Nonproliferation & Nuclear

Have you ever been in a meeting where you are gathering information to put together a license application, and one of your engineers or sales people says, “Don’t put that information in the application.” That will make the government deny the license.” Well, as you know, if you fail to include in an application certain information that would make the government deny the application, you probably are “omitting materials facts,” or as we say out here in my mountains, “lying.” Here is a story that validates that lying on an application can get you in trouble if the government finds out.

A Minnesota-based test system manufacturer, MTS Systems Corp. agreed to plead guilty to violating US export laws. The company submitted two false export license applications for exports to India. MTS now has to pay $400,000 penalty, implement a model export compliance program, and be on probation for two years.

Here is the story of the two “false” applications:

In Nov. 21, 2002, MTS received an inquiry to purchase its equipment from the Electrical Research and Development Association (ERDA), located in India. A MTS representative in India then confirmed to MTS employees that ERDA would be using the MTS equipment for testing nuclear power plant components. MTS, therefore, was required to obtain an export license from the Commerce Department. MTS did not initially apply for a license because the MTS employee in charge of export compliance stated that it was “extremely unlikely” that it would be approved unless the customer could make a “strong and convincing” argument that this test system would not and could not make a significant contribution to India’s nuclear energy programs. Neither the customer nor MTS ever attempted to make this argument to the Commerce Department.

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Includes Chinese, Singaporean, Malaysian, and Mexican Entities

In the April 17, 2007, Federal Register the US State Department announced sanctions on 14 new entities due to actions that potentially make a material contribution to the development of Weapons of Mass Destruction in Iran and Syria. The sanctions prohibit export license approvals and US Government procurement from, assistance to, and exports to the listed entities. The sanctions have little impact on the newly listed entities in Syria and Iran because those countries are already subject to comprehensive US trade sanctions.

Specifically, the sanctions on the entities are:

1. No department or agency of the U.S. Government may procure goods, technology or services from listed entities.
2. No department of agency of the U.S. Government may provide assistance to listed entities.
3. No department or agency of the U.S. Government may sell any item on the United States Munitions List to listed entities.
4. No new licenses for transfer of items controlled under the EAR or the Export Administration Act of 1979 will be granted and all existing licenses will be suspended for transfer to listed entities.

The Listed Entities are:

• China National Precision Machinery Import/Export Corporation (CPMIEC) (China) and any successor, sub-unit, or subsidiary thereof
• Shanghai Non-Ferrous Metals Pudong Development Trade Co. Ltd. (China) and any successor, sub-unit, or subsidiary thereof
• Zibo Chemet Equipment Company (China) and any successor, sub-unit, or subsidiary thereof
• Challenger Corporation (Malaysia) and any successor, sub-unit, or subsidiary thereof
• Target Airfreight (Malaysia) and any successor, sub-unit, or subsidiary thereof
• Defense Industries Organization (DIO) (Iran) and any successor, sub-unit, or subsidiary thereof
• Hizballah and any successor, sub-unit, or subsidiary thereof
• Sokkia Singapore PTE Ltd. (Singapore) and any successor, sub-unit, or subsidiary thereof
• Army Supply Bureau (Syria) and any successor, sub-unit, or subsidiary thereof
• Syrian Air Force (Syria) and any successor, sub-unit, or subsidiary thereof
• Syrian Navy (Syria) and any successor, sub-unit, or subsidiary thereof
• Industrial Establishment of Defense (Syria) and any successor, sub-unit, or subsidiary thereof
• Challenger Corporation (Malaysia) and any successor, sub-unit, or subsidiary thereof
• Target Airfreight (Malaysia) and any successor, sub-unit, or subsidiary thereof
• Aerospace Logistics Services (Mexico) and any successor, sub-unit, or subsidiary thereof
• Arif Durrani (Pakistan)

The penalties will be in effect for 2 years unless the Secretary of State deems otherwise.

