PROCUREMENT NETWORK IN THE GREY MARKET

Procurement  Network in the Grey Market:

Western accounts  of Pakistan’s  procurement  strategy  focus exclusively  on A.Q. Khan , whose role is cast  either as  spy or kingpin of an elaborate network  that ran like a nuclear Wal- Mart. ¹  For A.Q. Khan  and others  who were involved  in procurement activities, however, acquiring  the necessary  knowledge and components  for the nuclear program  was a   call  to the highest level  of national service  at a time  when Pakistan’s  security  and survivability  were at stake. Dedicated  people  who were determined to overcome  all technical  and political  hurdles placed before the Pakistan  nuclear program  were prepared not just to “ eat grass”  but also to take extraordinary  risks—at times with their lives –in the underworld  of nuclear procurement , all in the name  of technology  and national capacity.

Three significant factors handicapped Pakistan  and created the necessity for a procurement network.  First, no other  country  with similar  nuclear  ambitions  faced  such  stringent  non proliferation barriers. Contemporary  proliferators  such as Brazil , Argentina, South Africa, India , and Israel  had crossed the critical thresholds well before  the non proliferation regime tightened its screw.  From Pakistan’s perspective , however , its exclusion  was not  just  a matter  of timing—Pakistan  believed it was targeted  because  it was the only Muslim country acquiring such weapons at the time. Many other states  in the Islamic world  were gradually  convinced  of this belief as well.  Saudi Arabia , Libya , the UAE, and, to an extent , Iran ( under shah) were determined  not to let the Pakistani nuclear ship sink. 

Second , Pakistan  was extremely  vulnerable and did not have any leverage of its own.  Beset with huge economic burdens , domestic political  unrest, and regional  security  concerns, it was largely dependent  on international  institutions and aid. Although Pakistan  was aware  that Western countries  were not sympathetic  so its security anxieties , it knew that its alliance with the West was critical  and largely unavoidable . Islamabad  could afford  neither  confronting  not abandoning the West.

Instead , Pakistan  sought more reliable strategic  relationships  via alliances with China  and North Korea. A three –pronged strategic policy  surface :1- retain an alliance wit the West  and seek technological  assistance , 2- seek financial  support  from oil-rich  Islamic countries to sustain the economy , and 3- seek strategic  substitutes  with assured allies  when Western technology  was not available.

The third and most serious handicap  was the rapid deterioration of the regional  security situation.  The dramatic  alteration  of the geopolitical  landscape—especially  after the Islamic  Revolution  in Iran  and the Soviet union’s  invasion  of Afghanistan ---created a new strategic  environment  for which Pakistan had no preparation . Pakistan armed forces  faced potential aggressor  on two fronts . Although the country enjoyed  the benefits  of being  a frontline  state  as long as the Soviets lasted in Afghanistan , the socioeconomic  and security  costs were substantial  and the resulting anarchy in the region  still threaten Islamabad today.

It was under such circumstances  that the lack  of Western non proliferation  concerns opened  up a new window  of opportunity  for Pakistan’s  nuclear deterrent. The technical  hurdles  forced  scientists  and officials  to tap  into any  and every source  that would help Pakistan  complete its fuel cycle.  Where  rules were lax,  critical  supplies  were produced  from the West , and when non proliferation barriers increased , those supplies  were found  by other , less explicit means. It is important to remember  that while uranium enrichment  became  a top priority , plutonium  production  still continued , but at a slower pace.  Thus Pakistan officials searched for materials that met the needs of both ends of the nuclear fuel cycle.      

Tom and Jerry in the Open Market: When pressure mounted  on France  and other European countries  to scuttle the Pakistani nuclear  program , a cat and mouse  game  ensued  between the European suppliers and Pakistani demands , as Pakistani  buyers  raced to acquire  goods, dodging  obstacles  and slipping away. This became possible because  the Western bureaucracies  were slow to act . A.Q. Khan  and his suppliers  stayed one step  ahead of their pursuers  for almost three decades.

