Abstract
While diplomatic efforts to halt Iran’s nuclear ambitions continue, it is clear that the private sector can and does play a role in slowing sanctioned programs in Iran. This is certainly the case with the country’s ballistic missile program, which is highly dependent upon imports of high-specification materials and components from the international marketplace. Activities relating to Iran’s ballistic missile program have been prohibited under United Nations Security Council Resolution 1929 since June 2010. However, Iran has continued to undertake research and testing activities focused on the development of liquid-fueled missiles. Iran’s illicit efforts to obtain missile-grade oscillators—components used in guidance systems—have targeted Rakon UK, the British arm of a New Zealand-owned company. The company has made significant efforts to prevent its products from ending up in programs of concern. Undertaking activities that go beyond basic compliance practices has allowed Rakon UK to mitigate risks more holistically. The insights gained from Rakon UK’s experience, in conjunction with information from a number of other sources, can help shed light on the methods that proliferators use—and, more generally, on the role that the private sector can play in combating proliferation.
At a press conference in August 2012, Iranian defense minister Ahmad Vahidi announced the test launch of a fourth-generation Fateh-110 short-range ballistic missile with “new guidance methods” for precision targeting (Torbati, 2012). He said the “capability” would be installed on all future Iranian missiles. It is not possible to detail exactly what Vahidi meant or to verify his claim, but one thing is clear: Iran has sought to develop its missiles by purchasing components from foreign contractors. Those products include guidance components that can be used in the construction of new missiles or as replacements for components in existing missiles. Iranian news sources suggest that Iran is constantly working to improve the accuracy of its ballistic and cruise missiles, and recent analysis by the US Defense Department reflects this (Defense Department, 2012; Fars News Agency, 2012c).
One company repeatedly targeted by entities alleged to have been working on behalf of the Iranian ballistic missile program is Rakon UK, the British subsidiary of a company based in New Zealand. 1 Rakon UK makes sophisticated quartz crystal oscillators, which produce precise and stable signals that can be used in missile systems as extremely accurate timers—crucial for effective guidance. Open sources, interviews with technical experts, and US State Department cables suggest that Iran does not yet have the engineering know-how to produce its own missile-grade oscillators.
While diplomatic efforts to halt Iran’s nuclear program continue, it is clear that the private sector can and does play an important role in slowing Iran’s sanctioned programs. This is certainly the case with Iran’s ballistic missile program, which is highly dependent on imports of military-grade materials and components from the international marketplace. A closer look at how Rakon UK has been targeted provides insights into Iran’s illicit procurement efforts, and it also allows for an exploration of what private sector entities can do in response to illicit procurement.
Iran’s missile program
Developments in Iran’s ballistic missile program have been prohibited under United Nations Security Council Resolution 1929 since June 2010 (UN Security Council, 2010). However, Iran has continued to undertake research, development, and testing activities; these have focused more on liquid-fueled than solid-fueled missiles. In 2011 and 2012, Iran conducted a number of tests on its Shahab-1,-2, and-3 liquid-fueled missiles. The latest took place during the July 2012 “Great Prophet 7” war games (Fars News Agency, 2012a).
The solid-fueled missile program, however, has not seen as much recent activity. The Sajjil-2 missile, which has a maximum range believed to be around 2,200 kilometers, has been under development since around 2000. When it enters service, it will probably be Iran’s most technologically advanced and capable missile, but it has not been tested since February 2011. Recent analysis has pointed to technology-based sanctions—especially constraints on the availability of solid propellant and constituent elements such as fine metal powders—as the reason for the hiatus (International Institute for Strategic Studies, 2012). For the development and manufacture of larger solid-fueled ballistic missiles, a supply of consistently high-quality ingredients is vital. Meanwhile, the development of shorter-range solid-fueled missiles—less demanding both in terms of propellant ingredients and technical expertise—has continued with the test of the Fateh-110 conducted in August 2012 (Fars News Agency, 2012b).
Although Iran can domestically produce some of the materials and components required for its missile program, the program will continue to look overseas for other crucial items. The role of the private sector is vital in detecting, rejecting, and reporting suspicious inquiries; the private sector is the first line of defense against missile proliferation.
Guiding Iran’s missiles
Oscillators are not the centerpiece of a ballistic missile’s guidance system, but they are an important element. They enable the guidance computers to determine the missile’s precise location along its trajectory, so that the computers can make appropriate adjustments to the missile’s course when necessary.
Missile-grade oscillators function in the same way as those of lower grades except with a higher degree of certainty that the component will not fail when subjected to extreme temperatures, vibrations, acceleration, or shock. These higher-grade oscillators can be used in defense and aerospace applications, whereas lower-grade models are found in most electronics products—including cell phones, watches, televisions, and automotive satellite navigation systems. Despite their potential military use, higher-grade oscillators are, in many cases, not subject to national export controls and are not included in the Missile Technology Control Regime (MTCR) technology annex—a list designed to facilitate the implementation of the regime’s guidelines, which many countries around the world, MTCR members and nonmembers alike, use to create their national export controls. 2
Iran appears to be dependent on imports of “individual components of a strap-down navigation and guidance system for ballistic missiles” (International Institute for Strategic Studies, 2010: 98). These components include gyroscopes that measure orientation, and accelerometers that measure acceleration. Indeed, US State Department cables released by Wikileaks detail numerous accounts of Iranian attempts to procure these components. 3 Discussions with technical experts suggest that it is unlikely that Iran can indigenously manufacture higher-grade oscillators required for guidance systems either.