Source:

• Federal Register - April 23, 2007 (Volume 72, Number 77, pp. 20158-20159)

It appears that the indictments of four Indian nationals for export violations have muddied the water on the US-India nuclear cooperation talks. The talks between India and the US are important to India in terms of its civil nuclear capacities. Good relations with the US could pave the way for the lifting of restrictions by the Nuclear Suppliers Group (a group of countries who implement guidelines for exports of nuclear items and nuclear-related items to prevent the proliferation of nuclear weapons) on exports to India. Symbolicly, at least, successful talks with the US could also signal that the United State implicitly accepts the legitimacy of the Indian nuclear weapons program, even though the Indians (like the Pakistanis and Israelis) developed their nuclear weapons in direct violation of the Nuclear Non-Proliferation Treaty.

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Iran’s refusal to stop its uranium enrichment program has resulted in new sanctions against them being unanimously approved by the UN Security Council. On Saturday, March 24th, the United States, China, Russia, Britain, France and Germany all voted to enact the new sanctions.

Changes include a ban on Iranian arms exports and a freeze on the assets of 28 entities with involvement in Iran’s nuclear programs. Many of these entities are linked to Iran’s Republican Guard.

The new sanctions are considered modest by most standards. The United States and the Europeans favored stronger measures and the Chinese and Russians were in favor of a less stringent approach. The goal is the make it clear to the Iranians that their failure to comply with demands to suspend their enrichment activities will have consequences. Iran defiantly rejected the sanctions and stated that it would not suspend its nuclear programs. Iranian officials maintain that their nuclear activities are solely for the purposes of energy production.

Source:

• WashingtonPost.com March 24, 2007, Author: Alexandra Olson

In mid-March 2007, the European Union adopted a proposal specifying trade restrictions on Iran. The goal is to further the restrictions placed on Iran, with emphasis on those practices which could contribute to Iran’s nuclear program. The proposal includes the following:

1. Guidelines for consistent implementation of the program
2. Specifying which goods and technology will be affected. Companies who wish to export such goods will have to apply for proper authorizations from the appropriate member state
3. Prohibition on providing technical or financial assistance to any parties listed in Annex I or Annex II of the Regulation
4. Authorization for Member States to override the above prohibition when certain criteria are met:
   1. Confirmation by the UN that transaction will not contribute to Irans’s nuclear program
   2. Appropriate end-use guarantees in contract
   3. Commitment by Iran not to use transaction for nuclear program
5. A freeze in funds or assets controlled by individuals or entities listed in Annex IV and Annex V

Penalties for violation of the regulations will be set out by individual Member States.

Source:

• Steptoe & Johnson Publications International Law Advisory:
  EU Draft Regulation Implementing Trade Restrictions on Iran March 14, 2007

In June of 2005, President Bush issued Executive Order 13382 authorizing significant financial sanctions on WMD proliferators and any firms or individuals who provided support or services to them. Upon its issuance, the President identified eight entities in North Korea, Syria and Iran for their support of WMD proliferation.

Iran’s 5th largest bank, Bank Sepah, was designated for doing business with three of those designated entities: Iran’s AIO (Aerospace Industries Organization) which oversees all of Iran’s missiles programs, the Shahid Hemmat Industries Group (SHIG) which oversees Iran’s ballistic missile program, and the Shahid Bakeri Industries Group (SBIG) which is also involved in the missile program of Iran.

Also designated were Ahmad Derakhshandeh, Bank Sepah’s Chairman and Director, and Bank Sepah International Plc, a subsidiary of Bank Sepah in the UK.

Due to the flagrant and defiant actions of North Korea over the past year relating to missile testing and the detonation of a nuclear device, the United States is imposing new export and reexport controls on North Korea. This new rule is in accordance with UN Security Council Resolution 1718 which prohibits the direct or indirect sale of arms and other specified items to North Korea by UN Member States.

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As of December 12, 2006, Great Wall Airlines (aka Changcheng Hangkong) was removed from OFAC’s Specially Designated Nationals list. We reported in August of this year that the airline had been added to the list for “blocking property of weapons of mass destruction proliferators and their supporters”. The parent company, Great Wall Industry Corp. (which was on the list prior to Great Wall Airlines being added) had been suspected of providing assistance to the missile program in Iran. The US decided to act against the airline for this reason. Great Wall Airlines Company reportedly suspended operations three days after being added to the list.