Initially , Pakistan  participated  in purchases  of key components  from the open market. As rules tightened , however, willing  suppliers  shifted to the grey market. Most published  Western accounts  blame either U.S. policy—makers or intelligence agencies for turning a Nelson’s eye  on Pakistani procurements. Perhaps the United States  might have barred  critical  supplies  to Pakistan early on , but the exigencies  of global security  trumped  nonproliferation  concerns.

The Pakistani approach  was innovative . Although  initially pursuing  entire machines  and technologies, Pakistan  eventually  began to acquire components  of enrichment  technology  and equipment  from small-high technology  Western firms. Once the individual  components ---from the yellow cake , to gasification /solidification units , to centrifuge parts—found their way to Pakistan , PAEC scientists and engineers  would assemble them to achieve mastery over the enrichment cycle.

As a counterpart  to A.Q. Khan’s efforts , another  significant  cross –section  of Pakistan’s network  was at play: Europe’s business community , which found ingenious ways of keeping the Pakistan procurement pipeline flowing. At first , all activities  were conducted  within legal bounds , but when laws changed and rules tightened , the supply  patterns  adjusted  accordingly  and grey areas of legal  interpretation emerged. But Pakistan  did not purposefully  design a  network . rather , it was a  product  of intense  domestic demand  and of Western  business interests. Willing suppliers  were looking for profits  ---some unwittingly  contributing  to the establishment of a network , others  with full knowledge of their product’s  end use.  Indeed , many business people  had no regrets  about helping  Pakistan  acquire a  nuclear deterrent .²  For them , India had cheated  the world  by testing  a  nuclear device  and dubbing it a “ peaceful nuclear test”  (PNE) , posing  direct threat to Pakistan. ³

Regardless of the individual  contribution , the series of procurement events  illustrate the dynamic nature of Pakistan’s  efforts.  From maraging steel  to cascade pipes to inverters  and everything in between , Pakistan  actively sought out opportunities, instilled  business competition , and worked ahead  to stay ahead of the non proliferation regime.

Under U.S. pressure  the Germans put on hold  the sale of eight  power reactors , a uranium enrichment facility , and a plutonium  reprocessing plant to Brazil ( then a non signatory  to NPT). If completed  , that deal would have yielded  multibillion  dollar profits.  The German industry  was frustrated  that non proliferation  and moral arguments  selectively  hurt European business  , while U.S . nuclear  industries  such as  Westinghouse and General Electric thrived. ⁴   It is therefore no surprise  that Germany  was the main supplier  of components to Pakistan. ⁵ For example , in 1975 there was a  major purchase  of three “ roller , high compression  machines”  from Dusseldorf  Germany , which  boasted  a dual a dual –use  application  to make stainless  steel  utensils  and casings for artillery  shells. ⁶ Some European suppliers  were very generous , and offered  to sell items  not on the Pakistani wish list . Two other important procurements  were also made  that year : an electronic beam welding  machine  and a ring magnet  charging machine. ⁷ These purchases  were part of the initial PAEC strategy  to undertake large-scale  procurements in an effort to avoid future shortages. ⁸

German companies were chosen  as the primary  suppliers  because A.Q.  Khan recognized that German expertise  in machine tools  and precision  engineering  was second  to none and contributed  greatly  to the enrichment  industry  as a whole . In addition , since  Germany  was  not a nuclear power  , it employed  more lenient  export controls.

