to a high standard and much sought after in these various sectors. The company has received suspicious enquires for its products from time to time which the find fairly easy to identify.

 

Some of the firm’s products, especially those which are of potential use in nuclear applications, are controlled under the EU’s consolidated export control list and require a licence for export from the UK. It was after an attempt by a middleman to procure a sensitive-product and an element of coincidence that Company C was to find that one of its distributers did not have a sufficient export compliance system in place. While the end-use was not in a WMD programme, this case study seeks to highlight one way that illicit procurement can work.

 

Middleman’s First Procurement Attempt

 

Company C was initially contacted by an individual attempting to obtain one of their products for use in a civil nuclear facility in China. Experience of illicit trade had highlighted to Company C that it is suspicious for middle men, rather than end-users, to seek their products. Company C highlighted that they found it relatively easy to verify the legitimacy of trade for civil nuclear end uses: as products are usually sought directly by the facility of end use or its state-sponsored procurement organisation, reference to IAEA safeguards (or standing under the non-proliferation treaty) provided sufficient confidence to proceed to the export licensing stage. On this occasion, after undertaking some checks, Company C was still dissatisfied with the situation. This led them to refuse to supply the product to the entity that had submitted the suspicious enquiry.

 

A Serendipitous Site Visit

 

A number of months later, a representative of Company C happened to be visiting China on a business trip to try and sell Company C’s products to a variety of potential buyers. While he was in the country, Company C’s Chinese agent lined up a visit to the civil nuclear facility which the middleman had claimed to be requesting Company C’s product for a few months earlier.

 

When the representative of Company C arrived at the facility, he was introduced to the middleman, who mysteriously introduced himself as ‘Tiger’. At the facility, the Company C representative was surprised to see paperwork which indicated that one of Company C’s products was installed in the place where the initial request had detailed that they product was required.

 

Safety Concerns

 

The representative from Company C was surprised; how had the middleman and the facility been able to procure Company C’s product? This concern was also supplemented by a serious safety concern. The product that had been acquired was not itself certified for use in this safety-critical role; the specifications it was designed to meet made it appropriate for use in the oil and gas industry rather than the nuclear industry.

 

That those seeking to illicitly procure products may look to lower specification alternatives that can fulfil the same role (perhaps to less of a degree) is widely recognised. While in this case the product was not destined to be used in a WMD programme, it does reflect how illicit procurement can work. Luckily, the initial safety concerns were not realised. The product was being used in a location in the facility at which it posed little risk; however, this may not have been the case if the product was installed elsewhere.

 

‘How did you get that?!?’

 

The Company C representative took a note of the product number of the installed product and double-checked with company records when he returned to the UK. These checks indicated that the product had likely been sold by a specific UK stockist (Company D) that stocked Company C’s products; he was able to trace that the purchase was made by the Chinese using a UK-based agent. The Company C representative decided to get in touch with the UK-based stockist who indicated that he did not understand that an export license is required when exporting to civil nuclear facilities in China. Company D’s rationale was that goods of this specification did not appear on the consolidated export list. Nonetheless, Company D may have been in violation of the law: it is an offence to export non-listed goods where you are aware or have been informed by Government that there is a WMD end-use risk and that the final destination is outside the EU

 

Sources (used throughout)

Interview with the former Managing Director of Company B, undertaken in January 2012.

US Nuclear

 

 

US Nuclear

 

The US signed the Nuclear Non-proliferation Treaty as a nuclear weapons state in 1968. As such, trade in nuclear-related goods to nuclear-related entities can be licensed for export in line with standard licensing requirements.

 

The US started a nuclear weapons development effort involving scientists from the UK and Canada during the Second World War. This development effort involved both the Highly Enriched Uranium and Plutonium pathways to acquisition. The 'Manhattan Project' culminated in a first successful test of a nuclear weapon on 16 July 1945. This was followed weeks later by the use of a High Enriched Uranium-based weapon 'Little Boy' over Hiroshima on 6 August and a Plutonium-based weapon, 'Fat Man' over Nagasaki on 9 August 1945.

