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BERLIN - In early 2005, German customs police raided a series of German firms involved in a clandestine relationship with Vero, a Berlin-based front company that was illegally supplying nulcear technology and equipment to Iran. The smuggling operation involved 50 German companies and used a nuclear reactor in the Russian city of Rostov to hide the fact that it was supplying equipment to Bushehr, a port city in southern Iran.

Bushehr is the site of a feverish attempt by Russians and Iranians to rebuild Iran's nuclear reactors. Iran's Islamic government insists that these efforts are aimed at a non-military nuclear program, yet intelligence experts believe Bushehr is the gateway to an Iranian nuclear weapons arsenal. Vero's now-defunct Berlin office served as an illegal conduit, operating throughout Germany, for Iran's nuclear program. Germany bars the sale of nuclear equipment and "technological support" to Iran and nine other nations, including Israel, without a special permit from the German Federal Office of Economics and Export Control (BAFA). The Russian government, however, is not required to secure such a permit. Thus, German engineering firms can easily circumvent export regulations by designating a country that is not among the 10 listed in the export control law.

Hartwig Muller, head of the German domestic intelligence service Verfassungsschutz in the state of North Rhine-Westphalia (NRW), went so far as to say in an article in the weekly Die Zeit in late August that "we are seeing a regular procurement offensive ... Iran is putting out feelers even more greedily toward German high techs in NRW. The interest is primarily in arms and technology and know-how for the nuclear program."

On the nuclear trail

German companies are taking advantage of this procurement offensive, using longstanding German-Iranian trade relationships. The nuclear trail begins with the German electronics giant Siemens, also a major builder of nuclear power plants, which began work on the Bushehr plant in 1974. The Cold War period produced different nuclear plant designs in Western Europe and the former Soviet Union, which prevented exchanges of nuclear technology between Warsaw Pact and NATO countries. The technical specifications of Bushehr conform to a German design, and Russian components are therefore not compatible. This explains why the Iranians are aggressively attempting to obtain machinery and parts for Bushehr in Germany.

As a result of the Islamic Revolution in 1979, Siemens and its subsidiary Kraftwerke (KWU) discontinued construction of the plant they had been building for the Iranians. But the companies still do business in Iran. The Iraqis bombed Iran's two reactors six times during the 1980-88 Iran-Iraq war, severely damaging the plant and obliterating the entire core area of both reactors. In 1995, the Russians contracted with the Iranians to rebuild Bushehr for a total of $800 million. Alex Vatanka, an Iranian-born specialist on the Middle East from Jane's Information Group, says, "There is not a lot of respect for Russian technology. That lack of respect is also reflected in popular views of Russia's activities in Iranian nuclear programs. And German technology goes down like butter on bread in Iran."

The pervasive Iranian distrust of Russian equipment, and their preference for cutting-edge technology, further contributes to Iranian efforts to acquire parts for Bushehr in Germany.

Illegal trade

The city of Potsdam, situated just outside Berlin in the state of Brandenburg, which borders on Poland, is best known for the peace conference held there by the Allies following the defeat of Nazi Germany in 1945. Today, Potsdam is the center of an ongoing inquiry by the Brandenburg state prosecutor's office related to the rebuilding of the Bushehr nuclear plant. Potsdam has jurisdiction over the Bushehr case because one of the chief suppliers of Bushehr smuggled equipment across the Brandenburg-Polish border. The operation encompasses a vast transnational network of firms and middlemen conducting an illegal trade with Iran.

In mid-2006 and September 2007, the growing magnitude and sensitivity of the investigation prompted several visits by U.S. embassy representatives to Christoph Lange, the public prosecutor responsible for the smuggling cases. While the U.S. embassy would not confirm the visits, the Potsdam prosecutor's office says the two Americans sought confirmation of media reports on Bushehr. Lange prosecutes white-collar crime and economic corruption. He says that what he has uncovered is "just the tip of the iceberg of what we can prove" concerning the extensive black market transactions involving nuclear technology for Iran. He notes that deals involving 50 German firms immersed in the unlawful transfer of machinery and components to Bushehr could amount to $150 million. The remaining $650 million in the $800 million Russian deal remains largely undocumented. According to Lange, "the Russians can supply steel and concrete, but when it concerns high-tech, they have to buy in Germany."

