GERMAN PROSECUTORS SUSPECT RUSSIAN

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 001846

SIPDIS

SIPDIS
STATE FOR ISN, NEA, EUR/AGS, EUR/RUS, AND EUR/PRA

E.O. 12958: DECL: 10/04/2017
TAGS: ETTC KCRM KNNP PARM PREL MNUC KJUS IR RS GM
SUBJECT: GERMAN PROSECUTORS SUSPECT RUSSIAN
STATE-CONTROLLED FIRM WAS INVOLVED IN IRANIAN PROCUREMENT
ATTEMPTS

REF: A. 06 BERLIN 932


B. 04 BERLIN 3929

C. OSC - EUP20070902499007

D. OSC - EUP200712072009

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Classified By: EMIN Robert A. Pollard for reasons
1.4 (b) and (d).

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Summary
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1. (C) German prosecutors suspect Atomstroyexport, the
Russian state-owned nuclear power equipment and services
exporter, played a leading role in efforts to circumvent
Germany's export control laws by diverting
German-manufactured technology to Iran's nuclear program via
Russian front companies between 2001 and 2004. Prosecutors
have been approached by the legal representative of "Dmitri.
S.," the former head of Vero Handels GmbH, a German firm that
facilitated the transfers, about the possibility of
cooperating with the German investigation in exchange for a
lighter sentence. German authorities believe the suspect's
cooperation may hold the key to uncovering the full scope of
the network's activities, which may have involved goods
valuing EUR 100-to-800 million. End Summary.

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Background
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2. (SBU) As part of an ongoing investigation of a
German-Russian network of small businesses suspected of
transferring German-manufactured electronic equipment and
other nuclear-related dual-use goods via Russia to Iran, over
250 German law enforcement personnel searched 41 sites
belonging to approximately 30 companies around Germany in
March 2006 (ref A). Authorities seized documents and
confiscated equipment worth approximately EUR 2 million in
search of evidence demonstrating that the German firms
violated Article 34 of the German Foreign Trade and Payments
Act, specifically evidence of intent to export
nuclear-related commodities to Iran without an export license.


3. (C) The initial investigation was launched in 2004 when
authorities discovered that two German firms,
Industrieausruestungen Service und Vertrieb (ISV) -- a small
German brokering firm located outside Magdeburg -- and Vero
Handels GmbH -- a Berlin-based firm with offices in Moscow
and Dubai -- had shipped components for cranes used to
replace nuclear fuel rods to Iran's Bushehr reactor (ref B).
German authorities subsequently determined that ISV arranged
the procurement and shipment of a wide range of
nuclear-related commodities to Iran through Vero, listing
Vero's branch in Moscow as the end user. The commodities
were later shipped from Moscow to Vero's Dubai facility and
then on to Iran. According to German prosecutors and media
reports, the illegal exports occurred between 2001 and 2004.
In 2004, German authorities arrested ISV's owners, who agreed
to cooperate with the German investigation in exchange for
suspended prison sentences. The head of Vero's Berlin office
-- identified in press reports as "Dmitri S." -- managed to
elude German authorities by fleeing Germany shortly before
the March 2006 raids. Vero has closed its operation in
Germany.

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Current State of Play
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4. (C) Global Affairs Officer and Legal Specialist met
October 2 with Christoph Lange, a prosecutor in the
Brandenburg State Prosecutor's office in Potsdam, which has
the lead on German efforts to prosecute the German companies
involved. Lange was accompanied by Thomas Schroeder, the
Berlin-Brandenburg customs investigator handling the case.
Schroeder said his office was assigned responsibility for the
investigation by the German Federal Office of Customs
Investigation (Zollkriminalamt, or ZKA). Lange said German
authorities had thus far investigated approximately 50 German
companies on the basis of evidence obtained in the March 2006

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raids. Of those, investigators had concluded that only a
"dozen or so" were aware that products they shipped to Russia
were ultimately bound for Iran's nuclear program. The
remainder, Lange said, were either unwitting or had only
received inquiries from -- but not delivered goods to -- the
Russian front companies. Lange confirmed the accuracy of two
recent press reports. Both have been processed by OSC (refs
C-D).


