(S) ADDITIONAL INFORMATION ON LIMMT SHARED WITH

S E C R E T BEIJING 002391


DEPT FOR ISN AND EAP

E.O. 12958: DECL: 06/18/2033
TAGS: PARM MTCRE PREL ETTC CH IR

SUBJECT: (S) ADDITIONAL INFORMATION ON LIMMT SHARED WITH
CHINA

REF: STATE 64254 AND PREVIOUS

Classified By: Acting Political Section Chief Ben Moeling. Reasons 1.4
(b),(c) and (d).


1. (S) PolOffs delivered reftel message urging China to share
substantive information on China's investigation of LIMMT
before June 27 to MFA Arms Control and Disarmament Department
Missile Division Director Zhang Junan on June 18. PolOffs
also shared new information with Zhang indicating that LIMMT
continues to supply sensitive items to Iran.


2. (S) Zhang said China is at the "final stage of punishing"
LIMMT, but continues to investigate the firm's activities.
The General Administration of China Customs has confiscated
items from the firm, he noted. While the investigation is
ongoing, Zhang said, Beijing has closed down LIMMT and
prevented it from continuing to export, a step requested by
the United States. Currently, LIMMT has no right to export
and does not even lawfully exist as an enterprise under
Chinese law. Because LIMMT did not apply for the required
annual license renewal, it has no right to conduct business
in China, and the MFA has convinced the Ministry of Commerce
to prohibit Karl Lee from registering other new companies.
LIMMT "no longer exists," he stated.


3. (S) Zhang said the PRC still lacks insufficient evidence
to trigger legal procedures against Lee. Lee has a thorough
understanding of Chinese export control laws, and is proving
difficult to corner. "We have never come across anyone quite
like this before," Zhang stated. He assured PolOffs that
once China can "get something concrete," they will begin
legal procedures against Lee. In the meantime, Lee will not
be able to act as freely as he used to, Zhang said, noting
that PRC law enforcement and intelligence officials are
"watching him closely." Lee conducted business with people
with whom he had developed close relations, and may continue
to be in touch by fax or by phone with "his friends," Zhang
said, but has no legal right to execute export transactions
in China.


4. (S) Zhang acknowledged the June 27 deadline for providing
additional details on the PRC investigation and expressed a
willingness to share information. However, he did not
anticipate being able to do so until the end of June or early
July. He strongly urged the United States not to impose
sanctions on LIMMT, saying it will not help "either
politically or technically." Sanctions will "impede efforts
greatly," he stated, because it will make it impossible for
the MFA to obtain the continued cooperation of "other Chinese
agencies" that object to U.S. sanctions policy. Sanctions
also will not harm Lee, Zhang said. He assured PolOffs that
China is taking steps to punish the firm and will be in touch
soon with information on the PRC investigation. Among all of
the nonproliferation cases that China is presently
investigating, whether brought to the attention by the United
States or any other country, the PRC investigation of LIMMT
is China's "number one case of importance," said Zhang.
PICCUTA


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