News

Hearing on “China’s Nuclear Forces”

Hearing on “China’s Nuclear Forces”

Testimony before the U.S.-China Economic and Security Review Commission

June 10, 2021

By Valerie Lincy

Executive Director, Wisconsin Project on Nuclear Arms Control 

I am pleased to appear today before the U.S.-China Economic and Security Review Commission. The Commission has asked me to comment on China’s role in the proliferation of missile and nuclear technologies, both as a supplier and an end user, the Chinese entities that are involved in such activities, and the extent to which these activities have affected U.S. national security interests and the global nonproliferation regime.

The Wisconsin Project has long focused on the type of entity contributing to proliferation, and identifying and profiling such entities using open source data and research methods. The organization also conducts capacity building outreach on export controls, which has provided insight into the challenges China poses to the global nonproliferation regime. My testimony is therefore focused on these aspects of the proliferation threat from China.

I would characterize the present proliferation threat from China as threefold: first, entities in China continue to be a source of nuclear and missile related items to countries of proliferation concern; second, China undermines U.S.-led international efforts to use sanctions and export controls to reduce the proliferation risk from those countries, notably Iran and North Korea; and third, China is illicitly acquiring or diverting sensitive U.S. technology that increases the proliferation risk from China.

To understand the present day threat, it is useful to examine the entities involved in key imports and exports over time. This has value both because such transfers are the building blocks of, and continue to fuel, contemporary programs, and because it illustrates the changing nature of the proliferation threat from China.

Introduction

The proliferation threat posed by China has been a source of concern for the United States for several decades. However, the nature of this threat has changed during that time, in terms of Chinese exports (and other forms of support) to countries of proliferation concern, what China seeks to acquire abroad for end use in China, and the involvement of the Chinese government and state-owned enterprises (SOEs) in this trade.[1]

The 1980s and early 1990s were years that saw nuclear and missile exports from China that were consequential for proliferation to Iran, Pakistan, and Saudi Arabia, among other countries. This trade was led by newly established, state-directed firms. Illicit imports by China from the United States during this period likewise directly involved SOEs.

By the mid-1990s, China began seeking to burnish its international image with regard to nonproliferation, which led it to adopt new laws regulating trade and to support multilateral nonproliferation initiatives and regimes. This coincided with economic development in China driven by the expansion of private enterprise. From this period, China has remained a regular source of sensitive items for countries of proliferation concern, but the trade is driven by nominally private companies and individuals and involves dual-use material and technology. The Chinese government has adopted an (at best) passive response to this burgeoning trade, neither actively preventing nor punishing private entities for such exports or re-exports.

Similarly, the Chinese government has balked at preventing its territory from hosting proliferation facilitators who provide financial and other support for North Korea, in violation of U.N. sanctions. Such facilitation has provided the Kim regime with billions of dollars in funds that could be used to support North Korea’s nuclear and missile programs.

SOEs remain leading exporters of technology for nuclear energy programs and of unmanned aerial vehicles, which undermine the global nonproliferation regime. However these companies no longer transfer fissile material or fissile material production equipment to countries without the requirement of International Atomic Energy Agency (IAEA) safeguards, as was the case in earlier decades. SOEs also are responsible for misusing imports of advanced U.S. nuclear technology in the context of cooperative agreements with U.S. firms. This has led the U.S. Department of Energy to conclude that such imports pose a risk of proliferation or military diversion in China.[2] More recent trends reflect an effort by SOEs to use evasive techniques and exploit state-led hacking to obtain U.S.-controlled technology.

More broadly, the role of SOEs in carrying out formal Chinese government policies, such as Military-Civil Fusion (MCF), Made in China 2025, and the Strategic Emerging Industries Plan, should also be seen as a proliferation threat. Such policies seek to exploit the tools of modern commerce and the overlap between the commercial and military demand for dual-use technologies as a means of enhancing China’s defense industrial base. Recent action by the U.S. government has rightly taken aim at this practice by targeting SOEs with financial, trade, and other restrictions.

Finally, China’s expanding economic influence in many parts of the world makes it more difficult for the United States to convince partner countries to support U.S. counter and nonproliferation policies and undermines U.S. export control and nonproliferation capacity building in these countries.

Past nuclear and missile transfers by SOEs fueled proliferation that continues to present a challenge today.

The Chinese government and prominent Chinese SOEs were at the forefront of strategically significant transfers in the 1980s and early 1990s. These transfers have served as the building blocks for nuclear weapon and weapon delivery programs in countries not party to the nuclear Non-Proliferation Treaty (NPT) that have developed nuclear weapons, in countries that have violated their NPT commitments, as well as in countries that have expressed a willingness to abrogate NPT commitments.

Major, confirmed nuclear-capable missile transfers ended following a series of commitments by the Chinese government beginning in the mid-1990s not to help states develop ballistic missiles capable of delivering nuclear weapons, using the Missile Technology Control Regime (MTCR) parameters to define such systems. Similarly, Chinese SOEs have increasingly observed nuclear nonproliferation norms in their nuclear export policies and practices. More recent transfers, while bounded to some extent by these norms, nevertheless have negative consequences for the nonproliferation regime.

I will examine several countries that have greatly benefited from Chinese support, describing key transfers over time and the Chinese entities involved in those transfers.

Pakistan

The Chinese government has strong historic links to Pakistan’s nuclear weapon and missile programs. China provided Pakistan with the material and expertise that served as the foundation for its nuclear weapon program from its inception, from sharing the complete design of a tested nuclear weapon in the early 1980s, to the supply of weapon-grade uranium to fuel the design, to support in helping Pakistan produce its own weapon-grade uranium using gas centrifuges.[3]

China also provided Pakistan with a means of nuclear weapon delivery, with the export of the solid-fueled, short-range DF-11 (M-11) ballistic missile in the early 1990s.[4] This sale equipped Pakistan with a reliable, nuclear capable delivery system as it was in the midst of developing a nuclear weapon, which it would first test in 1998. This transfer was made by a now-notorious SOE, China Precision Machinery Import-Export Corporation (CPMIEC), which markets and sells missiles abroad on behalf of other state-owned firms.[5]

Between 1994 and 1995, another state-owned enterprise, China Nuclear Energy Industry Corporation (CNEIC), shipped 5,000 ring magnets to Dr. A.Q. Khan Research Laboratories, a facility in Pakistan not subject to international nuclear safeguards.[6] Ring magnets are key components that stabilize centrifuges used in uranium enrichment. Again, the timing of the transfer was critical; Pakistan was actively developing nuclear weapons. The transfer from a subsidiary of China National Nuclear Corporation (CNNC), which is China’s largest nuclear energy SOE,[7] to one of the primary research organizations working on Pakistan’s nuclear weapon program left no doubt that the export was a knowing contribution to Islamabad’s accelerating nuclear effort.

While China may have since ceased direct transfers in support of Pakistan’s nuclear weapons program, the nuclear partnership between the two countries remains extensive and problematic. China is Pakistan’s primary nuclear partner, supplying a string of power reactors despite a commitment to avoid such sales to countries that do not have a comprehensive safeguards agreement with the IAEA, which Pakistan does not.[8] When China joined the Nuclear Suppliers Group (NSG) in 2004, it indicated that it would continue to provide fuel and other services for the two reactors it had built at the Chashma facility (CHASNUPP-1 and CHASNUPP-2). Then in 2010, China announced that it would build two more reactors at Chashma (CHASNUPP-3 and CHASNUPP-4), arguing that these new units were grandfathered by a previous bilateral agreement with Islamabad.[9] In 2013, China and Pakistan signed an agreement for the construction of two additional reactors in Karachi (KANUPP-2 and KANUPP-3). Most recently, in 2017, China signed an agreement with Pakistan to build a fifth reactor at Chashma.[10]

SOEs play a vital role in these projects. All four operational reactors at Chashma were constructed by CNNC subsidiary China Zhongyuan Engineering Corporation (CZEC).[11] CZEC also built KANUPP-2, is currently building KANUPP-3,[12] and will build the fifth reactor at Chashma.[13] Another CNNC subsidiary, CNEIC, supplied fuel assemblies and related core components to KANUPP-2 and KANUPP-3 in 2020, according to trade data reviewed by the Wisconsin Project. CNNC’s main Pakistani counterpart in these projects is the Pakistan Atomic Energy Commission (PAEC). Since 1998, PAEC has been on the U.S. Department of Commerce’s Entity List of end users subject to heightened export license requirements due to involvement in proliferation activities,[14] in response to Pakistan’s nuclear weapon tests that year.

While the reactor projects described above are subject to site-specific IAEA safeguards, China’s nuclear assistance to Pakistan nevertheless presents several proliferation challenges. First, it undermines China’s NSG commitment. Second, it allows Pakistan to devote more of its unsafeguarded nuclear infrastructure to fissile material production for nuclear weapons. Islamabad produces enough fissile material for approximately 14 to 27 nuclear warheads per year, according to estimates from non-governmental experts.[15] Third, it provides Pakistan access to advanced nuclear technologies that would not otherwise be available to it, which could ultimately benefit the unsafeguarded program.

Major missile-related transfers from SOEs to Pakistan declined after China agreed to adhere to (some) MTCR export standards. But such transfers have not ceased. In 2014, for example, Wuhan Sanjiang Import and Export Co. Ltd. shipped defense-related items to Pakistan’s National Development Complex (NDC), which develops the Shaheen series of solid-fueled ballistic missiles.[16] Wuhan Sanjiang is subordinate to China Aerospace Science and Industry Corporation (CASIC).[17] In 2017, Wuhan Sanjiang shipped components with applications in missile transporters and launchers to an entity connected to Pakistan’s nuclear and missile work.[18]

Pakistan is also a beneficiary of China’s expansive armed drone exports, including MTCR category I or near-category 1 systems, as well as the ability to produce them. These systems are produced by SOEs such as China Aerospace Science and Technology Corporation (CASC) and highlight the problematic nature of China’s voluntary adherence to the MTCR.[19] 

Saudi Arabia

As Iran expands its nuclear program, there is ongoing concern that Saudi Arabia may seek to hedge against a future Iranian nuclear weapon by building its own expansive nuclear energy program. For instance, Saudi Arabia plans to build nuclear power reactors and has so far been unwilling to accept restrictions on uranium enrichment and reprocessing in the context of a nuclear technology cooperation agreement with the United States. Early transfers from SOEs in China provided Saudi Arabia with a means of nuclear weapon delivery and more recent support could improve delivery capability and help the Kingdom develop an indigenous uranium enrichment program.

In a well-document case from 1988, China supplied 36 DF-3 (CSS-2) liquid-fueled, intermediate-range ballistic missiles to Saudi Arabia.[20] The sale was negotiated by Poly Technologies, a firm formed in 1984 through the joint investment of China International Trust and Investment Corporation (CITIC) and the General Armament Department of the People’s Liberation Army (PLA).[21] This was the first time that any country had sold intermediate-range missiles to a country in the Middle East and the first time that China had sold a strategic missile. The DF-3 was used in the Chinese arsenal to deliver nuclear warheads over 1,500 miles. Because of its poor accuracy, the DF-3 was considered suitable mainly for nuclear missions, making it a worrisome choice for Saudi Arabia, a country without nuclear weapons; however, the variant sold to Saudi Arabia was reportedly modified to allow it to carry a conventional payload. The sale included assistance in the construction of two missile bases south of Riyadh, as well as the provision of Chinese military personnel for help with maintenance, operations, and training.[22]

In 2007, Saudi Arabia reportedly received China’s DF-21 (CSS-5) ballistic missile,[23] a solid-fueled, medium-range missile, with both nuclear and conventional variants. The missile is a product of China’s largest missile producer, CASIC.[24] The alleged transfer would provide Saudi Arabia with a shorter-range but more mobile and accurate alternative to the DF-3 – more effective for conventional missions but also potentially providing the Kingdom with a much-improved nuclear weapon delivery option. Little is known about those involved in negotiating the alleged transfer of the DF-21 and China has not confirmed it. However, any such transfer could not take place without the involvement of the state. The transfer allegedly took place well after the Chinese government’s pledge to follow MTCR export standards.

Most recently, in 2019, open source analysis by private research groups indicate that Saudi Arabia has built a solid fuel missile engine production and test facility at al-Watah, possibly with Chinese assistance.[25] The location had previously been identified as a missile base but commercial satellite imagery indicates new construction elements that would support missile production.[26] Again, this support would have been provided after China’s informal MTCR adherence and necessarily would have involved the state.

Saudi Arabia has also benefited from armed drone exports from China, potentially including MTRC category I or near-category 1 systems, as well as production lines. Armed drones produced by SOEs Aviation Industry Corporation of China’s (AVIC) Chengdu Aircraft Industry Group (CAIG) and CASC have been delivered to the Kingdom, and a license agreement allowing for domestic production of such systems has reportedly been signed.[27] These sales undermine U.S. efforts to control the proliferation of armed drones, with China serving as a ready supplier of such technology with little to no requirements placed on potential clients.

Leading Chinese SOEs are also involved in Saudi Arabia’s civilian nuclear energy and nuclear material mining programs. In 2016, China Nuclear Engineering and Construction Corporation (CNECC), a CNNC subsidiary, signed a memorandum of understanding with King Abdullah City for Atomic and Renewable Energy to construct a high-temperature gas-cooled reactor in Saudi Arabia.[28] In 2017, CNNC signed a memorandum of understanding with the Saudi Geological Survey (SGS) to explore uranium and thorium deposits in Saudi Arabia.[29] That same year CNECC reportedly signed a memorandum of understanding with the Saudi Technology Development Corporation to study the feasibility of constructing a high-temperature reactor seawater desalination plant in Saudi Arabia.[30] In 2019, another CNNC subsidiary, the Beijing Research Institute of Uranium Geology (BRIUG), reportedly completed a survey of Saudi uranium ore reserves, identifying reserves that could produce over 90,000 tons of uranium.[31] In the same year, BRIUG held talks with the Saudi Ministry of Industry and Mining on uranium and thorium exploration projects in Saudi Arabia.[32] While these activities all relate to civilian nuclear energy development plans, they nonetheless undermine U.S. efforts to convince the Kingdom not to pursue uranium enrichment, which would increase Saudi Arabia’s latent ability to develop nuclear weapons in the future.

Iran

China was an early supporter of Iran’s nuclear program in the years after the Iran-Iraq War, when that program was once again moving forward. China is believed to have supported uranium mining in Iran, including at the Saghand uranium mine.[33] Experts from BRIUG have conducted scientific exchanges with Iranian nuclear scientists and Chinese experts allegedly participated in exploration work in Iran.[34] China is also widely acknowledged to be the source of information for the conversion plant at Isfahan. Despite a 1997 agreement with the United States to end cooperation with Iran in the nuclear field, China appears to have provided Iran with a blueprint for the plant as well as design information and test reports for equipment.[35]

Both the Saghand mine and conversion plant remain in operation today. They are key facilities in the front end of Iran’s nuclear fuel cycle, providing a domestic source of uranium hexafluoride – the feedstock for Iran’s gas centrifuge enrichment program.[36]

Beijing has also been a major supplier of ballistic missile technology to Iran, beginning in the late 1980s. In 1998, the Commission to Assess the Ballistic Missile Threat to the United States reported that China had “carried out extensive transfers to Iran’s solid-fueled ballistic missile program.”[37] In June 2006, the U.S. Treasury Department sanctioned CPMIEC for the sale of MTCR-controlled goods to Shahid Bagheri Industrial Group (SBIG), an organization responsible for Iran’s solid-fueled ballistic missile program.[38]

SOEs continue to play a role in supplying Iran’s missile program, although they have done so less overtly than in previous decades. In 2017, the Treasury Department sanctioned Wuhan Sanjiang Export and Import Co. Ltd. for selling more than $1 million worth of navigation-related gyrocompasses and specialized sensors to Shiraz Electronics Industries (SEI), a producer of military electronics subordinate to Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL).[39] The State Department also sanctioned Wuhan Sanjiang in February 2020 pursuant to the Iran, North Korea, and Syria Nonproliferation Act (INKSNA) for supporting Iran’s missile program.[40]

North Korea

SOEs have provided some support for North Korea’s ballistic missile program through technology and knowledge transfers since the 1990s. In 1998, SOE China Academy of Launch Vehicle Technology (CALT), a CASC subordinate,[41] allegedly worked with North Korea on its space program to develop satellites, with reports suggesting that the cooperation may have been linked to development of the Taepodong-1 medium-range ballistic missile. In 1999, China reportedly sold specialty steel with missile applications to North Korea, as well as accelerometers, gyroscopes, and precision grinding machinery.[42]

While Chinese support for North Korea’s missile program shifted away from SOEs after the 1990s, one notable exception was the 2011 transfer of six eight-axle, off-road lumber transporters manufactured by Hubei Sanjiang Space Wanshan Special Vehicle Co., Ltd and exported by Wuhan Sanjiang Import and Export Co. Ltd. Both firms are subordinate to China Space Sanjiang Group Co., Ltd., which is overseen by CASIC.[43] Subsequent investigations by the United Nations and the United States concluded that North Korea had illicitly converted the vehicles to ballistic missile transporter-erector-launchers (TELs), and the United Nations recommended that countries deny the export of such items to North Korea. China is known to have disregarded this recommendation on at least one occasion, exporting three-axle trucks that were converted by North Korea for use transporting guided artillery rockets.[44] The trucks were reportedly manufactured by China National Heavy Duty Truck Group Co., Ltd. (Sinotruk), an SOE truck manufacturer.[45]

Chinese SOEs have had little involvement in nuclear-related proliferation to North Korea. However, China’s support to Pakistan’s nuclear program is recognized as a case of secondary proliferation to North Korea. North Korea is believed to have received technology and knowledge transfers from Pakistan and the A.Q. Khan network, which was originally supplied by SOEs.[46]

The rise of the private actor: Recent transfers and support by China-based entities make it more difficult to address challenges to the nonproliferation regime. 

Since the early 1990s, China has increasingly observed international non-proliferation norms and multilateral export control regimes, for instance by ratifying the NPT in 1992, joining the Zangger Committee in 1997, and joining the NSG in 2004. Alongside these actions, China has formalized and expanded its national export control laws to reflect these norms and regimes. While Beijing’s formal application to join the MTCR in 2004 was rejected, the government nevertheless committed to adjust its missile technology control lists to match those of the MTCR (though not comprehensively).[47] China has also held discussions with the Wassenaar Arrangement and has pledged to align itself with the group’s controls on conventional arms and dual-use goods and technologies.

While the export practices of SOEs appear to have improved in conjunction with these national nonproliferation commitments, the problem of proliferation from China remains – perhaps most acutely in the form of Chinese-based companies and individuals transferring dual-use items. This trade involves both controlled goods as well as items below control thresholds that still have applications in nuclear and missile programs. While the activity may not be government directed, it is tolerated if not openly encouraged by the state.

In addition, China hosts entities that facilitate proliferation, particularly to North Korea, through the evasion of sanctions and illicit financing. Here too, the government has taken little action against these facilitators, despite numerous detailed reports from the United Nations about the nature and scope of their support.

The contribution of these private actors in proliferation-related trade and support from China, beginning in the 2000s, has expanded over the past decade. Examples of how they have helped North Korea, Iran, Pakistan, and Syria are described below.

North Korea

While private actors in China support North Korea’s acquisition of dual-use goods, the primary contribution of these actors to North Korea’s missile and nuclear programs in recent years has been indirect: facilitating Pyongyang’s access to foreign currency used to fund these programs. The China-based actors providing this support are trading companies and individuals with no direct connection to the state. This support falls into three main categories: hosting entities that are part of North Korean financial networks; hosting North Korean nationals who remit their income; and allowing private entities to facilitate the evasion of sectoral sanctions.

1. North Korean Financial Networks in China

China-based entities provide financial services for North Korea in violation of U.N. sanctions.[48] For instance, a network of representatives and front companies linked to North Korea’s Foreign Trade Bank (FTB), which was sanctioned by the United Nations in August 2017,[49] operate in China. In February 2020, the United States indicted individuals linked to FTB, including six North Korean nationals based in China and four Chinese nationals, for their roles in facilitating over $2.5 billion in illegal transactions through over 250 front companies, including front companies based in China.[50]

China-based trading companies also facilitate North Korea’s access to the financial system by importing prohibited goods, such as coal, and transferring payment for the goods to North Korean front companies in China that use the proceeds to purchase commodities on behalf of North Korea. For example, Dandong Zhicheng Metallic Material Co., Ltd., a Chinese trading company, operated a network of front companies to facilitate transactions and bulk commodity purchases on behalf of North Korea via the sale of North Korean coal.[51]

North Korea also takes advantage of “over the counter” brokering services based in China with weak “know your customer” protocols to launder stolen cryptocurrency and convert it into fiat currency, including with the help of Chinese nationals.[52]

2. North Korea Individuals Based in China

North Korean workers continue to reside in China and earn income that is remitted to North Korea, in violation of a U.N. Security Council resolution that requires countries to repatriate all North Korean nationals generating revenue abroad no later than December 2019.[53]

For example, North Korean information technology (IT) workers linked to the U.N.-sanctioned Munitions Industry Department (MID), which oversees North Korea’s nuclear and missile programs, have established Chinese companies and sponsored visas for North Korean workers, according to the U.N. Panel of Experts on North Korea. In 2019 and 2020, the Panel documented over 500 IT and other North Korean workers based in China.[54] Chinese companies that have worked with North Korea IT workers are allegedly aware of their links to North Korea.[55]

Representatives of U.N.-sanctioned entities involved in procurement for North Korea’s military, nuclear, and missile programs, such as Korea Ryonbong General Corporation and Namchongang Trading Corporation, have also operated out of China.[56]

3. Lax Enforcement of U.N. Sectoral Sanctions

Chinese entities also help North Korea breach an annual cap set by the United Nations[57] on refined petroleum imports and a U.N. prohibition on coal exports.[58] China is one of only two countries (with Russia) to report refined petroleum shipments to North Korea, but claims there is insufficient evidence to reach the conclusion that North Korea is breaching the U.N. cap.[59] Yet China-flagged vessels have been involved in direct deliveries of refined petroleum products to North Korea, in addition to conducting ship-to-ship (STS) transfers for refined petroleum shortly before making port calls in North Korea.[60] China also allows vessels suspected of involvement in illicit petroleum exports to North Korea to enter its territorial waters without penalty.[61]

China continues to import North Korean coal and allow ship-to-ship (STS) transfers of coal in its waters, primarily in the Ningbo-Zhoushan area. According to the U.N. Panel of Experts, from January through September 2020, North Korea exported over 2.5 million tons of coal to China’s territorial waters. To avoid detection, North Korean vessels engaged in STS transfers of coal with China-flagged vessels, which subsequently delivered the coal to Chinese ports, according to the U.N. Panel.[62]

4. Dual-use Transfers

Private entities in China are also supplying North Korea with dual-use items; these same entities may also be suppliers to Chinese SOEs. For instance, in 2013 and 2016, Shanghai Zhen Tai Instrument Corporation Limited supplied pressure transducers to North Korean national Kang Mun Kil, a China-based representative of U.N.-sanctioned Namchongang Trading Corporation, for export to North Korea.[63] Shanghai Zhen Tai Instrument Corporation Limited also supplies SOE CNNC.[64]

In another example, investigations of missile debris conducted by the U.N. Panel of Experts have revealed China to be the source of missile and space launch vehicle components, including pressure transmitters and camera electromagnetic interference filters. These components were either manufactured or sold by private Chinese companies, according to the Panel. In one instance, North Korea procured the components from a Chinese firm that apparently sold them via an electronics market.[65] Many of these items fall below control thresholds, emphasizing the need for China to implement strong “catch-all” controls.[66]

Iran

Publicly documented transfers of concern from China to Iran over the past decade or more are predominantly carried out by small, private enterprises and individuals, with no clear government involvement. These transfers can be divided into two broad categories: those in which Chinese entities are active conspirators, and those in which China hosts Iranian sanctions evaders.

1. Chinese Entities as Active Conspirators

Chinese nationals, often using their own China-based companies, have been active participants in schemes to transfer dual-use items to Iran. Karl Lee (also known as Li Fang Wei) personifies this category. Lee, a businessman operating out of Dalian, China, became notorious for being behind a string of sales, beginning in the late 2000s, made directly to ballistic missile developers in Iran. Using a cluster of China-based front companies, Lee shipped gyroscopes, accelerometers, high-strength alloys, graphite cylinders, and other items to SBIG. Lee has been sanctioned repeatedly by the State Department – twelve times since 2010, most recently in May 2019.[67] He was indicted twice in New York, most recently in 2014,[68] for making transfers through U.S. banks in connection with his illicit transactions, effectively using the U.S. financial system to facilitate his proliferation efforts.

Despite the sanctions and indictments, the Chinese government does not appear to have applied any pressure to Lee to cease his trade with Iran. A 2018 study suggests that Lee remains active in Dalian, China, assisted by family members in the operation of his network of front companies.[69] In 2019, the U.S. State Department concluded that Lee’s support has helped Iran improve the accuracy, range, and lethality of its missiles.[70]

Chinese businessman Sihai Cheng provides another example. From 2005 through 2012, working in cooperation with an Iranian national, Cheng supplied thousands of items to an Iranian firm involved in the country’s uranium enrichment program.[71] Some of these items were of Chinese origin and included titanium sheets and tubes, seamless steel tubes, pressure valves, bellows, and flanges. Cheng also managed to procure hundreds of U.S.-origin pressure transducers, a component that is essential for the operation of centrifuges used in uranium enrichment. Cooperating with employees at a China-based subsidiary of a leading U.S. manufacturer of pressure transducers, Cheng was able to use front companies in China to act as false end users for the exports. He then re-routed the shipments to Iran upon their arrival in China. This scheme only came to an end when Cheng was arrested in London in 2014 and extradited to the United States for trial, where he was sentenced to nine years in prison.[72] China took no action against Cheng or his co-conspirators, and Chinese government officials reportedly objected to the United States taking export enforcement actions against Chinese nationals.[73]

A third example involved Zongcheng Yi, a Chinese national who conspired with Iranian national Parviz Khaki between 2008 and 2011 to obtain U.S.-origin dual-use items including maraging steel, aluminum rods, pressure transducers, vacuum pumps, lathes, and nickel alloy on behalf of Iranian end users. Yi allegedly used his Guangzhou-based company to arrange purchases of these items from unwitting U.S. suppliers and their transshipment to Iran via Hong Kong.[74] Yi remains at large, presumably in China; U.S. prosecutors moved to dismiss the case against him in August 2020, apparently so as not to continue expending resources prosecuting a fugitive whose arrest is unlikely.[75]

2. Iranian Sanctions Evaders Active in China

In other instances, Iranian individuals and companies have operated freely from inside China to arrange transfers of dual-use items, either without the direct involvement of Chinese nationals or with Chinese nationals playing only supporting roles as local facilitators.