5. (C) Of the approximately twelve German companies, Lange
said, eight firms had agreed to cooperate with the German
investigation in exchange for lighter sentences (i.e., fines
or suspended prison sentences for company employees involved
in the transactions). Lange said confidentiality agreements
prohibited him from revealing the names of the firms and
individuals who had cooperated with the investigation, even
though they were required to confess that they had wittingly
diverted sensitive technology to Iran and, in doing so, had
violated German export control laws. Lange noted that the
firms and individuals generally played minor roles. In some
cases, Lange said, the responsible individuals were no longer
with the firm under investigation. Lange noted that
prosecutors and law enforcement have open cases against the
remaining four-to-five firms/individuals. Barring any
further developments, Lange speculated, prosecutors would
likely wrap up the remaining open investigations by the
beginning of 2008.

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One Suspect Holds the Key
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6. (C) Lange said Dmitri S. would likely be able to provide
evidence prosecutors need to prove a much larger number of
European companies were involved -- wittingly and unwittingly
-- in the network's efforts to transfer sensitive technology
to Iran. To date, Lange said, investigators only have
conclusive evidence that goods valuing EUR 6 million were
transferred to Iran. German authorities suspect, however,
total transfers may have been worth EUR 100-to-800 million.
Lange said prosecutors were in discussion with the attorney
for Dmitri S., who currently resides in Moscow, about the
possibility of cooperating with the investigation in exchange
for a lighter sentence. Lange also noted German prosecutors
are considering issuing an international arrest warrant for
Dmitri S. in the event he decides not to cooperate.

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The Russian Angle
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7. (C) Lange said prosecutors believe Dmitri S. might also be
able to provide evidence proving the complicity of the
state-controlled Russian firm Atomstroyexport in violating
Germany's export control laws. Lange said many German firms
reported they were first contacted by Atomstroyexport about
exporting sensitive technology to Iran. After firms refused
because of long-standing German prohibitions on
nuclear-related exports to Iran, the same Atomstroyexport
representatives allegedly inquired about the possibility of
exporting to Russia. In some cases, Lange said, German firms
were reportedly told they would lose market access in Russia
or be precluded from bidding on Russian projects in Central
and Eastern Europe.

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International Cooperation
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8. (C) Schroeder said Germany had received good cooperation
with police and customs officials in other EU member states,
particularly in terms of providing access to witnesses.
Lange said prosecutors in most EU countries had also been
cooperative, but identified France and Italy as problematic.
Lange said French prosecutors' "protective" practices had
made it difficult to obtain search warrants. He also alluded
to jurisdictional difficulties in Italy. Lange said
difficult cooperation and bureaucratic problems with
financial authorities in Liechtenstein had complicated German
efforts to follow the investigation's money trail. He
explained Vero had transferred money via Liechtenstein from

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offshore accounts to German companies. Lange said
authorities in Liechtenstein became less cooperative when
they learned that one of the financial entities identified in
the German investigation was UN-listed and was also named in
a civil proceeding alleging the entity was involved in a
9/11-related financial transfer. Lange said he did not
expect cooperation with Liechtenstein to improve.


9. (C) Lange and Schroeder said prosecutors believe one of
the German suspects still under investigation may have
financial assets in the United States. He said the (unnamed)
elderly suspect had been associated with Siemens in the 1970s
and was widely considered to be a top expert on electrical
cable technology. Lange said the suspect -- who operated a
front company named Nachrichtentechnik (NTV) -- was initially
contacted by a group of Iranians who sent him to meet with
Vero representatives in Russia. The suspect allegedly agreed
to review blueprints, to offer guidance on how to adapt
Russian technology for use in the Bushehr reactor, and to
assess and procure certain types of electrical cables for use
in a nuclear reactor's containment zone. Lange said the
suspect told investigators he did not know the cables' final
destination and denied that items he helped to procure could
be used inside a containment zone. German authorities
believe the suspect's brother resides in the United States.
Schroeder said German Customs would be willing to share the
suspect's name and date of birth with USG law enforcement
agencies. Mission Germany's DHS/ICE office will follow up.

KOENIG