Testimony of Gary Milhollin
Director, Wisconsin Project on Nuclear Arms Control
Before the Second Committee of Investigation,
October 13, 1988
I am pleased to have this opportunity to appear before the Committee. My name is Gary Milhollin. I hold a degree in engineering from Purdue University and a degree in law from Georgetown University. Since 1976 I have been a professor of law at the University of Wisconsin, where I have specialized in contract law, private international law, and nuclear arms proliferation. I have served as an Administrative Judge, part time, at the United States Nuclear Regulatory Commission for twelve years, and been a consultant to the United States Department of Defense on nuclear arms proliferation.
During the past two years, I have published studies on the import, export, and production of heavy water in India, Israel, Norway and France.
My remarks here today are my own; they do not represent the views of any branch of the United States Government.
The Second Committee has asked me to present evidence on the question whether the Alfred Hempel group of companies has violated the Nuclear Non-Proliferation Treaty or other relevant rules of international or national law. I will do my best to tell the Committee what I know about these questions.
I have been told that the Committee may already have a translation of my study, “Germany’s Heavy Water Laundry.” The study’s findings have been reported in Germany in Der Spiegel and Die Zeit. I have revised the study recently, and am providing the revised copy to the Committee today.
I have also been told that the Committee would like to see as much documentation is possible on the sources of my information. To comply with that request, I have put together a set of notes and attachments that describe the sources and documentation that are available. I have submitted the notes and attachments today with the revised version of my study.
The Committee’s first question is whether there has been a violation of the Non-Proliferation Treaty.
One of the Treaty’s main goals is to put all sensitive nuclear exports under international inspection. Sensitive exports are ones that can be used to make atomic bombs. Heavy water has been used to make bombs in the United States, the Soviet Union, France, and–I believe–China. It also made the “peaceful nuclear device” that India tested in 1974, and is the backbone of Israel’s nuclear program. About twenty tons of heavy water–when used to run a natural uranium fueled reactor–can produce enough plutonium for one bomb per year.
Each country that adheres to the Treaty has promised not to provide heavy water to any non-nuclear weapon state unless there is an agreement to place the water under inspection. Norway and Germany adhere to the Treaty.
In 1983, the Alfred HeMpel group applied for a license to export 15 tons-of heavy water from Norway. The Hempel group gave the manufacturer, Norsk Hydro, an international import certificate stating that the water would be imported into the Federal Republic. The group had obtained the certificate from the German government after making an application in which the group promised to import the water. The group also gave Norsk Hydro an “end use statement” promising to use the heavy water in “deuterated labelled compounds and in peaceful research projects,” and promising that “the goods will not be reexported to countries not having signed the Non-Proliferation Treaty.”
The group submitted these documents in order to obtain an export license from Norway to Germany, which was granted.
Despite the promise to Germany to import the water into Germany, and despite the promise to Norway not to reexport the water to a country not having signed the Non-Proliferation Treaty, and despite the Norwegian export license (which restricted the export to Germany) the Hempel group sent the water to India. It did so by changing the destination of the aircraft. Instead of going to Frankfurt, it went to Bombay.
The Hempel group therefore broke its promises to Germany and Norway, and transferred a dangerous nuclear material in violation of the Nuclear Non-Proliferation Treaty.
It also violated the terms of the international import certificate. I have a copy of the certificate that the Hempel group signed. It provides that:
“the importer has undertaken to import into Bundesrepublik Deutschland the above-mentioned goods or, if they are not imported, not to divert them to another destination except with the authorisation of the competent German authority.”
The transfer of the water to India obviously violated this provision. The Hempel group falsely stated that the water would be imported into Germany, and then diverted it to another country without the required authorization.
The certificate also had other requirements. The version of the certificate that seems to have been in effect in 1983 provided:
“if the import identified in the application for the International Import Certificate is converted into a transit trade operation, I/we [meaning the importer] will not transfer the goods outside Germany without the consent of the German government.”
This seems to cover the case where there is a change of intention. That is, a trade that begins as an import is converted at some point into a transit operation. If the Hempel group originally intended to import the water and later changed its mind, it also broke this promise, because it transferred the water in transit to India without obtaining the German government’s consent.
Further, the certificate provided a blank space where the applicant was required to state the destination of all goods traded in transit. The Hempel group violated this requirement also when it failed to state the water’s true destination, which was India. Instead, it stated that the water was to be imported into Germany. The Hempel group still appears to be violating this requirement today, because it still refuses to reveal the true destination of the goods. Moreover, the Hempel group knew when it applied for the certificate that the water would go to India, and therefore gave false information in its application. An investigation would reveal that there was never any intention to sell the heavy water to a buyer in Germany.
Finally, the certificate says that it “may only be used for the operation indicated in the application, and must be returned at once if this operation is not carried out or is carried out in a different way.” The Hempel group violated this provision also, because the application indicated an import into Germany, whereas the real operation was a transit trade to India.
Therefore, the Hempel group broke a series of promises to the German government.
Does this mean that Germany has broken the Non¬proliferation Treaty?
Either Germany broke it or Norway did, because the water was provided without international inspection.
The diversion was of goods in transit. Such goods, like others, are owned and controlled by someone. Here they were owned and controlled by the Hempel group. The Norwegians
themselves could have delivered the goods to the buyer in Germany. If they had, German responsibility would have begun in Germany. But they didn’t. They delivered the water in Oslo. The sale was “ROB Oslo,” which transferred ownership and control to the Hempel group at the Oslo airport. The group’s responsibility began there and continued until it transferred the water to India.