The activities of Rayan Roshd Afzar Company, a Tehran-based defense production firm that has supplied components to the Islamic Revolutionary Guard Corps (IRGC)’s UAV and aerospace programs,[76] are illustrative of this pattern. Rayan Roshd Afzar’s parent company, Rayan Group, operated out of Beijing as recently as 2017,[77] and the Treasury Department’s press release sanctioning Rayan Roshd Afzar that year alleged that company officials had “obtained a range of military-applicable items from China.”[78]

In another scheme running from 2011 to 2017, Iranian-born Canadian national Ghobad Ghasempour set up several front companies in China with the aid of a Chinese national, Yi Xiong, for the purpose of transshipping a variety of dual-use items from the United States, Germany, and Canada through China to Iran. These items, some of which shipped successfully, included a precision lathe machine, thermal imaging cameras, and an inertial guidance system test table (which can be used to test missile guidance systems), all of which are subject to U.S. export controls. Their ultimate recipient was alleged by U.S. prosecutors to be an Iranian state-controlled engineering company that purchases items for Iranian government agencies. Ghasempour was arrested in the United States in 2017 and sentenced to 42 months in prison,[79] but Xiong remains at-large, presumably in China.

There are numerous other instances of Iranian sanctions evaders using China-based front companies to transship nuclear and missile dual-use materials from third countries to Iran, during a period when Iran’s uranium enrichment program was expanding. The contents of these shipments have included: carbon fiber (one Japanese-origin shipment seized in 2012 en route from China to Bandar Abbas);[80] aluminum powder (one North Korean-origin shipment seized in 2010 en route from China to Bandar Abbas);[81] and U.S.-origin dual-use electronics (with multiple attempts documented between 2007 and at least 2011).[82]

China does not appear to have taken concerted action to prevent its territory from being used as a base of operations and transshipment point for Iranian sanctions evaders, nor to prevent its nationals from facilitating or participating in schemes to transfer dual-use items to Iran.

Syria

Syria has relied on China-based front companies to facilitate delivery of chemical weapon- and ballistic missile-related items from North Korea, which is Syria’s primary source of supply. In the period from 2007 to 2012, for instance, these Chinese companies transferred equipment for Scud missile propellant,[83] alloy tubes for manufacturing rockets,[84] graphite cylinders with ballistic missile applications,[85] and items used in the handling of military-grade chemical agents.[86] In many cases, the Syrian end users were front companies or subsidiaries of the Scientific Studies and Research Center (SSRC), which oversees Syria’s chemical weapon and ballistic missile programs.

China also hosts several SSRC affiliates. Since 2018, the French government has designated four of these affiliates for their involvement in the procurement of chemical weapon- and ballistic missiles-related items, including precursors for sarin gas.[87] North Korea also appears to source dual-use items from Chinese firms for supply to Syria.

Pakistan

The rise in support from private Chinese firms to Pakistan began over a decade ago. In a report to Congress on proliferation in 2011, the Director of National Intelligence assessed that “Chinese entities – primarily private companies and individuals – continue to supply a variety of missile-related items” to Pakistan.[88]

More recently, the U.S. Commerce Department has designated numerous Chinese companies for supplying Pakistan’s missile and unsafeguarded nuclear programs with dual-use goods. One such company, Taihe Electric (Hong Kong) Limited (which has offices in Chengdu and Hong Kong), was designated in August 2020.[89] Taihe Electric supplies Pakistani front companies, as well as PAEC subsidiaries and the Chashma plant.[90] In some cases the items originate in China, while in others they are transshipped through China from other countries, including the United States. Typically the declared Pakistani end user is a front company and the transfers are in fact destined for government entities subject to U.S. trade restrictions, including PAEC and the Advanced Engineering Research Organization (AERO).[91]

The proliferation threat from SOEs: End users of U.S. controlled technology.

In addition to the outward proliferation from China described above, SOEs have long sought U.S.-origin controlled goods and technology illicitly. SOEs have pursued three acquisition paths for such transfers: by exploiting direct collaboration with U.S. firms, through brokers, front companies, or other evasive tactics to mask the ultimate end user, and through acts of theft or espionage. SOEs that direct nuclear and missile work in China, as well as related exports, have been among the beneficiaries.

Direct Collaboration, Joint Ventures, and Technology Transfer

During the 1990s, as China began reforming its defense industry, the Chinese government increasingly encouraged Chinese companies operating in strategic sectors to focus on civilian, dual-use markets related to those sectors. At this time, China’s domestic technology lagged behind that of the United States and other developed nations. Chinese companies sought to form joint ventures (JVs) with leading U.S. firms, as a means of gaining access to key equipment and technical know-how.[92] During the 1990s, accordingly, cases of Chinese acquisition of U.S. dual-use technology often arose from collaboration between prominent American firms and their Chinese counterparts.

For instance, as part of a joint project between China National Aero-Technology Import-Export Corporation (CATIC) and McDonnell Douglas for the production of airliners in China, U.S.-origin machine tools were transferred to factories in China overseen by AVIC, for use only in the production of civilian aircraft.[93] The machine tools were transferred to companies under AVIC involved in military projects, including anti-ship cruise missile production.[94]

Chinese companies may use such cooperation as a stepping stone, gaining manufacturing know-how and then cutting out their foreign partner. The case of Westinghouse and CNNC provides an illustrative example of this dynamic. In the 2000s and early 2010s, Westinghouse worked with CNNC to jointly produce pressurized water reactors for use in China with designs from Westinghouse.[95] According to a U.S. Department of Justice indictment related to a hack of Westinghouse’s systems, information stolen from Westinghouse around May 2010 included design and technical specifications related the AP1000 pressurized water reactor that would “enable a competitor to build a plant similar to the AP1000 without incurring significant research and development costs.”[96] Although the indictment does not identify the beneficiary of the hacked information, it was reportedly CNNC.[97] CNNC now produces the Hualong One pressurized water reactors, cutting Westinghouse out of China’s nuclear power plant construction market.[98]

Circumventing Trade Controls Via Subsidiaries and Front Companies

 SOEs have relied on evasive procurement tactics since the mid-2000s, as a means of skirting increasingly strict U.S. export controls in order to obtain dual-use technology. These tactics included using obscure U.S.-based brokers to obtain such technology from unwitting U.S. manufacturers, the use of foreign procurement agents, and transshipment through third countries.

Beginning in the 2000s, SOEs began using small U.S.-based companies as a source of illicit supply. These firms often do little or no business outside of exports to China, and sometimes deal with a sole customer. For instance, a family-run firm based in New Jersey procured and supplied integrated circuits and components to two institutes under China Electronics Technology Group Corporation (CETC),[99] the 14th and the 20th Institute, both of which are involved in the development of military electronics and have conducted research on ballistic missiles.[100]

The case of Hong Wei Xian also illustrates this trend. Hong, a Chinese national, was arrested in 2010 for attempting to procure, on behalf of CASC, more than 1,000 radiation-hardened programmable read-only memory (PROM) microchips designed to withstand space-based conditions.[101] He operated his own company, Beijing Starcreates Space Science and Technology Development Company Limited, which based much of its business on importing these microchips to supply CASC. In order to evade detection, Hong requested that a Virginia-based supplier send the components in smaller quantities to several third countries, where they would be transshipped for ultimate delivery to China.[102]

Chinese companies also sought expertise from the United States. China General Nuclear Power Company (CGNPC), a leading nuclear SOE,[103] was charged in 2016 with conspiring to produce special nuclear material outside the United States with U.S. technical consulting. Between 1997 and 2016, a CGNPC employee created a Delaware-based company, Energy Technology International, to facilitate technical consulting from U.S. experts on CGNPC’s Small Modular Reactor Program, Advanced Fuel Assembly Program, Fixed In-Core Detector System, and other nuclear reactor-related computer programs. According to the U.S. Department of Justice, this CGNPC employee organized flights and payments for U.S.-based experts to travel to China and provide consulting services.[104]

Major Chinese research universities affiliated with military research programs have also used these methods to procure U.S. technology. In one recent case, Northwest Polytechnical University (NWPU) used a middle man, Shuren Qin, and his U.S.-based company, LinkOcean Technologies, LTD., to illicitly import technology with underwater and marine applications to China from the United States, Canada, and Europe without export licenses. These items included at least 50 hydrophones for use in anti-submarine warfare, side scan sonar systems, unmanned underwater vehicles, and robotic boats. NWPU has been listed on the Commerce Department’s Entity List since 2001, so the university would not have otherwise received permission for these imports.[105]

Theft and Espionage

Chinese SOEs have relied on trade secret theft and espionage, occasionally carried out by employees of the SOEs but more often by organs of the Chinese central government, including the Ministry of State Security (MSS) and People’s Liberation Army (PLA). The beneficiaries of trade secrets obtained through these actions are likely SOEs, although such a connection is not always easy to establish.

In one such example, a Chinese MSS operative, Yanjun Xu, attempted to steal aerospace technology from U.S. companies, including General Electric.[106] Xu worked with China’s leading aerospace engineering-focused university, the Nanjing University of Aeronautics and Astronautics (NUAA), to fly employees of leading U.S. aerospace firms to China to recruit them as spies for China’s aerospace research programs. Xu and his associates at NUAA successfully obtained sensitive company information from at least one engineer at an undisclosed leading U.S. aerospace company.[107]

These espionage activities also occur over the internet, facilitated by China’s advanced cyberattack capabilities. In one case, beginning around 2006, Chinese nationals Zhu Hua and Zhang Shilong, two members of a Chinese MSS hacking unit, targeted the computer systems of leading U.S. firms in dual-use sectors. These hacks provided the MSS with data from seven companies in the aviation/aerospace industry, three companies involved with communication technology, three companies in the advanced electronics systems, a company in the maritime industry, NASA’s Goddard Space Flight Center and Jet Propulsion Laboratory, and the Department of Energy’s Lawrence Berkeley National Laboratory, among others.[108]

Conclusion and policy recommendations

The nonproliferation regime is constructed around the NPT, buttressed by technology controls set forth in multilateral supply regimes that are implemented through national regulations, and enforced through U.N. and other sanctions and counterproliferation measures. Despite a series of nonproliferation pledges and commitments over decades, the actions of the Chinese state, SOEs, and China-based entities have continued to undermine each component of this regime, as illustrated in the examples above. Through its actions, China continues to:

  • selectively ignore MTCR and NSG-related commitments when commercial or other imperatives have prevailed;
  • support the evasion of U.N. sanctions on Iran and North Korea by hosting firms and individuals supplying or financing those countries; and
  • flout U.S. export controls and cooperative agreements in order to obtain sensitive technology.

In light of these trends, U.S. policy vis-a-vis China has shifted from seeking engagement with China to a more competitive paradigm. It remains useful and important for the United States to press China to fulfill its NSG commitments, to join and fully adhere to the MTCR, and to enforce U.N. sanctions and its new comprehensive export control law. However, the U.S. policy shift would also benefit from pursuing, in tandem, the following more punitive measures:

  1. Continue to Target China-based Suppliers of Proliferation Concern and Sanctions Evaders
  2. Take Public Action on U.N. Findings on North Korea to Circumvent Chinese Obstruction
  3. Expand the Chinese Military-Industrial Complex List (NS-CMIC List)
  4. Mitigate the Proliferation Risk Posed by Cooperation with Chinese Universities
  5. Support the Development of a CFIUS-like Review Process in Partner Countries

Continue to Target China-based Suppliers of Proliferation Concern and Sanctions Evaders

Most private firms and individuals operating in China and supplying countries of concern, as well as Chinese SOEs, may not have a footprint in the United States and therefore may not be harmed economically by the imposition of U.S. sanctions. Designating them and publicizing their support nevertheless has value for U.S. nonproliferation objectives. First, it raises awareness among U.S. suppliers about the ongoing risk of illicit procurement when dealing with potential new clients and the critical role that China-based entities play in this trade. Second, it identifies specific parties involved; while these parties may not have assets or interests in the United States, they may well operate in other countries. Their operations there could be harmed once U.S. sanctions, particularly secondary sanctions, are enacted. Third, it provides U.S. partners with information they can use to prevent proliferation.

Take Public Action on U.N. Findings on North Korea to Circumvent Chinese Obstruction

The U.N. Panel of Experts has recommended numerous entities and vessels for designation by the Security Council’s 1718 Committee. However, none have ultimately been sanctioned, largely because of the unwillingness of China (and Russia) to support such action. This harms the overall implementation of U.N. sanctions against North Korea and deprives a number of countries that are regularly exploited by North Korean sanctions evaders of clear guidance on how to counter their actions.

The United States could raise awareness about the Panel’s findings through the imposition of sanctions on these entities and vessels. Of the 25 entities and individuals and 31 vessels recommended for designation since the Panel’s March 2018 report, only one entity, two individuals, and two vessels have been sanctioned by the United States, and these sanctions were already in effect when the Panel made its recommendations. U.S. sanctions play a key role in public diplomacy efforts to increase compliance with U.N. sanctions and send a strong signal to countries implementing these sanctions.

The United States should also continue to publish advisories highlighting information presented in the Panel reports, in particular typologies of North Korean sanctions evasion tactics. This information provides partner countries with tangible steps they can take to counter North Korean procurement and more effectively enforce sectoral sanctions. U.S. government advisories are widely disseminated among public and private sector actors and have been useful in the past in engaging countries on improving their implementation of U.N. sanctions.[109]

Expand the Chinese Military-Industrial Complex List (NS-CMIC List)

The growth of China’s defense industry directly contributes to the quality and kind of technology China and Chinese companies can proliferate. The Biden administration’s recent executive action refining the previous administration’s restriction on outbound investment in Chinese military companies is an important step forward. By cutting off investment flows to these companies, the U.S. government will help limit the resources available for their efforts to develop leading edge military and dual-use technology.

In its current version, however, the list does not yet adequately name all companies involved in the Chinese defense industry. Specifically, the list does not include key subsidiaries of major defense SOEs, despite the fact that many of these subsidiaries are independently listed on financial markets. Under the executive order, any entity “owned or controlled by, directly or indirectly,” a company either on the NS-CMIC list or operating in the Chinese defense or surveillance industry can also be listed.[110] Accordingly, the administration should identify additional subsidiaries of NS-CMIC listed companies in order to ensure that these subsidiaries cannot evade U.S. investment restrictions. The Treasury Department should also provide a comprehensive list of additional identifier information, including International Security Identification Numbers (ISIN) and aliases, to better inform investors and improve screening.

Manage the Proliferation Risk Posed by Cooperation with Chinese Universities

Chinese universities contribute to the quality of technology that China and Chinese companies develop and can proliferate abroad. Some of these universities directly contribute to military research projects and in some cases, as described above, engage in economic espionage and export control evasion in the United States. The U.S. government could more actively regulate how U.S. parties interact with some of these universities.

The Commerce Department could list additional Chinese universities connected to the Chinese military on its Entity List and Military End User List, as a means of controlling the flow of U.S. dual-use technology and know-how to these universities. Commerce currently has trade restrictions on the seven major Chinese defense universities (colloquially known as the “Seven Sons of National Defense”) and two other Chinese universities.[111] Based on research from the Australian Strategic Policy Institute and subsequent research conducted by the Wisconsin Project, however, some 50 universities directly affiliated with the Chinese defense industry regulatory agency, the State Administration of Science, Technology, and Industry for National Defense (SASTIND), do not appear on any U.S. government trade control list.[112] These universities receive funding from SASTIND, in collaboration with other ministries, to invest in academic departments and research capabilities related to national defense subjects.

Additional measures to highlight the potential proliferation threat from Chinese universities might include creating a “Chinese military university list” modeled on the Chinese military company list authorized in Section 1260H of the 2021 National Defense Authorization Act (NDAA).[113] The Wisconsin Project has found that if the administration were to apply the 2021 NDAA’s definition of “military-civil fusion contributor” to Chinese universities, at least 61 Chinese universities would fall into this category based on their collaboration with SASTIND or other Chinese military projects.

Publishing such a list, even in the absence of specific regulatory action, could help inform U.S. universities engaging with their Chinese counterparts. While U.S. universities cannot collaborate on dual-use technologies with universities and research institutes that appear on U.S. restricted party lists, they may engage in other forms of collaboration that facilitates the proliferation of U.S. know-how to China. In a 2018 career fair, for instance, the Massachusetts Institute of Technology hosted two universities that are part of the “Seven Sons of National Defense” – Beihang University and Northwestern Polytechnical University – who were seeking to recruit job candidates with advanced degrees.[114]

Support the Development of a CFIUS-like Review Process in Partner Countries

China is expanding its influence in many parts of the world through state policies such as MCF, Made in China 2025, the Strategic Emerging Industries Plan, and the Belt and Road Initiative (BRI). Many countries, while welcoming Chinese investment, may not have a process for evaluating the national security risks that it poses. The United States could usefully provide support in this regard, by advocating for and providing technical support on establishing a review process for such investment, modeled on the Committee on Foreign Investment in the United States (CFIUS).

Without such a mechanism for formal review, it may be difficult for U.S. partner countries to evaluate the risk of Chinese investment or acquisitions in strategic sectors. The CFIUS review process may cover a broad range of transactions, which is well adapted to the diversity of risk from Chinese acquisition, from obvious investments in the dual-use or military sectors, to robotics, green energy, medicine and biotechnology, and more. By supporting the creation of such a review process, the United States would create a permanent institutional mechanism within partner countries, which could have a more sustained impact on China’s ability to enter new markets of strategic significance in U.S. partner countries.

Appendix: Chinese SOEs Involved in Proliferation Activities Mentioned in the Prepared Testimony

Aerospace Industry

  • Aviation Industry Corporation of China (AVIC)
    • Chengdu Aircraft Industry Group (CAIG)
    • China National Aero-Technology Import-Export Corporation (CATIC)
  • China Aerospace Science and Industry Corporation (CASIC)
    • China Space Sanjiang Group Co., Ltd.
      • Hubei Sanjiang Space Wanshan Special Vehicle Co., Ltd.
      • Wuhan Sanjiang Import and Export Co., Ltd.
    • China Aerospace Science and Technology Corporation (CASC)
    • China International Trust and Investment Corporation (CITIC)
    • China Precision Machinery Import-Export Corporation (CPMIEC)

Nuclear Industry

  • China General Nuclear Power Company (CGNPC)
  • China National Nuclear Corporation (CNNC)
    • Beijing Research Institute of Uranium Geology (BRIUG)
    • China Nuclear Engineering and Construction Corporation (CNECC)
    • China Nuclear Energy Industry Corporation (CNEIC)
    • China Zhongyuan Engineering Corporation (CZEC)

Other

  • Beihang University
  • China Electronics Technology Group Corporation (CETC)
  • China National Heavy Duty Truck Group Co., Ltd. (Sinotruk)
  • Nanjing University of Aeronautics and Astronautics
  • Northwest Polytechnical University (NWPU)
  • Poly Technologies Inc.

Attachment: Testimony of Valerie Lincy before the U.S.-China Economic and Security Review Commission’s Hearing on “China’s Nuclear Forces”


Footnotes:

[1] An earlier report by the Wisconsin Project explores this shift. See Matthew Godsey and Valerie Lincy, “Gradual Signs of Change: Proliferation to and from China over Four Decades,” Strategic Trade Review, Volume 5, Issue 8, Winter/Spring 2019, pp. 3-21, available at https://strategictraderesearch.org/wp-content/uploads/2019/02/Strategic-Trade-Review-WinterSpring-2019.pdf.

[2] “DOE Announces Measures to Prevent China’s Illegal Diversion of U.S. Civil Nuclear Technology for Military or Other Unauthorized Purposes,” Press Release, U.S. Department of Energy, October 11, 2018, available at https://www.energy.gov/articles/doe-announces-measures-prevent-china-s-illegal-diversion-us-civil-nuclear-technology.

[3] For a description of key transfers from China to Pakistan (and other countries) in the 1980s, see: Gary Milhollin and Gerard White, “Bombs from Beijing: A Report on China’s Nuclear and Missile Exports,” Wisconsin Project on Nuclear Arms Control, May 1, 1991, available at https://www.wisconsinproject.org/bombs-from-beijing-a-report-on-chinas-nuclear-and-missile-exports/.

[4] “China and Weapons of Mass Destruction: Implications for the United States,” Conference Report, National Intelligence Council, November 5, 1999, available at https://www.dni.gov/files/documents/China_WMD_2000.pdf.

[5]  Evan S. Medeiros and Bates Gill, “Chinese Arms Exports: Policy, Players, and Process,” Strategic Studies Institute, August 2000, pp. 45-47, available at https://press.armywarcollege.edu/monographs/132.

[6]  Shirley A. Kan, “China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues,” Congressional Research Service, February 26, 2003, available at https://fas.org/asmp/resources/govern/crs-rl31555.pdf; “China and Weapons of Mass Destruction: Implications for the United States,” Conference Report, National Intelligence Council, November 5, 1999, available at https://www.dni.gov/files/documents/China_WMD_2000.pdf..

[7] Pakistan Country Profile (Updated 2020), International Atomic Energy Agency World Wide Web site, available at https://cnpp.iaea.org/countryprofiles/Pakistan/Pakistan.htm.

[8] Guidelines for Nuclear Transfers, Part 1, Nuclear Suppliers Group, October 18, 2019, available at https://www.iaea.org/sites/default/files/publications/documents/infcircs/1978/infcirc254r14p1.pdf. Pakistan has implemented site-specific IAEA safeguard for its civilian nuclear facilities. But it does not allow access to its military nuclear facilities.

[9] “Grid connection for Pakistani Hualong One unit,” Press Release, China National Nuclear Corporation, March 22, 2021, available at https://en.cnnc.com.cn/2021-03/22/c_605154.htm. The first reactor in Kararchi (KANUPP-1), is a PHWR built by Canada that became operational in the 1970s.

[10] “Third HPR1000 unit to build overseas,” Press Release, China National Nuclear Corporation, November 22, 2017, available at https://en.cnnc.com.cn/2017-11/22/c_112681.htm.

[11] “CZEC at a Glance,” China Zhongyuan Engineering Corporation World Wide Web site, available at https://web.archive.org/web/20170122121640/http://www.czec.com.cn/zgzydwgcyxgsywbm/au/caag/index.htm; “Nuclear Power Reactors in the World,” International Atomic Energy Agency, 2012, pp. 29, 71, available at http://www-pub.iaea.org/MTCD/publications/PDF/RDS2-32_web.pdf.

[12] Pakistan Country Profile (Updated 2020), International Atomic Energy Agency World Wide Web site, available at https://cnpp.iaea.org/countryprofiles/Pakistan/Pakistan.htm; “Nuclear Power: A Viable Option For Electricity Generation,” Pakistan Atomic Energy Commission World Wide Web site, available at http://www.paec.gov.pk/NuclearPower/.

[13] “Third HPR1000 unit to build overseas,” Press Release, China National Nuclear Corporation, November 22, 2017, available at https://en.cnnc.com.cn/2017-11/22/c_112681.htm.

[14] “India and Pakistan Sanctions and Other Measures,” U.S. Department of Commerce, Bureau of Export Administration, Federal Register, Vol. 63, No. 223, November 19, 1998, pp. 64322, 64325, 64341, available at https://www.govinfo.gov/content/pkg/FR-1998-11-19/pdf/98-30877.pdf.

[15] Hans M. Kristensen, Robert S. Norris, and Julia Diamond, “Pakistani Nuclear Forces, 2018,” Bulletin of the Atomic Scientists, Vol. 74, No. 5, 2018, p. 352, available at https://doi.org/10.1080/00963402.2018.1507796.

[16] Trade data reviewed by the Wisconsin Project; Haris N Khan, “Pakistan’s Nuclear Program: Setting the Record Straight,” Defense Journal, August 2010, p. 36, available via www.scribd.com; Feroz Hassan Khan, Eating Grass: the Making of the Pakistani Bomb, (Stanford: Stanford University Press: 2012), pp. 240, 242.

[17] Wuhan Sanjiang Export and Import Co., Ltd., National Enterprise Credit Information Publicity System, available at http://www.gsxt.gov.cn/; “Brief Introduction of Space Sanjiang,” China Space Sanjiang Group Co., Ltd. World Wide Web site, available at http://www.yzjs.casic.cn/n13740039/n13740062/c13740102/content.html (in Chinese).

[18] Trade data reviewed by the Wisconsin Project; Wu Xuelei, “Development History, Status and Tendency of Foreign Military Truck (Part IV),” June 2001, China Academy of Launch Vehicle Technology World Wide Web site, available at https://web.archive.org/web/20060831204645/http://www.calt.com/information/magazine/200106/016WXL.htm (in Chinese).

[19] Franz-Stefan Gafney, “China, Pakistan to Co-Produce 48 Strike-Capable Wing Loong II Drones,” the Diplomat, October 8, 2018, available at https://thediplomat.com/2018/10/china-pakistan-to-co-produce-48-strike-capable-wing-loong-ii-drones/; Gabriel Dominguez, “Pakistan receives five CH-4 UAVs from China,” Jane’s Defense Weekly, January 27, 2021, available at https://www.janes.com/defence-news/news-detail/pakistan-receives-five-ch-4-uavs-from-china; George Nacouzi et al., “Assessment of the Proliferation of Certain Remotely Piloted Aircraft Systems,” RAND Corporation, 2018, p. 15, available at https://www.rand.org/pubs/research_reports/RR2369.html.

[20] Ethan Meick, “China’s Reported Ballistic Missile Sale to Saudi Arabia: Background and Potential Implications,” U.S.-China Economic and Security Review Commission, June 16, 2014, available at https://www.uscc.gov/sites/default/files/Research/Staff%20Report_China’s%20Reported%20Ballistic%20Missile%20Sale%20to%20Saudi%20Arabia_0.pdf.

[21] Evan S. Medeiros, Reluctant Restraint: The Evolution of China’s Nonproliferation Policies and Practices, 1980-2004 (Stanford: Stanford University Press, 2007), pp. 104-108.

[22] Ethan Meick, “China’s Reported Ballistic Missile Sale to Saudi Arabia: Background and Potential Implications,” U.S.-China Economic and Security Review Commission, June 16, 2014, available at https://www.uscc.gov/sites/default/files/Research/Staff%20Report_China’s%20Reported%20Ballistic%20Missile%20Sale%20to%20Saudi%20Arabia_0.pdf.

[23] Jeff Stein, “The CIA Was Saudi Arabia’s Personal Shopper,” Newsweek, January 29, 2014, available at https://www.newsweek.com/2014/01/31/cia-was-saudi-arabias-personal-shopper-245128.html.

[24] “CASIC DF-21D Unveiled at the Victory Parade,” China Aerospace Science and Industry Corporation World Wide Web site, September 6, 2015, available at http://www.casic.com.cn/n12377419/n12378214/n2354949/n2354967/c2367928/content.html (in Chinese).