After three decades of attempting to restrain India’s nuclear activities, historic legislation has been passed, and will probably be signed by the President, creating a dramatic initiative on US/India nuclear cooperation. One of the last orders of business of the 109th Congress was to pass the act allowing nuclear cooperation in a civil capacity with India. The final bill, named the “Henry J. Hyde United States-India Peaceful Atomic Energy Cooperation Act of 2006” was passed on December 9, 2006.

The bill will allow the President to waive provisions of the Atomic Energy Act of 1954 assuming that certain conditions are met by India. These conditions include the negotiation and implementation of a nuclear cooperation agreement between the two countries.

The implications could be great for US and other companies who are already in discussions with Indian officials in preparations for the new Indian market. The Indian government anticipates boosting its civil nuclear capacity in the range of 50,000 watts in the coming 20-25 years. This will create opportunities for companies in the nuclear power market worldwide.

The legislation that has hindered India/US cooperation in the past 30 years stemmed from India’s detonation of a nuclear test in 1974 and India’s claims that the Non-Proliferation Treaty was discriminatory. After a multitude of meetings between US and Indian officials over the past several years, the US decided that the time was right to relax the regulations if India agreed to a number of conditions. These include the agreement to not detonate another nuclear weapon. Another “deal-breaker” would be if the US determines that the new cooperation is benefiting India ’s weapons program.

If India meets the conditions set forth by the United States, controls on nuclear-related exports to India will, in all likelihood, be relaxed. The Nuclear Regulatory Commission and the Department of Energy could allow transfers of nuclear reactors, technology, and related equipment to India. The conditions are complex and may take some time to complete so it may be quite a while until nuclear cooperation can actually begin.

As a result of North Korea’s recent nuclear test, the UN passed a resolution imposing multilateral sanctions on that country (U. N. Resolution 1718).  In early November, 2006, the U. N. distributed a list to its member countries of equipment, technology and industrial products that will be prohibited from being exported to North Korea.  All of these items have direct applications in missile and nuclear related activities.

In addition, members agreed to prohibit exports of luxury goods, because those will vary from nation to nation, each country will be responsible for formulating its own list of such luxury goods.  As an example, Switzerland ’s list includes watches, caviar, wine, tobacco, luxury clothes, carpets, fur overcoats, electronic appliances and cars.  The United States plans to stem the flow of iPods, among other things, to North Korea .

The ban on luxury goods will impact only the elite in North Korea because most North Koreans are not rich enough to buy iPods and caviar.  No doubt, without more iPods and fancy wrist watches, the North Korean leadership will cancel its aggressive pursuit of nuclear weapons capability and dump its stockpile of missile into the sea because there is no way anybody would smuggle such difficult to conceal items into the country.

On Saturday, September 30, 2006, President Bush signed into law the Iranian Freedom Support Act. In addition to codifying existing sanctions against Iran, this act added significant new ones, targeting Iran’s efforts at nuclear proliferation, as well as the companies that assist them.

The act requires the President to impose these sanctions on any company or individual who knowingly provides goods, services or technologies to Iran which would aid them in acquiring, or developing, nuclear, chemical or biological weapons.

It is mandatory that the President impose sanctions on violating companies, but he does have the flexibility to choose among six separate sanctions. They are:

1. Withholding Ex-Im Bank financing and credit
2. Denial of export licenses
3. Prohibiting loans in excess of 10 million dollars to the sanctioned party
4. Prohibiting the sanctioned person form acting as a repository of government funds or from serving as a primary dealer of US debt instruments
5. Prohibiting the US government from procuring goods and services from the sanctioned person
6. Imposing any other sanctions under the International Emergency Economic Powers Act

Offending companies must be published in the Federal Register. No company has been listed yet, but it is likely that Russian and Chinese companies who have assisted Iran with nuclear facilities and missile technology will be among the first.

