S37-03: IRANIAN PROCUREMENT OF GLASS-LINED

S E C R E T STATE 115323

E.O. 12958: DECL: 1.6 (X1, X6)
TAGS: PARM PREL ETTC CBW CH IR
SUBJECT: S37-03: IRANIAN PROCUREMENT OF GLASS-LINED
CHEMICAL PROCESSING EQUIPMENT FROM CHINESE FIRMS (S)

CLASSIFIED BY: NP/CBM DIRECTOR VANN VAN DIEPEN. REASON: 1.5(C AND D).


1. (U) THIS IS AN ACTION REQUEST. PLEASE SEE PARAGRAPH 4.


2. (S) BACKGROUND: WE WANT TO SHARE WITH CHINESE AUTHORITIES
FURTHER INFORMATION CONCERNING IRANIAN PROCUREMENT OF
GLASS-LINED CHEMICAL PROCESSING EQUIPMENT AND TECHNOLOGY, AS
WELL AS BW-USEFUL JET MILLS/MICRONIZERS, FROM THE FOLLOWING
CHINESE ENTITIES:

(1) MR. HUO SHIHONG, WHO:

- IN 2002 REPRESENTED THE CHINESE FIRM ZIBO CHEMICAL
EQUIPMENT PLANT (ZCEP) (IN MAY 2002 ZCEP WAS SANCTIONED
PURSUANT TO THE IRAN NONPROLIFERATION ACT)

- IN 2003 IS REPRESENTING CHINESE FIRMS:

- ZIBO CHEMET EQUIPMENT COMPANY, LTD.,

- ZIBO INTERNATIONAL ECONOMIC AND TECHNICAL COOPERATION
CORPORATION, AND

- SOUTH INDUSTRIES SCIENCE AND TECHNOLOGY TRADING
COMPANY, LTD.;

(2) JIANGSU YONGLI CHEMICAL AND TECHNOLOGY IMPORT AND EXPORT
COMPANY (SANCTIONED IN MAY 1997 AND JULY 2002 PURSUANT TO THE
CHEMICAL AND BIOLOGICAL WEAPONS CONTROL AND WARFARE
ELIMINATION ACT, AND IN JUNE 2001 PURSUANT TO THE IRAN
NONPROLIFERATION ACT);

(3) SUMEC ENGINEERING COMPANY, LTD.; AND

(4) TANGSHAN DACHANG CHEMICALS COMPANY, LTD.


3. (S) HUO SHIHONG IS OF PARTICULAR NOTE BECAUSE HE IS
ATTEMPTING TO EVADE CHINESE EXPORT CONTROLS BY PROVIDING
MISLEADING DESCRIPTIONS OF THE EQUIPMENT FOR EXPORT TO IRAN
AND FALSIFYING THE NAME OF THE ACTUAL IRANIAN END-USER. WE
WANT THE CHINESE AUTHORITIES TO EXERCISE SPECIAL SCRUTINY
OVER ALL SHIPMENTS BY THE ENTITIES PREVIOUSLY MENTIONED --
PARTICULARLY SERIAL PROLIFERATOR HUO SHIHONG AND HIS
AFFILIATED ENTITIES -- GIVEN THE RISK THAT THEY ARE
CONCEALING THE TRUE NATURE OF THEIR TRANSFERS OR ASSISTANCE
TO IRAN.


4. (S) ACTION REQUEST: REQUEST POST IMMEDIATELY CONVEY THE
POINTS IN PARAGRAPH 5 TO APPROPRIATE HOST GOVERNMENT
OFFICIALS, AND REPORT RESPONSE.


5. BEGIN TALKING POINTS/NONPAPER:

(S - REL CHINA)

-- IN THE SPIRIT OF OUR NONPROLIFERATION COOPERATION, WE WANT
TO SHARE WITH YOU INFORMATION OF CONCERN.

-- WE HAVE INFORMATION THAT SEVERAL CHINESE ENTITIES CONTINUE
TO SEEK TO PROVIDE IRAN -- AND IN AT LEAST ONE CASE THUS FAR
THIS YEAR DID PROVIDE -- GLASS-LINED CHEMICAL PROCESSING
EQUIPMENT AND TECHNOLOGY CONTROLLED BY CHINA'S EXPORT
REGULATIONS, AS WELL AS DUAL-USE BIOLOGICAL EQUIPMENT.

-- ACCORDING TO THIS INFORMATION, AT LEAST ONE OF THESE
CHINESE ENTITIES IS ATTEMPTING TO EVADE CHINESE EXPORT
CONTROLS BY PROVIDING MISLEADING DESCRIPTIONS OF THE
EQUIPMENT FOR EXPORT TO IRAN AND FALSIFYING THE NAME OF THE
ACTUAL IRANIAN END-USER.

