RESPONSE TO DEMARCHE ON ADDITIONAL PROCUREMENT

S E C R E T VIENNA 000208

SIPDIS

FOR ISN/MTR, EUR/AGS AND EUR/PRA

E.O. 12958: DECL: 01/23/2016
TAGS: PARM PREL MNUC ETTC AU IR MTCRE
SUBJECT: RESPONSE TO DEMARCHE ON ADDITIONAL PROCUREMENT
ACTIVITY BY AUSTRIA'S DANIEL FROSCH EXPORT ON BEHALF OF
IRAN'S MISSILE PROGRAM (S)

REF: A) STATE 08414 B) 05 VIENNA 3464 C) 05 VIENNA
3325 D) O5 STATE 185786

Classified By: Economic-Political Counselor Gregory E. Phillips for
reasons 1.4 (b,d,h)


1. (S) Econ Chief and Poloff delivered ref A talking points
on January 23 to Helmut Krehlik, head of the Export and
Import Control Division in the Ministry of Economics and
Labor (MOE). Krehlik informed us that the Austrian Federal
Office for the Protection of the Constitution and
Counterterrorism (BVT) had met with Daniel Frosch, head of
Daniel Frosch Export (DFE) Industrial Spare Parts, last week
and there were indications that Frosch may become more
cooperative. Frosch is apparently in financial difficulties
and told the BVT that he is planning to stop all of his
dealings with Iran. He also promised to give the BVT all of
his files on Iran, including names and cover addresses.
Clearly not willing to take Frosch at his word, however,
Krehlik outlined the various measures that the GoA was taking
to prevent Frosch from proliferation activities.


GRAPHITE CYLINDERS TO REQUIRE LICENSE
--------------

2. (S) Krehlik said that he had recently given Frosch
written notice that he was forbidden to export graphite
cylinders to Iran without a dual-use license. Krehlik noted
that the cylinders DFE had offered to Iran fell just below
the standards required for a dual-use export, but that the
MOE would use Article 4 of the EU's Dual-Use Regulation to
justify dual-use certification. Krehlik noted that it was
quite common for exports to Iran to fall just below the
technical specifications for dual-use controls, an
intentional strategy employed by the Iranians.


WATCHING FOR EXPORT OF U.S. ELECTRONICS
--------------

3. (S) Referring to DFE's possible purchase of U.S.
electronic components, Krehlik said that he would clearly
inform Frosch that it is prohibited to re-export U.S. goods
to Iran. This will ensure that Frosch has "positive
knowledge" of U.S. law. Moreover, Krehlik said that BVT
officials informed Frosch that if he proceeds with the
export, the BVT will "stop every shipment he makes."


LOOKING THROUGH THE FILES
--------------

4. (S) According to Krehlik, the Finance Ministry has
obtained copies of all of DFE's business transactions and the
GoA is currently combing through the files for evidence of
illegal exports. Krehlik admitted that nothing damaging has
surfaced yet, but he cautioned that the process was
time-consuming and technical.


FROSCH FITS THE PROFILE
--------------

5. (S) Krehlik mused that Frosch*who is only in his
mid-20s*fits the profile of somebody who the Iranians look
to work with on proliferation exports. He is young,
financially motivated, and runs a small company with only one
other employee. According to Krehlik, larger, more
experienced companies have more to lose and will usually not
take the risks that Frosch has.
KILNER