While most college-age Australians have nothing more to remember their birthdays than hangovers and bad sunburns, a rather more sober Australian twenty-year-old recently celebrated its first twenty years stemming the spread of chemical and biological weapons. I am speaking of course of the Australia Group, the informal multilateral export control regime which returned to its place of birth earlier this year for its twentieth annual plenary session. Speaking at the plenary, Australian Foreign Minister Alexander Downer recounted a bit of the organization’s history:

It is 20 years since Australia convened the first meeting of 15 like-minded countries in 1985 in Brussels.

That meeting was a response to the findings of a UN investigation, led by an Australian - Dr Peter Dunn, that Iraq had used chemical weapons in the Iran-Iraq war. It posed the question of how to prevent Iraq from acquiring materials for the production of chemical weapons through otherwise legitimate commercial trade.

The response - a proposal to harmonize national export controls - was endorsed by all present at that meeting, and the Australia Group was born.

But the plenary wasn’t all talk with the AG participants agreeing on three control list changes to refine limits on illegitimate trade in items with chemical or biological weapons end uses:

1. Simplification of the types of pumps subject to controls due to their usefulness in manufacturing chemical weapons (the US controls such equipment under ECCN 2B350.i).
2. New controls on spraying or fogging systems designed for use with aircraft or unmanned aerial vehicles (UAVs) and capable of delivering droplets of less than 50 m in diameter at a rate of greater than 2 liters per minute (ECCN 2B352).
3. A revision to the technical note clarifying that the controls applicable to genetic elements and genetically-modified organisms also cover nucleic acid sequences that represent a significant hazard to human, animal or plant health or enhance the ability of AG-controlled or other microorganisms to cause harm. (This change in particular has potentially significant implications for firms and universities involved in biotechnology research. The revised technical note can be found under ECCN 1C353).

It may have taken nearly four months, but the US Bureau of Industry and Security did finally turn up with a gift in honor of the AG’s first twenty years on August 5 - a regulation implementing the group’s new rules. In addition to the control list and technical note revisions explained above, the BIS rule updates the Export Administration Regulations to reflect a new AG participant (Ukraine), the fact that the tiny Pacific island nation of Niue has acceded to the Chemical Weapons Convention, and a new name for the largest part of the former Yugoslavia (Serbia and Montenegro).

For three and a half decades now under the bargain struck between the Nuclear Non-Proliferation Treaty’s (NPT) five acknowledged nuclear-weapons states (China, France, Russia, the United Kingdom, and the US) and its non-nuclear-weapon states has gone like this: in exchange for the non-nuclear-weapons states forgoing nuclear weapons, the nuclear weapons states agreed to provide them with peaceful civilian nuclear power technology, subject to safeguards agreements overseen by the International Atomic Energy Agency (IAEA). Since the treaty entered into force in 1970, it has become the most broadly accepted arms control agreement in history. Only three states never acceded to the NPT - India, Israel, and Pakistan. (Former member North Korea withdrew in 2003.) Consistent with its obligations under the NPT, the US has long subjected countries outside the treaty to the most strict nuclear nonproliferation export controls, represented on the Commerce Country Chart (pdf) by an “X” in the NP 2 column.

But when Indian Prime Minister Manmohan Singh bid farewell to Washington this past July after meeting with President Bush, he left with a huge prize. The United States had just committed to essentially rewrite the rules for trade in nuclear technology in favor of India, which of course continues to operate a nuclear weapons program external to the NPT. In his joint statement with Singh, Bush praised India as a “responsible state” with a “strong commitment to prevent WMD proliferation” and asserted that “India should acquire the same benefits and advantages as other such states”. To that end, the American president said he would “also seek agreement from Congress to adjust U.S. laws and policies, and the United States will work with friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India”. In addition, the US committed “to remove certain Indian organizations from the Department of Commerce’s Entity List”.

