China Caught Selling Poison Gas Ingredients to Iran

U.S. officials have detected a series of clandestine shipments of poison gas ingredients from China to Iran, sources say. And while a dozen front companies and individuals involved in the transactions have been sanctioned, the United States has failed to take effective action against China for fear of hurting trade relations.

“We haven’t really been tough on them,” one senior U.S. official told the Risk Report. “They pay lip service to the rules, but they still violate them sometimes blatantly knowing we won’t protest at a high level. The primary reason we are looking the other way is market potential.”

In the most recent incident, the State Department announced in March that three companies, Asian Ways Limited, WorldCo Limited and Mainway International, had been sanctioned for chemical weapon proliferation. The announcement barred the companies from selling goods in the United States or to the U.S. government but did not reveal where the companies were based or what they had done to merit punishment.

Officials in three federal agencies told the Risk Report that the companies had offices in Hong Kong and were sending poison gas ingredients from China to Iran. The companies, which were fronts for the chemical deals, have been barred from trading in Hong Kong, which cooperated with the investigation. The officials also said the companies operated in several countries, and the goods did not actually go through Hong Kong.

Because the front companies exist only on paper and have no trade with the United States, the sanctions’ trade ban with U.S. companies and the government is not a deterrent. “The most you can hope for is the attention you bring to the country where they are operating,” says one official. But in China’s case, the flow of chemicals is unlikely to stop unless the United States takes action against China itself. “People get very touchy when it comes to China,” the official adds.

The three companies sanctioned this year were only the latest in a series of sanctions since 1991, when Congress gave the State Department authority to impose sanctions. In a related case in 1994, an Austrian, a German, and an Australian were sanctioned for supplying Chinese chemicals to Iran. In July 1994, an Israeli used front companies in Britain and Poland to supply what U.S. officials strongly suspect were Chinese chemicals to Iran.

Most of the shipments were “precursor chemicals” used to produce mustard gas or nerve gas, officials said. All the chemicals are on export control lists maintained by the Australia Group, a consortium of countries that are trying to control the spread of chemical and biological weapons. China is not a member of the group.

The United States knows some of the Chinese middlemen involved in these cases, but it has not yet identified the chemical manufacturer. U.S. officials are unsure where the chemicals are going in Iran because they lose track of them when they reach port. “They go into Bandar Abbas and disappear,” one official said. Iran’s chemical weapon program has been of increasing interest to the United States, with Defense Secretary William Perry in March accusing Iran of installing chemical weapons at the mouth of the Persian Gulf.

However, the United States may be shy about confronting China without conclusive evidence. In 1993, the U.S. government publicly alleged that a Chinese ship called the “Milky Way” was carrying precursor elements for chemical weapons to the Middle East. But after extensive coverage in the media, the ship was searched and no chemicals were found, either because they were dumped overboard or were never aboard. “We took it right to the top and fell right into their trap,” said former U.S. Ambassador to China James Lilley. “We looked like a bunch of Keystone Kops.”

These individuals and their front companies have been sanctioned for supplying Chinese chemical precursors to Iran and chemical equipment to Libya:
– Luciano Moscatelli (Australian national)
– Manfred Felber (Austrian national)
– Gerhard Merz (German national)
– Loop SA (Switzerland)
– CDM Engineering SA (Switzerland)
– Alberto Di Salle (Italian national)
– Mana International Investments (Poland)
– Europol Holding, Ltd. (United Kingdom)
– Nahum Manbar (Israeli national, owner of both Mana & Europol)
– Asian Ways Limited (Hong Kong)
– WorldCo Limited (Hong Kong)
– Mainway International (Hong Kong)