[25] Paul Sonne, “Can Saudi Arabia produce ballistic missiles? Satellite imagery raises suspicions,” Washington Post, January 23, 2019, available at https://www.washingtonpost.com/world/national-security/can-saudi-arabia-produce-ballistic-missiles-satellite-imagery-raises-suspicions/2019/01/23/49e46d8c-1852-11e9-a804-c35766b9f234_story.html.

[26] Jamie Withorne, “Saudi Arabia’s Suspect Missile Site and the Saudi Nuclear Program,” James Martin Center for Nonproliferation Studies, Middlebury Institute of International Studies at Monterey, March 26, 2019, available at https://nonproliferation.org/saudi-arabia-briefing-dc/.

[27] Cholpon Orozobekova and Marc Finaud, “Regulating and Limiting the Proliferation of Armed Drones: Norms and Challenges,” Geneva Centre for Security Policy, August 2020, pp. 15-17, available at https://dam.gcsp.ch/files/doc/regulating-and-limiting-the-proliferation-of-armed-drones-norms-and-challenges.

[28] “Updates on Saudi National Atomic Energy Project (SNAEP),” Second Meeting of the Technical Working Group for Small and Medium-sized or Modular Reactor (TWG-SMR), Saudi National Atomic Energy Project, July 2019, p. 15, available at https://nucleus.iaea.org/sites/htgr-kb/twg-smr/Documents/TWG-2_2019/B07_Updates%20on%20Saudi%20National%20Atomic%20Energy%20Project%20(SNAEP)%20for%20IAEA%20SMR-TWG%2020190708.pdf; “China, Saudi Arabia agree to build HTR,” World Nuclear News, January 20, 2016, available at https://www.world-nuclear-news.org/NN-China-Saudi-Arabia-agree-to-build-HTR-2001164.html.

[29] “CNNC and Saudi Arabia Expedite Uranium and Thorium Collaborations,” Press Release, China National Nuclear Corporation, September 01, 2017, available at http://en.cnnc.com.cn/2017-09/01/c_101806.htm.

[30] “Memorandum of Understanding Signed for the Joint Venture Company of the Saudi High Temperature Reactor Desalination Project,” China Nuclear Power Information Network, August 29, 2017, available at http://www.heneng.net.cn/index.php?mod=news&category_id=8?oclnynhfkbtdgmyn&action=show&article_id=46812 (in Chinese).

[31] Emma Graham-Harrison, Stephanie Kirchgaessner, and Julian Borger, “Revealed: Saudi Arabia May Have Enough Uranium Ore to Produce Nuclear Fuel,” the Guardian, September 17, 2020, available at https://www.theguardian.com/world/2020/sep/17/revealed-saudi-arabia-may-have-enough-uranium-ore-to-produce-nuclear-fuel.

[32] “President Li Ziying Led a Delegation to Visit Saudi Arabia’s Deputy Minister of Industry and Mining Mudaifei,” Press Release, Beijing Research Institute of Uranium Geology, November 6, 2019, available at http://www.briug.cn/index.php?m=content&c=index&a=show&catid=23&id=1569 (in Chinese).

[33] David Albright, Jacqueline Shire, and Paul Brannan, “Is Iran Running out of Yellowcake?,” Institute for Science and International Security, February 11, 2009, p. 2, available at https://isis-online.org/uploads/isis-reports/documents/Iran_Yellowcake_11Feb2009.pdf.

[34] Prepared Testimony by Gary Milhollin Before the Senate Foreign Relations Committee Hearing: The Arming of Iran, May 6, 1997, available at https://www.iranwatch.org/library/governments/united-states/congress/hearings-prepared-statements/prepared-testimony-gary-milhollin-senate-foreign-relations-committee-hearing-0.

[35] “Implementation of the NPT Safeguard Agreement in the Islamic Republic of Iran,” International Atomic Energy Agency, GOV/2003/75, November 10, 2003, annex 1, p. 1, available at https://www.iaea.org/sites/default/files/gov2003-75.pdf.

[36] For a complete list of Iran’s declared and suspected nuclear sites, see “Table of Iranian Nuclear Sites and Related Facilities,” Iran Watch, updated March 31, 2021, available at https://www.iranwatch.org/our-publications/weapon-program-background-report/table-irans-principal-nuclear-facilities.

[37] “Executive Summary of the Report of the Commission to Assess the Ballistic Missile Threat to the United States,” Commission To Assess the Ballistic Missile Threat to the United States, July 15, 1998, available at https://fas.org/irp/threat/bm-threat.htm.

[38] “Treasury Designates U.S. and Chinese Companies Supporting Iranian Missile Proliferation,” Press Release, U.S. Department of the Treasury,  June 13, 2006, available at http://www.treasury.gov/press-center/press-releases/Pages/js4317.aspx.

[39] “Treasury Designates the IRGC under Terrorism Authority and Targets IRGC and Military Supporters under Counter-Proliferation Authority,” Press Release, U.S. Department of the Treasury, October 13, 2017, available at https://www.treasury.gov/press-center/press-releases/Pages/sm0177.aspx.

[40] “New Sanctions under the Iran, North Korea, and Syria Nonproliferation Act (INKSNA),” Press Release, U.S. Department of State, February 25, 2020, available at https://2017-2021.state.gov/new-sanctions-under-the-iran-north-korea-and-syria-nonproliferation-act-inksna/index.html.

[41] “Organization,” China Aerospace Science and Technology Corporation World Wide Web site, available at http://english.spacechina.com/n16421/n17138/n2357690/index.html.

[42] Shirley A. Kan, “China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues,” Congressional Research Service, January 5, 2015, pp. 18-19, available at https://fas.org/sgp/crs/nuke/RL31555.pdf.

[43] “Treasury Designates the IRGC under Terrorism Authority and Targets IRGC and Military Supporters under Counter-Proliferation Authority,” Press Release, U.S. Department of the Treasury, October 13, 2017, available at https://www.treasury.gov/press-center/press-releases/Pages/sm0177.aspx; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2013/337, June 11, 2013, pp. 26-28, available at https://undocs.org/S/2013/337; “Brief Introduction of Space Sanjiang,” China Space Sanjiang Group Co., Ltd. World Wide Web site, available at http://www.yzjs.casic.cn/n13740039/n13740062/c13740102/content.html (in Chinese).

[44] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2016/157, February 24, 2016, pp. 39-40, available at https://undocs.org/S/2016/157.

[45] Joost Oliemans and Stijn Mitzer, “N.Korea’s ‘conservative’ display contrasts with past WPK celebrations,” NK News, October 10, 2015, available at https://www.nknews.org/2015/10/analysis-of-new-updated-equipment-in-october-10-parade/; “Group Profile,” China National Heavy Duty Truck Group Co., Ltd. World Wide Web site, available at http://www.cnhtc.com.cn/View/AboutGroup.aspx (in Chinese); China National Heavy Duty Truck Group Co., Ltd., National Enterprise Credit Information Publicity System, available at http://www.gsxt.gov.cn/.

[46] Shirley A. Kan, “China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues,” Congressional Research Service, January 5, 2015, pp. 20-21, available at https://fas.org/sgp/crs/nuke/RL31555.pdf; Michael Laufer, “A. Q. Khan Nuclear Chronology,” Carnegie Endowment for International Peace, September 7, 2005, available at https://carnegieendowment.org/2005/09/07/a.-q.-khan-nuclear-chronology-pub-17420; S.S. Hecker, R.L. Carlin, and E.A. Serbin, “A technical and political history of North Korea’s nuclear program over the past 26 years,” Center for International Security and Cooperation, Stanford University, May 24, 2018, available at https://fsi-live.s3.us-west-1.amazonaws.com/s3fs-public/narrativescombinedfinv2.pdf.

[47] Cholpon Orozobekova and Marc Finaud, “Regulating and Limiting the Proliferation of Armed Drones: Norms and Challenges,” Geneva Centre for Security Policy, August 2020, pp. 15-17, available at https://dam.gcsp.ch/files/doc/regulating-and-limiting-the-proliferation-of-armed-drones-norms-and-challenges.

[48] U.N. Security Council resolution 2094 (2013), March 7, 2013, p. 3, available at https://www.undocs.org/S/RES/2094(2013); U.N. Security Council resolution 2270 (2016), March 2, 2016, pp. 3-4, available at https://www.undocs.org/S/RES/2270(2016); U.N. Security Council resolution 2321 (2016), November 30, 2016, p. 7, available at https://www.undocs.org/S/RES/2321(2016);

[49] U.N. Security Council resolution 2371 (2017), August 5, 2017, p. 9, available at https://undocs.org/S/RES/2371(2017).

[50] Indictment, United States of America v. Ko Chol Man et al., U.S. District Court for the District of Columbia, Case No. 1:20-cr-32-RC, February 5, 2020, available via PACER.

[51] Verified Complaint for Forfeiture In Rem and Civil Complaint, United States of America v. $4,083,935.00 of Funds Associated with Dandong Chengtai Trading Limited et al., U.S. District Court for the District of Columbia, Case No. 1:17-cv-01706, August 22, 2017, pp. 2-3, 15-16, 19-20, available at https://www.justice.gov/usao-dc/press-release/file/992451/download; “Treasury Targets Chinese and Russian Entities and Individuals Supporting the North Korean Regime,” Press Release, U.S. Department of the Treasury, August 22, 2017, available at https://www.treasury.gov/press-center/press-releases/Pages/sm0148.aspx.

[52] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2020/840, August 28, 2020, pp. 43-44, available at https://undocs.org/S/2020/840; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2021/211, March 4, 2021, p. 56, available at https://undocs.org/S/2021/211; “Two Chinese Nationals Charged with Laundering Over $100 Million in Cryptocurrency From Exchange Hack,” Press Release, U.S. Department of Justice, March 2, 2020, available at https://www.justice.gov/opa/pr/two-chinese-nationals-charged-laundering-over-100-million-cryptocurrency-exchange-hack.

[53] U.N. Security Council resolution 2397 (2017), December 22, 2017, p. 4, available at https://undocs.org/S/RES/2397(2017).

[54] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2020/840, August 28, 2020, pp. 33-34, available at https://undocs.org/S/2020/840.

[55] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2021/211, March 4, 2021, p. 48, available at https://undocs.org/S/2021/211.

[56] “Treasury Sanctions North Korean Overseas Representatives, Shipping Companies, and Chinese Entities Supporting the Kim Regime,” Press Release, U.S. Department of the Treasury, January 24, 2018, available at https://home.treasury.gov/news/press-releases/sm0257; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2019/171, March 5, 2019, p. 32, available at https://undocs.org/S/2019/171.

[57] Since 2018, the United Nations has restricted the sale of refined petroleum products to North Korea, with the first 500,000 barrels exempted each year. See U.N. Security Council resolution 2397 (2017), December 22, 2017, pp. 2-3, available at https://undocs.org/S/RES/2397(2017).

[58] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2019/171, March 5, 2019, p. 7, available at https://undocs.org/S/2019/171; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2020/151, March 2, 2020, pp. 7-8, available at https://undocs.org/S/2020/151; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2021/211, March 4, 2021, pp. 14-15, available at https://undocs.org/S/2021/211.

[59] “Supply, sale or transfer of all refined petroleum products to the DPRK,” 1718 Sanctions Committee (DPRK), United Nations, available at https://www.un.org/securitycouncil/sanctions/1718/supply-sale-or-transfer-of-all-refined-petroleum; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2019/171, March 5, 2019, pp. 7-8, 81, available at https://undocs.org/S/2019/171; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2020/151, March 2, 2020, pp. 7-8, available at https://undocs.org/S/2020/151.

[60] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2020/151, March 2, 2020, pp. 16-19, available at https://undocs.org/S/2020/151.

[61] Christoph Koettl, “How Illicit Oil Is Smuggled Into North Korea With China’s Help,” New York Times, March 24, 2021, available at https://www.nytimes.com/2021/03/24/world/asia/tankers-north-korea-china.html; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2020/151, March 2, 2020, pp. 106-108, available at https://undocs.org/S/2020/151.

[62] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2021/211, March 4, 2021, pp. 28-32, 218-224, available at https://undocs.org/S/2021/211.

[63] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2019/171, March 5, 2019, p. 32, available at https://undocs.org/S/2019/171.

[64] “Company Profile,” Shanghai Zhen Tai Instrument Co., Ltd. World Wide Web site, available at http://en.shzhentai.com/intro/1.html.

[65] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2017/150, February 27, 2017, p. 27, available at https://undocs.org/S/2017/150.

[66] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2017/150, February 27, 2017, p. 28, available at https://undocs.org/S/2017/150; “North Korea Ballistic Missile Procurement Advisory,” U.S. Departments of Commerce, State, and the Treasury, September 1, 2020, available at https://home.treasury.gov/system/files/126/20200901_nk_ballistic_missile_advisory.pdf.

[67] List of Sanctioned Entities, U.S. Department of State, available at https://www.state.gov/key-topics-bureau-of-international-security-and-nonproliferation/nonproliferation-sanctions/.

[68] “Karl Lee Charged in Manhattan Federal Court with Using a Web of Front Companies to Evade U.S. Sanctions,” Press Release, Federal Bureau of Investigation, New York Field Office,, April 29, 2014, available at https://www.fbi.gov/contact-us/field-offices/newyork/news/press-releases/karl-lee-charged-in-manhattan-federal-court-with-using-a-web-of-front-companies-to-evade-u.s.-sanctions.

[69] Daniel Liu, “Karl Lee, where is he now?,” Project Alpha, October 26, 2018, available at https://www.kcl.ac.uk/news/karl-lee-where-is-he-now.

[70] “Adherence to and Compliance with Arms Control, Nonproliferation, and Disarmament Agreements and Commitments,” U.S. Department of State, August 2019, p. 42, available at https://www.state.gov/wp-content/uploads/2019/08/Compliance-Report-2019-August-19-Unclassified-Final.pdf.

[71] “Chinese National Detained in United Kingdom for Illegally Exporting U.S. Manufactured Parts with Nuclear Applications,” Press Release, U.S. Immigration and Customs Enforcement, April 4, 2014, available at https://www.ice.gov/news/releases/chinese-national-detained-united-kingdom-illegally-exporting-us-manufactured-parts.

[72] “Extradited Chinese National Sentenced to Nine Years for Providing U.S. Goods to Iran to Support its Nuclear Program,” Press Release, U.S. Department of Justice, January 27, 2016, available at https://www.justice.gov/usao-ma/pr/extradited-chinese-national-sentenced-nine-years-providing-us-goods-iran-support-its.

[73] Ian J. Stewart, “The Chinese Smuggler and the Iran Deal,” the Diplomat, March 21, 2016, available at https://thediplomat.com/2016/03/the-chinese-smuggler-and-the-iran-deal/.

[74] “Two Indicted for Alleged Efforts to Supply Iran with U.S.-Materials for Gas Centrifuges to Enrich Uranium,” Press Release, U.S. Department of Justice, July 13, 2012, available at https://www.justice.gov/opa/pr/two-indicted-alleged-efforts-supply-iran-us-materials-gas-centrifuges-enrich-uranium.

[75] Government’s Motion to Dismiss Indictment, United States of America v. Parviz Khaki and Zongcheng Yi, U.S. District Court for the District of Columbia, Case No. 1:12-cr-00061-RWR, Document 10, August 7, 2020, available via PACER.

[76] “Treasury Targets Persons Supporting Iranian Military and Iran’s Islamic Revolutionary Guard Corps,” Press Release, U.S. Department of the Treasury, July 18, 2017, available at https://www.treasury.gov/press-center/press-releases/Pages/sm0125.aspx.

[77] “Services,” Rayan Group World Wide Web site, available at https://web.archive.org/web/20160317035631/http://www.raygr.com/services.html; Homepage, Rayan Group World Wide Web site, available at https://web.archive.org/web/20161006050653/http://www.raygr.com/.

[78] “Treasury Targets Persons Supporting Iranian Military and Iran’s Islamic Revolutionary Guard Corps,” Press Release, U.S. Department of the Treasury, July 18, 2017, available at https://www.treasury.gov/press-center/press-releases/Pages/sm0125.aspx.

[79] Mana Mostatabi, “Illicit Procurement Network Used Firms in China, Portugal, and Turkey to Supply Iran,” Iran Watch, October 31, 2018, available at https://www.iranwatch.org/our-publications/international-enforcement-actions/illicit-procurement-network-used-firms-china-portugal-turkey-supply-iran.

[80] “Carbon Fiber Seized en Route to Iranian Businessman with Ties to Georgia and Hong Kong,” Iran Watch, August 20, 2014, available at https://www.iranwatch.org/our-publications/international-enforcement-actions/carbon-fiber-seized-en-route-iranian-businessman-ties-georgia-hong-kong; “Final report of the Panel of Experts established pursuant to resolution 1929 (2010),” United Nations, June 11, 2014, available at https://undocs.org/S/2014/394.

[81] “Iran-Bound Rocket Fuel Component Seized in Singapore,” Iran Watch, September 1, 2011, available at https://www.iranwatch.org/our-publications/enforcement-news-summary/iran-bound-rocket-fuel-component-seized-singapore; “Final report of the Panel of Experts established pursuant to resolution 1929 (2010),” United Nations, May 1, 2011, available at https://www.iranwatch.org/library/international-organization/united-nations-un/un-security-council/final-report-panel-experts-established-pursuant-resolution-1929-2010-0.

[82] Indictment, United States of America v. Susan Yip, Mehrdad Foomanie, and Mehrdad Ansari, U.S. District Court, Western District of Texas, San Antonio Division, Case No. 5:11-cr-00516-XR, June 15, 2011, available at https://www.iranwatch.org/library/governments/united-states/judicial-branch/indictment-susan-yip-mehrdad-foomanie-mehrdad-ansari.

[83] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2016/157, February 26, 2016, pp. 29-30, 118-120, available at https://undocs.org/S/2016/157; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2012/422, June 14, 2012, p. 24, available at https://undocs.org/S/2012/422.

[84] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2013/337, June 11, 2013, pp. 36-37, 103-105, available at https://undocs.org/S/2013/337; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2012/422, June 14, 2012, p. 29, available at https://undocs.org/S/2012/422.

[85] “Report of the Panel of Experts established pursuant to Resolution 1874 (2009),” United Nations, S/2014/147, March 6, 2014, pp. 20-21, available at https://undocs.org/S/2014/147.

[86] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2010/571, November 5, 2010, pp. 25-26, available at https://undocs.org/S/2010/571; “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations, S/2012/422, June 14, 2012, pp. 27-28, available at https://undocs.org/S/2012/422.

[87] “Joint Press Release by Bruno Le Maire and Jean-Yves Le Drian, Chemical Weapons in Syria – asset freezing against individuals and entities,” French Ministry for Europe and Foreign Affairs, May 18, 2018, available at https://minefi.hosting.augure.com/Augure_Minefi/r/ContenuEnLigne/Download?id=A8547195-27F0-4BC9-A808-66B5A4880B3F&filename=491.pdf (in French); “Order of 17 May 2018 Implementing Articles L. 562-3 et seq. of the Monetary and Financial Code,” French Ministry of Economy and Finances, Text No. 26, May 18, 2018, available at https://www.legifrance.gouv.fr/eli/arrete/2018/5/17/ECOT1813353A/jo/texte/fr (in French); “Joint Press Release from Messrs. Le Drian and Le Maire,” French Ministry for Europe and Foreign Affairs, January 23, 2018, available at https://www.diplomatie.gouv.fr/fr/politique-etrangere-de-la-france/desarmement-et-non-proliferation/evenements-lies-au-desarmement-et-a-la-non-proliferation/evenements-lies-aux-armes-chimiques/article/communique-de-presse-conjoint-de-mm-le-drian-et-le-maire-23-janvier-2018 (in French).

[88] “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,” U.S. Director of National Intelligence, available at http://fas.org/irp/threat/wmd-acq2011.pdf.

[89] “Addition of Entities to the Entity List, and Revision of Entries on the Entity List,” U.S. Department of Commerce, Bureau of Industry and Security, Federal Register, Vol. 85, No. 167, August 27, 2020, pp. 52898-52899, 52904, available at https://www.govinfo.gov/content/pkg/FR-2020-08-27/pdf/2020-18909.pdf.

[90] “Taihe Electric (Hong Kong) Limited,” PakTradeInfo World Wide Web site, available at http://www.paktradeinfo.com/international-trade/pakistan/import/1/buyername()-sellername(taihe-electric)-itemdesc()-startdate()-enddate()/.

[91] “Newly Unsealed Federal Indictment Charges Iranian Businessman with Illegally Exporting Nuclear Nonproliferation-Controlled Materials from Illinois,” Press Release, U.S. Department of Justice, June 21, 2018, available at https://www.justice.gov/usao-ndil/pr/newly-unsealed-federal-indictment-charges-iranian-businessman-illegally-exporting-0; “Business World,” Paktradeinfo World Wide Web site, available at http://www.paktradeinfo.com/international-trade/pakistan/import/1/buyername(pakistan-atomic-energy-commission)-sellername()-itemdesc()-startdate()-enddate().

[92] For instance, through such collaboration China gained access to computer aided design (CAD) software and commercial naval engine design and construction methods and learned how to engineer complex systems like civilian turbofan aero-engines. See Evan S. Meideros, Roger Cliff, Keith Crane, and James C. Mulvenon, A New Direction for China’s Defense Industry (Santa Monica, CA: RAND Corporation), 2005, pp. 131, 141-142, 170, available at https://www.rand.org/pubs/monographs/MG334.html.

[93] “U.S. China Commission Export Controls and China,” Hearing Transcript, U.S.-China Economic and Security Review Commission, January 17, 2002, p. 1069, available at https://www.uscc.gov/sites/default/files/transcripts/1.17.02HT.pdf.

[94] “Action Affecting Export Privileges; TAL Industries, Inc.,” U.S. Department of Commerce, Bureau of Export Administration, Federal Register, Vol. 66, No. 100, May 23, 2001, available at https://www.gpo.gov/fdsys/pkg/FR-2001-05-23/pdf/01-13024.pdf.

[95] “Westinghouse signs deal to build 4 nuclear reactors in eastern China,” New York Times, July 24, 2007, available at https://www.nytimes.com/2007/07/24/business/worldbusiness/24iht-energy.1.6800478.html.

[96] Indictment, United States of America v. Wang Dong et al., U.S. District Court for the Western District of Pennsylvania, Case No. 2:14-cr-118, May 1, 2014, available at https://www.justice.gov/iso/opa/resources/5122014519132358461949.pdf.

[97] Austin Ramzy, “Charges of Chinese Cyberspying, Wanted Posters,” New York Times, May 20, 2014, available at https://sinosphere.blogs.nytimes.com/2014/05/20/charges-of-chinese-cyberspying-wanted-posters-included/.

[98] “Hualong One – HPR 1000,” China National Nuclear Corporation World Wide Web site, available at http://en.cnnc.com.cn/HPR1000.html; “Products,” China National Nuclear Corporation World Wide Web site, available at http://en.cnnc.com.cn/cnncproducts.html.

[99] Indictment, United States of America v. Terry Tengfang Li and Nei-Chien Chu, United States District

Court, District of New Jersey, July 28, 2004; “Order Relating to Terry Tengfang Li (AKA ‘Terry Li’),” U.S. Department of Commerce, Bureau of Industry and Security, June 23, 2006, available at https://efoia.bis.doc.gov/index.php/documents/export-violations/681-e991/file.

[100] “Enterprise Summary,” 14th Institute of China Electronics Technology Group Corporation World Wide Web site, available at https://web.archive.org/web/20201015030722/http://14.cetc.com.cn/14/338552/338540/index.html (in Chinese); “Enterprise Summary,” 20th Institute of China Electronics Technology Group Corporation World Wide Web site, available at http://webcache.googleusercontent.com/search?q=cache%3A%2F%2F20.cetc.com.cn%2F20%2F338813%2F338801%2Findex.html&oq=cache%3A%2F%2F20.cetc.com.cn%2F20%2F338813%2F338801%2Findex.html (in Chinese).

[101] Indictment, United States of America v. Hong Wei Xian aka “Harry Zan” and Li Li aka “Lea Li”, U.S. District Court for the Eastern District of Virginia, Case No. 1:10-cr-00207-GBL, June 10, 2010, pp. 5-7, available via PACER.

[102] “2 Chinese nationals charged with illegally attempting to export military satellite components to the PRC,” Press Release, U.S. Immigration and Customs Enforcement, April 4, 2011, available at https://www.ice.gov/news/releases/2-chinese-nationals-charged-illegally-attempting-export-military-satellite-components; “2 Chinese nationals pleaded guilty to illegally attempting to export radiation-hardened microchips to the PRC,” Press Release, U.S. Immigration and Customs Enforcement, May 31, 2011, available at https://www.ice.gov/news/releases/2-chinese-nationals-pleaded-guilty-illegally-attempting-export-radiation-hardened.

[103] Indictment, United States of America v. Szuhsiung Ho, et al., U.S. District Court, Eastern District of Tennessee, Case No. 3:16-cr-00046, April 5, 2016, p. 2, available via PACER.

[104] “U.S. Nuclear Engineer, China General Nuclear Power Company and Energy Technology International Indicted in Nuclear Power Conspiracy against the United States,” Press Release, U.S. Department of Justice, April 14, 2016, available at https://www.justice.gov/opa/pr/us-nuclear-engineer-china-general-nuclear-power-company-and-energy-technology-international.

[105] “Chinese National Pleads Guilty to Illegal Exports to Northwestern Polytechnical University,” Press Release, U.S. Department of Justice, April 28, 2021, available at https://www.justice.gov/opa/pr/chinese-national-pleads-guilty-illegal-exports-northwestern-polytechnical-university.

[106] “Chinese Intelligence Officer Charged with Economic Espionage Involving Theft of Trade Secrets from Leading U.S. Aviation Companies,” Press Release, U.S. Department of Justice, October 10, 2018, available at https://www.justice.gov/opa/pr/chinese-intelligence-officer-charged-economic-espionage-involving-theft-trade-secrets-leading.

[107] Affidavit in Support of Criminal Complaint, United States of America  v. Xu Yanjun, U.S. District Court for the Southern District of Ohio, Case No. 1118MJ-190, March 21, 2018, pp. 3-4, 6-11, available at https://www.justice.gov/opa/press-release/file/1099881/download.

[108] “Two Chinese Hackers Associated With the Ministry of State Security Charged with Global Computer Intrusion Campaigns Targeting Intellectual Property and Confidential Business Information,” Press Release, U.S. Department of Justice, December 20, 2018, available at https://www.justice.gov/opa/pr/two-chinese-hackers-associated-ministry-state-security-charged-global-computer-intrusion.

