Pakistan’s Illicit Procurement of Missile and Drone Equipments
Pakistan’s Illicit Procurement of Missile and Drone Equipment Using Multiple Financial Transactions
A report by David Albright, Paul Brannan and Andrea Scheel of ISIS reads
The Pakistani Department of Defence (DoD) utilizes illicit trading networks to procure controlled, high-technology items for its military programs. The French customs investigations authority, the National Directorate of Customs Intelligence and Investigations (DNRED)1, provided the following case information to the Financial Action Task Force (FATF)2 for its June 2008 Proliferation Financing Report.3 The following case studies are summarized from this FATF report. Some details of the cases, such as dates and names of companies and banks, have been withheld from publication at the discretion of DNRED and the FATF. DNRED also withheld the dates for when these illicit procurements took place. In these cases, items of a sensitive nature usable in missiles and drones were procured by the Pakistani DoD using French companies as intermediaries and suppliers. Some of the items sought by the Pakistani DoD were classified by the French Ministry of Defence as war materiel.
Some examples are:
Case 1: A first instance of illicit trade directed by the Pakistani DoD through a French transit point involved an order placed through a French industrial company for dedicated missile and drone electronic tracking and guidance equipment, manufactured in the United States. Figure 1 displays the routes of purchase orders, shipments, and financial transactions used by the Pakistani DoD and its associates. The representative of a Pakistani purchasing network operating in an unspecified European country first contacted a French industrial company for this equipment. This purchasing network’s representative had known affiliation to the Pakistani DoD. The French company did not carry the equipment, but the firm’s representative contacted an American intermediary who agreed to place the order with an American manufacturer that built the items. A front company located in the United Arab Emirates (UAE) actually placed the order with the French industrial company on behalf of the Pakistani procurement network.
The electronic tracking and guidance equipment was shipped from the United States to France by air freight, eventually passing through the transit point of Marseille. The French customs authorities never cleared the cargo, and it was exported to the UAE. It is suspected that the equipment was shipped to its final destination in Pakistan.
Financial Transfers in Case 1: In facilitating payment for the electronic equipment, the UAE front company transferred money to a Dutch bank branch located in Dubai. This money was then sent to the branch of a Spanish banking group located in France. This bank was used by the French industrial company. As seen in figure 1, two banks used by the U.S. company, both located in New York, each received a transfer of money—not from the Spanish bank, but from another French bank also used by the French industrial company, where the money had again been transferred. The transaction that was re-routed in France and the transaction that was split when sent to the New York banks inevitably disguised the origin of the money and gave authorities and bank officials little warning that an illicit financial transaction had taken place.
Case 2: A second instance of illicit trade directed by Pakistan’s DoD failed in part when one of two intended shipments destined for Pakistan were intercepted by the French customs authorities. This shipment contained highly-sensitive drone and ballistic missile testing and programming equipment. Figure 2.1 shows the paths of purchase orders and shipments used by the Pakistani DoD to procure the targeted items. The Pakistani DoD had placed an order for the equipment through its purchasing network, which operated out of the undisclosed European country. The purchasing network contacted a representative of a small French firm of just three employees, which had expertise in building tracking and fire control equipment for missiles and drones. The purchasing network instructed a Pakistani front company to place 45% of an order for a complete drone calibration and guidance system with this French firm. The purchasing network instructed a UAE front company to place the other 55% of the order. It is unclear whether this front company was the same company used by the Pakistani purchasing network in Case 1 of illicit trade described above. The French firm contacted a Norwegian aeronautics and space supplies manufacturer for additional electronic components it needed to develop the equipment. It is not clear whether the Pakistani DoD knew about the French firm’s contract with the Norwegian manufacturer for the electronic components.
The Norwegian parts manufacturer exported the electronic components to France, and the French company exported these and the drone calibration and guidance system, in two separate shipments, to the Pakistani front company and the UAE front company. It is unclear if the two shipments reflected the split nature of the placed orders. The shipments were designated “electrical testing equipment” to customs authorities upon export from France. The Pakistani DoD likely received one of the shipments. The other shipment, bound for either the Pakistani or the UAE front company (it is not clear which), was interdicted at France’s Roissy airport. When the French customs authorities discovered the dangerous nature of the technology nearly exported from their country, authorities raided the office of the French firm and the homes of its three employees. The firm was forced to close down operations and faced subsequent legal action. In the course of the investigation, French authorities uncovered substantial involvement of the French firm’s director in supplying Pakistan’s military programs.
Financial Transfers in Case 2: The path of financial transactions used by the Pakistani DoD and its purchasing network to facilitate payments to the French, and indirectly, Norwegian suppliers. To facilitate payment for the electronic equipment procured from France and indirectly from Norway, the Pakistani purchasing network utilized two separate financial transaction routes for importing the technologies. The purchasing network sent one transfer of money to its UAE front company, which then sent the money in split transfers to a Chinese bank, and to a Pakistani bank located in Karachi. These transfers were both sent to a French bank used by the French firm. The Pakistani purchasing network specified to the French firm that one part of the sum transfer should be sent to the branch of an American bank located in London, for unknown reasons.
The second route used by the Pakistani purchasing network to facilitate payment for the second shipment of items passed through even more banking institutions than the first route. The network sent the funds through four separate branches of Pakistani banks located in Islamabad, Karachi, Britain, and the United States, and each of these branches in turn made a payment of some portion of these funds to the French bank used by the French firm. Each of these four branches sent the money via letters of credit to the French bank used by the French firm. The French firm made a financial transfer to the Norwegian manufacturer’s bank, located in Oslo, for services rendered.
The Pakistani purchasing network’s use of the French bank as the central node for financial transfers assisted the investigation of French customs authorities and helped them to uncover all the transfers associated with payment for the procurements.
Case 3: A third case of illicit trade uncovered by DNRED involved the discovery of an illicit trade network directed from French territory by a French industrial company to supply Pakistan’s military programs, and the military programs of two other unnamed countries. The French company was directed by an independently operating industrialist, who also oversaw the operations of another company. These companies were two of four firms in the entire world that had the capability to design a particular type of sensitive, dedicated equipment with application to ballistic missiles. The other companies with this capability were located in the United States and Switzerland. Case 3 reveals no specific item procurements or shipments, but showcases the elaborate financial transaction routes used by the French company and its associates to receive payment for items funneled to countries of proliferation concern.
DNRED was able to halt the France-based network when it acted on counterproliferation intelligence to seize a suspected illicit export on its way from Paris’ Orly airport to an unspecified country. Once seized, the authorities determined that the items were dual-use articles intended for a ballistics research institution in the unspecified country. The articles were controlled under either war materiel or dual-use distinctions and were thus subject to license. Searches of both French companies’ premises revealed that multiple exports of the equipment had already been made to three separate countries, one of which was Pakistan, and that they had consistently been declared non-controlled items upon export. In subsequent legal hearings, the French industrialist admitted knowingly exporting controlled military items and admitted that deception was used to funnel the items.
Pakistan’s Illicit Procurement of Missile and Drone Equipment Using Multiple Financial Transactions - ISIS