Between 1999 and 2005, the "Made in Germany" label was a driving force behind the acquisition of electronics and heavy machinery from small and mid-size enterprises throughout Germany by the Vero trading company, the Berlin-based company with offices in Moscow, Kaliningrad and Dubai. Lange calls Vero "the spider in the web" of this elaborate clandestine operation. Vero, whose Berlin branch has been liquidated, was located in the bustling shopping district of West Berlin and maintained a staff of five or six employees. It concluded an agreement in March 2001 with the industrial equipment manufacturer Industrieausrustung-Service-Vertrieb (ISV) in Magdeburg, a city in the southern German state of Saxony-Anhalt.

The atom brothers

Sket is the acronym for the now- defunct East German state-owned machinery and engineering complex, a sprawling system of 13,000 plants. Sket is also Georg Kruger's narrative starting point as he explains the machinations of an elaborate industrial smuggling network crisscrossing Germany, Russia, Poland, and Iran. Kruger's engineering company, ISV, was one of the 50 German firms that employed Vero to supply nuclear components to Iran. He was convicted for shipping a control device for a crane to Iran's Bushehr plant without a special export permit in 2005.

Sitting in a Spanish restaurant in Magdeburg, Kruger begins the story with his early training at Sket as a specialist in the field of nuclear power plant components. After leaving Sket, he established his own engineering company, ISV, in 1997. According to Lange, a knowledgeable source alerted German customs officials to ISV's shadowy business transactions, which jump-started the ISV probe and eventually led to Vero. Kruger told Haaretz that he speculates that "someone in the firm" possibly a former employee named Robert Grun blew the whistle on the unlawful deals. Georg Kruger and his brother Axel, an engineer and former partner in the company, are, according to court documents, considered "specialists in the field of the construction, modernization and delivery of service for special nuclear power technical components." The tabloid press in Germany dubbed the duo "the atom brothers."

Court documents inspected by Haaretz include a contract, drafted in Russian, providing for "the project of a control system for the polar crane" to be utilized for the reactor's dome in Bushehr. Both brothers were convicted in November 2005 for violating Germany's Foreign Trade Act.

Georg Kruger's ex-wife, Shanna, a native of Gorki, Russia, was also convicted. She is a trained musician, whose father is a nuclear physicist and worked in an atomic power plant. Shanna used her Russian language skills to facilitate negotiations with Russian firms, and translated business correspondence for ISV. Kruger says he "received a telephone call from Vero in 2000 and reached an agreement to supply a crane to Kaliningrad, a free-trade zone where the customs process is more advantageous." In 2005, the regional court in Frankfurt (Oder) found the three Krugers "guilty on 10 counts of exporting materials for a nuclear power plant without a permit" between 2001 and 2003. In addition to the polar crane system, ISV knowingly supplied the Bushehr plant with electric motors, crane heating units, brake disks, and Neoflex cable. The evidence against ISV was overwhelming; it included a photograph attached to an e-mail showing damaged ISV machinery, with the bombed Bushehr reactor 2 in the background. The court gave all three employees suspended sentences of less than 2 years.

A covert operation

The Kruger affair was a topsy-turvy interplay among German intelligence agents, customs police, and prosecutors. According to Georg and Shanna Kruger, two German intelligence officers appeared at their homes in either the fall of 2002 or early 2003, and said, "You have delivered armaments to Iran." According to the Krugers, the Verfassungsschutz was primarily interested in accumulating knowledge about the direction and workings of the Russian projects. A quasi-deal was struck in which the intelligence officers told the Krugers, "We want to protect you. Cooperate with us."

The Krugers complied, and a covert operation was set in motion, lasting about two years. Georg Kruger says that "every three or four weeks there was a meeting in Magdeburg, and it lasted a half hour." The intelligence officers sought information, for example, about Russian projects in Bulgaria and India, and Georg was assigned to retrieve data from his Russian contacts.

In March 2004, the houses of Axel, Shanna, and Georg were burglarized on the same night while the three were in the Hamburg area. They filed formal complaints with the police, but suspect that intelligence officers entered their homes. The break-ins remain unsolved. Kruger said his intelligence contact told him in July 2004 that "I believe, Herr Kruger, that this will be the last time we see each other." The customs police raided their homes in the fall of 2004 and arrested Axel and Shanna. Georg was in Ukraine and turned himself in at Frankfurt (Order) in late November.

A list of questions remains unanswered. Among the most pressing of these: Were the Germans primarily interested in securing economic information about Russian activity, rather than Iranian actions? And why are the Vero middlemen and its owner not being prosecuted?