 

In the aftermath of the Second World War, and with rising tensions between the US and the Soviet Union, the US sought to build up a stockpile of nuclear weapons. It developed a highly advanced series of facilities for the development and manufacture of nuclear warheads. Throughout, these facilities were clearly designated as military facilities and separated from those undertaking work in civilian areas.

In 1968, the US signed up to the Nuclear Nonproliferation Treaty as a 'Nuclear Weapons State'.

US Chemical

US Chemical

The US does not have an active chemical weapons programme. It does have a stockpile of chemical weapons which are in the process of being destroyed. Sensitive exports are still subject to licensing requirements

The US did have an active programme to develop chemical weapons during the cold war. Reductions of the US stockpile began in the 1980s and in 1991, President George H W Bush announced unilaterally that all US chemical weapons stockpiles would be destroyed.

In 1999, the US signed the Chemical Weapons Convention and in doing so committed to the destruction of all of its chemical weapons stockpile by April 2012. While it is unlikely that such a deadline will be honoured by the US or by Russia, the US has made significant steps towards disarmament.

 

US Biological

US Biological

 

The US does not have an active biological weapons programme or an existing stockpile. Sensitive items can be licensed for export in line with standard licensing requirements.

 

The US did have an active programme to develop biological weapons for defensive and offensive means like many other countries during the cold war. In a speech in 1969, President Nixon ended all US biological weapons development efforts. In 1972, a couple of years later, the US signed the newly-created Biological Weapons Convention.

 

 

 

Syria Nuclear

Syria Nuclear

Syria does is not believed to have an active nuclear weapons programme; however, the country has pursued nuclear technology in the past. Exporters should proceed with caution; license applications should be submitted to national authority in line with standard requirements. If in doubt, exporters should contact their national authority.

Basis for Concerns

Concerns about Syrian interest in nuclear technology reached a height in 2007 when Israeli fighter jets destroyed a building at Al-Kibar which was allegedly the site at which a nuclear reactor was under construction. There was little specific in the open literature before this; however, due to beliefs about Syria’s WMD aspirations in other areas (chemical and biological) led states to keep a close eye on the country.

The facility destroyed by the Israeli Air Force in 2007 is alleged to have been the building site for a small nuclear reactor. The production capacity of the reactor was alleged to have been around 2 nuclear warheads worth per year. The site was destroyed before the reactor was started. The Syrian government has maintained that the facility was merely a military facility, and that traces of fissile material found near the site came from the munitions used by the Israelis.

Since 2007, the IAEA has been investigating; in 2011, Syria was found to be noncompliant with its safeguards agreement by the Agency.

Legal Obligations

Syria signed up to the NPT in 1968. This prohibits it from developing nuclear technology for non-peaceful purposes. It also means that it needs to declare any facilities under construction to the IAEA in advance.

Outside Government Assessments

The US State Department 2010 Compliance Report noted:

‘That Syria clandestinely built a nuclear reactor, apparently intended for plutonium production, without providing any information to the IAEA indicates that Syria was likely pursuing a non-peaceful nuclear program. Furthermore, Syria’s actions in razing the site of the destroyed reactor to remove all evidence of its existence, its denial of the construction of the reactor, and its continuing failure to demonstrate transparency and cooperation with the IAEA’s investigation of this and related sites lend further credence to this conclusion regarding the intended purpose of the reactor. Finally, that Syria failed to report early design information on the reactor means it failed to meet its obligations pursuant to Code 3.1 of the Subsidiary Arrangements under its Safeguards Agreement’. [i]

 

Links to Other Illicit Programmes

There have been serious allegations of links between Syria’s work at the Al-Kibar site and the illicit nuclear programme of North Korea. A US briefing in the aftermath of the strikes noted that North Korea’s collaboration with Syria started ‘probably as early as 1997’. [ii]   While the full scope of the involvement of North Korea does leave some uncertainties, allegations have been made in relation to the following: [iii]

·         The reactor allegedly under construction at Al Kibar was very similar to that operated by the North Koreans at Yongbyon;

·         North Koreans made visits to the site at Al Kibar prior to the Israeli airstrike;

·         North Korean agents undertook procurement activities on behalf of the Syrians;

·         North Korean’s helped to transport technology  which they had procured for the Syrians;

·         North Korean technologists assisted the Syrians in the aftermath of the airstrike; they helped with the clean up;

·         A high-level meeting was held between delegations associated with the respective nuclear programmes of North Korea and Syria.