Competition for Pakistan’s  business among  European firms  continued,  even in the more  restricted advanced technology  market.  Thus U.S. public non proliferation  reprimands  produced  modest results , as demonstrated  by Germany’s  meager  response  to nearly  one hundred demarches.  But the Pakistanis detected  this international pressure  and quickly made use  of extensive contacts. The German magazine  Stern  reported  that about seventy  German  firms conducted  nuclear-related  business  with Pakistani  --associated  enterprises  throughout 1980s. ⁹

By far the most significant  event in the enrichment  project  was the procurement  of high-frequency  inverters from the British firm Emerson Electric. These components  were especially important  as they ensured  uniformity  in power supply  to the centrifuges. But these purchases  did not go undetected. The exposure  of the Pakistani imports  from Britain  alerted various  intelligence  agencies around the world. The Israeli Mossad  , in particular, viewed Pakistani procurement  as making possible as “ Islamic Bomb” . Pakistan ‘s supply of luck  was large , but it was not limitless . As A.Q. Khan’s audacious  attempts  to acquire  sensitive technologies  caught the attention  of business  and government around the world , international pressure mounted on countries  to control  nuclear trade , and they slowly  roused themselves  to the task. Bilaterally and through  multilateral organizations , states  slowly  harmonized  export controls  to prevent  Pakistan  and others from seeking  and exploiting  weak national  regulations. Simultaneously , state regulators sought  control further down the production chain.

But even with the rising barriers  , one main  strategy  sustained  the procurement network ---as soon as Pakistani officials  found one firm  that was either unwilling  to deal with them or was suspicious  of their intent , they always found  a willing substitute.  These companies were in competition with each other  , and Pakistan offered  high price . All of these purchases  and agreements  for cooperation  required money  . The Pakistani economy was in a shambles throughout  the time that the procurement  network  was forming, yet officials  were still able to pay premium  prices  for expensive technologies. It was generous countries  such as Libya  and Saudi Arabia  that financed  the Pakistani economy  as a whole , and mitigated the impact of Western Sanctions. Nevertheless, despite  economic   and military  aid, Pakistani  official  had to devise a way  to sustain  the nuclear program . The answer  came from Bank of Credit and commerce International (BCCI)  and its Pakistani owner , Hassan Abidi. Thus the BCCI paid for Pakistan’s nuclear program  via front companies  and institutions  until its collapse in 1991.

Procurement Strategies:   

Pakistani officials  utilized  numerous strategies  to consolidate the multiple  channel, connections, and techniques during  their procurement efforts. ¹⁰ These included :

1-    Diplomatic  channels. Almost  all the Pakistan embassies  around  the world helped  procurement  efforts  by using  their diplomatic dispatches;

2-    Staying ahead of the curve . Pakistani imports adjusted  and shifted  as different export  controls were applied . Purchases  shifted from buying  entire units to acquiring  smaller,  independent  components  to unfinished  products;

3-    Needle in the haystack . Pakistan  would buy many benign  and unusually  technologies and hide  a  critical  component  within the lengthy purchase ;

4-    Willingness to pay high prices . Pakistan  would offer to pay twice the original price;

5-    Reverse engineering . Pakistan  would purchase  samples and then  reproduce them domestically;

6-    Multile attempts  and connections. At least three or four  different agents  would buy from different companies . Once a set of choices  was established , the agents would evaluate  the ease of exportation  and transportation;

7-    End user justification. Pakistan  would  provide  the supplier  with  numerous  front companies  and legitimate  reasons  for procurement, which could then be later verified;

8-    Diverse intermediaries  and shipping routes( trans-shipment) . Very few  direct transportation  routes to Pakistan existed; most  items  would go through intermediaries  and numerous countries  before reaching their final destinations;

9-    Help from sympathetic  countries. China , North Korea, and friendly Islamic  countries  would be willing conduits  of shipments or sources of money;

10-The Pakistani diaspora . Professionals scattered  around the globe would contribute extensively to the nation’s cause;

11- Connections with a   variety of entities . Pakistan  had made friends  with numerous  individuals , companies , and business around the globe.;

12-Front companies . Pakistan  created so many that they  overwhelmed  the system.

Unfortunately, once Pakistan’s own requirements were complete, this network would then acquire a life of its own, as other interested  countries would be attracted to its benefits.  

References embedded in the Post will be provided later.

Dr. I.R.Durrani

Posted in A.Q. Khan, BCCI, Emerson Electric, Grey Market, Hassan Abidi, Nuclear network