The Chinese toymaker said it needed very strong maraging steel to make a large toy horse it markets for use on playgrounds. Maraging steel is not only very strong, it is also very expensive and not exactly toy material.
The toymaker contacted American firms with its shopping list. But one of those it reached was actually a US government front set up to catch people trying to evade US sanctions.
The Chinese toymaker eventually put some of its contacts in touch with the Iranian it was working for. That man, Parviz Khaki, was lured out of Iran a few weeks ago and arrested in the Philippines. He is now in jail there awaiting extradition to the United States for trial.
A US law enforcement official familiar with the case told The Washington Post, “We are certain that the metal was meant for advanced centrifuges in Iran’s nuclear program.”
Maraging steel is a critical material in a new centrifuge Iran has struggled for years to perfect. The new centrifuge would allow Iran to enrich uranium much more quickly than it can now with the 1950s’ technology it acquired years ago from a Pakistani nuclear scientist.
In recent years, US officials told the Post, an increasing number of Chinese merchants have volunteered to help Iran by serving as middlemen in schemes to obtain sanctioned material.
Steve Pelak, the Justice Department’s counterespionage chief, said, “They are professional, studied procurement agents and shippers. They know precisely what business they’re in and how to go after it.”
The toy horse case is at least the fourth in the past two years in which companies based in China have been accused of helping Iran buy sensitive technology.
A senior Justice Department official told the Post, “As some countries have retreated from the Iranian market with the imposition of increased sanctions, many Chinese companies appear to have moved into the void.”
David Albright, the head of the Washington-based Institute for Science and International Security (ISIS), said Iran appears to have the know-how to make better centrifuges, but the shortage of materials—particularly maraging steel and carbon fiber—has prevented it from producing more than a few hundred for testing.
The Chinese government officially opposes a nuclear-armed Iran, and there is no evidence the Chinese government has provided nuclear assistance to Iran since the early 1990s. But, despite repeated US protests, Chinese businessmen continue to offer help without apparent fear of punishment.
The Post reported Sunday that the toy horse scheme first came to the government’s attention in 2008. It was unearthed by a little-known program of factory visits by US officials to guard against leaks of sensitive US technology. During a visit to a Washington State steelmaker, an export manager there told the visiting US official about a bizarre query he had gotten from China for 20 tons of maraging steel. The deal had not gone through.
In the spring of 2009, the steelmaker reported a new query from China. This time, the buyer claimed to represent a toy company, Monalila Co., a maker of playground equipment. The company website showed photographs of real toys, including its premier product, Model HF450, a large horse.
“No gas, no battery, no power, but can be ride [sic] as a horse and run smoothly on squares, parks, alleys and any other flat grounds,” said the product description.
To make its horses, the company needed maraging steel, wrote the purchasing agent, who identified himself as Yi. The $2 million order was similar to the one from the previous year that had fallen through.
US investigators were alerted by the steelmaker, and they set up a sting. In a chain of e-mails, federal agents posing as salesmen teased out details about the order and who was behind it. Eventually Yi excused himself and handed over the correspondence to his boss, a man he called “Martin.” It quickly became apparent that Martin was not Chinese and had no interest in toys.
“We were able to determine that Martin’s e-mail originated in Iran,” the law-enforcement official familiar with the case told the Post.
Over the following months the shopping list grew, as the Iranian piled on requests — other specialty metals used in uranium enrichment, an array of machines and instruments with known nuclear applications, even a mass spectrometer that he said he needed to measure uranium fluoride gas, which is how uranium being enriched is formatted at one stage of the enrichment process.
Investigators determined Martin was actually Parviz Khaki. As part of the subterfuge, they told him the materials would need to be shipped illegally to Iran. Khaki did not appear to care, Justice Department officials said in the indictment papers. “Khaki discussed his motivation to make money from this transaction,” the indictment stated.
Somehow Khaki was lured to the Philippines. How that was done is not revealed in the indictment. But on July 13, he was arrested in Manila. He had already been indicted by a US grand jury on charges of running a $30 million scheme to acquire banned US technology for Iran. His alleged Chinese associate, Zongcheng Yi, was also indicted. But Yi has not been arrested and his whereabouts are unknown.
Khaki never got any maraging steel, and most of the other items on his lengthy shopping list went nowhere. But the indictment said two twister speed lathes needed to make centrifuges and some nickel alloy wire were shipped to Iran.
Albright of the Institute for Science and International Security wrote: “Iran, like other developing countries, appears unable to build gas centrifuge plants without outside assistance, making well-enforced sanctions and trade controls an important tool in detecting Iran’s secret centrifuge activities and slowing down its overall nuclear progress….
“This case shows that Iran still seeks high quality materials it needs for its centrifuge program from Western countries, showing the importance of governments cooperating with companies and mounting sting operations to learn about Iran’s nuclear efforts and delay and set back its progressÖ. This case demonstrates that Iran’s centrifuge program continues to depend critically on foreign supply.”