The Bush Administration took the first concrete steps to implement its new stance toward India on August 30 when it published a final rule, amending the EAR effective immediately, which eases restrictions on exports and reexports to India of items controlled for unilateral nuclear nonproliferation reasons. The new regulation removes the “X” from beside India in Column NP 2 of the Commerce Country Chart and thereby eliminates several license requirements for exports and reexports to India, including those for the following items:

• ECCN 1A290: depleted uranium
• ECCN 1C298: graphite for non-nuclear end-uses
• ECCNs 2A290, 2A291, 2A292, 2A293, 2B290, 2D290, 2E001, 2E002, 2E290: nuclear plant equipment and related software and technology
• ECCNs 3A292 and 3E292: certain oscilloscopes and related technology

In addition, the Entity List is now that much shorter with the removal of the following Indian organizations:

• Indian Space Research Organization (ISRO) Telemetry, Tracking and Command Network (ISTRAC)
• ISRO Inertial Systems Unit (IISU), Thiruvananthapuram
• ISRO Space Applications Center (SAC), Ahmadabad
• Department of Atomic Energy (DAE) Tarapur (TAPS 1 & 2)
• DAE Rajasthan (RAPS 1 & 2)
• DAE Kundankulam 1 & 2 (this power plant, still under construction, was never explicitly named to the Entity List, but now that the Indian Government has agreed that it will be placed under IAEA safeguards once work is completed

In removing unilateral nuclear nonproliferation sanctions on India and reducing the number of that country’s organizations subject to the sanctions of the Entity List, the administration has now completed the two major steps toward its goal of a new nuclear relationship with India that it can accomplish entirely within the existing authority of the executive branch. As the Bush-Singh joint statement itself admits, further movement toward greater civilian nuclear cooperation will require the assent of the US Congress and the multilateral Nuclear Suppliers Group. The irony of the US seeking NSG acquiescence to increased nuclear technology transfers to India is especially rich when one considers the origins of that regime.

The NSG is a child of India’s 1974 nuclear test in the Thar Desert of Rajasthan, which spurred governments to take action to stem the export of nuclear materials and equipment to India and other states demonstrating a proliferation risk. In his testimony before the House Committee on International Relations earlier this month, Under Secretary for Arms Control and International Security Robert G. Joseph hinted that some US allies participating in the NSG might be amenable to the US proposals for full peaceful nuclear cooperation with India (he specifically mentioned the UK). Still, the NSG operates by consensus, so it will be interesting to see if a State Department office not recently known for its diplomatic achievements (current US ambassador to the United Nations John Bolton was Joseph’s predecessor) can win one for the home team.

Following the Nuclear Regulatory Commission’s determination that nuclear grade graphite for non-nuclear end use is not an “item or substance” that is “especially relevant from the standpoint of export control because of [its] significance for nuclear explosive purposes”, the NRC and BIS simultaneously promulgated new regulations on July 21 moving jurisdiction over all nuclear grade graphite for non-nuclear end use from NRC to BIS. (See the NRC rule and its BIS counterpart.) Apparently the wheels of science have turned rather rapidly when it comes to graphite production since NRC first implemented regulations restricting the mineral’s export. According to NRC, technology improvements mean that most of today’s US graphite is now “nuclear grade”.

(Historical tangent: Graphite can be used as a neutron moderator in nuclear reactors, enabling chain reactions. Nazi Germany’s quest for a nuclear weapon failed largely due to their use of impure, boron-laden graphite in their reactors.)

Now NRC will only retain jurisdiction over nuclear grade graphite for nuclear end use. That means graphite with both a purity level of less than five parts per million boron equivalent and planned for use in a nuclear reactor. The BIS regulation updates ECCN 0C005 to mirror the NRC’s slimmed-down jurisdiction and also creates a new ECCN 1C298 for graphite with a purity of less than five parts per million boron equivalent and a density greater than 1.5 grams per cubic centimeter. Graphite classified under 1C298 will carry a license requirement to countries listed in NP Column 2 on the Commerce Country Chart (pdf).

The Department of State’s Bureau of Nonproliferation announced on March 22 that they would extend the waiver of Arms Export Control Act (AECA) missile proliferation sanctions against the Chinese Government for a further six months.  The waiver stems from AECA sanctions imposed against China North Industries Corporation, better known as NORINCO, for selling MTCR-controlled goods to Iran.  NORINCO itself is three-quarters of the way through a two-year ban on exports to the US.