[109] “North Korea Ballistic Missile Procurement Advisory,” U.S. Departments of Commerce, State, and the Treasury, September 1, 2020, available at https://home.treasury.gov/system/files/126/20200901_nk_ballistic_missile_advisory.pdf; “North Korea Sanctions Advisory: Updated Guidance on Addressing North Korea’s Illicit Shipping Practices,” U.S. Departments of State and the Treasury and the U.S. Coast Guard, March 21, 2019, available at https://home.treasury.gov/system/files/126/dprk_vessel_advisory_03212019.pdf; “North Korea Sanctions and Enforcement Actions Advisory: Risks for Businesses with Supply Chain Links to North Korea,” U.S. Departments of Homeland Security, State, and the Treasury, July 23, 2018, available at https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf.

[110] “Executive Order 14032 of June 3, 2021 – Addressing the Threat From Securities Investments That Finance Certain Companies of the People’s Republic of China,” the White House, Federal Register, Vol. 86, No. 107, June 7, 2021, pp. 30145-30149, available at https://www.govinfo.gov/content/pkg/FR-2021-06-07/pdf/2021-12019.pdf.

[111] The “Seven Sons of National Defense” are Beihang University, Beijing Institute of Technology, Harbin Engineering University, Harbin Institute of Technology, Nanjing University of Aeronautics and Astronautics, Nanjing University of Science and Technology, and Northwest Polytechnical University. The other two universities are Sichuan University and the University of Electronic Science and Technology. For the “Seven Sons” see: “The Seven National Defense Schools Including Xi’an University of Technology Hosted the ‘2017 National Defense Seven Schools’ Sichuan Key Central School Leadership Forum,” Northwest Polytechnical University World Wide Web site, November 13, 2017, available at https://news.nwpu.edu.cn/info/1002/52306.htm (in Chinese); for the Entity List, see: “Supplement No. 4 to Part 744 – Entity List,” U.S. Department of Commerce, Bureau of Industry and Security, June 1, 2021, pp. 32, 36, 90, 130, 135, 154, 170, available at https://www.bis.doc.gov/index.php/documents/regulations-docs/2326-supplement-no-4-to-part-744-entity-list-4/file.

[112]  “Jilin University was Included in the 13th Five Year Plan of SASTIND and the Ministry of Education,” Jilin University World Wide Web site, July 6, 2017, available at https://web.archive.org/web/20191011004621/https://news.jlu.edu.cn/info/1021/42984.htm (in Chinese); “National Defense Science and Technology Key Laboratory Management Methods,” Harbin Institute of Technology Architecture School World Wide Web site, April 1, 2017, available at https://web.archive.org/web/20190522041912/http:/jzxy.hit.edu.cn/2018/0518/c10586a208951/page.htm (in Chinese).

[113] “DOD Releases List of Chinese Military Companies in Accordance With Section 1260H of the National Defense Authorization Act for Fiscal Year 2021,” Press Release, U.S. Department of Defense, June 3, 2021, available at https://www.defense.gov/Newsroom/Releases/Release/Article/2645126/dod-releases-list-of-chinese-military-companies-in-accordance-with-section-1260/.

[114] “Beihang University,” 2018 Fair Company Info, MIT Asia Club World Wide Web site, available at http://asianclub.mit.edu/2018/beihang-university.

India’s Expanding Missile Force

Test Launch of the K-15 (aka B0-5) SLBM, January 2013 (Courtesy: Defense Research and Development Organization (DRDO))

This chart provides information on India’s arsenal of ballistic and cruise missiles. It is updated on a rolling basis to include the dates of the latest tests and other developments as they occur. An asterisk beside a data point indicates that this information did not come from an official source but from a reliable, secondary source.

NameTypeRangeStages/FuelPayload CapacityLast Reported TestInducted?Nuclear Capable?
Prithvi-IBallistic150 kmSingle/Liquid800 kg*May 2007Y(a)Y
Prithvi-IIBallistic350 kmSingle/Liquid500-1,000 kgOctober 2020*YY
DhanushBallistic350 kmSingle/Liquid500 kgFebruary 2018*Y*Y
Agni-IBallistic700-900 kmSingle/Solid*1,000 kg*October 2018*YY*
Agni-IIBallistic2,000 kmTwo/Solid1 tonNovember 2019*YY
Agni-IIIBallistic3,500 kmTwo/Solid1.5 tonsNovember 2019(b)*YY*
Agni-IVBallistic4,000 kmTwo/Solid1,000 kg*December 2018*Y*Y
Agni-VBallistic+5,000 kmThree/Solid1,000 kg*December 2018NY
PrahaarBallistic150 kmSingle/Solid200 kgSeptember 2018*N*N*
PragatiBallistic*60-170 km*Single/Solid*200 kgNot TestedN*N*
K-15 (aka B0-5)SLBM(c)750 km*Two/Solid*1,000 kg*August 2018*Y*Y*
K-4SLBM*3,500 km*Two/Solid*UnknownJanuary 2020*(d)N*Y*
BrahMosCruise290-500 km*Two/Solid and Liquid(e)200-300 kgOctober 2020(f)N-I: Y

B-I: Y

B-II: Y

B-III: Y*

ALCM: N*

SLCM: N*
N
NirbhayCruise1,000 kmTwo/solid and liquid(g)450 kg*April 2019N*Y*
Hypersonic Technology Demonstrator Vehicle (HSTDV)Cruise(h)UnknownOne/liquid(i)UnknownSeptember 2020N*Unknown


Footnotes:
a. The Prithvi-I will reportedly be withdrawn from service and upgraded.

b. This test was reportedly not successful.

c. Submarine-Launched Ballistic Missile.

d. India reportedly conducted two tests of the K-4 in January: one on January 19 and another on January 24.

e. The boost phase is solid-fueled while the cruise phase is powered by a liquid ramjet engine.

f. The BrahMos is deployed on multiple platforms. Each deployment has its own designation. N-I refers to deployments on surface naval vessels. Blocks (B) I-III refer to deployments with the Indian Army. ALCM refers to Air-Launched Cruise Missiles and SLCM refers to Submarine-Launched Cruise Missiles.

g. The boost phase is solid-fueled while the cruise phase is powered by a liquid turbofan engine.

h. The HSTDV is comprised of hypersonic cruise missile technologies.

i. In its first test, the HSTDV was reportedly launched on board an Agni-I, which was to bring it to testing altitude. The vehicle itself is powered by a supersonic combustion ramjet (scramjet) engine fueled by kerosene.

DPRK Advisory: Seller Beware!

WorldECR
October 2020

On 1 September 2020, the US departments of Commerce, State, and the Treasury published an advisory on North Korea’s illicit ballistic missile procurement activities, aimed at helping industry prevent such procurement.[1] The advisory includes a list of items sought by North Korea for use in ballistic missiles that fall below export control thresholds – one of the first such lists publicly released by the US government in relation to North Korean procurement. This information will help countries improve the implementation of catch-all controls, as required by UN Security Council resolution 2270, and support enhanced due diligence by private sector actors that manufacture and trade these items, including the electronics, chemical, metals, and materials industries.

The advisory also provides information about North Korea’s procurement and sanctions evasion techniques, lists key entities involved in acquiring items for the country’s ballistic missile programme, and offers guidance on how the private sector can avoid being exploited by North Korea through the development of compliance programmes.

Procurement techniques

Despite North Korea’s increasingly robust indigenous missile development, the country continues to rely on foreign-sourced components that it is not able to produce domestically. To acquire these components, North Korea uses various illicit techniques to evade sanctions and deceive suppliers. The advisory highlights a number of these tactics.

First, North Korea employs extensive overseas networks of procurement agents. These agents often operate under the guise of North Korean diplomatic missions and trade offices to avoid detection. Kim Su Il, an official of North Korea’s Munitions Industry Department (‘MID’), which oversees the country’s ballistic missile programme, was sanctioned by the United States in 2019 for conducting business on behalf of MID in Vietnam. He is also reportedly connected to a North Korean trading company that has attempted to transfer ballistic missile technology to Libya. In an earlier example, two diplomats based out of North Korea’s trade office in Belarus were arrested in Ukraine in 2011 for attempting to gain access to ballistic missile design information.

Other key entities linked to North Korea’s ballistic missile programme that deploy overseas representatives include Korea Ryonbong General Corporation, which has maintained representatives in China and Russia, and Korea Mining Development Trading Corporation (‘KOMID’), North Korea’s primary arms dealer and exporter of ballistic missile-related equipment. According to a March report by a UN Panel of Experts, KOMID currently has two representatives based in Iran, Ha Won Mo and Kim Hak Chol.[2]

Second, North Korea collaborates with foreign-incorporated companies and third-country nationals to acquire commercial components used in ballistic missiles. These foreign companies purchase items directly from manufacturers and distributors and repackage them for shipment to North Korea, obfuscating the ultimate end-user. These entities also mislabel sensitive goods in export documentation, falsely declaring specialised goods as general-purpose items.

The advisory cites the example of debris recovered from an Unha-3 rocket launch in 2012, which showed that North Korea had acquired foreign-produced components that were used in the rocket, including pressure transmitters manufactured in the United Kingdom. North Korea acquired these pressure transmitters in 2006 and 2010 from a Taiwan-based company, Royal Team Corporation (‘RTC’), which purchased them from the United Kingdom-based manufacturer. RTC continued to acquire pressure transmitters from the manufacturer even after two of its employees were convicted in Taiwan in 2008 of exporting strategic articles to North Korea via Macau and Beijing. RTC employed a complex payment system in the transactions to avoid direct transfers to North Korea.[3]

Third, North Korea uses state-controlled, foreign-incorporated front companies to facilitate logistics and transactions for procurements. Mingzheng International Trading Limited, a front company for North Korea’s Foreign Trade Bank, is named in the advisory and has been involved in transactions related to illicit commodity procurement and proliferation finance.

Entities involved in illicit procurement

In addition to MID, Korea Ryonbong General Corporation, and KOMID, the advisory highlights other key entities involved in North Korea’s missile programme and related procurements, including the Second Academy of Natural Sciences (‘SANS’), Second Economic Committee (‘SEC’), and Korea Tangun Trading Corporation. SANS and SEC oversee the research, development, and production of North Korea’s weapons systems and ballistic missiles. Korea Tangun Trading Corporation is subordinate to SANS and has been involved in procurement for North Korea’s defence programmes.

The advisory also mentions a number of entities sanctioned by the United States that support North Korea’s weapons procurement. While some of these entities have been involved in missile-related procurement, others have been involved in military-related transfers and proliferation finance. North Korea employs similar tactics across its missile, military, and commodity procurement and proliferation finance networks. Therefore, it is vital for industry to establish compliance programmes tailored to disrupting all North Korean networks. Any of these networks could ultimately be used to facilitate the procurement of missile-related items.

Items used in North Korea’s ballistic missile programme

Perhaps the most notable part of the advisory is the annex listing specific items sought by North Korea for its ballistic missile programme, many of which fall under export control thresholds. The annex serves as an additional resource to support the implementation of ‘catch-all’ controls by listing ‘uncontrolled, and seemingly innocuous, items that may be used in North Korea’s ballistic missile programmes.’ The highlighted items include:

  • Multiple-axle heavy vehicles, which may be used as transporter erector launchers (‘TELs’) for ballistic missiles;
  • Heat-resistant steels and aluminums alloys, including specialty metals containing titanium;
  • Filament winders and other winding equipment;
  • Fibrous materials, including carbon fibre, and related production equipment;
  • Precursor chemicals for propellant;
  • Bearings of certain technical specifications for use in missiles;
  • Other equipment, including electronics and guidance, navigation, and control-related technology.

North Korean imports of these items in the past have been used in ballistic missile development. For example, in 2011 North Korea imported six lumber transporter vehicles from China-based Wuhan Sanjiang Import and Export Co. Ltd. that it converted to TELs.[4] According to press reports, last year North Korea also increased the production of TELs, including those converted from heavy vehicles imported from China, aiming to acquire parts for 70 TELs through trading companies subordinate to MID.[5]

Because many of these goods fall below export control thresholds, the advisory calls on countries to implement ‘catch-all’ controls that require a national authorisation for the export of unlisted items if there is any risk of weapons of mass destruction-related end-use, as required in resolution 2270. Companies should also apply enhanced due diligence measures when supplying these goods to buyers that may forward them to North Korea.

The annex provides detailed technical specifications for the items listed, including common names for particular steel and aluminum alloys, along with their formulations, closest GOST, Chinese, and European standards, the US designation, and alternate metal options.

Recommendations for the private sector

The advisory reiterates well-known compliance recommendations for industry aimed at countering North Korean illicit procurement and reminds companies of their exposure to US sanctions and the civil and criminal penalties that could result from a violation. While the advisory focuses on North Korea’s ballistic missile-related procurement, the compliance programme recommendations it makes are applicable to combatting North Korean illicit procurement in general.

According to the advisory, exposed sectors include the electronics, chemical, metals, and materials industries, along with the financial, transportation, and logistics sectors. Companies operating in these sectors should establish a risk-based approach to sanctions compliance, including the development of a tailored sanctions compliance programme. The advisory highlights a number of additional US government resources related to establishing compliance programmes, including resources provided by the Commerce and Treasury Departments, as well as a May 2020 maritime advisory that discusses best practices for industry to adopt to mitigate exposure to sanctions risk.

Conclusion

The advisory offers industry a useful overview of North Korean procurement techniques and key entities involved in the country’s ballistic missile programme, as well as a helpful compilation of resources companies can use when establishing compliance programmes. However, the most valuable aspect of the advisory is the annex listing a number of items with missile-related applications that are below control thresholds. While the focus of the list is North Korea, the list may also be useful in implementing ‘catch-all’ controls on other countries developing ballistic missile technology in contravention of UN resolutions, such as Iran. The availability of such a list will allow companies in industries that supply and manufacture these items to better screen their buyers and evaluate the potential of diversion to North Korea and other countries.

Treston Chandler is a research associate at the Wisconsin Project on Nuclear Arms Control and assistant editor of The Risk Report database.


Links and Notes:

[1] North Korea Ballistic Missile Procurement Advisory, US Departments of Commerce, State, and the Treasury, 1 September 2020, https://home.treasury.gov/system/files/126/20200901_nk_ballistic_missile_advisory.pdf.

[2] ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 2 March 2020, pp. 48, 151, https://undocs.org/S/2020/151.

[3] ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 6 March 2014, pp. 22-24, https://undocs.org/S/2014/147; ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 23 February 2015, p. 27, https://undocs.org/S/2015/131; ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 24 February 2016, pp. 62-64, https://undocs.org/S/2016/157.

[4] ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 11 June 2013, pp. 26-27, 80, 84, https://undocs.org/S/2013/337; ‘Treasury Designates the IRGC under Terrorism Authority and Targets IRGC and Military Supporters under Counter-Proliferation Authority,’ Press Release, US Department of the Treasury, 13 October 2017, www.treasury.gov/press-center/press-releases/Pages/sm0177.aspx.

[5] Tomotaro Inoue, ‘North Korea mass producing ballistic missile transporters: sources,’ Kyodo News, 23 December 2019, https://english.kyodonews.net/news/2019/12/9966769374c0-n-korea-mass-producing-ballistic-missile-transporters-sources.html.

Iran’s Nuclear Timetable: The Weapon Potential

This timetable estimates how soon Iran could produce the fuel for a small nuclear arsenal. It assumes Iran would try to build an arsenal of five warheads of the implosion type – the goal Iran set for itself when it began to work on nuclear weapons decades ago. With its thousands of gas centrifuges, some operating and some in storage, Iran can enrich uranium to a grade suitable for nuclear reactor fuel or to a higher grade suitable for nuclear weapons. On January 5, 2020, Iran announced that it would no longer observe any limit (such as that set by the nuclear accord of 2015) on the use of its centrifuges, or on the possession of uranium they enrich. The data below estimate the weapon potential of these centrifuges and of Iran’s growing stockpile of enriched uranium. The data come from inspection reports by the International Atomic Energy Agency (IAEA).

Summary

With its known capacity, Iran cannot make a sudden dash to a nuclear arsenal within a practical length of time. Nor will it be able to do so for a few years. Nor would a dash to a single bomb be practical. Such a bomb would have to be tested[1] (consuming all the nuclear material the dash produced), the dash would probably be detected before it could succeed, and would invite retaliation Iran could not deter.

Iran has given no sign that it is contemplating a dash. It has not installed the thousands of centrifuges it has in storage, which would be necessary. Instead, it has expanded testing of more powerful centrifuge models. This suggests that Iran’s primary goal at present is to build better centrifuges.

Thus, the main nuclear weapon risk in Iran is work at secret sites, which Iran has relied on to carry out illicit work in the past. That risk will increase as Iran develops more powerful centrifuges, allowing sites to be smaller and easier to hide. Perfecting such centrifuges is a vital step in the long nuclear game Iran has been playing for decades.

Nuclear Weapon Potential of Iran’s Centrifuges

Iran is operating 5,060 IR-1 centrifuges at the Natanz Fuel Enrichment Plant and 1,044 IR-1 centrifuges at the Fordow Fuel Enrichment Plant in production mode. Iran also has approximately 12,000 IR-1 centrifuges and 1,000 more powerful IR-2m centrifuges in storage at Natanz and has been testing several other more powerful centrifuge models in smaller numbers at the Natanz pilot plant.

The operating centrifuges have thus far produced only low-enriched uranium (LEU), which is suitable for nuclear reactors but not nuclear weapon fuel. The estimates below assume that, in a dash to make weapons, Iran would first use its accumulated stockpile of LEU[2] and then its larger stockpile of natural uranium to produce nuclear weapon fuel. The estimates also assume that the IR-1s currently operating will perform at the same rate as they have in the past.[3]

Estimated minimum time it would take Iran’s 6,104 IR-1 centrifuges presently operating in production mode to produce fuel for
One bomb:[4]At least 2.3 months[5]
Five bombs:At least 3.5 years[6]

These estimates are the minimum theoretical times it would take Iran’s known installed centrifuges, operating continuously at their proved capacity, to accomplish the required amount of work. The time actually needed in practice would be greater. In addition, the enriched uranium produced would be in a gaseous compound. It would take additional time to convert the uranium in the gas to metallic form, and then to cast and machine the metal into bomb components. And even then, the uranium would only be a threat if Iran had already perfected all the other parts needed for a working bomb, such as the high explosives and firing circuit, and had made sure the parts would work together to achieve a nuclear explosion. There is ample evidence in the public domain that Iran has tried to achieve that goal (see Weaponization below), but no conclusive evidence that it has succeeded.

Nuclear weapon potential of Iran’s low-enriched uranium

Iran would need about 685 kg of reactor-grade uranium to fuel one bomb.[7] Iran most likely had more than that amount as of February 19, 2020[8] and has been adding to the stockpile.[9] Such uranium would need to be further enriched to weapon-grade.

Estimated minimum time it would take Iran’s 6,104 IR-1 centrifuges to make enough reactor grade uranium to fuel (after further enrichment)
One bomb:Possibly zero time[10]
Five bombs:At least 2.5 years[11]

Enriching uranium to reactor grade accomplishes most (about two-thirds) of the work needed to reach weapon grade. Thus, a dash to weapons could succeed much faster by starting with reactor grade uranium than by starting with natural uranium. For that reason, a substantial stockpile of reactor grade uranium in gaseous form is a strategic risk. Iran had accumulated such a stockpile, over 16,000 kg, before the conclusion of the nuclear accord.

The periods of time above, however, do not pose such a risk. It will take Iran at least 2.5 years to accumulate a dangerous amount of reactor grade uranium with the centrifuges now installed in production mode. To reduce that time Iran would have to remove from storage and install many thousand more centrifuges. Such an act would alarm many countries, and could invite an attack. If Iran did add more centrifuges, it would still have to enrich the reactor grade uranium further to weapon grade, which would take additional time, as illustrated below for the centrifuges it presently deploys.

Estimated minimum time it would it take Iran’s 6,104 IR-1 centrifuges, starting with sufficient reactor grade uranium, to enrich the uranium further to weapon grade for
One bomb:At least 2.3 months[12]
Five bombs:At least one year[13]

To fuel a small arsenal, reactor grade uranium needs to be enriched further to about 90% U-235 (the isotope of uranium that explodes in fission bombs). Such enrichment would take a full year, however, with the centrifuges Iran presently deploys. To shorten the time, Iran would have to install thousands more centrifuges, which would alarm many countries and could invite an attack, as stated above. In addition, even after enriching to weapon grade, the uranium in gaseous form would have to be converted to metal, and the metal cast and machined into bomb components, as described above. Such an extended period of time precludes a dash to an arsenal.

The Risk of Secret Sites

Western intelligence agencies have long been unanimous in one prediction:  if Iran makes nuclear weapons, it will do so at secret sites. The reasons are clear. If, in a dash to make weapons, Iran were to divert known (and therefore inspected) sites, material, or equipment to bomb making, it would risk detection before success, would violate the Nuclear Nonproliferation Treaty and would make itself an international pariah. It would also invite an attack on the very sites, material and equipment it diverted. No country has ever chosen to make an illicit diversion and dash to weapons, probably for the reasons just stated.

The data below reveal that as Iran develops more powerful centrifuges, it will need ever smaller sites to enrich bomb quantities of uranium. And the smaller the site, the more difficult it will be to detect. For example, at its nominal capacity, Iran’s IR-2m centrifuge, of which Iran has about 1,000 in storage, could enrich the same amount of uranium as the IR-1 centrifuge in approximately one-fifth the space. Iran’s enrichment plant at Fordow, which was publicly exposed in 2009, was built clandestinely by Iran to house about 3,000 centrifuges. For this reason, the estimates below use 3,000 centrifuges as the possible size of a secret enrichment plant.

Estimated minimum time it would take 3,000 of Iran’s IR-2m[14] centrifuges operating at nominal capacity and starting with natural uranium to fuel
One bomb:3.2 months[15]
Five bombs:One year and four months[16]

These centrifuges would require only about 32,000 square feet, equal to approximately twice the size of the ice surface of a professional hockey rink.[17] Alternatively, Iran could decide to split these 3,000 IR-2m centrifuges equally among three smaller sites of approximately 11,000 square feet each. That would decrease the size of each site and therefore the likelihood of detection. Each site would be about two-thirds the size of the ice surface of a professional hockey rink.[18]

Estimated minimum time it would take 3,000 of Iran’s model IR-6[19] centrifuges operating at claimed capacity and starting with natural uranium to fuel
One bomb:1.6 months[20]
Five bombs:Eight months[21]

These centrifuges would require approximately the same space as the model IR-2m centrifuges above, or approximately twice the size of the ice surface of a professional hockey rink. The space requirements above reveal that as Iran develops more efficient centrifuges, it will need ever smaller sites to enrich bomb quantities of uranium.

The Status of Weaponization Efforts

The analysis above assumes that Iran would use 16 kg of highly enriched uranium metal (about 90% U-235) in the finished core of each nuclear weapon.[22] Sixteen kilograms are assumed to be sufficient for an implosion bomb. This was the amount called for in a design for such a device that has circulated on the nuclear black market, to which Iran has had access.

Some experts believe that Iran could use less material, assuming Iran would accept a lower yield for each weapon. According to these experts, Iran could use as few as seven kilograms of this material if Iran’s weapon developers possessed a “medium” level of skill, and if Iran were satisfied with an explosive yield slightly less than that of the bomb dropped on Hiroshima, Japan.[23] If Iran chose to use an amount smaller than 16 kg, the time required to make the fuel for each weapon would be less than estimated here. Or, in the amount of time estimated here, Iran could make a greater number of weapons. Iran could decide not to use such a smaller amount of uranium if Iran wanted to have more confidence that its weapons would work, or if it wanted to reduce the size of its weapons by reducing the amount of high explosive.

According to an investigation by the IAEA into “possible military dimensions” of Iran’s nuclear program, Iran had a coordinated nuclear weapon program between 1999 and 2003. Specifically, the IAEA found that Iran developed several components of a nuclear weapon and undertook related research and testing. The investigation revealed Iran’s efforts in the following areas:

  • computer modeling of implosion, compression, and nuclear yield;
  • high explosive tests simulating a nuclear explosion using non-nuclear material in order to see whether an implosion device would work;
  • the construction of at least one containment vessel at a military site, in which to conduct such high explosive tests;
  • studies on detonation of high explosive charges, in order to ensure uniform compression in an implosion device, including at least one large scale experiment in 2003, and experimental research after 2003;
  • support from a foreign expert in developing a detonation system suitable for nuclear weapons and a diagnostic system needed to monitor the detonation experiments;
  • manufacture of a neutron initiator, which is placed in the core of an implosion device and, when compressed, generates neutrons to start a nuclear chain reaction, along with validation studies on the initiator design from 2006 onward;
  • the development of exploding bridgewire detonators (EBWs) used in simultaneous detonation, which are needed to initiate an implosive shock wave in fission bombs;
  • the development of high voltage firing equipment that would enable detonation in the air, above a target, in a fashion only making sense for a nuclear payload;
  • testing of high voltage firing equipment to ensure that it could fire EBWs over the long distance needed for nuclear weapon testing, when a device might be located down a deep shaft; and
  • a program to integrate a new spherical payload onto Iran’s Shahab-3 missile, enabling the missile to accommodate the detonation package described above.

Information obtained by Israeli intelligence and revealed in April 2018 indicates that Iran sought to preserve this program after 2003 by dividing its nuclear program between covert and overt activities and retaining an expert team to continue work on weaponization. This “atomic archive” includes blueprints, spreadsheets, charts, photos, and videos – apparently official Iranian documents – that provide additional detail about Iran’s efforts to develop a working nuclear weapon design that could be delivered on a ballistic missile.

Need for Enriched Uranium?

Iran has no need to enrich uranium for reactor fuel, which is the stated aim of its centrifuge enrichment program. Russia is fueling Iran’s only power reactor (at Bushehr) and stands ready to do so indefinitely at a cost much lower than Iran would incur by enriching the uranium itself.[24]

If Iran did try to make the fuel itself, it is unlikely that Iran could field enough centrifuges to do so within the next ten years, or even longer. A standard sized power reactor (1,000 MWe) such as Iran’s reactor at Bushehr requires about 21 metric tons of low-enriched uranium fuel per year, which would require generating 100,000 separative work units, or SWU.[25] Iran’s IR-1 centrifuges now produce about one metric ton per year. Thus, Iran’s program would have to increase its capacity about twenty-one fold to have any plausibility as a civilian effort.

In an October 2015 letter to President Hassan Rouhani, Iran’s Supreme Leader Ali Khamenei called upon the government to develop a plan for the country’s nuclear industry to achieve an annual uranium enrichment capacity of 190,000 SWU within 15 years. In order to accomplish this, Iran would have to manufacture, install, and operate almost 240,000 additional IR-1 centrifuges, based on their historic output. Or, Iran would have to perfect, manufacture, and deploy in production mode a lesser number of more powerful centrifuges. It is uncertain how long it would take Iran to accomplish either of these steps, but either would take years and would be detected.