Circumventing export laws

Dimitry Solotarev, an Armenian Jew who headed Vero's Berlin office, happened to be in Moscow when custom agents raided his West Berlin office in 2004 and seized documents and computers. He has both German and Russian citizenship, and the state prosecutor has not at this stage issued an arrest warrant. Shanna Kruger, who has had contact with Solotarev, says he is a "generous man who drives a Mercedes S-Class and has a large villa in Spain that looks like a hotel."

Solotarev, who is in his early 40s, quickly gained a reputation for savvy export deals; he has been active in the sector in Germany since the early 1990s. Some of his more recent exploits involved supplying Siberians with televisions and CD players as well as providing Moscow with Brazilian meat. According to Shanna Kruger, he sports a pony tail and frequents high-end designer clubs in Moscow where visitors need a special pass to gain entry. "He owns a bank in Moscow and continues to supply pipes to Bushehr," she said.

Vero employed a clever but straightforward pattern to circumvent export laws: The nuclear power plant Kalinin (Rostov) in Russia is designated as a final delivery destination, but the Potsdam investigation revealed that the actual route goes first to either Kaliningrad or Moscow, then to the Volga river near the border of Kazakhstan, then to the Caspian Sea, and finally to northern Iran.

Vero established contact with 50 German suppliers, between 10 and 12 of which, according to the public prosecutor, knowingly shipped parts and machinery indirectly to Bushehr. A number of additional firms ostensibly did not know that their equipment was delivered to Bushehr.

The city of Hannover in the state of Niedersachsen is Germany's hub for auto and electronic trade shows. But in 2005 a different sort of spotlight was cast on a Hannover trading company that was charged with attempting to deliver seven-ton electronic motors to the Bushehr nuclear power plant without a special permit. A department head at the firm, following the standard pattern of utilizing Russian firms to bypass the export control law, sought to smuggle motors valued at a total of 330,000 euros. The shipment route would have been to France, then Russia, and eventually to Iran.

According to the public prosecutor in Hannover, Hans-Jurgen Lendeckel, "once the firm was aware that an investigation was underway, the order was cancelled." The division head got a three-year suspended sentence for violating the federal trade law.

Germany's foreign ministry issued a report to the state prosecutor's office recommending a criminal inquiry on the Vero nexus and the Hannover firm for violating the Foreign Trade Act, and the scope of the illegal trade deals with Iran remains a source of embarrassment for Foreign Minister Frank-Walter Steinmeier of the Social Democratic Party (SPD). The foreign ministry refused to give Haaretz a copy of the Vero report issued to the prosecutor. Steinmeier, in sharp contrast to his French and American counterparts, has shown a deep reluctance to impose new sanctions on Iran.

Many outside observers are asking why Foreign Minister Steinmeier is seemingly indifferent to an increasingly jingoistic Iran. "I think a lot of this has to do with the fact that you have an extraordinarily left-wing foreign ministry that still views itself by definition as being against the U.S. rather than in defense of its own national security," Danielle Pletka of the American Enterprise Institute, a conservative think tank, told the Jewish Telegraphic Agency on November 14.

The clash between Germany's export relationship with Iran, the largest among the European Union nations ($5.7 billion in 2006), and the rising number of violations of the Foreign Trade Act, may be causing irreparable harm to German foreign policy. American dissatisfaction with the German-Iranian trade relationship is creating new tensions for the foreign ministry.

According to a report in the Frankfurter Rundschau newspaper on November 10, representatives of the U.S. Embassy approached the German Engineering Federation (VDMA) several months ago in Frankfurt and attempted to convince engineering companies to sever their business ties to Iranian firms. The VDMA rejected the American request. The chairman of the German-Iranian Parliamentarian Society, Rolf Muetzenich (SPD), was quoted as saying that the American diplomats had alluded to "possible effects on business in the U.S." for German companies that continued to trade with Iran.

A spokeswoman for the U.S. Embassy told Haaretz that "U.S. officials have generally been talking to German companies about Iran, but the U.S. is not suggesting to German businesses where they should make their investments." She added, "German companies should ask themselves whether they want to do business with a country subject to two UN Security Council resolutions." UN trade sanctions were imposed on Iran to stop its uranium enrichment program in 2006 and 2007.

As for Israel, "We agree completely with the Americans and expect governments to step up economic pressure on Iran. We hope that Germany will be one of the leading countries preventing nuclear weapons from reaching Iranian hands," a spokesman for the Israeli Embassy in Berlin told Haaretz.