Was Germany responsible for its company during this time? It is obvious that the Norwegians thought so. Norway gave up control and ownership because of the international import certificate, signed by the German government, in which the Hempel group promised to import the water into Germany and not divert it elsewhere. The Norwegians would not release the water without the certificate. The Norwegians assumed that Germany would force its firm to keep the promises.
It is true that the international certificate is not a direct promise by the importing government to the xporting government. But it is a statement (a certification) by the importing government that the importing firm has made certain promises. The certificate is issued so that the exporting government can rely upon those promises–that is the certificate’s purpose. Norway was entitled to believe that Germany would enforce the promises because Germany was the only country that could enforce them: If Germany did not enforce the promises, they would have had no meaning, the certificate would have had no purpose, and no country would have been responsible for the goods in transit.
The conclusion has to be that responsibility under the Treaty goes with control over the goods. The goods here were in the hands of a German firm under the authority of a German certificate. This means that Germany had the duty to force its firm to do what the certificate said. If Germany refuses that duty, I believe that it violates the Treaty.
The Treaty says that a member shall not “provide” heavy water without international inspection. This language covers any transfer of water within the member’s control, including material in transit. The German certificate itself recognizes this because it prohibits transfer trades without German governmental permission. If the Treaty did not cover German-controlled transit trades, there would be no reason to regulate such trades in the certificate.
The possibility that the Hempel group sent a letter and telex to the seller, Norsk Hydro, is covered in my study. According to the Hempel group, the letter and telex informed Norsk Hydro that the water was going to Switzerland. However, the group knew that Norsk Hydro had an export license limited to Germany, which meant that it would be illegal for Norsk Hydro to send the goods anywhere else. It could not, for example, send them to Switzerland or India without a Swiss or Indian import certificate, which Hempel’s group would have to provide.
Hempel’s group, therefore, knew that it was participating in an illegal act when the water did not go to Germany, regardless of the telex and letter. It also knew that it was breaking its promise to Norway “not to reexport [the goods] to countries not having signed the Non-Proliferation Treaty,” and knew, as I have said already, that it was breaking the series of promises it made to Germany in the international import certificate. Norsk Hydro may have been naive in dealing with the Hempel group, but the law does not pardon fraud because the victim was gullible.
I do not know whether Germany has a false statements law. In the United States, it is a felony to make false statements to federal authorities. If the Hempel group had made these statements on the application for a U.S. international import certificate, the persons responsible would face Punishment up to five years in prison. There is a similar punishment for misusing the certificate after it is issued.
My study also discusses the Hempel group’s other trades, and refers to U.S. complaints about the group to the German government. I have enclosed news stories quoting U.S. officials’ statments about the complaints, and have enclosed a report on the group’s other transactions that is said to come from British intelligence.
My study also states that the Hempel group sent large quantities of Chinese heavy water to India in the early 1980s. These shipments were reported in briefings by U.S. intelligence when the U.S.-China agreement for nuclear cooperation was being considered. The Hempel group was identified as being responsible. The shipments allowed India’s nuclear program to escape international inspection and begin to make plutonium free for atomic bombs. India’s new plutonium stockpile has encouraged Pakistan to push its nuclear weapon program forward, and spurred the nuclear arms race in the Subcontinent.
In closing, I would like to point out that if the Hempel group’s position is correct, there is a .giant hole in export controls and in the Non-Proliferation Treaty. If what the Hempel group did in 1983 were legal, any broker could take a German import certificate to any country in the world tomorrow and use it to send plutonium or high-enriched uranium secretly to any buyer in the world. This endangers everyone, including generations to come. Until Germany makes it clear that the Hempel group is wrong, there will be no assurance that these transfers will stop.
I have made a list of recommendations that the Committee might consider in responding to the Hempel group’s activities. They are as follows:
- The German government should demand that the Hempel group report immediately the true destination of all the Norwegian heavy water covered by the group’s German import Certificates. The certificates clearly require this, and there is no excuse for not complying.
- The German government should examine each international import certificate that the Hempel group has received for nuclear-related goods, and demand that the true destination of the goods be reported, as the certificates require.
- The Bundestag Committee should also examine the ‘certificates. It should obtain copies of them from the – government and should ask the government and the Hempel group to report the true destination of all the goods that the certificates cover.
- The penalties for violating the obligations of the certificate should be increased. A fine of 50,0000M–the penalty now in the certificate–does not deter a profit of a million DM. The Norwegian shipment in 1983 was worth nearly 4 million dollars on the legitimpte market. It must have been worth far more than that to India, which received it without controls. Under U.S. law, a person who makes a false statement to obtain an international import certificate, or who misuses the certificate, can be punished by up to five years in prison. The Hempel group has made large profits by deliberately violating the certificates, and does not appear to be subject to any sanction.
- Administration of German controls should be improved. German authorities should be able to find out what happens to sensitive nuclear material that is supposed to be imported into Germany but does not arrive. There should be a staff adequate to track materials on a timely basis, and make inquiries when something goes wrong. The records should be open to the Bundestag.
- To help reestablish confidence in its nuclear industry, Germany should create a -special list of companies authorized to deal in, possess, or transport sensitive nuclear materials. Because such companies control the means to make atomic bombs, the list would be confined to companies that deserve the highest confidence. Any company that had violated an international import certificate would be barred from the list.