ANNEX ONE

Following the U.S. withdrawal from the nuclear accord in May 2018, Iranian leaders threatened to stop implementing some of its commitments under the accord. Approximately one year later, it began doing so. The table below summarizes the steps Iran has taken since July 2019.

Date                           Iran's Violation
July 2019Begins enriching uranium above the 3.67% U-235 limit set by the accord, to a level of up to 4.5% U-235.
August 2019Exceeds the 300 kg cap on its stockpile of low-enriched uranium in gaseous form set by the accord.
September 2019Expands its centrifuge research and development beyond the limits set by the accord, both in the number and type of more powerful centrifuge it operates.
November 2019Resumes uranium enrichment at locations beyond those mandated by the accord, including the Fordow plant and the Natanz pilot plant.
January 2020States it will no longer limit the number of centrifuges in operation, which had been capped at 5,060 IR-1 centrifuges operating at the Natanz Fuel Enrichment Plant. As of mid-February, Iran had not installed additional centrifuges at Natanz.

ANNEX TWO

Past growth of enrichment capacity at the Natanz Fuel Enrichment Plant (2007-2014)

Iran’s past efforts to expand its uranium enrichment capacity at Natanz in the period before the nuclear accord was struck may be useful in estimating how long it would take Iran to reconstitute this capacity.

Date of IAEA InventoryIR-1 Centrifuges Being Fed with UF6Other IR-1 Centrifuges Installed
17 Feb 20070656
13 May 20071,312820
19 Aug 20071,968656
3 Nov 20072,9520
12 Dec 20072,952?
7 May 20083,2802,624
30 Aug 20083,7722,132
7 Nov 20083,7722,132
1 Feb 20093,9361,968
1 Jun 20094,9202,296
12 Aug 20094,5923,716
2 Nov 20093,9364,920
31 Jan 20103,7724,838
24 May 20103,9364,592
28 Aug 20103,7725,084
5 Nov 20104,8163,610
16 Nov 20100~ 8,426
22 Nov 2010~4,592~3,834
20 Feb 2011~5,184~2,816
14 May 2011~5,860~2,140
28 Aug 2011~5,860~2,140
2 Nov 2011~6,208~1,792
19 Feb 20128,808348
19 May 20128,818512
21 Aug 20129,156270
10 Nov 20129,1561,258
19 Feb 2013~8,990~3,680
15 May 2013~8,990~4,565
24 Aug 20139,1566,260
9 Nov 2013~8,800~6,620
10 Feb 2014~9,000~6,420
Date of IAEA InventoryIR-2m Centrifuges Being Fed with UF6IR-2m Centrifuges Installed
19 Feb 20130180
15 May 20130689
24 Aug 201301,008
9 Nov 201301,008
10 Feb 201401,008

Attachment:

 Iran’s Nuclear Timetable: The Weapon Potential


Footnotes:

[1] In a dash, Iran would be expected to use its uranium to fuel a bomb using an implosion design, such as the bomb dropped on Nagasaki, Japan; such a bomb would have to be tested to prove it worked, as was the Nagasaki bomb. A gun-type device such as the one dropped on Hiroshima without being tested, would require more than twice as much uranium.

[2] According to the IAEA, as of February 19, 2020, Iran’s stockpile was comprised of 996.6 kg of uranium in the form of uranium hexafluoride (UF6), some of which was enriched up to 4.5% in the fissionable isotope U-235 and some of which was at a lower level of enrichment. U-235 makes up about .7% of natural uranium; its concentration can be increased, or enriched, using centrifuges. Uranium enriched to 90% or more U-235 can be used to fuel nuclear weapons.

[3] According to pre-2016 production data from Natanz, Iran’s IR-1 centrifuges have achieved an average annual output of about .8 separative work units, or SWUs, per machine. The SWU is the standard measure of the effort required to increase the concentration of the fissionable U-235 isotope. See http://www.urenco.com/index.php/content/89/glossary.

[4] Twenty kilograms of 90% U-235 in the form of UF6 are assumed to be sufficient for one bomb. This assumes uranium tails of 1% U-235, a feed assay of 3.6% U-235, and a product assay of 90% U-235. The product would need to be further processed into finished uranium metal bomb components, which would cause about a 20% loss of material.

[5] Iran would need 940 SWU to produce 20 kg of uranium enriched to 90% U-235 from nuclear reactor grade feed enriched to 3.6%. This theoretical calculation is generated using a SWU calculator published by URENCO, a European uranium enrichment consortium. With an output of .8 SWU annually, Iran’s 6,104 IR-1 centrifuges make a combined 4,883 SWU per year or 407 SWU per month. Thus, it would take approximately 2.3 months to produce the 940 SWU. The reactor grade feed would come from Iran’s existing stockpile, which contains 728 kg of low enriched uranium assumed to be at an average enrichment of 3.6% U-235. The 728 kg would be sufficient to fuel one bomb.

[6] Iran’s stockpile of LEU, assuming an average enrichment level of 3.6% U-235, contains only enough uranium to fuel one bomb. Fuel for the four additional bombs would need to be enriched from natural uranium, which would require about 4,000 SWU per bomb. This assumes uranium tails of .3%, a feed assay of .7% U-235 and a product assay of 90% U-235. If Iran’s IR-1 centrifuges make a total of 4,883 SWU per year, it would take at least 3.3 years to make 16,000 SWU. Adding the 3.3 years needed for four bombs to the 2.3 months needed for one bomb equals at least 3.5 years.

[7] This amount of uranium enriched to 3.6% U-235 would be sufficient feedstock to fuel one bomb after further enrichment, assuming uranium tails of 1% and that 20 kg of 90% U-235 are sufficient for one bomb. This theoretical calculation is generated using the SWU calculator published by URENCO.

[8] On Feb. 19, 2020, Iran had a total of 1020.9 kg of low-enriched uranium, 996.5 kg of which was in the form of UF6. This 996.5 kg has been enriched to various levels: 268.5 kg up to 2% and the balance of 728 kg enriched up to either 3.67% or 4.5%. It is assumed for the estimates made here that these 728 kg are enriched to an average level of 3.6%, although the actual level is unknown and the enrichment level for at least some of it may be lower. Therefore, it is possible, but unlikely, that the 728 kg includes less than 685 kg enriched to an average level of 3.6%.

[9] In addition to the 6,104 IR-1 centrifuges operating at Fordow and the Natanz Fuel Enrichment Plant, Iran is using a smaller number of centrifuges set up at its Natanz pilot plant to grow its stockpile of low-enriched uranium. In R&D lines 2 and 3, Iran is operating a total of 120 centrifuges (IR-2m, IR-4, IR-5, IR-6 and IR-6s) and in R&D lines 4, 5, and 6, Iran is operating a total of 400 centrifuges (IR-4, IR-2m, and IR-6). These centrifuges are more powerful than the IR-1, but their enrichment rate is not known.

[10] The 728 kg of LEU in Iran’s stockpile as of February 19, 2020 likely contains more than the 685 kg of 3.6% U-235 required to produce the 20 kg of uranium enriched to 90% needed for one bomb.

[11] Fuel for five bombs would require a total of 3,425 kg of LEU enriched to 3.6% U-235, assuming natural uranium feed, .3% tails, and that a total of 100 kg of U-235 are needed. This would require 4,700 SWU. Iran had 728 kg on February 19, 2020, thus an additional 2,697 kg of LEU would still be needed. Assuming that only the 6,104 IR-1 centrifuges are used and that they perform at their historic production rate of .8 SWU per machine, they would cumulatively produce 4,883 SWU, generating 1,079 kg of LEU annually (or 3 kg each day). To produce the additional 2,697 kg of LEU needed at a rate of 3 kg per day would take 900 days, or about 2.5 years. This period would be reduced slightly if the centrifuges now used for research contribute increasing amounts of LEU to the stockpile.

[12] It is assumed that only the IR-1 centrifuges already in production mode would be used in a dash to make nuclear weapons. Iran would need 940 SWU to produce 20 kg of uranium enriched to 90% using a feed assay of 3.6% U-235, and assuming 1% tails. At their proven production rate of .8 SWU per centrifuge, Iran’s 6,104 IR-1s could produce 4,883 SWU per year, or 407 SWU per month. Thus, it would take about 2.3 months to make 940 SWU.

[13] Iran would need to generate 4,700 SWU to make the 100 kg of 90% enriched uranium needed to fuel an arsenal of five bomb, with a feed assay of 3.6% U-235 and assuming 1% tails. If Iran’s 6,104 centrifuges generate 4,883 SWU per year, this would take about one year.

[14] Iran has not operated the IR-2m centrifuge in production mode. It has about 1,000 such centrifuges in storage and several hundred installed in a research capacity at the Natanz pilot plant. The IR-2m is based on Pakistan’s P-2 centrifuge and is assumed in these estimates to have a nominal output of 5 SWU. See Alexander Glaser, “Characteristics of the Gas Centrifuge for Uranium Enrichment and Their Relevance for Nuclear Weapon Proliferation (corrected),” Science and Global Security, Vol. 16, Nos. 1-2 (2008), p. 9.

[15] 3,000 IR-2m centrifuges, with a nominal output of 5 SWU, would produce approximately 15,000 SWU in one year. If 4,000 SWU are needed to produce the 20 kg of 90% U-235 to fuel one bomb (assuming uranium tails of .3% and a feed assay of .7% U-235) then it would take 3.2 months to produce the 4,000 SWU.

[16] The same 3,000 IR-2m centrifuges would produce the 20,000 SWU needed to fuel 5 bombs in approximately one year and four months.

[17] Each centrifuge is assumed to require about one square meter (10.7 square feet) of space, the amount used in Iran’s enrichment plant at Natanz. The ice surface of a National Hockey League rink is 200 feet long and 85 feet wide.

[18] 1,000 centrifuges at 10.7 square feet each would require about 11,000 square feet.

[19] Iran has about 100 IR-6 centrifuges operating in a research capacity at the Natanz pilot plant, according to the IAEA. Iran has claimed that these centrifuges are ten times more powerful than the IR-1. Therefore, the IR-6 is assumed in these estimates to have a nominal output of 10 SWU. See Kiyoko Metzler, “UN Atomic Watchdog Raises Questions of Iran’s Centrifuge Use,” Associated Press, May 31, 2019.

[20] 3,000 IR-6 centrifuges each producing 10 SWU per year would produce in one year 30,000 SWU, or 2,500 SWU per month. Thus, it would take 1.6 months to produce the 4,000 SWU needed to fuel one bomb.

[21]  3,000 IR-6 centrifuges would produce the 20,000 SWU needed to fuel five bombs in about 8 months.

[22] This assumes uranium tails of 1% U-235, a feed assay of 3.6% U-235, a product assay of 90% U-235, and a 20% loss of material during processing.

[23] See Thomas B. Cochran and Christopher E. Paine, “The Amount of Plutonium and Highly Enriched Uranium Needed for Pure Fission Nuclear Weapons,” (Washington, DC: Natural Resources Defense Council, revised April 13, 1995).

[24] Russia and Iran signed a nuclear fuel agreement in 1995. Under the agreement, Russia committed to supplying fuel for Bushehr for ten years and Iran committed to returning the spent fuel to Russia. Reportedly, the original 1992 nuclear cooperation agreement between Russia and Iran stipulated that Russia would supply fuel for the Bushehr reactor “for the entire lifespan of the nuclear power plant.” See Mark Hibbs, “Iran’s Russia Problem,” Carnegie Endowment for International Peace, July 7, 2014.

[25] See the nuclear fuel cycle simulation system published by the IAEA (http://infcis.iaea.org/NFCSS/NFCSSMain.asp?RightP=Calculation&EPage=2&Refresh=0&ReactorType=1).

Major Turkish Bank Prosecuted in Unprecedented Iran Sanctions Evasion Case

Executive Summary

The indictment of Turkish state-owned Halkbank, unsealed late last year, is the first against a major bank for sanctions violations brought by the United States. The case sheds light on how, from 2012 to 2016, in the midst of negotiations on its nuclear program, Iran relied on this bank to launder money in order to relieve the economic pressure of international sanctions. The four-year legal saga began in 2016 with the arrest and prosecution of Reza Zarrab, an Iranian-Turkish businessman. Zarrab masterminded a scheme to launder billions of dollars of Iranian oil proceeds through Halkbank under the guise of gold and food trade. Evidence presented during the 2018 trial and conviction of Zarrab’s co-conspirator Mehmet Hakan Atilla, a Turkish national and former deputy general manager of Halkbank, implicated Turkish President Recep Erdogan. The ongoing case against the bank has been a point of contention in already-fraught U.S.-Turkey relations. Due to a series of appeals and postponements, the case remains in legal limbo. However, in as the United States ramps up its pressure campaign against Iran, and Iran ramps up its nuclear program, the case provides lessons learned for how to prevent Iran from exploiting the international financial system to evade sanctions in support of proliferation.

Introduction

On October 15, 2019, U.S. prosecutors unsealed an unprecedented six-count indictment against Halkbank, a major Turkish state-owned financial institution, charging the bank with fraud, money laundering, and conspiracy to violate the International Emergency Economic Powers Act (IEEPA). The U.S. Department of Justice decision to prosecute Halkbank is an unusual step. U.S. prosecutors usually seek to settle out of court with banks accused of sanctions violations, through deferred prosecution agreements.

The indictment came at a tense time in U.S.-Turkey relations. A week earlier, Turkish troops had entered northeastern Syria to attack the Kurdish-led Syrian Democratic Forces, a key U.S. ally in the campaign against the Islamic State. The incursion prompted a political backlash in the U.S. Congress. The House of Representatives overwhelmingly passed the Protect Against Conflict by Turkey Act (H.R. 4695), which called for sanctions against entities affiliated with the Turkish government, including Halkbank specifically.[1] Similar bipartisan bills were introduced in the Senate, but were set aside when the administration negotiated a ceasefire agreement.[2]

The case has been dogged by allegations of political interference. Turkey reportedly lobbied the Trump administration to withdraw the charges against Halkbank and Reza Zarrab, an Iranian Turkish businessman who was the architect of the scheme.[3] Testimony from Zarrab during the trial of co-defendant Mehmet Atilla, the former deputy general manager of Halkbank, directly implicated Turkish President Recep Tayyip Erdogan and several other senior Turkish government officials.[4]  Nonetheless, the facts of the case illustrate how Iran successfully evaded U.S. and international sanctions that were meant to constrain its proliferation of weapons of mass destruction.

The operation’s purpose was to allow the Iranian government a means of accessing its oil and gas revenue held overseas. As part of the scheme, Zarrab funneled money from Halkbank accounts held by Iranian entities to accounts of his front companies in Turkey and the United Arab Emirates (UAE). Then, after laundering the money through illicit gold exports and later falsified food trade, Zarrab ultimately used those funds to make international payments on behalf of Iranian entities that support Iran’s proliferation programs. According to the Department of Justice, the scheme “fueled a dark pool of Iranian government-controlled funds that could be clandestinely sent anywhere in the world.”[5]

The Setup

The money operation was masterminded by Zarrab, who owned a network of exchange houses and front companies in Turkey and the UAE.[6] See the appendix for a list of the entities in Zarrab’s network, including a description of their role in the scheme. In 2011, prior to engaging Halkbank, Zarrab initiated a series of wire transfers on behalf of the MAPNA Group, a construction and power company with ties to Iran’s nuclear and missile proliferation programs,[7] as well as on behalf of a money services subsidiary of Bank Mellat,[8] which has provided banking services in support of Iran’s proliferation programs.[9] Despite some initial success, several attempted financial transfers to companies in China and Hong Kong via intermediary U.S. financial institutions were blocked in the spring of 2011, pursuant to sanctions issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) targeting Iran’s financial sector.[10]

Looking for a larger – and more lucrative – role, Zarrab signed a letter to Iranian President Mahmoud Ahmadinejad in December 2011 expressing his family’s “readiness for any collaboration in moving currency as well as adjusting the rate of exchange under the direct supervision of the honorable economic agents of the [Iranian] government.”[11] He soon found a vehicle for the grand sanctions evasion scheme he envisioned: Halkbank.

The Gold Scheme

In early 2012, a representative from Sarmayeh Exchange, a money services subsidiary of Bank Sarmayeh, a private bank in Iran, informed Zarrab that the Central Bank of Iran (CBI) and the National Iranian Oil Company (NIOC) held billions of dollars in accounts at Halkbank. The funds consisted of the proceeds from Iranian oil and gas sales to Turkey.[12] Pursuant to sanctions imposed by the U.S. National Defense Authorization Act (NDAA) of 2012, money from these oil escrow accounts could not be transferred back to Iran or used for international financial transfers on behalf of the government of Iran or Iranian banks.[13] In July 2012, Executive Order 13622 further restricted petroleum-related transactions with CBI and NIOC specifically.[14] At the time, however, funds from the accounts could legitimately be used to pay for Turkish exports to private Iranian companies – an exception known as the bilateral trade rule.[15]

In March 2012, Zarrab approached Halkbank general manager Suleyman Aslan with a scheme to channel funds to the Iranian government by exploiting the bilateral trade rule. Finding Aslan at first reluctant to participate, Zarrab secured the support of Turkish Minister of Economic Affairs Mehmet Zafer Çağlayan with over $70 million in bribes.[16] Zarrab later bribed Aslan with $8.5 million.[17] Several other Halkbank officials were also involved in the scheme, including Atilla who headed the department responsible for processing international banking transactions, and his deputy Levent Balkan.[18] Zarrab, Aslan, and Atilla held numerous meetings with officials from high-profile Iranian institutions – primarily CBI, NIOC, and Naftiran Intertrade Company (NICO) – to coordinate the conspiracy.

The initial operation involved the laundering of Iranian oil and gas revenue through a gold export network. First, CBI and NIOC would transfer the oil revenue held in their Halkbank accounts (denominated in Turkish lira, so as to avoid the international financial system) to the Halkbank accounts of private Iranian banks, such as Bank Sarmayeh.[19] Those Iranian intermediaries then transferred the money to Halkbank accounts controlled by Zarrab’s network of front companies, thereby concealing the Iranian connection from outside financial institutions.[20]

Zarrab’s front companies used the funds to buy gold on the Turkish market. To further cover his tracks, Zarrab then falsified records to indicate that the gold was subsequently exported to private companies in Iran, as permitted by the bilateral trade rule.[21] In this way, even if the internal Halkbank transfers could be traced back to the Iranian oil accounts, the transaction would still appear to be in compliance with U.S. sanctions (this falsified documentation later underwent several changes as U.S. sanctions evolved).[22]

In reality, Zarrab’s companies exported the gold to Dubai, where they then sold it on the market for cash. This step was critical to Zarrab’s scheme and served two purposes. First, it allowed him to acquire currencies used for international payments, such as the U.S. dollar and the euro. Second, it disguised the money’s Iranian origin. Unlike bank transfers, cash transactions cannot easily be traced.

At this point, the money was ready to be moved in the international financial system. Zarrab deposited the cash proceeds from the gold sales into accounts held by his companies at banks in Dubai. Iranian banks, such as Bank Sarmayeh and Bank Mellat, then gave Zarrab’s companies instructions to transfer the money to various entities in Iran’s sanctions evasion network, composed of front companies and foreign suppliers in several countries including Canada, China, and Turkmenistan.[23] U.S. banks then unwittingly processed several of these dollar transactions through correspondent accounts.[24] As a result, from December 2012 to October 2013 alone, more than $900 million of Iranian oil and gas money transited through U.S. financial institutions to make payments on behalf of Iran.[25]

The gold scheme’s success made it a focal point of Iran’s sanctions evasion efforts worldwide, as Zarrab and Iranian officials attempted to expand and replicate it. In October 2012, for instance, several of the conspirators met to discuss moving Iran’s oil revenue in India to Halkbank so that it could be laundered through the scheme.[26] It is unclear to what extent the India plan succeeded. Zarrab also testified that he operated a version of the gold scheme in China for several months in late 2012, until the operation was shut down by Chinese banks.[27]

The scheme also benefited Turkey by artificially inflating its export statistics, making the Turkish economy appear stronger than it actually was. Recorded gold exports to Iran went up from $55 million in 2011 to $6.5 billion in 2012; gold exports to the United Arab Emirates increased from $280 million to $4.6 billion.[28] Almost all of that increase can be attributed to funds laundered from Halkbank through Zarrab and his companies. Consequently, the scheme, once running, appears to have been encouraged at the highest levels of the Turkish government. In the summer of 2013, Aslan was allegedly instructed in a meeting with then-Prime Minister Recep Tayyip Erdoğan, Çağlayan, and other Turkish government officials to “take care of this job” – namely, to increase Turkey’s gold exports from its previous high of $11 billion in 2012.[29]

Throughout the scheme, Aslan and Atilla made a series of false statements in meetings with U.S. Treasury officials, telling them that Halkbank was not providing Iran with gold or cash revenue from its oil reserve accounts, adding that they had rebuffed an approach from CBI to acquire gold.[30] The U.S. officials nonetheless continued to caution Aslan and Atilla that Halkbank would be a prime target for Iranian sanctions evasion efforts, telling them in February 2013 that they were in a “category unto themselves” due to this heightened exposure.[31]

In July 2013, Halkbank informed Treasury that it had stopped facilitating any gold exports to Iran as of June 10.[32] The scheme nonetheless continued until at least December 2013, with over nine tons of gold shipped after Halkbank’s July statement to OFAC.[33]

The Food Scheme

Restrictions from the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) went into effect in July 2013, prohibiting the supply of precious metals to any Iranian entities, whether private or governmental.[34] This tightening of sanctions rendered the gold scheme untenable over the long term. Several months earlier, in anticipation of the change, Aslan suggested to Zarrab that he instead disguise his transfers using falsified records of food purchases.[35] Food exports to Iran are exempt from U.S. sanctions on humanitarian grounds, and Halkbank had facilitated food trade in the past, so its involvement would not appear overly suspicious.[36] Zarrab therefore arranged an April 2013 meeting in Turkey with Halkbank executives, Çağlayan, and NIOC officials Mahmoud Nikousokhan and Seifollah Jashnsaz, during which the conspirators hammered out the details of a new plan.[37]

The food scheme was more straightforward than the gold conspiracy, but it shared some similar characteristics. NIOC and CBI again transferred funds within Halkbank to intermediary accounts held by Iranian banks, which then moved the money to accounts held by Zarrab’s companies.[38] Zarrab concocted fake food purchases in Dubai using those funds, allowing him to transfer the money to his front companies in the UAE. To cover his tracks, Zarrab worked with Halkbank to create false shipping records indicating that food was subsequently exported to Iran. In reality, his front companies instead funneled the funds through the international financial system to entities in Iran’s sanctions evasions network, again at the direction of Iranian banks. The scheme was up and running by July 2013.[39]

Unlike the gold scheme where gold changed hands for cash on the open market in Dubai, nothing was ever actually bought or sold as part of the food scheme. The conspiracy therefore relied more heavily than before on false documentation to conceal the money’s true path. Zarrab could not forge bills of lading because they were too easily traceable, so instead he recorded the nonexistent food as being shipped on small wooden vessels that did not require them.[40] However, a cursory examination of financial documentation related to these shipments would have revealed the forgery. For example, Atilla had to warn Zarrab that it was not realistic to list a cargo weighing 150 thousand tons on a ship with a five-thousand ton capacity. Atilla also urged Zarrab to be careful about the purported origin of the goods. “Wheat doesn’t grow in Dubai,” he cautioned.[41]

Such missteps almost brought down the entire operation. In December 2013, Turkish law enforcement arrested Zarrab, Aslan, Çağlayan, and others on charges of bribery, corruption, money laundering, and gold smuggling after receiving a tip-off from a whistleblower.[42] Investigators found millions of dollars in bribes stashed in shoeboxes at Aslan’s residence and discovered documents detailing the scheme. Çağlayan, Aslan, and several other Halkbank and Turkish government officials were dismissed from their positions.[43] The case made international headlines, largely because it implicated Erdoğan.[44] The Turkish justice system did not see the case through to a conclusion, however. Zarrab bribed his way out of prison in February 2014 and the case against him was dismissed that October.[45]

Soon after his release, Zarrab began pressuring Halkbank’s new general manager Ali Fuat Taşkesenlioğlu to restart the food operation. Taşkesenlioğlu initially resisted, but was convinced when Erdoğan and his son-in-law, then-Minister of Energy Berat Albayrak, intervened on Zarrab’s behalf. [46] The food scheme continued until at least March 2016, when Zarrab was arrested in the United States.[47]

Links to Iran’s Nuclear and Missile Proliferation

According to the U.S. Department of the Treasury, the tactics used by Halkbank and the other indicted and convicted co-conspirators in the case are hallmarks of proliferation finance: the transfer of funds to front company accounts, falsified invoices and bank records masking the transfers as legitimate sales, and the use of these funds to make international transactions on behalf of a proliferating state. De facto, this allowed Iran to access the international banking system, from which Iranian banks were barred due to sanctions.[48]

The schemes aided Iran’s proliferation activities in two ways.  First, it benefitted Iranian entities with ties to those activities. In both the gold and food scheme, the laundered funds’ ultimate destination was to foreign companies participating in Iran’s sanctions evasion and illicit procurement networks. These companies supplied Iranian entities with goods and services, but needed to be paid in order to continue their operations; the Iranian oil money laundered through Halkbank was their payment. In one illustrative example, Zarrab’s companies made several international transfers – at the direction of Iranian banks and apparently on behalf of NIOC – to a Turkmenistan-based energy company that was supplying gas to Iran.[49]

Iranian entities that purchased goods and services in this manner included NIOC, NICO, Hong Kong Intertrade Company (HKICO), Bank Sarmayeh, Bank Mellat, and Mahan Air.[50] These entities have links to the full spectrum of Iran’s proliferation activities. For instance, NIOC was designated by the U.S. Treasury in November 2012 for providing “important technological and commercial support” to the Islamic Revolutionary Guards Corps (IRGC), [51] a principle agent of Iran’s missile program.[52] The IRGC was designated by the Department of State in October 2007 for its own role in financing proliferation, and some 15 individuals and organizations associated with the IRGC are currently subject to U.N. sanction.[53] Bank Mellat was also designated in October 2007, for providing banking services to the Atomic Energy Organization of Iran (AEOI), the main actor in Iran’s nuclear program.[54] For its part, Mahan Air was designated by the United States in October 2011 for providing support to the IRGC,[55] and again in December 2019 for its support of proliferation, including the transport of export-controlled missile and nuclear materials to Iran.[56] Between 2011 and 2019, numerous Mahan Air affiliates and aircraft were sanctioned by the United States for similar activity.