ZCEP
--------------
-- IN MARCH 2002 WE SHARED INFORMATION THAT IRAN WAS SEEKING
A LARGE QUANTITY OF GLASS-LINED CHEMICAL PROCESSING EQUIPMENT
FROM TWO CHINESE FIRMS, ONE OF WHICH WAS ZIBO CHEMET
EQUIPMENT PLANT, ALSO KNOWN AS ZIBO CHEMICAL EQUIPMENT PLANT
(ZCEP).

-- ZCEP'S ADDRESS IS THE SOUTH END OF SHANQUAN ROAD, ZIBO
CITY 255063, SHANDONG PROVINCE. THE COMPANY'S NAME IN PINYIN
IS ZIBO SHI HUANGONG SHEBEI CHANG (STC: 3245 0590 1579 0553
1562 6080 0271 0617). ZCEP MAY BE THE TRADING NAME OF THE
ZIBO BAODING CHEMICALS (GROUP) CORPORATION AT THE SAME
ADDRESS.

-- IN JULY 2002, BEFORE PROMULGATION OF CHINA'S NEW CHEMICAL
EXPORT CONTROLS, ZCEP PROVIDED IRAN WITH LARGE AUSTRALIA
GROUP (AG)-CONTROLLED GLASS-LINED CHEMICAL REACTOR VESSELS
AND ASSOCIATED COMPONENTS.

-- IN MAY 2002, ZCEP ALSO PROVIDED IRAN WITH A DUAL-USE
PNEUMATIC JET MILL WHICH, ALTHOUGH NOT AG-CONTROLLED, CAN
MILL PARTICLES TO LESS THAN 5 MICRONS -- AN IDEAL SIZE FOR
AEROSOL DELIVERY OF BW AGENTS.

-- ZCEP WAS SANCTIONED BY THE UNITED STATES, PURSUANT TO U.S.
LAW, IN MAY 2002 FOR TRANSFERS OF AG-CONTROLLED ITEMS TO IRAN.

HUO SHIHONG
--------------
-- IN 2002, ZCEP'S PRINCIPAL REPRESENTATIVE IN TRANSACTIONS
WITH IRAN WAS CHINESE NATIONAL HUO SHIHONG.

-- WE NOW HAVE INFORMATION THAT, DESPITE CHINA'S NEW EXPORT
CONTROLS, HUO CONTINUES TO SEEK TO PROVIDE IRAN WITH AG- AND
CHINESE EXPORT REGULATION-CONTROLLED GLASS-LINED CHEMICAL
PROCESSING EQUIPMENT.

-- IN 2003, HUO APPARENTLY IS REPRESENTING THE FOLLOWING
FIRMS -- ZIBO CHEMET EQUIPMENT COMPANY, LTD., ZIBO
INTERNATIONAL ECONOMIC AND TECHNICAL COOPERATION CORPORATION,
AND SOUTH INDUSTRIES SCIENCE AND TECHNOLOGY TRADING COMPANY,
LTD.

-- ZIBO CHEMET EQUIPMENT COMPANY'S ADDRESS IS 3RD FLOOR, 137
NEW WORLD COMMERCIAL STREET, ZIBO CITY, 255000, SHANDONG
PROVINCE. THE COMPANY'S NAME IN PINYIN IS ZIBO BEITE HUGONG
SHEBEI YOUXIAN GONGSI (STC: 3245 0590 6292 3676 0553 1562
6080 0271 2589 7098 0361 0674).

-- ZIBO INTERNATIONAL ECONOMIC AND TECHNIC COOPERATION
CORPORATION'S ADDRESS IS 191 ZHONGXIN ROAD, ZIBO CITY,
SHANDONG PROVINCE.

-- SOUTH INDUSTRIES SCIENCE AND TECHNOLOGY TRADING COMPANY,
LTD. HAS TWO ADDRESSES:

- 10 CHEDAOGOU, HAIDIAN DISTRICT, BEIJING

- 38 HANGKONG BYSTREET, XICHENG, BEIJING

-- HUO IS ATTEMPTING TO DISGUISE TRANSFERS OF CONTROLLED
GLASS-LINED CHEMICAL REACTOR VESSELS FROM CHINESE AUTHORITIES
BY DESCRIBING THEM AS "ANTI-ACID DISTILLATION UNITS" OR
"ANTI-ACID VESSEL DISTILLATION UNITS."

-- HUO HAS BEEN SUCCESSFUL ON AT LEAST ONE OCCASION SINCE
CHINA'S NEW EXPORT CONTROLS WERE PROMULGATED IN TRANSFERRING
CHINESE-CONTROLLED GLASS-LINED EQUIPMENT TO IRAN. IN LATE
JANUARY OR EARLY FEBRUARY 2003, IRAN RECEIVED ONE 2000-LITER
GLASS-LINED CHEMICAL REACTOR VESSEL AND ASSOCIATED COMPONENTS
FROM HUO.