Suspicious orders
In 2005, a Swiss company contacted Rakon UK with a request for military-grade oscillators, which were included in the UK Military List—an itemization of controlled goods that forms part of the national export control legislation. 4 After Rakon UK successfully applied to the Export Control Organisation (ECO) for a license, the goods were shipped. 5 Shortly afterward, Rakon UK learned from the national authority that there was a possibility that the shipment had been diverted from Switzerland to Iran.
This was the first of many suspicious inquiries subsequently identified by Rakon UK that are believed to have originated in Iran. These inquiries have exhibited a number of characteristics and patterns:
Most of the product requests were for one particular military oscillator model, with up to four different frequency variants included in the request. In most cases the quantities of each variant ordered were between 200 and 300 units. The oscillator in question was designed to withstand conditions typical of ballistic missile applications:
○ acceleration of up to 49,000 meters per second squared (ms−2) for 1 minute; ○ high levels of vibration; ○ shocks of up to 981 ms−2 for 6 milliseconds. On a few occasions, far smaller quantities (fewer than 30 units) of the same design and frequency variants were requested. These requests were usually marked as samples for evaluation. Almost all of the suspicious orders requested more than one frequency variant of oscillator. Over time, Rakon UK observed a shift from attempts to acquire models frequently sought by defense companies for use in military programs, to orders for less obvious but still military-grade models.
Of the suspicious inquiries received, approximately 60 to 70 percent came from firms claiming to be distribution companies. A number of these were genuine Rakon UK distributors who were acting in good faith, having received inquiries themselves. The remaining orders came directly from other types of firms, mostly purporting to be manufacturers. This broadly reflects the way in which Rakon UK tends to conduct business; most of its buyers are distributors, although the company does also sometimes sell directly to individual firms.
Rakon UK received approximately 30 suspicious inquiries between 2005 and early 2011. During this time the frequency of orders also followed a basic pattern. During a two- or three-month period the company would receive three or four orders. This period would be followed by several months of silence, and then the pattern would repeat.
Rakon UK is not the only firm to have identified these patterns. During ongoing contact with the national authority, Rakon UK learned that a second firm, which manufactures components interchangeable with Rakon UK’s, had observed similar patterns. A third UK-based firm, which manufactures other electronics products, reported similar patterns in conversation with Rakon UK’s compliance officer. These patterns, coupled with “cut-and-paste” similarities in the inquiry emails, suggest that multiple entities are attempting to acquire the goods in response to a tender from Iran.
Looking for the source
The inquiries received by Rakon UK would not necessarily raise immediate suspicions. Iran has, in past cases, either attempted to procure goods by importing them directly to Iran using false end-user certification or by exploiting transshipment hubs or countries with weak export controls. Leaked US State Department cables released by Wikileaks provide some insight into how such attempts are made. In a case that did not involve Rakon UK, a Swiss company (not the one mentioned above) is alleged to have, perhaps wittingly, attempted to transfer oscillators of unstated technical specification to Iran. The would-be recipients in Iran set up front companies in a number of transshipment hubs, and tried new shipment routes once the Swiss national authority became aware of these illicit activities.
Initially the Swiss firm was targeted by an Iranian-owned procurement firm based in Malaysia. Around September 2008, the Swiss government blocked a shipment of 3,000 oscillators to that firm (American Embassy Bern, 2008). In mid- to late 2008, a second address in Malaysia was implicated. A November 2008 cable noted that use of this new address was “probably as a result of restrictions that the Swiss government recently put in place” (Secretary of State, 2008a).
These initial alleged transactions were followed by an apparently successful Iranian procurement attempt from the Swiss company through the United Arab Emirates, another country frequently used by proliferators in the past. This shipment was allegedly sent in October or November 2008 (Secretary of State, 2008b). A cable sent in January 2010 indicates that the Swiss company and an Iranian front company based in a third location, Singapore, discussed how Swiss export controls could best be circumvented using another intermediary based in China (Secretary of State, 2010).
In the case of Rakon UK, the suspicious inquiries received by the company have not come from Iran itself, nor have they originated solely from countries recognized as major transshipment hubs for proliferation-related trade in the past. In fact, the inquiries have originated from a wide range of countries with national trade controls of various levels of maturity.
In addition to the initial 2005 order from Switzerland, Rakon UK received inquiries deemed suspicious from companies in Bulgaria, China, France, Germany, Slovenia, South Korea, Taiwan, the United Arab Emirates, and the United States. Countries such as the United Arab Emirates and Taiwan have acted as transshipment hubs in the past. However, it is perhaps surprising to see entities based in countries with stronger export controls being used by Iran to illicitly procure goods.