Second, the scheme relieved financial pressure on Iran between 2012 and 2016, amidst multilateral negotiations to limit Iran’s nuclear program that resulted in the 2015 Joint Comprehensive Plan of Action (JCPOA). The pressure from sanctions provided critical leverage to the U.S. and its partners during negotiating with Iran. The financial back-channel provided by Zarrab and Halkbank may have lessened this leverage.[57]

U.S. Investigation and Prosecution

Zarrab’s arrest triggered the opening of the U.S. criminal case, which has unfolded in four stages. In the first stage, which lasted from March 2016 to March 2017, Zarrab was the main defendant, along with his employee Camelia Jamshidy and Bank Mellat official Hossein Najafzadeh (Jamshidy and Najafzadeh remain at large). They were indicted in the Southern District of New York on four charges: conspiracy to defraud the United States, conspiracy to violate the International Emergency Economic Powers Act (IEEPA), conspiracy to commit bank fraud, and conspiracy to commit money laundering.[58] Zarrab tried and failed to have the indictment dismissed on the grounds that, as a non-U.S. national, “he [was] free to engage in transactions with Iranian businesses without running afoul of U.S. laws that criminalize U.S. sanctions against Iran.”[59] In November 2016, Zarrab’s brother and co-conspirator, Mohammad Zarrab (who remains at large), was added as a defendant.[60]

The second stage began with the arrest of Atilla in March 2017 and lasted until his sentencing in May 2018. A superseding indictment in September 2017 added four defendants – Aslan, Balkan, Caglayan, and Abdullah Happani, another of Zarrab’s employees – as well as substantive charges of bank fraud and money laundering against each defendant.[61] All except Atilla and Zarrab remain at large. Sometime during this period, Zarrab began to cooperate with U.S. investigators. He entered a guilty plea in October 2017 and testified at Atilla’s trial in November that year.[62] Atilla fought the charges against him unsuccessfully and was convicted in January 2018 on five of six counts and sentenced to 32 months in prison.[63]

The third stage, from May 2018 until October 2019, reflected a lull in the case. Zarrab had pleaded guilty, Atilla had been convicted and sentenced, and the other defendants remained at large. With jail time served during the trial included in his sentence, Atilla was released and deported back to Turkey in July 2019. Shortly thereafter, the Turkish government appointed him to lead Borsa Istanbul, Turkey’s main stock exchange.[64] Turkey, led by President Erdogan, meanwhile reportedly lobbied the Trump administration to drop the case. This effort led President Trump to refer the matter to the Attorney General and the Secretary of the Treasury but does not appear to have impacted the trajectory of the case.[65]

The fourth stage, from October 2019 to the present, began when Halkbank’s criminal indictment was unsealed by the Justice Department. The prosecution of a bank for sanctions violations is highly unusual. In their sentencing memorandum for Atilla, U.S. prosecutors cited nine sanctions violations cases against banks that had resulted in deferred prosecution agreements. Under such agreements, these banks avoided going to court by paying a fine and taking remedial action. Only one case cited, U.S.A. v. BNP Paribas, went further, and it ended in a plea bargain with a similar fine and remedial actions taken by the bank.[66] If Halkbank goes to trial, it will be the first bank to do so.

In their argument against Atilla, U.S. prosecutors asserted that Halkbank’s conduct was different from that of other banks accused of sanctions violations, which often self-report the violation, cooperate with authorities, and undertake significant internal reforms, whereas Atilla and other Halkbank employees systematically covered up evidence and continued to violate sanctions.[67] Nonetheless, U.S. Attorney General William Barr reportedly urged Halkbank to accept a deferred prosecution agreement, which Halkbank reportedly refused on the grounds that doing so would amount to an admission of guilt.[68] Halkbank lawyers are seeking to dismiss the case and bank representatives have declined to appear in court.[69] Zarrab, who also helped corroborate the case against Halkbank, reportedly continues to cooperate with the U.S. Department of Justice on this case.[70]

Conclusion

The Halkbank case is unprecedented, both in terms of the magnitude of the scheme – Halkbank and Zarrab laundered approximately $20 billion worth of Iranian funds[71] – and in terms of aggressive U.S. sanctions enforcement policy – as the first major bank to be indicted for sanctions evasion.

Iran is once again in the grip of severe U.S. sanctions and may soon face additional multilateral sanctions. Iran has abandoned the JCPOA’s limit on uranium enrichment, which could result in the re-imposition – or “snapback” – of all previous U.N. sanctions. In this context, Iran may once again turn to sanctions-busting arrangements abroad to continue its proliferation activities and keep its economy afloat.

If the U.S. justice system hands down a stiff penalty to Halkbank, a major sanctions violator that carried on its activities with the backing of the Turkish state, it may deter other foreign individuals and financial institutions from laundering money for Iran. If Halkbank instead gets off lightly, it may have the opposite effect. Bankers, businessmen, and officials in Iran, Turkey, and across the world will be eyeing the outcome.

Appendix

Reza Zarrab's Network
Entity NameDescription and Role
Companies
Al Nafees ExchangeDubai-based money services company; transferred money to Iran-linked entities.
Asi Kiymetli Madenler Turizm OtomTurkey-based money services company; transferred money to Iran-linked entities.
Atlantis Capital General TradingDubai-based front company; fake food seller, transferred money to Iran-linked entities.
CentricaDubai-based front company; fake food seller, transferred money to Iran-linked entities.
Durak Doviz/Duru DovizTurkey-based money services company; transferred money to other Zarrab companies.
ECB Kuyumculuk Ic Vedis Sanayi Ticaret Limited SirketiTurkey-based money services company; transferred money to Iran-linked entities.
Flash DovizTurkey-based money services company; transferred money to Iran-linked entities.
Gunes General Trading LLCDubai-based money services company; transferred money to Iran-linked entities.
Hanedan General Trading LLCDubai-based front company; transferred money to Iran-linked entities.
Royal DenizcilikTurkey-based gold trading company; purchased and sold gold.
Royal Emerald InvestmentTurkey-based money services company; transferred money to Iran-linked entities.
Royal Holding A.S.Turkey-based holding company for Safir Altin Ticaret, Royal Denizcilik, and Royal Emerald Investment.
Safir Altin TicaretTurkey-based gold trading company; purchased and sold gold.
Sam ExchangeDubai-based money services company.
VolgamTurkey-based front company; fake food trader, transferred money to other Zarrab companies.
Individuals
Abdullah HappaniEmployee of Durak Doviz; resident of Turkey; conducted transfers on behalf of Reza Zarrab
Camelia JamshidyEmployee of Royal Holding A.S.; resident of Turkey; conducted transfers on behalf of Reza Zarrab.
Mohammad ZarrabBrother of Reza Zarrab; resident of Turkey; controlled Flash Doviz, Sam Exchange, and Hanedan General Trading LLC
Reza ZarrabMastermind of scheme; resident of Turkey; arrested in United States in 2016.
Turkish Entities
Entity NameDescription and Role
Companies
HalkbankFacilitated the scheme throughout.
Arap Turk BankAllegedly conspired to participate in moving Iranian oil money from India to Halkbank.
Vakif BankAllegedly conspired to join the scheme with Prime Minister Erdogan's approval.
Ziraat BankAllegedly conspired to join the scheme with Prime Minister Erdogan's approval.
Individuals
Ali Fuat TaskesenliogluGeneral manager of Halkbank after Aslan's dismissal until the collapse of the scheme; facilitated the scheme.
Berat AlbayrakTurkish Energy Minister from 2015 until the end of the scheme; Erdogan's son in law; pressed Turkish entities to cooperate.
Levent BalkanAssistant deputy manager of Halkbank for international banking; assisted Atilla in supervising the scheme.
Mehmet Hakan AtillaDeputy general manager of Halkbank for international banking; directly supervised the scheme; arrested in the United States in 2017; convicted in U.S. court in 2018; released to Turkey in 2019.
Mehmet Zafer CaglayanTurkish Economy Minister until December 2013; accepted bribes from Zarrab pressed Turkish entities to cooperate with scheme.
Recep Tayyip ErdoganTurkish Prime Minister during the scheme; urged Caglayan to continue the scheme; pressed other Turkish entities to cooperate.
Suleyman AslanGeneral manager of Halkbank from the start of the scheme until December 2013; accepted bribes from Zarrab; facilitated the scheme.
Iranian Entities
Entity NameDescription and Role
Companies
Bank MellatDirected international money transfers on behalf of the Iranian government.
Bank MelliDirected international money transfers on behalf of the Iranian government.
Bank SaderatDirected international money transfers on behalf of the Iranian government.
Bank SarmayehHeld accounts at Halkbank that were used as intermediaries for Iranian government funds; directed international money transfers on behalf of the Iranian government.
Bank ShahrHeld accounts at Halkbank that were used as intermediaries for Iranian government funds.
Central Bank of Iran (CBI)Held accounts at Halkbank that were the source of funds used in the scheme.
Mellat ExchangeMoney service subsidiary of Bank Mellat; directed international money transfers on behalf of the Iranian government.
Naftiran Intertrade Company (NICO)Held accounts at Halkbank that were the source of funds used in the scheme.
National Iranian Oil Company (NIOC)Held accounts at Halkbank that were the source of funds used in the scheme.
Parsian BankHeld accounts at Halkbank that were used as intermediaries for Iranian government funds.
Sarmayeh ExchangeMoney service subsidiary of Bank Sarmayeh; held accounts at Halkbank that were used as intermediaries for Iranian government funds; directed international money transfers on behalf of the Iranian government; proposed the scheme to Zarrab.
Individuals
Ahmad GhalebaniManaging director of NIOC; held meetings with Zarrab and Halkbank officials.
Hossein NajafzadehSenior official at Mellat Exchange, directed international money transfers on behalf of the Iranian government.
Mahmoud NikousokhanFinance director of NIOC; held meetings with Zarrab and Halkbank officials.
Seifollah JashnsazChairman of NICO; held meetings with Zarrab and Halkbank officials.

John Caves is a research associate at the Wisconsin Project. He is responsible for a project on Iran sanctions, which includes analysis of Iran’s proliferation and sanctions evasion networks. Meghan Peri Crimmins is Deputy Director of the Wisconsin Project and oversees the organization’s work on sanctions and counterproliferation finance. Simon Mairson, a former Research Assistant, contributed research to this report and worked on its early drafts.

Attachment:

 Major Turkish Bank Prosecuted in Unprecedented Iran Sanctions Evasion Case


Footnotes:

[1] H.R.4695 – Protect Against Conflict by Turkey Act, 116th U.S. Congress, available at https://www.congress.gov/bill/116th-congress/house-bill/4695, accessed on November 20, 2019.

[2] S.2644 – Countering Turkish Aggression Act, 116th U.S. Congress, available at https://www.congress.gov/bill/116th-congress/senate-bill/2644, accessed on February 20, 2020; S.2641 – Promoting American National Security and Preventing the Resurgence of ISIS Act, 116th U.S. Congress, available at https://www.congress.gov/bill/116th-congress/senate-bill/2641, accessed on February 20, 2020; William Roberts, “Senators to temporarily halt push for sanctions on Turkey: Graham,” Al Jazeera, October 22, 2019, available at https://www.aljazeera.com/news/2019/10/senators-temporarily-halt-push-sanctions-turkey-graham-191023000844816.html, accessed on March 30, 2020.

[3] “Trump-Erdogan Call Led to Lengthy Quest to Avoid Halkbank Trial,” Bloomberg, October 16, 2019, available at https://www.bloomberg.com/news/articles/2019-10-16/trump-erdogan-call-led-to-lengthy-push-to-avoid-halkbank-trial, accessed February 19, 2020.

[4] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17 before Judge Richard M. Berman, United States of America v. Mehmet Hakan Atilla, Case No. 1:15-cr-00867-RMB, Southern District Court of New York, Document No. 406, January 12, 2018, pp. 414-415, 421-422, available via PACER, accessed on March 3, 2020.

[5] Brief, United States of America v. Mehmet Hakan Atilla et al., Case No: 18-1910, Court of Appeals for the Second Circuit, December 6, 2018, p. 3, available via PACER, accessed on October 24, 2019.

[6] Superseding Indictment, United States of America v. Reza Zarrab et al., Case No: 1:15-cr-008670-RMB, Southern District of New York, September 6, 2017, pp. 12-13, available via PACER, accessed on October 24, 2019.

[7] Superseding Indictment, U.S.A. v. Reza Zarrab et al., pp. 31-32; “Iran List (last amended 16 February 2011),” Export Control Organisation, United Kingdom’s Department for Business Innovation & Skills, p. 8, accessed via web.archive.org at https://web.archive.org/web/20101213122611/http://www.bis.gov.uk/assets/biscore/eco/docs/iran-list.pdf on November 11, 2019.

[8] Superseding Indictment, U.S.A. v. Zarrab et al., pp. 12-13, 32.

[9] Superseding Indictment, U.S.A. v. Zarrab et al., p. 10; Council Regulation (EU) No 267/2012 of 23 March 2012 concerning restrictive measures against Iran and repealing Regulation (EU) No 961/2010, p. 108, available at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02012R0267-20150408&qid=1436811335282&from=EN, accessed on November 20, 2019.

[10] Superseding Indictment, U.S.A. v. Zarrab et al., p. 33.

[11] Superseding Indictment, U.S.A. v. Zarrab et al., pp. 13-14.

[12] Superseding Indictment, United States of America v. Halkbank, Case No: 1:15-cr-00867-RMB, Southern District of New York, October 15, 2019, p. 15, available via PACER, accessed on October 24, 2019.

[13] Superseding Indictment, U.S.A. v. Zarrab et al., p. 6.

[14] Superseding Indictment, U.S.A. v. Zarrab et al., p. 6-7.

[15] Superseding Indictment, U.S.A. v. Halkbank, pp. 3, 10, 14.

[16] Superseding Indictment, U.S.A. v. Halkbank, p. 16.

[17] Superseding Indictment, U.S.A. v. Halkbank, pp. 19-20.

[18] Superseding Indictment, U.S.A. v. Halkbank, pp. 4-5.

[19] Superseding Indictment, U.S.A. v. Halkbank, pp. 15-16.

[20] Sentencing Memorandum, United States of America v. Mehmet Hakan Atilla, Case No: 1:15-cr-00867-RMB, April 4, 2018, p. 7, available via PACER, accessed on November 20, 2019.

[21] Superseding Indictment, U.S.A. v. Halkbank, pp. 14-15.

[22] Brief, U.S.A. v. Atilla et al., pp. 8-9, 15-16.

[23] Superseding Indictment, U.S.A. v. Zarrab et al., pp. 30-32.

[24] Superseding Indictment, U.S.A. v. Halkbank, pp. 4, 15, 34.

[25] Superseding Indictment, U.S.A. v. Halkbank, p. 26

[26] Brief, United States of America v. Mehmet Hakan Atilla et al., Case No: 18-1910, Court of Appeals for the Second Circuit, December 6, 2018, p. 9, available via PACER, accessed on October 24, 2019; Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla, pp. 384-388.

[27] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla, pp. 449-451, 453.

[28] Superseding Indictment, U.S.A. v. Halkbank, pp. 16-17.

[29] Superseding Indictment, U.S.A. v. Halkbank, p. 25.

[30] Brief, U.S.A. v. Atilla et al., pp. 14-15.

[31] Superseding Indictment, U.S.A. v. Halkbank, p. 22; Brief, U.S.A. v. Atilla et al., pp. 20-21.

[32] Superseding Indictment, U.S.A. v. Halkbank, p. 24.

[33] Brief, U.S.A. v. Atilla et al., p. 22.

[34] Superseding Indictment, U.S.A. v. Halkbank, pp. 10, 24.

[35] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla, pp. 493-495.

[36] Brief, U.S.A. v. Atilla et al., p. 10.

[37] Superseding Indictment, U.S.A. v. Halkbank, p. 28.

[38] Brief, U.S.A. v. Atilla et al., pp. 11-12.

[39] Brief, U.S.A. v. Atilla et al., p. 12.

[40] Brief, U.S.A. v. Atilla et al., p. 11.

[41] Brief, U.S.A. v. Atilla et al., pp. 12-13.

[42] Berivan Orucoglu, “Why Turkey’s Mother of All Corruption Scandals Refuses to Go Away,” Foreign Policy, January 6, 2015, available at https://foreignpolicy.com/2015/01/06/why-turkeys-mother-of-all-corruption-scandals-refuses-to-go-away/, accessed on November 1, 2019.

[43] Brief, U.S.A. v. Atilla et al., p. 23.

[44] Orucoglu, “Why Turkey’s Mother of All Corruption Scandals Refuses to Go Away.”.

[45] Superseding Indictment, U.S.A. v. Halkbank, p. 33.

[46] Brief, U.S.A. v. Atilla et al., p. 24; “Turkey’s Erdogan son-in-law made finance minister amid nepotism fears,” BBC, July 10, 2018, available at https://www.bbc.com/news/world-europe-44774316, accessed on February 20, 2020.

[47] “Turkish National Arrested for Conspiring to Evade U.S. Sanctions Against Iran, Money Laundering and Bank Fraud,” U.S. Department of Justice, March 21, 2016, available at https://www.justice.gov/opa/pr/turkish-national-arrested-conspiring-evade-us-sanctions-against-iran-money-laundering-and, accessed on March 5, 2020.

[48] “National Proliferation Financing Risk Assessment,” U.S. Department of the Treasury, 2018, pp. 23-24, available at https://home.treasury.gov/system/files/136/2018npfra_12_18.pdf, accessed on November 20, 2019.

[49] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla, pp. 431; Superseding Indictment, U.S.A. v. Zarrab et al., p. 30-31.

[50] Superseding Indictment, U.S.A. v. Zarrab et al., p. 29.

[51] “Treasury Sanctions Iranian Government and Affiliates,” Press Release, U.S. Department of the Treasury, November 8, 2012, available at https://www.treasury.gov/press-center/press-releases/Pages/tg1760.aspx, accessed on March 6, 2020.

[52] “Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,” U.S. Department of State, October 25, 2007, available at https://2001-2009.state.gov/r/pa/prs/ps/2007/oct/94193.htm, accessed on March 30, 2020.

[53] “Security Council Sanctions List Pursuant to Security Council Resolution 2231,” United Nations, available at https://scsanctions.un.org/r/?keywords=iran, accessed on March 30, 2020.

[54] “Fact Sheet: Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,” Press Release, October 25, 2007, U.S. Department of the Treasury, available at https://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx, accessed on March 6, 2020.

[55] “Treasury Designates Iranian Commercial Airline Linked to Iran’s Support for Terrorism,” U.S. Department of the Treasury, October 12, 2011, available at https://www.treasury.gov/press-center/press-releases/Pages/tg1322.aspx, accessed on March 30, 2020.

[56] “Designation of the Islamic Republic of Iran Shipping Lines, E-Sail Shipping Company Ltd, and Mahan Air Fact Sheet,” U.S. Department of State, December 11, 2019, available at https://www.state.gov/designation-of-the-islamic-republic-of-iran-shipping-lines-e-sail-shipping-company-ltd-and-mahan-air/, accessed on March 26, 2020.

[57] “Turkish Banker Mehmet Hakan Atilla Sentenced To 32 Months For Conspiring To Violate U.S. Sanctions Against Iran And Other Offenses,” U.S. Department of Justice, May 16, 2018, available at https://www.justice.gov/usao-sdny/pr/turkish-banker-mehmet-hakan-atilla-sentenced-32-months-conspiring-violate-us-sanctions, accessed on November 20, 2019.

[58] Indictment, United States of America v. Reza Zarrab, Camelia Jamshidy, and Hossein Najafzadeh, Case No: 1:15-cr-00867-RMB, Southern District of New York, Document 2, December 15, 2015, available via PACER, accessed on November 20, 2019.

[59] Decision and Order, United States of America v. Reza Zarrab, Case No: 1:15-cr-00867-RMB, Southern District of New York, Document 90, October 17, 2016, pp. 2-4, available via PACER, accessed on March 6, 2020.

[60] Superseding Indictment, United States of America v. Reza Zarrab, Mohammad Zarrab, Camelia Jamshidy, and Hossein Najafzadeh, Case No: 1:15-cr-008670-RMB, Southern District of New York, Document 106, November 7, 2016, available via PACER, accessed on March 6, 2020.

[61] Superseding Indictment, U.S.A. v. Zarrab et al.

[62] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla

[63] “Judgment in a Criminal Case,” United States of America v. Mehmet Hakan Atilla, Case No: 1:15-cr-00867-RMB, Southern District of New York, Document 518, May 16, 2018, available via PACER, accessed on March 3, 2020

[64] Ayla Jean Yackley, “Turkey picks former jailed banker to head Istanbul stock exchange,” Financial Times, October 21, 2019, available at https://www.ft.com/content/31e25da8-f442-11e9-a79c-bc9acae3b654, accessed on November 1, 2019.

[65] Letter from Senator Ron Wyden to Treasury Secretary Steven Mnuchin, October 24, 2019, available at https://www.finance.senate.gov/imo/media/doc/102319 Halkbank–Mnuchin.pdf, accessed on February 19, 2020; Treasury Response to Senator Wyden’s Letter, November 20, 2019, available at https://www.finance.senate.gov/imo/media/doc/112019 Treasury Response Letter to Wyden RE Halkbank.pdf, accessed on February 19, 2020.

[66] “Government’s Sentencing Memorandum,” United States of America v. Mehmet Hakan Atilla, Case No. 1:15-cr-00867-RMB, Southern District Court of New York, Document 505, April 4, 2018, pp. 51-53, available via PACER, accessed on November 20, 2019.

[67] “Government’s Sentencing Memorandum,” U.S.A. v. Atilla, pp. 51.

[68] “Trump-Erdogan Call Led to Lengthy Quest to Avoid Halkbank Trial,” Bloomberg, October 16, 2019, available at https://www.bloomberg.com/news/articles/2019-10-16/trump-erdogan-call-led-to-lengthy-push-to-avoid-halkbank-trial, accessed February 19, 2020.

[69] Brendan Pierson, “Halkbank says it will seek dismissal of U.S. indictment, judge’s recusal,” Reuters, November 4, 2019, available at https://www.reuters.com/article/us-usa-turkey-halkbank/halkbank-says-it-will-seek-dismissal-of-u-s-indictment-judges-recusal-idUSKBN1XE2CC, accessed on November 20, 2019.

[70] Heidi Przybyla, Julia Ainsley and Tom Winter, “As prosecutors raise pressure on Turkish bank, Erdogan likely to ask Trump to go easy,” NBC News, November 13, 2019, available at https://www.nbcnews.com/politics/donald-trump/prosecutors-raise-pressure-turkish-bank-erdogan-likely-ask-trump-go-n1080991, accessed on November 20, 2019.

[71] “Turkish Bank Charged in Manhattan Federal Court for Its Participation in a Multibillion-Dollar Iranian Sanctions Evasion Scheme,” U.S. Department of Justice, October 15, 2019, available at https://www.justice.gov/opa/pr/turkish-bank-charged-manhattan-federal-court-its-participation-multibillion-dollar-iranian, accessed on March 6, 2020.

U.S. Targets Procurement Network Supplying Machine Tools to Iran

A recent enforcement action by the United States targeted a scheme to procure export controlled U.S. and Canadian equipment, most with nuclear applications, on behalf of an end user in Iran.[1] The case bears several hallmarks of illicit Iranian procurement, including the involvement of Iranian nationals based overseas, the use of multiple freight forwarders to disguise Iran as the ultimate end user, reliance on Dubai as a transshipment point for the equipment, and the submission of false and forged shipping documents to avoid license requirements. The timing of the conspiracy – from 2015 to 2018 – highlights Iran’s continued efforts to illicitly obtain Western technology despite the implementation of the Joint Comprehensive Plan of Action (JCPOA) in January 2016.

A 21-count indictment charging Mehdi Hashemi and Feroz Khan was unsealed in August following Hashemi’s arrest in Los Angeles International Airport upon his arrival from Turkey. The men are accused of illegally exporting and attempting to export machine tools on numerous occasions, among other charges. Hashemi (a.k.a. Eddie Hashemi) is a dual citizen of the United States and Iran who formerly lived in Los Angeles and ran a company there called Earth Best Products Inc. Kahn (a.k.a. Feros Khan) is based in the United Arab Emirates (UAE) and remains at large. The trial is scheduled to begin on February 11, 2020 in Los Angeles.

Evading Export Controls and Sanctions

Between at least June 2015 and April 2018, Hashemi conspired with Khan and others who are not named in the indictment to evade and avoid U.S. trade controls and sanctions as well as the requirements for nuclear-related trade with Iran set forth in the JCPOA.

Hashemi procured machine tools and related parts from nine suppliers in Canada and the United States. Most of these machine tools, including various computer numerical control (CNC) vertical machining and turning centers, are controlled by the United States for nuclear non-nonproliferation reasons and require a license for export to Iran and the UAE. Their import or transit through the UAE likewise requires a license from the UAE’s Federal Authority for Nuclear Regulation (FANR).

These items are also listed by the multilateral Nuclear Suppliers Group (NSG) as dual-use items and technologies “that can make a major contribution to an unsafeguarded nuclear fuel cycle or nuclear explosive activity.”[2] The transfer to Iran of any item listed by the NSG as dual-use first must be reviewed by the Procurement Working Group created by the JCPOA and ultimately approved by the U.N. Security Council.[3] Some of the machine tools are controlled by the United States for anti-terrorism reasons and require a license for export to Iran but not to the UAE. At no time did Hashemi seek an export license from the United States or approval from the Security Council.

Hashemi sought the machine tools for an unnamed company based in Tehran, Iran, that claims to manufacture textiles, medical and automotive components, and spare parts. The indictment describes Hashemi as an employee of this company. As part of the conspiracy, Hashemi relied on six freight forwarders in the Canada, Iran, the UAE, and the United States, to facilitate the shipments from Canada and the Unites States to the UAE. Khan then facilitated transshipment through the UAE to Iran.

Attempted Exports

The indictment describes five attempted exports, four of which appear to have been successful.

A successful export arranged between June 2015 and April 2016 involved the procurement of a CNC lathe from a supplier in Canada and a CNC turning center from a supplier in Illinois. Hashemi and Khan employed a UAE freight forwarder and falsified the customer, supplier, and total value of the goods. The shipment was successfully exported in February 2016.

Hashemi used similar methods in a second successful export arranged between March and June 2016 that involved four CNC vertical machining centers obtained from a supplier in Ohio. He gave false information to a U.S. freight forwarder – including the customer, salesperson, and total value – causing the freight forwarder to file inaccurate export information forms with the U.S. Department of Commerce. At Khan’s request, Hashemi also lowered the listed value of the goods (from approximately $27,500 to $3,200) in order to avoid UAE import duties. On May 4, the equipment was sent from Norfolk, VA to the UAE’s Jebel Ali Port on Maersk Line shipping. Khan asked that Hashemi avoid using Maersk in the future as “they are not allowing transshipments to Iran.”[4]

Subsequent exports by Hashemi and his co-conspirators appear to have faced increased scrutiny from U.S. enforcement authorities. An attempted export in October 2017 via New York, which involved two CNC vertical machining centers and two CNC turning centers acquired from suppliers in Ohio and Arizona, appears to have failed.