[i] ‘2010 Report on Adherence to and Compliance with Arms Control, Nonproliferation, and Disarmament Agreements and Commitments’, US Department of State, available from http://www.state.gov/documents/organization/145181.pdf.

[ii] Background Briefing with Senior U.S. Officials on Syria’s Covert Nuclear Reactor and North Korea’s Involvement’, 24 April 2008, available from http://www.dni.gov/interviews/20080424_interview.pdf.

[iii] Most of these allegations can be found in ‘Background Briefing with Senior U.S. Officials on Syria’s Covert Nuclear Reactor and North Korea’s Involvement’, 24 April 2008; many of these were reflected through the media.

Syria Missile

Syria Missile

 

Syria has an active ballistic missile programme, which is known to seek goods illicitly.

 

Syria’s Missile Arsenal

 

Syrian efforts to procure ballistic missile capabilities initially were seen in the 1970s. Initially the Soviet Union provided Syria with SS-21 and SCUD B missiles. SIPRI notes that 100 SS-21 missiles were transferred in 1983 and 1988, and 75 SCUD B missiles were transferred in the mid-1970s from the USSR to Syria. [i]

 

The SS-21 is a small and relatively accurate tactical missile developed by the USSR; it is believed to have an effective range of around 70 -120km. The SCUD family of missiles were developed and manufactured by the USSR for use on the battlefield. Some of these were armed with tactical nuclear weapons for use during warfare in Europe during the cold war. SCUD B was an early model of the SCUD series with an effective range of around 300km.

 

More advanced models of missile were later obtained by Syria from North Korea. SIPRI reports that North Korea transferred approximately 150 SCUD C missiles (systems or kit form) to Syria between 1990 and 1996 and around 25 SCUD D missiles between 2000 and 2004. [ii] The SCUD C was a later model than the SCUD B, sacrificing some of the accuracy of the B model for a range that was twice the distance. SCUD D had a similar range to the SCUD B; however it is alleged to be more accurate.

 

Changes in Suppliers Over Time

 

Since initial procurement of these models, Syria has moved towards a higher degree of indigenous production. The collapse of the USSR, a major supplier of missile technology, certainly impacted on Syria’s need to produce technology for its own programme. It has improved its production capabilities since the early 1990s; however it is still dependent on imports of certain vital components.

 

Since the USSR’s collapse, Syria has moved in search of new suppliers to sustain its efforts. China, North Korea and Iran all are alleged to have transferred missile technology, full systems or components top Syria. Syria has also been known to attempt to illicitly procure technology from companies around the world.

 

Legal Obligations

 

Syria is not a member of the Missile Technology Control Regime. [iii]

 

Syria has not signed up to the Hague Code of Conduct [iv]

 

Outside Assessments of Syrian Capabilities

 

In 2012, the US Director of National Intelligence assessed that ‘Syria possesses a large ballistic missile force that includes liquid-propellant Scud SRBMs and Scud-class variants such as Scud C and D. Syria also fields the SS-21 solid-propellant SRBM. Syria remains dependent on foreign suppliers such as North Korea and Iran for some key ballistic missile technology; however, Syria has growing domestic capabilities and poses the risk of missile proliferation’. [v]

 

The role of illicit procurement

 

There is evidence that Syria has been seeking to procure components for its ballistic missile programme illicitly. Wikileaks released a diplomatic cable from 1 February 2010 which detailed an attempt by a Syrian company ‘Business Lab’ to procure ball bearings from a Spanish company. [vi] It was believed by the US State Department that the ball bearings could have been diverted by ‘Business Lab’ to the Scientific Studies and Research Center for use in Syria’s ballistic missile programme. While the ball bearings were not listed in the MTCR annex, they could potentially be of use in gyroscopes, a crucial element of ballistic missile guidance systems.