The success of the Iranian arms campaign was witnessed by the Israel Defense Forces (IDF) during the Second Lebanon War in 2006. Ali Mobaraki, an Iranian who managed Zenith Rollers Germany, a print roller company in Dusseldorf, orchestrated the transfer of 10 satellite navigation systems to Iran, with the help of his father, who owns Zenith, and a British engineer living in Germany since 1986. This type of global positioning system (GPS) is routinely found in unmanned aerial vehicles used to survey or attack enemy territory. FAKT, a German news program, reported last year that navigation systems used in Iranian drones employed by Hezbollah against Israel in the Lebanon war were manufactured by a company in the south German state of Baden-Wurttemberg. Three additional defective global positioning systems were returned to the smugglers in Germany; it is unclear whether they were re-shipped to Iran.

According to court documents, the smuggling trio used the Dubai free-trade zone in the United Arab Emirates as the conduit to Iran, and also shipped the devices via air freight.

In the wake of the GPS deal, Mobaraki's father fled to Iran. His son Ali was convicted of violating Germany's export law and received a sentence of two years and two months in prison. The British engineer travelled to Dubai and personally delivered a GPS to an Iranian contact. His attorney, Wolf-Dietrich Glockner, told Haaretz that his client, who has received a suspended sentence, will not speak to the press and that "for him, the affair is settled."

A sensational second trial took place in October, again involving Mobaraki, along with two Germans a businessman and an attorney from Bavaria. They were acquitted of charges of procuring 30 Type L-39 fighter planes made by the Czech manufacturer Aero Vodochody, from Germany for the Iranian air force. The public prosecutor in Dusseldorf, Nikolas Schlachetzki, told Haaretz that "the court did not define these planes as fighter jets within the meaning of German law." The Dusseldorf state prosecutor appealed the court's oral decision and is awaiting the written decision for review.

Illicit marketplace

The mild sentences applied to the defendants in the Bushehr power plant and navigation system cases as well as the rationale for the acquittals in the fighter plane deal have struck many observers as bizarre. "Those are not the kind of penalties to get people to pay attention," says Michael Jacobson, an expert on sanctions and financial measures to combat national security threats at the Washington Institute for Near East Policy. Jacobson, who is also a lawyer, notes that civil and criminal penalties for violating sanctions have recently been dramatically strengthened in the U.S., and that criminal penalties of up to $1 million and a 20-year prison sentence could be imposed for violations of U.S. law.

Prosecutor Lange believes that "companies are for the most part not afraid of German law; rather, they fear they will be placed on a blacklist and not be allowed to conduct business in the U.S." The mere threat that the U.S. Department of the Treasury will block German enterprises from doing business in the U.S. pushed a number of German companies to reach plea bargain agreements with the Potsdam prosecutor in order to avoid being publicly named in a court process. The fact that many German companies are willing to enter dubious deals in order to maintain and expand their presence in the Russian market gives the Russian government and firms doing business with Iran the power to exert pressure on such companies. A kind of quid pro quo relationship exists, whereby the Russians allow German companies access to their market in exchange for German components and technology for Iran's nuclear program and military arsenal.

While profits in the low five figures might not ordinarily justify unlawful, high-risk business deals with Russian middlemen and Iranians, Lange's investigation has found that small and medium-size German companies fear being excluded from new market opportunities in Russia. Jacobson, from the Washington Institute for Near East Policy, says that "while the Germans have strengthened their export controls since the 1980s, the German system of enforcement, like that of many other countries, is still under-resourced, and, given the volume of trade, a lot gets mixed in and it is hard for the government to keep on top of it."

A telling example of the lack of cooperation on the Russian side was their failure to respond to requests by the German customs department for information on the Vero office in Moscow. A more exhaustive search of Vero's offices outside Germany might expose more companies in Germany and Europe that are involved in clandestine deals aimed at supporting Iran's nuclear ambitions.

Germany is at the crossroads of an illicit marketplace, largely because Germany is the world's largest exporter, and the Iranian economy is heavily dependent on German engineering firms. The lack of both a tough freedom of information law and a transparent institutional culture makes it impossible to conduct a rigorous assessment of whether the federal attorney, the customs department and state prosecutors have a coordinated strategy for stopping the Iranian procurement process in Germany.