Between August 2017 and February 2018, Hashemi sought a CNC vertical machining center from California, a manual lathe from a supplier in Florida, and other machine tools from various U.S. suppliers. He falsified information about the proposed exports in correspondence with several freight forwarders based in the UAE and the United States, providing false information about the consignee, customer, exporter, supplier, and value. Despite Hashemi’s efforts to evade export controls, the shipment was detained in Long Beach, CA. In November, Hashemi gave  U.S. Customs and Border Protection (CBP) an incomplete purchase list indicating a false value and assured a CBP agent that an unnamed co-conspirator in the UAE was the end-user. Hashemi reshipped the equipment in December 2017.

The final attempted export was arranged between October 2017 and April 2018. Hashemi employed freight forwarders in Toronto and Illinois to export CNC machines. He once more gave inaccurate information about the shipment, which was detained in Long Beach, CA. In response to questions from CPB, Hashemi asserted that the CNC machines being shipped were not export controlled, named the UAE as the destination country, and gave false purchaser and consignee information. Hashemi successfully exported the machines in January 2018.

Hashemi also made several false statements to an agent from the Department of Commerce’s Bureau of Industry and Security when questioned in February 2018. Hashemi told the agent that the final destination and buyer of the CNC machines was an affiliate of a UAE-based freight forwarder, that he never intended to export the machines to Iran, and that none of the machines were sent to Iran. He also claimed to be unaware that the machines required a license for export from the United States.

Charges and Next Steps

On August 19, 2019, Hashemi and Khan were charged in the Central District of California with conspiring to violate the International Emergency Economic Powers Act (IEEPA), violating the IEEPA, smuggling, money laundering, unlawful export information activities, and making false statements. Hashemi entered a not guilty plea and is being held without bond. His trial was set to begin on October 15 but has been postponed until February 11, 2020. If found guilty on all 21 counts, Hashemi would face up to 320 years in federal prison.


Footnotes:

[1] Indictment, United States v. Mehdi Hashemi, Case No: 2:19-cr-00254-PSG, Central District of California, April 23, 2019, p. 22, available via PACER, accessed on October 3, 2019; “Man Taken into Custody after Being Charged with Illegally Exporting Prohibited Manufacturing Equipment to Iran,” U.S. Department of Justice, August 20, 2019, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/man-taken-custody-after-being-charged-illegally-exporting-prohibited, accessed on October 3, 2019.

[2] “Guidelines,” Nuclear Suppliers Group, available at https://www.nuclearsuppliersgroup.org/en/guidelines, accessed on October 30, 2019.

[3] “Annex IV – Joint Commission” in “Joint Comprehensive Plan of Action,” pp. 3-6, Vienna, July 14, 2015, https://www.iranwatch.org/sites/default/files/iran_joint_comprehensive_plan_of_action.pdf, accessed on October 31, 2019.

[4] Indictment, United States v. Mehdi Hashemi, Case No: 2:19-cr-00254-PSG, Central District of California, April 23, 2019, p. 22, available via PACER, accessed on October 3, 2019.

Commerce Department Warns Suppliers on Exports to Pakistan

WorldECR
October 2019

On 30 August 2019, the Bureau of Industry and Security (‘BIS’) of the US Commerce Department published due diligence guidance for exports to Pakistan.[1] The guidance reviews supplemental licence requirements for the country under the Export Administration Regulations (‘EAR’), including requirements for parties that appear on Commerce’s Entity List, and recommends a number of best practices for trade with Pakistani end-users. The new guidelines are intended to mitigate recent illicit procurement patterns in Pakistan.

Commerce’s guidance includes a review of the end-use and end-user export restrictions in the EAR that apply to Pakistan’s nuclear and missile activities, which were expanded in 1998 in response to Pakistan’s nuclear tests. These restrictions effectively impose licence requirements on most if not all exports of items subject to the EAR, including EAR99 items, ‘if destined to certain nuclear- or missile-related activities’ in Pakistan. A key part of this export control regime is the Entity List. Entities appearing on this list are subject to heightened licence requirements, often with a presumption of denial, due to involvement in activities of national security concern.

During a 15-year period following 1998, Commerce rarely added entities to the list for known or suspected links to Pakistan’s nuclear and missile programmes. But since 2014, approximately 40 such entities have been added, including companies based outside of Pakistan. These third countries serve as transhipment points for US-origin items illicitly procured on behalf of nuclear end-users in Pakistan, according to the recent guidance. The guidance names just two such entities, Techcare Services FZ LLC in the United Arab Emirates (‘UAE’) and UEC (Pvt.) Ltd. located in Saudi Arabia, the UAE, and Pakistan;[2] but there are many more.

For example, a number of companies connected to a procurement network operated by Pakistan’s Advanced Engineering Research Organisation (‘AERO’) have been added to the Entity List in September 2014, several of which are based outside of Pakistan. UAE-based Euromoto Middle East, which was added to the Entity List in 2017, also has supplied front companies for Pakistan’s nuclear- and missile-related entities, including Khan Research Laboratories (‘KRL’).[3]

In response to these developments, the BIS guidance recommends a number of best practices for exports to Pakistan.

First, when researching new customers, the following ‘fact patterns’ should prompt further due diligence:

  • The customer is a reseller or distributor;
  • The customer has little-to-no online presence and is not listed in directories;
  • The customer has a suspicious address, such as one that is similar to that of an entity listed on the US consolidated screening list;
  • The customer places an order ex- works and uses a freight-forwarder for all of its shipping arrangements.

Restricted end-users in Pakistan regularly use trading and engineering companies, including those that fit the ‘fact patterns’ listed above, to import controlled items. These companies are often established firms that act as contracted procurement agents, although there are also shell companies that exist mainly to import items for Pakistan’s nuclear and missile programmes.

A cluster of shell companies is located at 76-E Hill View Plaza, an address in Islamabad’s Blue Area. While legitimate businesses are located in the building, shell companies with suspected links to Pakistan’s nuclear and missile programmes have also used this address for imports, according to current and past warning lists published by the Japanese and German governments.[4] At least one of these companies reportedly acted as a front company for KRL or the Pakistan Atomic Energy Commission (‘PAEC’).[5] Additional companies not yet flagged on watch lists also may be using this address. It continues to be listed as an end-user address for shipments of dual-use or weapons-related items, according to Pakistani import manifests.

Second, exporters should thoroughly assess the potential dual-use applications of their products. The BIS guidance identifies a number of items subject to the EAR that have been sought by Pakistani nuclear and missile entities, including EAR99 items either not listed on the Commerce Control List or listed but controlled only for anti-terrorism reasons. These items include connectors, electromechanical relays, gas measurement equipment, certain GPS systems (controlled under ECCN 7A994), power supplies, reflectometers, and vacuum pumps (not described in ECCN 2B231).

Third, BIS recommends determining the ‘full scope of entity listings,’ which may require manual review. The example cited in the guidance is the PAEC, which appears on the Entity List. BIS explains that the PAEC’s Karachi and Chashma power plants are subject to Entity List restrictions even though they aren’t actually named on the list.

Entity List restrictions in fact apply to all PAEC nuclear fuel cycle facilities, even though none appear by name on the list. The entry for the PAEC defines (rather than lists) the subordinate entities that are covered: ‘[n]uclear reactors (including power plants), fuel reprocessing and enrichment facilities, all uranium processing, conversion and enrichment facilities, heavy water production facilities and any collocated ammonia plants.’

Unfortunately, the names and affiliations of these facilities are often obscure, leaving the supplier to determine their true identities. Even scrupulous exporters may have difficulty doing so.

Finally, the guidance warns that exports made under the terms of a letter of credit (‘LoC’) may have different requirements from an Electronic Export Information (‘EEI’) filing, leading to the misrepresentation of the parties to an export transaction. Notably, an EEI filing should not list a financial institution as the ultimate consignee – although it may be listed in the ‘ship to’ or ‘consign to’ fields in transportation documents associated with a LoC – unless the institution indeed is the recipient of the export.

The latest BIS guidance is valuable for any firm exporting items with nuclear and missile applications to Pakistan or to countries that may be used as a transhipment point for trade to Pakistan. As the guidance points out, there is a heightened risk that such trade may be diverted to Pakistan’s nuclear and missile programmes.

BIS has expanded its Entity List in recent years to capture some of the firms supporting such diversion schemes. But as the guidance makes clear, reliance on automated screening measures and a positive list of controlled items is not sufficient. The guidance concludes that any supplier ‘unable to resolve red flags identified in a prospective export, reexport, or transfer […] should either refrain from participating in the transaction, submit a license application, or submit an advisory opinion request to BIS.’


Links and Notes:

[1] ‘Due Diligence Guidance Concerning Exports, Reexports, and Transfers (In-Country) to Pakistan,’ US Department of Commerce, Bureau of Industry and Security, 30 August 2019, https://www.bis.doc.gov/index.php/policyguidance/pakistan-due-diligence-guidance.

[2] ‘Supplement No. 4 to Part 744 – the Entity List,’ U.S. Department of Commerce, Bureau of Industry and Security, https://www.bis.doc.gov/index.php/documents/regulations-docs/2326-supplement-no-4-to-part-744-entity-list-4/file

[3] Federal Register, Vol. 82, No. 101, 26 May 2017, p. 24242.

[4] End User List, 26 April 2019, Japan’s Ministry of Economy, Trade, and Industry (METI), https://www.meti.go.jp/policy/anpo/hp/190426_5.pdf.

[5] Klaus-Peter Ricke, ‘Pakistan’s Rise to Nuclear Power and the Contribution of German Companies,’ Peace Research Institute Frankfurt, PRIF-Report No. 118, 2013, p. 45, https://www.hsfk.de/fileadmin/HSFK/hsfk_downloads/PRIF_118_download.pdf

More Eyes on More Data: Prospects for Restricting Iran’s Missile Program Using Open Sources

Panelists:

  • Chris Bidwell
  • Catherine Dill
  • Charles Duelfer
  • Mike Elleman
  • Phil Rosenberg
  • Richard Speier
  • Vann Van Diepen
  • Varun Vira

Moderated by Valerie Lincy, executive director of the Wisconsin Project on Nuclear Arms Control, and John Lauder, former Director of the Intelligence Community’s Nonproliferation Center and now an independent consultant on nonproliferation and arms control.

Introduction

The United States withdrew from the nuclear agreement with Iran – the Joint Comprehensive Plan of Action (JCPOA) – in part because it did not address the threat posed by Iran’s missile program. Following this withdrawal, the United States has expanded trade and financial sanctions aimed at punishing Iran economically to counter a range of threats, including ballistic missiles. The United States is also working with other countries to constrain Iran’s missile program, which is still subject to U.N. sanctions. In public remarks last September, Brian Hook, the head of the State Department’s Iran Action Group, said that the United States is “coordinating with allies to interdict missile-related transfers” to and from Iran and to target “choke point technologies and procurement strategies” used by Iran.[1]

According to Mr. Hook, U.S. policymakers are also assessing the conditions for renewed negotiations with Iran and would seek a formal treaty that addresses “the totality of threats that Iran presents.” He described a treaty as the only “enduring and sustainable” way to address those threats. The recent decision by the United States to withdraw from the Intermediate-Range Nuclear Forces (INF) Treaty with Russia in response to Russian violations likewise has focused attention on the forms of missile limitations the U.S. administration sees as desirable and achievable. The issues associated with INF compliance have also demonstrated both the value of monitoring measures and the difficulty of publicizing violations without revealing sources and methods.

Monitoring and verification are critical both to the implementation of sanctions and to any formal agreement with Iran that restricts its missile program. The process for monitoring and verification is influenced by the increasing public availability of open source tools and data, such as machine learning, remote sensing technologies, and trade and corporate data. These tools and data, collectively referred to as “public technical means,” allow a greater number of actors, including from the non-governmental community, to contribute to monitoring and verification efforts.[2]

In June 2018, the Wisconsin Project on Nuclear Arms Control brought together an expert panel for a private discussion about how open source tools and data can support U.S. and multilateral efforts to constrain Iran’s missile program, both through sanctions and through an eventual agreement. Specifically, the panel assessed the status of Iran’s missile program and considered whether technical “choke points” in the program could be identified and exploited through public technical means in order to complement government efforts to raise the cost and slow the development of this program. The panel also discussed how open source tools and data might support sanctions by identifying instances of illicit procurement and/or sanctions evasion. Finally, the panel considered how these tools might contribute to the monitoring and verification component of a new agreement with Iran, in the context of active negotiations with North Korea and informed by other missile limitation efforts like the INF Treaty.

The panel discussion was held in Washington, D.C. and moderated by Valerie Lincy, Executive Director of the Wisconsin Project, and John Lauder, former Director of the Intelligence Community’s Nonproliferation Center and now an independent consultant on nonproliferation and arms control. The other participants were Chris Bidwell, Senior Fellow for Nonproliferation Law and Policy at the Federation of American Scientists, Catherine Dill, Senior Research Associate, James Martin Center for Nonproliferation Studies, Middlebury Institute of International Studies at Monterey, Charles Duelfer, former Special Advisor to the DCI for Iraqi weapons of mass destruction and now Chairman of Omnis Inc., Mike Elleman, Senior Fellow for Missile Defense at the International Institute for Strategic Studies, Phil Rosenberg, Senior Advisor for Financial Intelligence at the Chertoff Group, Richard Speier, Adjunct Staff at RAND Corporation, Vann Van Diepen, former Principal Deputy Assistant Secretary of State for International Security and Nonproliferation, and Varun Vira, Chief Operating Officer at C4ADS.

The event was co-sponsored by the Nuclear Verification Capabilities Independent Task Force with financial support from the John D. and Catherine T. MacArthur Foundation and another private foundation.

Finding Highlights

The panel found that the expanding availability and decreasing cost of open source tools and commercially available data can support both the implementation of sanctions targeting Iran’s missile program and the monitoring of a potential agreement restricting that program. Such tools and data could help identify and target choke points in Iran’s program, thus raising the cost to Iran of improving its missile capability. In particular, space-based remote sensing technologies can help monitor known locations in Iran involved in missile development and identify possible additional facilities, while publicly available corporate and trade data can support network analysis related to missile procurement. Machine learning can be applied to these disparate data sources to support monitoring and enhance analysis.

Despite these contributions, several panelists cautioned that emerging open source capabilities applied by non-governmental actors do not diminish the primacy of governments. Only governments can satisfactorily validate the results of open source analysis using classified sources and methods and only governments can make verification judgments. Likewise these panelists warned that non-governmental actors may introduce information publicly that complicates government efforts, including disclosing sources and methods and helping Iran improve its concealment and deception techniques. The risk of moral hazard may increase – proliferators benefiting more than the public from a disclosure – as non-governmental actors access increasingly sophisticated imagery and deep data techniques.

The panel further concluded that any lasting agreement with Iran might need to reflect that ballistic missiles are an integral part of Iran’s conventional warfighting capability rather than exclusively a future delivery vehicle for nuclear weapons. The parameters of a future agreement could be informed by precedents like the INF Treaty and any agreement’s monitoring requirements should be tailored to address appropriately what is being restricted. Finally, the parameters and monitoring arrangements of any agreement struck with North Korea that restricts its missiles should be seen as applicable to Iran. Negotiators should be attentive to setting precedents in each of the possible missile discussions that would be helpful in other missile control efforts.

Following are the roundtable’s findings, which are a composite of the panelists’ individual views. No finding should be attributed to any single panelist or be seen as a statement of the policy of any organization with which the panelist is affiliated.

Open source tools and data could enhance the pressure campaign on Iran by identifying and targeting choke points in Iran’s missile program, slowing the program’s development, and raising the cost to Iran of improving its missile capability.

Iran has pursued a two-track approach to missile acquisition since the Iran-Iraq war, prioritizing the procurement and production of liquid-fueled missiles and the production of solid-fueled missiles. While Iran largely has achieved self-sufficiency in the production of SCUD-type liquid-fueled ballistic missiles, it remains reliant on foreign technology and materials to improve the accuracy and range of these missiles and to build solid fueled missiles and related production infrastructure. The panel therefore agreed that it would be possible to target these specific chokepoints and that open source tools and data could help do so.

Specifically, the panel noted Iran’s need for guidance technology, including laser and fiber optic gyros, microelectro mechanical systems (MEMS), as well as lightweight and heat resistant materials that would help Iran with re-entry for longer-range missiles. According to one panelist, Iran does not appear to have acquired or developed isogrid and orthogrid technologies, with which it could fabricate lighter weight liquid-propellant casings with a similar structural capacity. Such technology would allow Iran to extend the range of its missiles without reducing payload. Iran’s need for small turbo fan engines for cruise missiles was also identified as a key choke point, as was aluminum powder and other materials for the production of solid propellant. In addition, the panel noted that production equipment for these items would be valuable for Iran, which has long emphasized indigenous production. The acquisition of production equipment was identified as particularly challenging to target because much of it is dual-use, even if its export is controlled by multilateral regimes. Relatedly, the panel emphasized the importance of trained personnel in accomplishing Iran’s indigenous production goals. The acquisition and use of production equipment is directly tied to individual expertise in operating such equipment.

Thus, sanctions aimed at inhibiting missile technology acquisition should target both persons and trade flows. The panel suggested first compiling a list of the key materials and production equipment needed by Iran. Such a list could be compiled using open sources, such as information published by the now-dissolved U.N. Panel of Experts on Iran. Second, experts could identify and map the global manufacturing base for these items. Once the countries and perhaps specific firms are identified, publicly available statistical trade data could be used to visualize the trade flows and import markets for these items. This process could help reveal the transshipment routes that Iran has or could use for technology acquisition. Similarly, reviewing technical publications and scientific journal articles by Iranian engineers could help identify key individuals contributing to missile development, what they are working on, and the institutional affiliations of these individuals.

The panel agreed that disrupting Iran’s supply chain for critical materials would be useful and that sanctions may already have had an effect on the pace of Iran’s solid-fuel missile program. For example, the successful development of solid-propellant motors is critically dependent on a consistent supply chain for basic ingredients, ensuring that motor tests are conducted using the same materials, from the same producer, using the same production line. Without such a consistent supply, it is difficult to validate the materials and ensure quality control. If motors fail to perform as expected during tests, it becomes difficult to assess the cause by isolating each variable. The U.N. Panel of Experts documented numerous instances of such materials being interdicted en route to Iran, likely complicating Iran’s ability to consistently acquire critical materials from the same suppliers.

While sanctions and interdictions may help slow the program and raise the costs to Iran of pursuing ballistic missiles, the panel agreed that Iran is inherently capable of producing longer-range missiles. This assessment is based on Iran’s space launch program, pursuit of solid-propellant systems, and illicit acquisition of long-range land-attack cruise missiles. Some panelists suggested that Iran’s long-range missile program may be in “hedge” mode, much as Iran essentially placed its nuclear weapon program in “hedge” mode as a result of the JCPOA. One panelist noted several indicators of Iran’s longer range goals: ongoing tests of space launch vehicles; the January 2017 test of the Khorramshahr liquid-fueled missile, which likely is derived from North Korea’s BM-25 and may have a range beyond the 2,000 km declared by Iran;[3] and revelations that Iran is operating a missile test site near the city of Shahrud where it appears to have tested large rocket motors.[4]

Space-based remote sensing technologies, including optical satellite imagery, can help monitor known locations in Iran involved in missile development.

A variety of space-based remote sensing technologies with relevance to nonproliferation are deployed and their products are commercially available. There is an abundance of satellite imagery from multiple commercial providers in multiple countries. Small satellites with lower resolution images (1-3 meters) can image a location frequently. In some cases, a single location can be imaged multiple times in one day. Traditional large satellites with a much less frequent revisit rate offer higher resolution (25-70 centimeters) images. The panel noted that high and low resolution optical satellite imagery can be used effectively in combination to track Iran’s missile development. Frequent images of suspect sites allow analysts to compare images over time and identify changes; high resolution imagery can provide much greater detail about such sites and perhaps help map production facilities and estimate the size of production equipment. Synthetic aperture radar (SAR) imagery provides further enhancements, including the ability to penetrate clouds and to image at night. However, the panel cautioned that SAR remains costly and is difficult to interpret without specialized training.

The missile test site near Shahrud, referenced above, illustrates the way in which satellite imagery can support the identification of locations where Iran is pursuing longer-range missiles. The site was used in 2013 for a single missile test but otherwise appeared dormant. Researchers from the James Martin Center for Nonproliferation Studies (CNS) analyzed the structures and ground markings at the site using optical satellite imagery and concluded that the site likely is dedicated to developing solid-fuel, long-range missile technology. The imagery allowed researchers to date recent engine tests – in 2016 and June 2017 – based on when ground scars appeared. The size of the missile test stands also provided valuable information: researchers concluded that the engine tested in 2017 could have powered between 62 and 93 tons of thrust, possibly enough for an intercontinental-range missile. Finally, the images did not show any fuel storage tanks or fueling stations, suggesting that the site is for solid-propellant engines. According to one panelist, the site may instead be connected to Iran’s space launch program, but this panelist noted that the types of motors needed for space launch could be transformed into missiles and flight tested quite quickly.

The researchers at CNS also used SAR images to confirm that the site remained active. These images revealed foot and vehicle traffic at the site, particularly at locations where engine tests were conducted. Several panelists emphasized that SAR images could be particularly useful in Iran. They allow for imaging at night – when Iran’s outdoor engine tests are likely conducted – and work well in sparsely vegetated areas.

The recent open source analysis about the Shahrud site demonstrates how commercially available remote sensing technologies can provide evidence that a program is more advanced than commonly estimated. Iran had not tested its two-stage, solid-fueled Sejil missile since 2012, which previously created uncertainty as to its status and the status of Iran’s long-range solid-propellant program overall.

The panel cautioned that optical and SAR imagery may not be helpful in predicting missile flight tests, given the short timeframe between the preparation for a test and launch. However, such imagery can provide information about the type of system Iran has flight tested, the range achieved, and the capability of the system that was tested. Such analysis is already being done to monitor Iran’s compliance with the missile limits in U.N. Security Council resolution 2231. However, there is no unified verification judgment from the United Nations; permanent members of the Security Council disagree about whether such tests actually violate the resolution.

Publicly available corporate and trade data can support network analysis related to missile procurement and uncover additional nodes in a procurement network; such data can also be used to identify instances of sanctions violation.

Open data, including trade data, corporate registry information, academic and scientific publishing, maritime and airplane traffic, and information from trade shows can help identify instances of sanctions evasion and illicit procurement. These data also can help identify the entities involved in such illicit activity. The panel agreed that these data are particularly valuable for monitoring when they are brought together and compared.

Shipping data, including manifests and bills of lading, contain some information about the items in a transaction, including an HS code from the harmonized tariff system developed by the World Customs Organization.[5] The panel was moderately confident in the correlation between HS codes and items controlled by the Missile Technology Control Regime (MTCR). As a result, if goods are accurately declared, it should be possible to use trade data to trace commercial activity to Iran, or to a country of concern for transshipment to Iran, for items of interest captured within a broader HS code. Such micro-level transactional data is directly available from some customs authorities and commercially available from third-party providers for some countries. It generally includes information about the buyer, seller, and shipper in a particular transaction. It may be possible to use such data to identify parties involved in shipping missile-relevant technology to Iran. In addition, macro-level statistical trade data is available through the U.N. COMTRADE database, which provides valuable information on the flow of goods of interest.

Corporate data can provide additional information about the parties around the world supporting Iranian missile procurement. Many countries have open corporate registries that provide information about registered companies, including company contact information, directors, shareholders, and associated businesses. This information may be freely available; it may be available for purchase; or it may not be publicly available. Similarly, real estate records may provide information about a company’s ownership structure, as well as party identification information such as tax ID numbers. Individuals or companies that are known to be part of an Iranian missile procurement network may have additional relationships that would be revealed by mining corporate data.

Information about suspicious financial transactions is held by banks and shared with governments; it is not publicly available, thus limiting the ability to use open source information to track the financing of missile proliferation. However, the panel noted that information on correspondent banking relationships, which banks have a business interest in making public, can be helpful. This information is publicly available in resources such as the Bankers Almanac, although they are often costly to acquire. According to one panelist, Iran continues to rely on the same well-known financial actors to support its missile program, including Bank Sepah, Bank Melli, and Bank Mellat, and their overseas subsidiaries. The role of these banks has been described publicly in past U.S. sanctions notices. These banks access foreign currency through correspondent relationships with foreign financial institutions. Mapping these banking relationships would provide insight into how Iran finances overseas procurement for its missile program.

Combining these disparate, unclassified data sources would allow analysts to see high-level convergence, such as the use by Iran of certain jurisdictions for sanctions evasion or illicit procurement. It would also reveal specific convergences, such as reliance on certain lawyers or corporate formation agencies within these jurisdictions. Combining corporate registry and real estate records from multiple countries might reveal common parties and new connections. Similarly, comparing corporate and trade data with a known list of entities supporting Iran’s missile program, such as parties on national or international blacklists, could expose the alternative names or locations of sanctioned entities, or help identify additional nodes in an illicit procurement network. Using network analysis software to link parties of concern and the flow of sensitive goods would further enhance this exercise.

One panelist noted that the U.S. decision to withdraw from the JCPOA and re-impose previously waived sanctions on Iran broadens the sanctions targeting field to include sectors supporting Iranian missile proliferation economically, such as the banking, shipping, and energy sectors. The evidentiary threshold for these new sanctions targets more easily can be met using open data, such as maritime AIS, an automatic vessel tracking system used on ships, and information about vessel owners and operators. This information might also be usefully combined to identify instances of sanctions evasion: satellite imagery combined with vessel AIS or airplane ADS transmissions can help predict the destination of a ship or airplane even after their trackers are turned off; or satellite imagery combined with vessel movement information could help identify instances of illicit ship-to-ship transfers of Iranian oil.

Machine learning applied to satellite imagery and trade and corporate data can enhance monitoring of missile development sites in Iran, identify new missile sites, and detect instances of sanctions evasion or illicit procurement; however, such techniques are not infallible and primarily should serve as leads for further analysis or collection.

The volume and diversity of data described above, not all of it in English, poses a challenge for traditional analysis methods that machine learning techniques can help mitigate. The panel agreed that several techniques present particular utility for proliferation-related research, including machine learning applied to satellite imagery, training neural networks to analyze satellite imagery or trade data, and data engineering such as natural language processing to parse bulk data.

Large swaths of satellite imagery can be analyzed for change detection and object identification at known Iranian missile sites using machine learning techniques. This can be done using established algorithms or deep neural networks. Neural networks are computing systems that allow multiple algorithms to work together to process complex data inputs. As described above, this would allow analysts to more easily see if there is increased activity at missile sites, which may be an indicator of expanded research and development activity or preparations for a flight test.