The ever-changing character of such procurement requires new and flexible countermeasures. For companies such as Rakon UK, gaining new insights into Iran’s procurement attempts is potentially helpful in identifying future suspicious inquiries. However, unless such information is shared with government agencies and other companies, illicit procurement is likely to continue elsewhere.
How companies should respond
Over time Rakon UK’s staff has learned to differentiate between suspicious inquiries and those that represent legitimate trade. In some cases, the buyer’s story has contained suspicious inconsistencies. Take, for example, the initial Swiss order received in 2005: It appeared to be legitimate and its export was authorized by ECO. Scrutiny at the time, however, showed that the order involved a product inconsistent with the supposed customer’s product range. Marketing data available online indicated that the Swiss company manufactured optical lenses—a business that does not require military-grade oscillators. A representative explained the discrepancy by claiming that the company had recently set up a distribution arm to supplement its regular line of business. The products acquired from Rakon UK would supposedly be distributed to a Bulgarian company that had requested them to manufacture anemometers. Rakon UK subsequently applied for, and successfully received, a license from the UK national authority.
Another example of an inconsistent inquiry came from a company claiming to be a manufacturer. The company requested three models of Rakon UK oscillators, all of which were designed to withstand high acceleration. The buyer told Rakon UK’s staff that the oscillators would be used in the manufacture of desktop computers. The staff found it strange that the company used a Yahoo e-mail address and did not have a website, although it claimed to be “in the process of creating one.” Because of these inconsistencies, the order was not fulfilled.
After Rakon UK learned that oscillators ordered by the Swiss company in 2005 may have been diverted to Iran, company managers took steps to ensure that their compliance activities went beyond what was required by law. Rakon UK receives a relatively small number of orders for goods that could have a potential application in a military program or in weapons of mass destruction. All orders are screened manually as soon as they come in, and those for proliferation-sensitive items are flagged. Orders from new customers receive special attention. The sales staff maintains a good understanding of products’ possible uses and of Rakon UK’s existing customer base.
Potential customers and business partners are checked against lists—maintained by a number of national authorities—of entities that have been involved in proliferation, terrorism, and other illicit activities. Orders are inspected thoroughly for inconsistencies (for example, products that don’t match a buyer’s business line, or addresses and contact details that are inconsistent). Rakon UK vets the prospective customer’s online presence and attempts to contact the head office of multisite companies to validate orders. A systematic approach to compliance has made it easier for Rakon UK to spot suspicious orders.
The costs of compliance
Such a compliance program has not come without some costs, including the expense of hiring a part-time staff member tasked with ensuring compliance, and the time required to train staff and screen orders. Not every firm can afford to dedicate similar resources to compliance and nonproliferation. Finding new and innovative ways to reduce the burden for smaller firms will be crucial to building compliance cultures throughout industry.
Turning away business also carries a cost, albeit one that is difficult to evaluate. The suspicious inquiries received—and rejected—by Rakon UK over the past five or six years add up to well over £1 million (about $1.6 million). However, it is unlikely that this is the true value because many if not all of the inquiries are believed to have originated from the same customer, who was seeking the goods through multiple supply routes. On balance, it is clear that the costs of being found noncompliant—in fines, possible imprisonment, and certain reputational damage—far outweigh the costs of rejecting orders.
The procurement attempts end
By mid-2011 Rakon UK was receiving far fewer suspicious inquiries than during the previous five to six years, although the company still receives such inquiries occasionally. This may be due to orders’ being fulfilled elsewhere; it also may be that those seeking the goods are deterred by a lack of success. This is not to say that the pattern and volume of suspicious inquiries will not resume again in the future, or that other firms are not being targeted instead.
Rakon UK’s experiences provide some valuable insights into the nature of Iranian illicit procurement. One lesson is that the origins of suspicious inquiries do not always make them easy to spot. Rakon UK received inquiries from locations that have seen significant illicit trade in the past, but most came from countries with strong export controls. Rakon UK has never received a suspicious inquiry directly from Iran.
A better way to spot suspicious activity is to look for potential inconsistencies: Do the technical specifications of the requested products match the alleged end uses? Items of use in a weapons program are not always covered by export controls, and illicit procurement may target uncontrolled or less obvious goods because they are easier to obtain.
For its part, Rakon UK has put in place processes designed to ensure not only compliance with legal requirements, but also to ensure that the company is not involved in proliferation. This has allowed the company to protect its reputation and brand. The company has been willing to share information about the suspicious inquiries that it has received to help raise awareness of illicit procurement.
The targeting of Rakon UK by entities working on behalf of the Iranian ballistic missile program highlights the crucial role that the private sector can play in slowing the proliferation of unconventional weapons. The private sector is the first line of defense because companies understand their products and how they can be used, as well as their supply chains, while national authorities may not. Companies with first-hand experience of being targeted by proliferators can be of great value to national authorities, other companies, and the international community as a whole in the fight against proliferation.
Footnotes
Funding
This research was conducted under the auspices of Project Alpha, a UK government-funded project that began in summer 2011 to work with the private sector to mitigate the risks associated with proliferation-related trade.