July 2, 2020 | Policy Brief

Proliferant States Continue to Rely on China for Nuclear-Related Equipment

July 2, 2020 | Policy Brief

Proliferant States Continue to Rely on China for Nuclear-Related Equipment

A German intelligence report released last month found that Iran and other countries continue their longstanding practice of illicitly importing dual-use goods – items with both civil and military applications – via front companies in China. The report’s findings underscore that the United States and its partners have not done enough to hold China accountable for turning a blind eye to the role of Chinese firms in proliferating strategic commodities.

For many years, China has been a weak link in global efforts to stop illicit procurement of proliferation-sensitive items, or goods that could be used in nuclear, missile, weapons of mass destruction, or military programs. Chinese entities work with networks of foreign entities and individuals to procure advanced, dual-use equipment on behalf of governmental end-users. These networks conceal the true buyer from the primary supplier and its government and route shipments of goods from purported end destinations to proliferant states. To pay for the goods, these networks use circuitous financial transactions to hide the origin of the funds, which is typically a proliferant state.

Iran, for example, has procured via Chinese companies nuclear-related equipment produced in countries with advanced technological sectors, such as the United States, Europe, Japan, and other nations, allowing Tehran to build and augment its nuclear program.

Iran is not the only bad actor. For more than a decade, North Korea, Pakistan, and India have illicitly procured via China a difficult-to-manufacture item called a pressure transducer, which is made by U.S. and European suppliers and sold through subsidiaries and distributors in China. Pressure transducers are tightly controlled under nuclear export control regimes and laws, because they are a vital component used to operate gas centrifuges for uranium enrichment. Enriched uranium is a material used in nuclear energy applications but can also be employed as fuel in nuclear weapons.

Between 2007 to 2012, for example, officials working at the Chinese division of a U.S. manufacturer, MKS Instruments, illicitly supplied Iran with hundreds of U.S.-made pressure transducers. The officials worked with outside Chinese individuals and entities to funnel the items to Iran’s gas centrifuge program.

After illicitly procuring U.S. pressure transducers via China for more than a decade, Iran recently claimed it can manufacture them domestically. In April 2019, Iranian President Hassan Rouhani inaugurated near Iran’s Fordow enrichment plant a National Vacuum Technology Center, which claims to produce pressure transducers, among other commodities. If true, Tehran will be better equipped to outfit and expand its gas centrifuge program, with reduced reliance on foreign supply.

China has also reportedly acquired the capability to retrofit and indigenously manufacture pressure transducers and other nuclear-related items, suggesting that proliferant states may start to altogether bypass illicit procurement of some equipment from U.S. and other suppliers. According to 2019 reporting by the UN Panel of Experts on North Korea, between 2013 and 2016, Pyongyang procured Chinese-made pressure transducers from a Chinese company called Shanghai Zhen Tai Instrument Corporation, via orders placed with a Hong Kong company called YY Shun Limited. Experts believe China had reverse-engineered pressure transducers made by MKS Instruments.

Such bilateral trade conduits have the effect of rendering illicit activity less detectable to state enforcement efforts. As a result, states become more reliant on intelligence, financial transaction data, and shipment interdictions, while countries such as Iran and North Korea are more able to grow their gas centrifuge programs.

Washington has tried over multiple presidential administrations to convince Beijing to crack down on illicit trading activity on its territory. It has sanctioned Chinese entities and individuals, even indicting and luring lawbreakers to U.S. soil for arrest and prosecution. Yet China still avoids halting proliferation activity because there have been so few financial and diplomatic consequences for doing so. Beijing will only act if its bottom line is more severely impacted.

Washington and its allies should increase the pace of sanctions designations against Chinese actors that break export laws. To signal a zero-tolerance policy against China’s failure to prevent illicit trade with proliferant states, the United States and its partners should also levy major fines and sanctions against large banks that facilitate illegal transactions.

Andrea Stricker is a research fellow at the Foundation for Defense of Democracies (FDD), where she also contributes to FDD’s Center on Military and Political Power (CMPP) and Center on Economic and Financial Power (CEFP). For more analysis from Andrea, CMPP, and CEFP, please subscribe HERE. Follow Andrea on Twitter @StrickerNonpro. Follow FDD on Twitter @FDD and @FDD_CMPP and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.

Issues:

China Iran Iran Global Threat Network Iran Nuclear Sanctions and Illicit Finance