Applying machine learning to open source imagery to identify new sites is more complicated. One panelist noted that relative to North Korea, Iran publishes fewer images of its key missile facilities and systems. This makes it difficult to constitute a robust “training” data set used to teach open source machines what to search for. It may be possible, including with the use of synthetic data, to train a neural network to identify what a ballistic missile test facility in Iran looks like, and to then ingest, on a daily basis, all new imagery for the entire country to see if there are other, similar sites. It may be more difficult, though not impossible, to do so for open source analysis of missile production facilities or sites used for missile research and development. The success of this effort would depend in part on whether Iran is consistent in the way it builds and organizes its missile-related sites so that a machine can be taught what to look for based on a limited number of examples. The panel cautioned that Iran may not proceed in the most logical manner in its missile development because of work-arounds necessitated by technical shortcomings or material it is unable to acquire or produce or as a means of concealment and deception.

Neural networks might also be trained to understand and analyze trade data. For instance, cluster analysis of the manufacturing base and trade flow of sensitive items could identify certain areas that are receiving these items or the supply chains that may be delivering the items to Iran.

The panel agreed that the key to analysis in this data-rich environment is fusing disparate sources of data to support the monitoring process and verification judgments. Machine learning is critical to this process. However, the panel cautioned that the results produced by machine learning techniques should be used carefully. These results often are greeted with suspicion, in part because machine learning algorithms generate leads or make choices that are not fully understood, including by data scientists themselves. These algorithms are essentially black boxes, which may raise suspicion that their results have been manipulated. It may be difficult to present the results to a country or company and request a legal action, such as an interdiction or an asset freeze, which might be challenged in court where a higher evidentiary threshold would be required. In addition, algorithms are often proprietary and developers are unwilling to share intellectual property that they are trying to market commercially. The panel concluded that these tools provide leads for additional evidence gathering but emphasized that the results are not finished products.

The increasing use of open source data and machine learning by non-governmental actors in public analysis may complicate national monitoring and verification efforts and should be used with care.

Non-governmental organizations (NGOs) are playing an increasingly prominent role in the proliferation- and sanctions-related monitoring process in Iran, and rely on publicly available data and machine learning techniques to do so. There was some disagreement among the panelists about the risks associated with this contribution.

Some panelists cautioned that NGOs could impede government activity, whether by inadvertently disclosing government sources and methods, or disclosing monitoring indicators that would help Iran improve its camouflage, concealment, and deception techniques. For instance, if an algorithm used to identify a new missile site in Iran is described publicly, it becomes easier for Iran to spoof the algorithm by making small changes or adjustments. Iran may also learn to falsify data, such as AIS tracker information. For every new measure or new tool that identifies missile activity, Iran may develop a countermeasure. As NGOs increasingly leverage sophisticated imagery and deep data techniques, there is a risk that a missile-related disclosure made by an NGO may be of greater value to Iran than to the public.

These panelists also warned that open source analysis by NGOs may introduce inaccurate information that can be disseminated rapidly in a political environment in which suspicion, disinformation, and unfounded accusations flourish. According to these panelists, open source analysis by NGOs should be provided to governments so that it can be assessed, validated, and perhaps merged with other sources of information held exclusively by government. Governments have a far greater capacity – largely through intelligence sources and methods, but often through negotiated inspection, information-sharing, and confidence building measures – to discover and penetrate weapons programs of concern. Thus, the increased NGO contribution, these panelists concluded, does not diminish the primacy of governments in monitoring and, more importantly, in making verification determinations. These latter are policy judgments that can only be performed by the state parties to international agreements.

Other panelists noted that open source information and data analytic techniques are now part of the monitoring landscape. NGOs use these tools, as do an increasing number of governments, including U.S. adversaries like Iran. The curve of adaptation and counter adaptation has exponentially increased alongside the increase in open source information.

Finally, the panel noted that NGOs often are driven by an imperative to publish findings quickly and to demonstrate a measurable public impact. Such imperatives may expose NGOs to error traps, which can have reputational and funding repercussions. These imperatives must be balanced against a certain responsibility to consult government before publicizing a particular revelation.

Iran’s ballistic missiles have been integrated into its conventional warfighting capability; an agreement restricting Iran’s missile program therefore could instead seek to limit the parts of the program that are of greatest concern for nuclear weapon delivery.

Annual U.S. intelligence threat assessments regularly conclude that “Iran’s ballistic missiles are inherently capable of delivering WMD” and that Iran “would choose ballistic missiles as its preferred method of delivering nuclear weapons, if it builds them.”[6] However, the panel found that Iran’s ballistic missile program should not be seen as exclusively dedicated to that purpose.

Iran has integrated hundreds of short- and medium-range ballistic missiles into its conventional forces as the bedrock of its regional warfighting and deterrence capabilities. Historically, the utility of these missiles has been limited by their poor accuracy; when conventionally armed, they function as a terror weapon to threaten cities, useful for coercion and deterrence in the absence of a modern air force. Since 2010, however, Iran appears to have prioritized improving the accuracy and lethality of its missiles. Iran’s missile doctrine has evolved in tandem, from one of coercion and deterrence to warfighting. Iran wants to make its missiles more useable in conventional warfare.

Several recent events support this assessment. Iran has transferred short-range ballistic missiles to proxies in Yemen and Lebanon. Such transfers include more sophisticated systems, like the Qiam-1 missile, which is a modified version of the Scud C, several of which have been fired at civilian targets in Saudi Arabia by the Houthis in Yemen. This use provides valuable test data for Iranian engineers to improve the missile’s performance. Iran is also using these missiles directly in military operations. It fired about six short-range ballistic missiles from within its territory against Islamic State (ISIS) positions in Syria, in June 2017 and again in October 2018, in retaliation for ISIS attacks inside Iran. In both cases, Iran is reported to have fired both the Qiam-1 and the Zolfaghar, a single-stage, solid-fuel ballistic missile.

Because of the evolution of its missile doctrine, several panelists predicted that Iran would not completely give up its missile arsenal. The panel agreed that it would be easier to restrict systems that have not yet been successfully tested or deployed. Thus, it might be difficult to negotiate an agreement limiting flight tests of all missiles that can send a 500 kilogram payload 300 kilometers, which is the Missile Technology Control Regime (MTCR) threshold definition for nuclear-capable missiles; Iran has a number of operational missiles that meet this threshold. It might be possible to negotiate an agreement limiting ballistic missile types beyond medium range. For example, high-ranking Iranian military commanders have said that the Supreme Leader has restricted the range of ballistic missiles manufactured in the country to 2,000 kilometers.[7] One panelist noted that such a restriction would become less meaningful if Iran were to develop sea-launched or air-launched missiles. Several panelists emphasized that range restrictions must be combined with payload restrictions to meaningfully restrict Iran’s missile capability.

It would also be important to impose limits on Iran’s program to launch satellites using domestic space launch vehicles (SLVs). Many components and technologies used to make SLVs are interchangeable with those used to make long-range ballistic missiles. SLV launches provide valuable data on stage separation, which is useful for intercontinental ballistic missile (ICBM) development. Ideally, Iran should be convinced to forgo SLVs in exchange for launching its satellites on other countries’ boosters. If an agreement includes a “carve out” for space launch, some panelists suggested several specific restrictions, including a limit on rocket diameter, a prohibition on the use of solid-fuel propellant, and a prohibition on the development of countermeasures such as defensive decoy or spoofing technologies. There was disagreement among the panelists about the value of a compromise that allows Iran to continue developing SLVs.

Some panelists assessed that arms control limitations on Iran’s missile program have few near-term prospects, especially following the withdrawal of the United States from the JCPOA. Other panelists argued that Iran may soon be willing to negotiate with the United States on a broad range of issues of concern, including missiles, as a consequence of the full re-imposition of U.S. sanctions and the dire consequences of this action on the Iranian economy.

The parameters of an agreement restricting Iran’s missiles should be guided by the negotiated monitoring measures; on-site inspection and data declarations would be critical for monitoring certain restrictions but would be difficult to negotiate; the use of open source tools do not need to be negotiated and can support monitoring and help detect cheating.

The open source tools and data described above can support monitoring in several ways: they reduce the need for on-site access and therefore make monitoring terms with satisfactory provisions more negotiable; they increase the opportunity to detect cheating, further restricting Iran’s opportunities to do so openly; and they provide a source of information on cheating more useable in diplomacy with Iran, with other countries, and with the public. One panelist noted that open source tools are valuable because their use would not need to be negotiated with Iran. Information exchanges and on-site inspections, while more valuable, would be more difficult to negotiate.

The panel agreed that the monitoring requirements for an agreement should be driven by what is being controlled. Any solution should ensure the ability to be able to monitor well what the agreement restricts. Flight tests are impossible to hide completely. A ban on all flight tests of missiles defined as nuclear-capable by the MTCR could be monitored by the United States unilaterally from outside of Iran, using remote sensing technologies. Other governments and non-governmental actors could also monitor and assess aspects of some flight tests using commercially available imagery and other data. A ban on flight tests of longer-range missiles might similarly be monitored.

Ensuring that Iran is abiding by range restrictions would be enhanced with on-site inspection, although the terms of such access, particularly to sites run by the military, would be difficult to negotiate. The example of Iraq illustrates the value of robust on-site inspections. Limits on the range of Iraqi missiles in the 1990s were enforced with great vigor by the U.N. Special Commission (UNSCOM). UNSCOM set specific limits on missile diameter and had rules to ensure that it could observe engine testing. UNSCOM also set limits on cruise missile flight-testing that required very intrusive monitoring including putting in place independent missile flight test tracking equipment. Ultimately, the only clear violation of UNSCOM limits was Iraq’s al Samoud missile, which exceeded range limits by about ten percent.

As described above, engine tests are often conducted outdoors and have a substantial signature. Such tests could therefore be observed using remote sensing technologies, assuming the tests are being undertaken at known sites. However, tests could be conducted indoors or at undeclared sites, which would make remote detection much more difficult.

Monitoring the parameters of Iran’s space launch program would involve a similar trade off. Remote images of satellite launch sites would provide useful information but perhaps not enough to distinguish work on SLVs from work on ICBMs. Physical access to space launch sites deemed civilian may be easier to negotiate than missile production and test sites run by the military.

Monitoring missile inventories to ensure compliance with caps on the number of systems would be difficult to monitor without some form of on-site inspection and data declarations by Iran.

The results of data engineering might identify procurement that suggests Iran is violating the terms of an agreement, for instance by seeking to acquire or develop higher-energy propellants or advanced guidance components or materials. This would be possible only to the extent that the items or parties involved can be linked to Iran’s missile program. Pairing remote sensing technologies with maritime AIS or airplane ADS transmissions could help identify possible instances of illicit missile-related transfers to Iran. Data engineering might also make it easier to identify and isolate unusual or significant trade or transit activity that suggests a violation, and provide inputs for governments to correlate with classified data.

Several panelists noted that successfully monitoring an agreement with Iran would involve the use of both public and national technical means in order to create a synergy among different methods of discovery of relevant Iranian activities. Evidence of violation generated through public technical means, and validated by governments, could be presented to Iran without disclosing classified sources and methods. However, it may take time to marshal such public information. For instance, the United States forestalled confronting Russia with evidence of its violation of the INF Treaty for fear of revealing sources and methods that could not easily be replaced. It took several years before lower-grade public sources could be used to make the public verification judgment that Russia had violated the Treaty.

If Iran agreed to negotiated limits on its missile program, elements of an agreement could be informed by other agreements on delivery vehicles, such as the INF Treaty.

There are useful precedents and best practices that could inform a verification regime for Iran’s missiles. The INF Treaty, in particular, provides useful guidance. It eliminated an entire class of ground-based ballistic and cruise missiles with ranges between 500 and 5,000 kilometers held by the Soviet Union and the United States.

The INF Treaty elaborated multiple specific monitoring measures, including detailed data exchanges, five types of on-site inspection (including baseline, close-out, elimination, short-notice, and portal monitoring), the principal of non-interference with national technical means along with cooperative measures intended to enhance the use of such means for monitoring, and a consultative mechanism.

In applying precedents and approaches from the INF Treaty to Iran, the panel described the following requirements: a missile data declaration from Iran to provide a baseline for what is being controlled and the areas where controlled systems or technologies are located; routine inspections and cooperative, persistent monitoring measures of locations where cheating would be easiest; a method of challenge inspection to gather and verify data on compliance concerns; and the use of national technical means augmented by robust exploitation of open data and techniques. For example, optical and SAR imagery might be used to monitor the “back door” of a suspect site subject to an on-site inspection, to observe whether Iran is seeking to hide or remove items. All of these requirements should be driven by the objective of detecting militarily significant non-compliance.

Like the INF Treaty, an agreement with Iran should establish a consultative mechanism that can be used to resolve anomalies or disputes. This consultative mechanism would create a forum in which monitoring experts and Iranian officials could exchange information and findings related to verification of the agreement. Such a mechanism also has the benefit of building greater transparency with Iranian officials and enhancing channels of communication between Iran, the United States, and other parties to the agreement.

Any agreement with Iran must also cover missile technology transfers, in particular missile technology transfer between Iran and North Korea. The INF Treaty may offer useful guidance since it included restrictions on technology transfers to allies as a means of circumventing the Treaty. In addition, several panelists emphasized that like the INF, an agreement with Iran must cover both cruise and ballistic missiles. An exclusive focus on ballistic missiles, as is the case in some of the restrictions of current and past U.N. Security Council resolutions, would allow Iran to advance its cruise missile program.

Finally, the panel noted a key area where an agreement with Iran would differ from the INF Treaty. The INF Treaty was a reciprocal arrangement where both sides agreed to implement the same restrictions. Like the JCPOA, in an agreement on missiles, Iran would be accepting restrictions on its program in exchange for economic gain through sanctions easing. This formula would not be straightforward and would need to be calibrated through negotiation.

Attachment:

 More Eyes on More Data: Prospects for Restricting Iran’s Missile Program Using Open Sources


Footnotes:

[1] “Transcript: Iran’s Missile Proliferation: A Conversation with Special Envoy Brian Hook,” Hudston Institute, September 19, 2018, available at https://www.hudson.org/research/14590-transcript-iran-s-missile-proliferation-a-conversation-with-special-envoy-brian-hook.

[2] Christopher Stubbs and Sidney Drell, “Public Domain Treaty Compliance Verification in the Digital Age,” IEEE Technology and Society Magazine, Winter 2013.

[3] Iran reportedly conducted another test of the Khorramshahr missile in December 2018.

[4] Max Fisher, “Deep in the Desert, Iran Quietly Advances Missile Technology,” New York Times, May 23, 2018, available at https://www.nytimes.com/2018/05/23/world/middleeast/iran-missiles.html.

[5] The Harmonized System (HS) is an international nomenclature for the classification of products. It allows participating countries to classify traded goods on a common six-digit code basis for customs purposes.

[6] Statement for the Record, Worldwide Threat Assessment of the U.S. Intelligence Community, Senate Select Committee on Intelligence, May 11, 2017, available at https://www.dni.gov/files/documents/Newsroom/Testimonies/SSCI%20Unclassified%20SFR%20-%20Final.pdf.

[7] “Iran Commanders Say Supreme Leader Limiting Ballistic Missile Range,” Radio Free Europe Radio Liberty, October 31, 2017, available at https://www.rferl.org/a/iran-ballistic-missiles-range-200-km-khamenei/28826950.html.

Proliferation to and from China Over Four Decades

What does the evolution of strategic transfers from China, and China’s illicit procurement of U.S. technology, tell us about the export control policies of Chinese state-run firms?

In the latest issue of the Strategic Trade Review, the Wisconsin Project argues that although private firms, front companies, and brokers have increasingly taken a more prominent role, state-run firms remain involved. They are the primary beneficiaries of dual-use technology illicitly exported from the United States and the Chinese government has adopted a lax enforcement approach when it comes to punishing WMD-related proliferation from China to Iran and elsewhere.

Below is a summary of the article. The full article may be viewed in the latest issue of the Strategic Trade Review, the leading refereed journal dedicated to strategic trade, export controls, and sanctions.

China’s role in proliferation to other countries has evolved over the past 40 years. During the 1980s-1990s, proliferation from China took the form of large, complete weapon systems transferred by the government itself. For example, during this period China sold nuclear-capable ballistic missile systems to both Saudi Arabia and Pakistan, flouting international norms.

By the 2000s, Beijing had begun to adhere to the guidelines of the Missile Technology Control Regime and other multilateral control regimes, and proliferation from China became less clearly state directed, although it did not stop. With the rise of private enterprise in the 1990s, non-state companies took the lead in exporting components and materials that could be used in weapons of mass destruction programs. While these firms were repeatedly sanctioned by the United States their activity was largely ignored by the Chinese government. This trend has continued into the current decade.

Since 2000, the vast majority of Chinese entities sanctioned by the U.S. government have been private companies or individuals and there are very few instances of export enforcement by the Chinese government. As a result of this shift, the outward proliferation threat from China today is less likely to be a state-owned defense company than a savvy businessperson with international connections and a willingness to risk prosecution for a profit.

Similarly, there has been a shift in the prominence of Chinese state-run companies in violations of U.S. export controls. During the 1980s and early 1990s, these firms violated U.S. export control laws in the context of joint projects with major American firms, leading to unauthorized transfers of U.S. technology or equipment. In the 2000s, these violations were more characterized by the use of small companies in the United States – often run by Chinese nationals – that made illegal exports of U.S.-origin components directly to state-owned Chinese research institutes and companies. In the current decade, U.S. items illegally exported to China are often part of a more complex arrangement, sometimes involving multiple private actors in several countries, the use of front companies, and other evasive techniques to mask the true destination of the goods. Participation by state-owned firms in these transactions is not as obvious as it was in decades past; however, it is clear that they continue to be the ultimate beneficiaries of many of these illicit transfers.

China’s new Draft Export Control Law would replace a patchwork of lists and regulations with a comprehensive export control system. While it contains some positive elements, will the new law change decades of lax export enforcement by the Chinese government or the persistent violations of U.S. export control rules by state-run firms for technological and commercial gain? Our review of the past four decades of Chinese state trade policy leaves reason to doubt.

Crackdown on Iranian Network Underscores Pattern in Illicit Procurement

A federal indictment unsealed last month provides the latest illustration of the methods used by Iranian procurement agents to illicitly procure U.S.-origin goods for export to Iran. This case details how Iranian citizen Arash Sepehri conspired with individuals and companies operating in Hong Kong, the United Arab Emirates, and Iran to send hundreds of thousands of dollars worth of U.S. technology, most with military applications, to Iran between 2010 and 2011. While the U.S. case concerns military-related procurement and embargo violations, the network has also supported Iran’s nuclear program: Three of the companies involved in the conspiracy have conducted illicit nuclear procurement, according to the European Union.

Sepehri and his conspirators relied on well-known techniques to evade export controls and sanctions including the use of aliases, front companies, and circuitous shipping and payment methods. These techniques allowed Sepehri to conceal both the true end-users and intended use of the procured goods.

Sepehri pleaded guilty to the charges outlined in the indictment and will be sentenced in mid-January 2019. This move follows federal action six years ago against one of Sepehri’s co-conspirators, Omidreza Khademi, and suggests that the United States is continuing to target a network that may still be operating in Iran and the UAE.

The Network

THE STARTING POINT: IRAN 
The conspiracy was facilitated by Arash Sepehri, a thirty-eight year old Iranian citizen. Sepehri is an employee and on the board of directors of Tehran-based Tajhiz Sanat Shayan (TSS). Between 2008 and 2014, while living in Iran, Sepehri was directed by an Iranian individual, identified in the indictment only as Conspirator B, to illicitly procure U.S.-origin goods, some with military applications, for his Iranian customers. Conspirator B is the principal owner of TSS, as well as of another Iranian trading company, identified only as Company B.  Based on an analysis of court documents and government sanctions, Company B may be Aran Modern Devices.

TSS and Company B were designated by the European Union on May 23, 2011 for their involvement in procurement for Iran’s nuclear program. Neither company appears to have been removed from the EU sanctions list as part of the 2016 nuclear agreement with Iran, and both may subject to EU sanctions. These sanctions include a freeze of all funds and economic resources owned, held or controlled by both entities, and a prohibition on funds or economic resources being made available to them. In addition, TSS remains subject to sanctions imposed by the governments of Australia, Canada, and Japan.

Sepehri, who was named Chairman of the Board of TSS in June 2016, used the company to purchase dual-use U.S.-origin goods and technology for Iranian customers. He arranged for the items to be transshipped through Hong Kong and used false names, including “William Anderson,” in his communications with foreign companies. Correspondence by Sepehri suggests that he procured electronic parts and industrial computers from Europe, China, Taiwan, and sometimes the United States.

THE PAYMENT HUB: THE UNITED ARAB EMIRATES 
Key to the conspiracy’s success was Iranian national and UAE-resident Omidreza Khademi. Khademi was arrested by the United States in 2012 and pleaded guilty to charges related to his part in this scheme in May 2013. Khademi used his UAE-based company, Omid General Trading LLC, to transfer payments to U.S. companies for goods procured by Sepehri on behalf of Iranian end users. Omid General Trading LLC, which was established in 2003, allegedly supplies equipment to firms in the power plant, petroleum, gas, and petrochemical industries. It also reportedly conducts business dealings not only with businesses in Iran, but also with companies in Canada, Europe, Kazakhstan, and the United States.

A final, as yet unidentified, part of the network is also located in the UAE: Conspirator C, an Iranian citizen living in the UAE who owns and operates Company C. Based on an analysis of court documents and government sanctions, Company C may be Modern Technologies FZC, which also is still subject to EU sanctions for its role in procuring components for Iran’s nuclear program.

THE TRANSSHIPMENT HUB: HONG KONG 
At the conspiracy’s outset, Khademi provided Sepehri with the address of an unnamed Hong Kong company that Sepehri used to facilitate the transshipment of illicitly procured U.S.-origin goods. Additionally, Khademi and Sepehri used this company to negotiate prices with U.S. suppliers and to solve logistical problems related to the goods’ shipment.

The Sceme: A Common Pattern

The indictment describes five successful shipments of U.S.-origin goods facilitated by Sepehri; all roughly follow the same pattern. Conspirator B in Iran would request specific items from Sepehri who would in turn place orders with relevant U.S. companies, while hiding the end user and ultimate destination of the goods. Sepehri would have the goods shipped from the United States to Hong Kong. Payments to the U.S. companies would be made from the UAE, after which Khademi would instruct the Hong Kong company to ship the goods to Iran.

Shipments included:

  • SR0847-A01 Lens (2011): Procured from a New Hampshire-based manufacturer for an Iranian customer. This particular lens can be used for a missile tracking device and is a designated item on the U.S. Munitions List (Category XII(e)), which requires a license to be exported. There is a presumption of denial for any license applications of Munitions Lists items for Iran.
  • Side Scan Sonar System (2011): Procured from a Massachusetts-based company and shipped to Sepehri in Tehran at an address for Company B. These small, portable systems have military applications and can capture high-resolution images from small watercraft. They are controlled by the United States for shipment to Iran for anti-terrorism reasons (ECCN 6A991).
  • Underwater Acoustic Transducer (2011): Procured from an Ohio-based company and shipped to TSS in Iran with Company B identified as the consignee. According to court documents, the transducer “was designed for general purpose military and scientific applications in an underwater environment,” including the detection and classification of underwater improvised explosive devices (IEDs). The Ohio company questioned Sepehri about the intended use of the transducer because it is a “military type unit with no commercial sales.” Sepehri successfully assuaged the company by falsely stating that the system was for a civilian fishing project.
  • PCI Analog Input Board (2010): Procured from an Alabama-based company and intended for use at the University of Tehran’s computer lab. According to U.S. court documents, typical applications for this item include “high density analog inputs, industrial robotics, acoustic sensor arrays, biometric signal analysis and dynamic test systems.”
  • Rugged Laptop Computers (2010): Procured from a California-based company and shipped to TSS in Iran for an unidentified end user. According to U.S. court documents, these laptops have “extensive military applications,” and are able to withstand extreme conditions.

Case Status

Both Sepehri and Khademi were arrested and charged by U.S. authorities for their roles in the conspiracy. The dates and circumstances of their arrests have not been made public.

On May 28, 2013, Khademi pleaded guilty to his role in the conspiracy to export U.S.-origin goods to Iran in violation of the International Emergency Economic Powers Act and the Iranian Transaction Regulations. About four months later, on September 13, 2013, Khademi was sentenced in the District of Columbia to 29 months in a federal prison, $100 special assessment, and ordered to forfeit $4,400.

On November 8, 2018, the U.S. Department of Justice announced that Sepehri had pleaded guilty to conspiracy to unlawfully export controlled goods and technologies to Iran in violation of military controls and sanctions on Iran. Sepehri could face up to five years in prison and financial penalties in addition to the forfeiture judgement of $125,661 included in his plea agreement.  He is due to be sentenced on January 16, 2019.

It is unclear whether U.S. authorities will prosecute the remaining unidentified co-conspirators and companies involved in this procurement network. However, three companies in this network may still be listed by the EU for their role in illicitly supplying the Iranian nuclear program. Conspirator B, operating from Iran, directed the conspiracy, and Company C and Conspirator C could still be operating in the UAE.


References:

Council Implementing Regulation (EU) No 503/2011 of 23 May 2011 implementing Regulation (EU) No 961/2010 on restrictive measures against Iran, Official Journal of the European Union, L 136/31, May 24, 2011, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:136:0026:0044:EN:PDF, accessed on December 1, 2018.

Indictment, United States of America v. Arash Sepehri and Tajhiz Sanat Shayan, Case No. 1:16-cr-00081-RMC, U.S. District Court, District of Columbia, May 11, 2016, p. 2, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/indictment-united-states-america-v-arash-sepehri-tajhiz-sanat-shyan, December 1, 2018.

“Iranian National Pleads Guilty to Conspiring to Illegally Export Products From the United States to Iran,” U.S. Department of Justice, Press Release, November 8, 2018, https://www.justice.gov/opa/pr/iranian-national-pleads-guilty-conspiring-illegally-export-products-united-states-iran, accessed on December 1, 2018.

Statement of Major U.S. Export Enforcement, Economic Espionage, Trade Secret, and Embargo-Related Criminal Cases (January 2009-Present), U.S. Department of Justice, February 23, 2015, https://www.justice.gov/file/347376/download, accessed on December 1, 2018.

Statement of the Offense, United States of America v. Arash Sepehri, Case No. 1:16-cr-00081-RMC, U.S. District Court, District of Columbia, November 7, 2018, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/statement-offense-united-states-america-v-arash-sepehri, December 1, 2018.

Statement of the Offense, United States of America v. Omidreza Khademi, Case No. 1:12-cr-00278-RMC, U.S. District Court, District of Columbia, May 28, 2013, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/statement-offense-united-states-america-v-omidreza-khademi-omid-general-trading, December 1, 2018.