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Four thousand miles west of Toulouse, in Washington, concern had
been growing over the help China was giving the Iranian missile program.
A particular worry was the deadly C-802, a sleek, sharklike antiship
cruise missile that could also deliver a chemical or biological payload.
The sales brochure of its manufacturer, China National Precision
Machinery Import & Export, boasted that the C-802 had "mighty attack
capability" and "great firepower"; it had a range of 120 kilometers and
resembled the Exocet cruise missile that had killed thirty-seven U.S.
sailors on the USS Stark in 1987. C-802s, said James Lilly, the former Comment: fired by an Iraqi Mirage F-
1. Republican Senator Bob Dole
U.S. ambassador to China, pose a "clear and present danger to the demanded that President Reagan explain
United States fleet." At the time, more than 15,000 U.S. servicemen were what US ships were doing in the Gulf.
The ships commander was relieved and
stationed in the Persian Gulf. forced to reture.

For years, Iran had purchased C-802s from China, but officials in
Tehran were becoming increasingly troubled about the prospects for
future sales. They felt that as China nudged closer to the United States,
it might eventually slow down or halt weapon sales to Iran, as it had
been doing with Pakistan.
By the summer of 1997, NSA intercepts of phone calls and faxes
among Tehran, Beijing, and Hong Kong were beginning to indicate that
Iran might be attempting to build the missiles themselves. The prospect
made many in Washington very nervous, because if Iran produced its
own missiles the United States would have even less ability to monitor
and control its inventory. The near-supersonic weapons could wreak
havoc against American ships sailing in the Persian Gulf. But the key to
the missile was the complex, high-precision turbojet engine that powered
it. It was built by Microturbo, SA, a firm based in Toulouse. Few believed
that Iran would be able to successfully build such a machine on its own.
Then, in July 1997, NSA delivered some bad news to the White House.
Its electronic vacuum cleaner had intercepted a phone call from Tehran
to Hong Kong revealing that Iran was attempting to reverse-engineer the
French Microturbo engine”to acquire one and then peel it back, layer by
layer, until it understood the engine well enough to build one. Then Iran
would attempt to obtain engine parts for as many as 100 missiles from
Microturbo by disguising the parts' ultimate destination. According to the
intercepted conversation, instead of having Microturbo ship the parts to
Tehran, Iran would have them sent to a Hong Kong company called



345
Jetpower. Jetpower would then forward them on to Iran, although it is
unclear from the intercepts whether or not the company knew of the
deception. To further screen the true nature of the shipment, the
equipment would be labeled "Generator 4203 mini”jet engine."
Iran seemed to be pulling out all the stops. GCHQ, through its
Morwenstow antennas, intercepted a call from an Iranian official in Paris
to Tehran indicating that Iran was considering hiring a notorious arms
dealer to help obtain the Microturbo engine. On July 29, 1997, an
overcast but warm Saturday in Paris, the Iranian official, a Mr. Mehrdad,
met with Syrian arms trafficker Monzer al-Kassar.
Flabby and gray-haired, the forty-nine-year-old al-Kassar had traveled
to Paris from his home in Marbella, Spain, where he operated a company
called Conastra Trading. In 1992, al-Kassar was arrested in Spain on
charges of providing weapons and financing for the 1985 hijacking of the
Italian luxury liner Achille Lauro but was later acquitted. A man of many
passports as well as identities, al-Kassar had been part of the covert
network run by Lieutenant Colonel Oliver North during the days of the
Iran-contra scandal. It was revealed that al-Kassar had received $1.5
million to purchase weapons. When he was questioned about al-Kassar,
former U.S. national security adviser John Poindexter said, "When you're
buying arms, you often have to deal with people you might not want to go
to dinner with."
Mehrdad told his contact in Tehran that "the meeting had gone very
well" and that they should invite both al-Kassar and another
international arms dealer, the French-born Bernard Stroiazzo-Mougin, to
Tehran for further discussion on ways to acquire the Microturbo engine.
According to the GCHQ report, "Stroiazzo-Mougin is Director of North
Atlantic Airways. In August 1996, he was noted [in earlier GCHQ
intercepts] supplying electron tubes and Boeing 707 and 747 aircraft
spare parts to an Iranian company."
Mehrdad concluded the July 29, 1997, conversation by telling al-
Kassar that he was certain they would be able "to do very big things." A
few weeks later al-Kassar faxed to Tehran details concerning the half
dozen people he was going to bring with him on his visit to Iran” mostly
engineers from South Africa, as well as Stroiazzo-Mougin”to discuss the
missile project. GCHQ dutifully intercepted the list, which included such
key data as dates of birth and passport numbers.
By September, Iran's fears about the Chinese connection seemed to
be coming true. Chinese officials told their Iranian counterparts that the
latest shipment of C-802 missiles had been temporarily halted because of
"technical problems." There were no "technical problems." According to
U.S. intelligence reports, the Chinese government had quietly decided to
cease delivery of the missiles until at least after the late October summit