 



[i] Report generated from the SIPRI Arms Transfer Database

[ii] Report generated from the SIPRI Arms Transfer Database

[iii] MTCR Partners, available from http://www.mtcr.info/english/partners.html .

[iv] ‘Subscribing States to the Hague Code of Conduct’, available at http://www.hcoc.at/subscribstates.php.

[v] Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions, Covering 1 January to 31 December 2011’, Director of National Intelligence, available from http://www.fas.org/irp/threat/wmd-acq2011.pdf.

[vi] ‘Syrian Entity Seeks Bearings From Spain For Possible Use In Missile Program’, 1 February 2010, available from http://www.cablegatesearch.net/cable.php?id=10STATE10111&q=mtcre.

 

Syria Chemical

Syria Chemical

 

Syria is believed to have an active chemical weapons programme, which seeks goods illicitly. Exporters should proceed with caution; license applications should be submitted to national authority in line with standard requirements. If in doubt, exporters should contact their national authority.

 

Syria has not openly declared its possession of Chemical Weapons in an official manner. However, President Assad has made ambiguous statements in the past which have implied Syrian efforts in this area. In 2009, Assad was quoted in a German publication as having said: ‘Chemical weapons, that’s another thing. But you don’t seriously expect me to present our weapons program to you here? We are in a state of war’. [i]

 

Certain incidents have also led to that conclusion that it is likely that Syria has an active Chemical Weapons programme.

 

Legal Status

 

Syria has not signed up to the Chemical Weapons Convention. It is one of only 7 states outside of the treaty.

 

Syria has acceded to the 1925 Geneva Protocol which prohibits the use of chemical or biological agents in warfare. 

 

Allegations from Other States

 

In 2002 it was alleged by the US Director of National Intelligence (DNI) that Syria ‘held a stockpile of the nerve agent sarin, but apparently is trying to develop more toxic and persistent nerve agents’. [ii]

 

 

 

In 2012, the US DNI concluded: ‘Syria has had a CW program for many years and has a stockpile of CW agents, which can be delivered by aerial bombs, ballistic missiles, and artillery rockets’. [iii]

 

 

 

Outside Assistance and Imports

 

It is alleged that the Syrian chemical weapons programme is highly dependent on imports of technology and chemicals. In 2012, the US DNI assessed that ‘Syria remains dependent on foreign sources for key elements of its CW program, including precursor chemicals’. [iv]

 

 

 

 

 


 

[i] Interview undertaken with President Assad of Syria by Der Spiegel, 19 January 2009, available from http://www.spiegel.de/international/world/0,1518,602110-2,00.html

 

[ii] Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions, 1 January Through 30 June 2002’,Director of National Intelligence,   available from https://www.cia.gov/library/reports/archived-reports-1/jan_jun2002.html#7.

 

[iii] Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions, Covering 1 January to 31 December 2011’, Director of National Intelligence, available from http://www.fas.org/irp/threat/wmd-acq2011.pdf.

[iv] Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions, Covering 1 January to 31 December 2011’, Director of National Intelligence, available from http://www.fas.org/irp/threat/wmd-acq2011.pdf.

Syria Biological

 

Syria may have an active biological weapons programme. Exporters should proceed with caution; license applications should be submitted to national authority in line with standard requirements. If in doubt, exporters should contact their national authority.

Syria has not openly declared its possession of Biological Weapons in an official manner. However, President Assad has made ambiguous statements in the past which have implied Syrian efforts in this area. In 2004, Assad allegedly made a statement to the effect that Syria ha

In 2005, the US State Department concluded that ‘Syria is developing an offensive biological warfare capability’. [iii]

In 2010, the US concluded that there was no indication that Syria had abandoned ‘all intent to acquire biological weapons’, and that Syria had engaged in activities which are prohibited by the Biological Weapons Convention. [iv]

Other reports have shown less commitment as to whether Syria has weaponised biological agents. A 2012 report by the US Director of National Intelligence only noted that ‘Syria's biotechnical infrastructure is capable of supporting BW agent development’. [v]

Outside Assistance and Imports

Russia Diversion

The risk of diversion from Russia to programmes of concern is minimal; Russia is relatively self-sufficient in its advanced weapons programmes. However, while Russia has a well-developed export control system, there is always some risk of diversion. Exporters should always exercise due-diligence when exporting sensitive products.