Federal attorney Monika Harms would not disclose the status of her office's Iran cases. The porous export control system, encompassing a voluminous amount of trade, is a source of conflict between the finance ministry and the customs police. Frank Buckenhofer, president of the Federal Treasury Police trade union, whose members are responsible for investigating and pursuing criminal activity for the customs department, argues that "the problem is that there are no interlinked structures." He criticizes the decision by Finance Minister Peer Steinbruck, who oversees the customs agency, to retain a strict division of labor between uniformed customs police and non-uninformed agents inspecting the traffic of merchandise.

Buckenhofer argues that this impedes the effectiveness of export monitoring, and calls for a consolidated force of federal treasury police who have investigative and enforcement power during the inspection process at airports and at border control points. "We do not want atom bombs built with German technology," he says.

That is precisely what Stefan Reusch, a customs officer, prevented in November 2002, but he was sacked because of his diligence. An electronic firm in Kronberg alerted Reusch about the delivery of 44 high-voltage switches that could be used to detonate atomic weapons. According to an internal finance ministry document, Reusch overstepped his "official competence by independently establishing contact with the federal police and customs police without first activating his direct superiors." In addition, the finance ministry bizarrely asserted that Reusch violated a "prohibition against wearing a white customs cap."

An administrative court overruled Reusch's discharge in November 2006, but the finance ministry has appealed the decision. Neither the federal attorney nor the finance ministry is prepared to comment on the outcome of the nuclear detonators case, specifically, on whether the two businessmen with close ties to Iran who purchased the switches were prosecuted. The office of Harms, the federal attorney, failed to return phone calls from Haaretz. An insider reported that within his circle of customs colleagues it was said that "the process was discontinued for the benefit of diplomatic relations between Iran and Germany."

An old tradition

The influential weekly Der Spiegel, in an incidental comment in September, 2004, reported on Helmut R., 53, a German businessman acting as a middleman for the Iranian nuclear program. According to the Federal Attorney's office, he engineered the delivery of 24 telemanipulators, which allow burned nuclear fuel rods to be handled in a secure fashion. The 24 devices did not reach Iran, and in late June, unknown persons placed a fake bomb at the door of Helmut's home with the warning that he should end his work for Iran. Der Spiegel wrote that "German intelligence officers suspect that the Mossad is behind the threat."

A German intelligence source declined Haaretz's request to confirm Der Spiegel's story, but did say that "among the Iranians over the last two years there have been stronger procurement efforts in the nuclear sector and for rocket carrier technology." Iran's Defense Industries Organization (DIO), the country's military procurement enterprise, maintained an office in Dusseldorf until 1996-97. DIO is a subsidiary of the Iranian defense department. Der Spiegel reported in late April, 2007 that, "according to a high-level investigator, at least two representatives of DIO are still active on a wider front in Germany."

Dr. Matthias Kuntzel, a German political scientist who writes extensively on German-Iranian relations, the author of "Jihad and Jew-Hatred: Islamism, Nazism and the roots of 9/11" (Telos Press), says the military and intelligence relationship between Iran and Germany is "an old tradition, and at the beginning of the 1990s there was a period of wild cooperation in which the Mullah regime was provided for, including the training of Iranian secret service personnel in Munich, Bavaria. The relationship has not dramatically changed."

The cordial relationship between Iran and Germany is a source of concern to the head of the exiled Iranian Green party in Germany, Dr. Kazem Moussavizadeh, who has ignited a new debate on the direction of Iran's procurement program, and sharply criticized "Germany's appeasement politics with the Mullahs." He told Haaretz that Iran's ambassador in Germany, Mohammad Mehdi Akhondzadeh Basti, "is responsible for coordinating the secret procurement of nuclear material and logistics from Europe and for the atomic project of the Mullahs."

A growing media interest in Basti's alleged criminal activity is bringing to the fore an issue that has been largely ignored: a massive network of Iranian intelligence agents, whose aim is to silence dissident Iranians in Germany and to secure military hardware and nuclear technology.

Moussavizadeh says that "160 diplomats work for Ambassador Basti in Berlin and an additional 650 Iranians are working for the Islamic government across Germany. These are not normal Iranian diplomats; rather, they are preoccupied with military affairs and the nuclear project." A law enforcement source confirmed that a network of Iranian intelligence officers is exploiting vulnerable Iranians in Germany.

For Iranian President Mahmoud Ahmadinejad, the "nuclear project is an existential project," said Moussavizadeh.

The author is an American journalist living in Berlin. He writes for U.S., Israeli and German publications.