346
meeting in Washington between China's president Jiang Zemin and Bill
Clinton. Also according to the intelligence reports, General Mohammad
Vahid-Destjerdi, the Iranian deputy minister of defense, didn't buy the
"technical problems" excuse and accused the Chinese of being
unprepared to stand up to Western pressure and lacking in resolve.
In Washington on October 29, behind blue and white sawhorses
across from the White House, protesters chanted and shouted. But as
the long black armor-plated limousine arrived with President Jiang
Zemin, a military band drowned out the demonstrators with the national
anthems of both the United States and China.
Following the summit talks, a news conference was held in the Rose
Garden. In the crisp fall air, under a bright sun, Clinton addressed the
issue of nuclear proliferation. "President Jiang and I agree," he said, "that
the United States and China share a strong interest in stopping the
spread of weapons of mass destruction, and other sophisticated
weaponry in unstable regions, and rogue states, notably Iran." In part on
the basis of President Jiang's assurances that China had halted missile
sales to Iran, Clinton granted permission for U.S. companies to sell
nuclear power plant equipment to China. But Clinton was relying on
more than Jiang's word: behind the scenes, away from the press and the
public, he was relying far more heavily on NSA to tell him whether China
was keeping its agreement.
In November, NSA intercepted messages confirming earlier reports:
Iran had decided to go it alone and build its own missile. Plucked from
an INTELSAT were faxes indicating that six months earlier, in May, a
deal had been struck between Iran and Microturbo. The intercepts
included a letter of credit, valued at over $1.1 million, issued by Iran's
Defense Ministry to Microturbo. The terms of the contract indicated that
there was little time left: the "goods" were to be shipped to Iran by
December 3, less than a month away. They were to be loaded on an
Iranian ship in Antwerp, Belgium, which would take them to Bandar
Abbas, Iran.
At the White House there was outrage over the NSA report on the
backdoor deal between Microturbo and Tehran's generals. In June the
United States had sent a d©marche”a diplomatic protest”to France
complaining about earlier sales of Microturbo engines to China. In
response, the French Foreign Ministry agreed to prohibit future sales by
the company to China as well as "to other pariah states such as Iran out
of principle."
Now, as a result of the NSA intercepts, a second d©marche was
issued, this time requesting an investigation into the Microturbo contract
with Iran. More U.S. protests followed. Officials from the American
embassy in Paris approached the French Foreign Ministry again about



347
the same time, and Pentagon officials called on the French defense
attach© in Washington. But the French would only say, unofficially, that
the Microturbo contract simply involved "generators," not missile
engines.
Finally, when no formal reply was forthcoming, an unusually high-
level and blunt protest was made to the French Foreign Ministry. "It is
our understanding," it said, "that Microturbo's generators and jet engines
are almost entirely identical, and only slight modifications are necessary
to turn the 'generator' into a jet engine."
Although it was December, the atmosphere in Microturbo's offices was
decidedly hot following the U.S. diplomatic protests over who their clients
were and what they were shipping. The issue was especially sticky
because Microturbo had a subsidiary located in Grand Prairie, Texas,
and that subsidiary depended greatly on U.S. government contracts for
sales of its turbojet engines.
What employees of Microturbo did not know was that they had
become entangled in UKUSA's electronic web. Thus when T. Dècle, a
company official, faxed a message to Mr. R. Heidari, an Iranian defense
official, it was intercepted by GCHQ's Morwenstow antenna, several
hundred miles away. Transferred to the agency's headquarters at
Cheltenham, it arrived on the desk of an analyst who specialized in
weapons systems and had been following the C-802 closely. The analyst
concluded that Microturbo was attempting to "mask involvement in
Iranian anti-ship [C-802] cruise missile component deal."
In his report, the GCHQ analyst wrote that Dècle had informed the
Iranian military officials "that he would advise them in the next few days
of Microturbo's position. To avoid any faxes being missent to
Microturbo's U.S. subsidiary, Dècle requested that in the future the
headers of faxes should not show the name of the U.S. subsidiary, and
he also asked them to use a specific French fax number."
The secret intercepts offered clear, hard evidence that the Jiang-
Clinton summit was having a positive effect. Inside a low, pale-colored
government building near a busy intersection in Tehran, Hossem Jafari,
the official responsible for buying the C-802 missiles from Beijing, was
becoming more and more angry at the Chinese, who were reneging on
their contract. His anger was specifically directed at China National
Precision Machinery Import & Export Corporation.
In early December, Jafari marched over to China Precision's office in
Tehran and demanded some answers from Wen Bo, the local
representative. Like a man who had been conned, Jafari laid into Wen.
He demanded to know why China Precision had not returned his calls,
why the contracts had not been fulfilled, and why he had been given no
explanations. Jafari said he had instructed his financial department to