Russia Onward Diversion

 

Onward Proliferation

 

Cold War Transfers

 

Russia was a prolific exporter of ballistic missile technology during the cold war. Its most widely exported missile was the SCUD series which formed the basis of ballistic missile development in Iran, Iraq, and North Korea. SCUD were also sold to countries such as Libya, Syria and Yemen. However, since the end of the cold war, Russian government sanctioned sales have decreased drastically.

 

The 1990s

 

In the 1990s there were a number of reports that Russian firms were involved in illicit transfers of technology to other states. The end of the cold war meant that there was a severe decline in the levels of procurement by the Russian military, leading some ‘pariah firms’ to seek work with countries developing illicit programmes. [i] The extent to which the Russian government was complicit in these transfers is uncertain.

 

Examples include:

 

·         NPO Trud, a Russian firm which sought to export missile engine components to Iran. The engine components are alleged to be linked to the RD-214 engine which was manufactured by Russia for the SS-4 missile. [ii] Russian Security Services uncovered the attempt in which the firm had tried to disguise the components as components for the oil and gas sector.

 

·         NPO Polyus was accused of selling guidance components for use in ballistic missiles to Iran.

 

·         In March 1998, Russian firms Yevropalas 2000 and MOSO allegedly shipped 21 metric tonnes of maraging steel to Iran (it is not possible to verify where this was heading within Iran; although, it would have been of use in missile fuel tanks). [iii]

 

·         In April 1998, it is alleged that Russian firm NII Grafit attempted to ship graphite and composite materials to Iran for use in warheads. This material was seized in transit in Austria.

 

There were also allegations around 1997 that the following technology had been transferred to Iran by Russian entities [iv] :

 

·         Speciality steels (maraging steel)

 

·         Alloys

 

·         Tungsten coated graphite

 

·         Wind tunnel facilities

 

·         Gyroscopes and guidance technology

 

·         Rocket engine and fuel technology

 

·         Laser equipment

 

·         Machine tools

 

·         Maintenance manuals

 

More Recent Cases

 

In recent years, allegations of ballistic missile technology transfers from Russia have been seen much less frequently than during the 1990s.

 

Allegations by Other States Relating to Onward Transfers

 

A recent 2012 intelligence assessment by the US Director of National Intelligence noted that ‘entities in Russia and China continue to sell technologies and components in the Middle East and South Asia that are dual use and could support WMD and missile programs’. [v]

 

 

 


 

[i] Victor Mizen, ‘Russia’s Missile Industry and U.S. Nonproliferation Options’, The Nonproliferation Review, Spring-Summer 1998; The two examples listed below are mentioned in this paper also.

 

[ii] Fred Wehling, ‘Russian Nuclear and Missile Exports to Iran’, The Nonproliferation Review, Winter 1999.

 

[iii] Fred Wehling, ‘Russian Nuclear and Missile Exports to Iran’, The Nonproliferation Review, Winter 1999; the following two examples also from this paper.

 

[iv] ‘Russian Missile Technology and Nuclear Reactor Transfers to Iran’, Congressional Research Service Report 98-299, Updated December 14 1998.

[v] Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions, Covering 1 January to 31 December 2011’, US Director of National Intelligence, 2012.

Russia Nuclear

Russia Nuclear

Russia signed the nuclear non-proliferation treaty as a nuclear weapons state in 1968. As such, trade in nuclear-related goods to nuclear-related entities can be licensed for export in line with standard licensing requirements.

The USSR started a nuclear weapons development effort in the final years of the Second World War. This development effort came to fruition with a successful test in 1949.

In the aftermath of the Second World War, and with rising tensions between the Soviet Union and the US, the USSR sought to build up a stockpile of nuclear weapons. It developed advanced facilities for the development, manufacture and testing of nuclear warheads.

In 1968, the USSR signed up to the Nuclear Nonproliferation Treaty as a 'Nuclear Weapons State'. Nuclear development has continued at Russian facilities since the collapse of the Soviet Union in the early 1990s.

 

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