-- HUO ALSO IS SEEKING TO PROVIDE IRAN WITH OTHER DUAL-USE
ASSISTANCE SUCH AS:

- CHINESE-EXPORT-CONTROLLED TECHNOLOGY TO REPAIR
GLASS-LINED CHEMICAL REACTOR VESSELS WITH CAPACITIES OF
1500 LITERS TO 10,000 LITERS;

- CENTRIFUGES THAT CHINESE EXPORT REGULATIONS MAY CONTROL
DEPENDING ON THEIR TECHNICAL SPECIFICATIONS; AND

- DUAL-USE JET MILLING SYSTEMS/MICRONIZERS THAT, WHILE NOT
CONTROLLED, MAY BE CAPABLE OF MILLING PARTICLES TO AN
APPROPRIATE SIZE FOR BW AGENT DISSEMINATION.

JIANGSU YONGLI
--------------
-- WE ALSO HAVE INFORMATION CONCERNING OTHER CHINESE FIRMS
THAT ARE SEEKING TO SUPPLY IRAN WITH CONTROLLED GLASS-LINED
CHEMICAL PROCESSING EQUIPMENT.

-- IN FEBRUARY 2003, THE CHINESE FIRM JIANGSU YONGLI CHEMICAL
AND TECHNOLOGY IMPORT AND EXPORT COMPANY -- WHICH IS A
SUBSIDIARY OF THE NANJING CHEMICAL INDUSTRIAL GROUP -- SOUGHT
TO PROVIDE IRAN WITH CHINESE-CONTROLLED DUAL-USE CHEMICAL
PRODUCTION EQUIPMENT INCLUDING 5000-LITER GLASS-LINED REACTOR
VESSELS AND 500-LITER GLASS-LINED RECEIVERS.

-- ON THREE SEPARATE OCCASIONS (1997, 2001, AND 2002),THE
U.S. IMPOSED SANCTIONS, PURSUANT TO U.S. LAW, ON JIANGSU
YONGLI FOR ITS KNOWING AND MATERIAL CONTRIBUTIONS TO CBW
PROGRAMS AND ITS TRANSFER OF AG-CONTROLLED ITEMS TO IRAN.

SUMEC, TANGSHAN DACHANG CHEMICALS
--------------
-- IN JANUARY 2003, THE CHINESE FIRM SUMEC ENGINEERING
COMPANY, LTD., NANJING, AGREED TO SUPPLY GLASS-LINED AND
OTHER CHEMICAL REACTOR SPARE PARTS FOR A TURNKEY POLYALUMINUM
CHLORIDE PRODUCTION LINE IT HAD PROVIDED TO IRAN.

-- IRAN ALSO WAS SEEKING A GLASS-LINED CHEMICAL REACTOR
VESSEL -- PROBABLY WITH A CAPACITY OF 5000 LITERS AND THUS
CONTROLLED BY CHINESE EXPORT REGULATIONS -- FROM SUMEC AND
ANOTHER CHINESE FIRM, TANGSHAN DACHANG CHEMICALS COMPANY,
LTD. (ADDRESS: 116 XINHUA WEST ROAD, TANGSHANG CITY, HEBEI
PROVINCE). IRAN ALSO SOUGHT SPARE PARTS FOR THE GLASS-LINED
REACTOR, INCLUDING A REACTOR AGITATOR BLADE, FROM TANGSHAN
DACHANG CHEMICALS COMPANY.

CONCLUSION
--------------
-- SPECIAL SCRUTINY OF ALL SHIPMENTS BY THE ENTITIES
PREVIOUSLY MENTIONED -- PARTICULARLY SERIAL PROLIFERATOR HUO
SHIHONG AND HIS AFFILIATED ENTITIES -- IS MERITED GIVEN THE
RISK THAT THEY ARE CONCEALING THE TRUE NATURE OF THEIR
TRANSFERS OR ASSISTANCE TO IRAN.

-- WE HOPE THIS INFORMATION IS OF ASSISTANCE IN IMPLEMENTING
AND ENFORCING YOUR EXPORT CONTROLS, INCLUDING THROUGH THE USE
OF CATCH-ALL EXPORT CONTROL AUTHORITY.

-- WE WOULD WELCOME ANY INFORMATION YOU CAN SHARE ON THESE
MATTERS.

END TALKING POINTS/NONPAPER.


6. (U) PLEASE BEGIN RESPONSES WITH S37-03 AND SLUG FOR
NP/CBM, EAP/CM, NEA/NGA, AND INR/SPM.
POWELL