348
cease all payments and then demanded that Wen Bo immediately call
China Precision's president, Jin Xuekuan, or its vice president, Ji Yan-
shu, for an explanation.
Wen Bo did as Jafari asked and made the call to Beijing. While Jafari
listened to Wen Bo's side of the conversation, NSA was eavesdropping on
both sides. Over the telephone, Wen Bo told an official at China Precision
that he was in an embarrassing position because he had received no
instructions on the missile deal. He then listed Jafari's complaints and
asked to speak to the top executives. In response, an official suggested to
him that although both Jin Xuekuan and Ji Yanshu were both in the
building, he should tell Jafari that the executives were temporarily out
and could not be reached. Wen Bo did as he was told, and Jafari left as
angry as he arrived. However, he said, he did not blame Wen Bo but
rather the "policymakers" in Beijing.
The Jiang-Clinton summit, according to the NSA intercepts, also
affected a long-planned trip to Tehran by a delegation of China Precision
engineers. They were scheduled to travel to Tehran in October, just
before the summit, to help repair and service the missiles already
delivered. The trip was then delayed for several months. Finally, in
December, just before the team's rescheduled arrival, Beijing sent Wen
Bo some disappointing news. "The future looked bleak," the NSA report
quoted the Chinese officials. The delegation had been shrunk to just
three persons and they were going to Tehran only to carry out some
nonspecific discussion about contract matters, "not to actually do
anything about them." When the delegation finally arrived at Tehran's
Mehrabad Airport on December 4, a still-boiling Jafari asked them why
the two top executives of the company had never got back to him. He was
simply told that "the current situation had already gone beyond the
realm of CPMIEC's [China Precision's] control; consequently, Jin and Ji
were not able to reply."
For Jafari, things did not get better. In February 1998 he learned from
press accounts what he was never told directly: China had pledged not to
sell any more cruise missiles to Iran. In a further meeting with officials of
China Precision, the Iranian officials demanded renewed commitment
within two weeks; otherwise, cooperation between Iran and China might
be suspended.
These intercepts brought smiles to normally glum officials at the
White House and State Department. "The complaints lodged by Tehran
suggest Beijing is holding firm on the original pledge," said a State
Department intelligence report. "Since the commitment was made, the
U.S. has detected only one possible shipment to Iran of small
components related to the air-launched version of the C-802." Giving up
on China, Iran began working hard at reverse engineering and
attempting to build its own missiles with the parts already received. "Iran


349
may already have received some or all of the equipment necessary to
assemble C-801 or C-802 missiles before the commitment was made,"
said the State Department report.
In March, the U.S. defense attach© based in Tel Aviv reported that an
Israeli military intelligence official had passed on some hot information.
"According to IDF DMI [Israeli Defense Force, Directorate of Military
Intelligence], Iran signed a contract in 1993 with the Chinese corporation
CPMIEC for the procurement of C-801 and C-802 missiles for its naval
units and shore-to-sea missile batteries." The U.S. defense attach© could
barely keep from laughing at this report, which, he warned, might
include "circular reporting from U.S. intelligence exchange program."
That is, he felt it was simply something Israel had happened to pick up
from U.S. intelligence and was feeding right back to U.S. intelligence for
"credit." "Caution should be exercised in using this information for direct
reporting. ... It is interesting that the Israelis are dredging up old
information to serve as a vehicle for renewed request for information on
the Iranians, or, in the alternative, are just now obtaining information on
six-year-old contracts."
(According to a former intelligence official involved in nonproliferation
issues, "Ninety percent of what we did we relied on Sigint” ninety
percent of nonproliferation comes through NSA. We get some Humint
[human intelligence], some from the attach©s, some from the Israelis”
they had a reporting requirement with us, they had to send us something
through the attach© every week to justify their $5 billion a year.")
Six months after the summit, intercepts indicated that China was
keeping its pledge to refrain from selling the cruise missiles to Iran.
"Recent intelligence reports suggest Iran is dissatisfied with China's
failure to implement existing ASCM [antiship cruise missile] contracts,"
said an April 1998 intelligence report. Nevertheless, Tehran planned one
last-ditch effort. Iranian officials made plans to fly to Beijing on April 15
to air their frustration and discuss future cooperation. If the trip was
ever made, it was of little avail.
With China having backed out of its contract, Iran turned inward. In
December 1998, Iran's then president, Ali Akbar Hashemi Rafsanjani,
claimed that Iran had become "technologically self-sufficient" in missile
development.


After analysts at NSA review intercepts, such as those between

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