Case Studies of Illicit Procurement Networks



Contact Us

Illicit Procurement Infrastructure

Recruitment of Key Foreign Players

Specialized "Know-How"

Education and Training



The Strengths and Weaknesses of Export Control Laws and Regulations

False End-User Statements

Quick Links to Case Studies




H+H Metalform

[Background][First Business Contact with Iraq] [Iraq Secretly Acquired 50 Percent of H+H]
[What H+H Provided Iraq's Ballistic Missile Program] [Contracts and False End Use Statements]
[Profit and Growth][Export Violations]

In 1987, Iraq partially acquired the German company H+H Metalform GmbH. It subsequently grew to play an important role in supplying Iraq's ballistic missile and gas centrifuge programs with equipment, components, and on-site expertise. H+H specialized in the production of vertical flow-forming machines, which make thin-walled, pressure resistant precision tubes useful to militaries . Such lightweight, pressure resistant tubes have been particularly useful in ballistic missile and gas centrifuge programs.

In 1994, senior company officials were brought to trial and found guilty of violations of German export control laws. This section focuses on H+H's initial involvement with Iraq and its assistance to Iraq's ballistic missile program. It draws upon information revealed during their trial and interviews with key players.

H+H provided key assistance to Iraq's gas centrifuge program. It supplied this program with machine tools and technical assistance. It acted as a procurement agent and facilitated the transfer of expertise to the Iraqi centrifuge program by German centrifuge experts and an assortment of companies. After learning the details of this assistance in the mid-1990s, German prosecutors considered filing additional charges against H+H personnel. In the end, however, no charges were filed. (For more information about the role of H+H as a funnel of a wide variety of assistance to Iraq's gas centrifuge program, click here.)


Dietrich Hinze said that in the early 1980s he had a "vision" to create a vertical flow-forming machine. He said that a vertical machine would give better results than a horizontal flow-forming machine when it was important to minimize eccentricity, or the roundness of a cylinder. He therefore set up his own company in 1983.

His long-time colleague Peter Huetten joined him on January 1, 1985. In the spring, Hinze transferred 50 percent, or 25,000 Deutsch Mark (DM) of the core capital to Huetten, making him a full partner in the firm. A few months later, the name of the firm became H+H Metalform Maschinenbau und Vertriebs GmbH.

Prior to forming H+H, they both had worked for many years at Werkzeug- and Maschinenfabrik Liefeld and Co in Ahlen Germany, which specialized in horizontal flow-forming machines. Hinze had played an important role in developing these machines at Leifeld.

While at Leifeld, Hinze and Huetten were deeply involved with the sale of flow-forming equipment to military armaments factories around the world. Given the extensive contacts they developed at Leifeld, they were in a strong position to sell their new machines to various military industries.

By late 1983, Hinze had developed the first vertical machine, and sold this machine to Commissao Naval Brasilien in early 1984. This machine is believed to have been used in the Brazilian gas centrifuge program.

During the next few years, H+H sold flow-forming machines to Avibras in Brazil, Stankoimport in the Soviet Union, and the Chungshan Institute for Science and Technology (CSIST) in Taiwan. Later, it also provided items to Egypt and India. H+H's exports were for rocket or missile programs in these countries. All of these sales, however, were small compared to H+H's sales to Iraq from 1987 to 1990.

First Business Contact with Iraq

H+H first significant business contacts with Iraq were through the British company Meed International. Headed by Mansour Wadi and Roy Ricks, Meed International was active in acquiring a wide variety of items for the Iraqi military and nuclear programs under the false pretense that the items were for civilian industries. Meed was controlled by the Baghdad-based front company Al Arabi Trading Company.

In early 1987, a representative of Meed contacted the company SPS (Shirmer, Plate, Simpelkamp) in Krefeld, Germany. Meed wanted machine tools for flow-forming parts for Nassr General Establishment as part of a 80 million Deutsch Marks (DM) project to equip an artillery rocket and grenade manufacturing facility in Taji, about 80 kilometers northeast of Baghdad. SPS in turn contacted H+H in April 1987, and encouraged it to submit a quotation to Meed for equipment and supplies worth about 30 million DM. In return, SPS wanted a commission of five percent of the contract amount and a 10 percent commission for Meed. Based on Hinze's interest, SPS notified Wadi about H+H's desire to provide a quotation.

In early May 1987, Hinze and Huetten met Wadi in Monza, Italy at the Euromac-European Manufacturer Center, which was also an Iraqi purchasing company dependent on the Al Arabi Trading Company. (Later, Euromac opened an affiliate based in London and was involved in trying to illegally obtain high-speed capacitors from the United States for Iraq's missile or nuclear program.).

The meeting in Monza led Hinze and Huetten to prepare a detailed quotation. They also decided to subcontract with Kieserling and Albrecht GmbH & Co. in Solingen and Neue Magdeburger GmbH in Sinsheim for additional equipment.

H+H personnel conducted additional negotiations with the Iraqis at the Iraqi embassy and the Bristol Hotel in Bonn in late May and early June 1987. In addition to Wadi, key Iraqi participants were Ali Mutalib Ali, the Iraqi commercial attaché in Germany and a central figure in Iraq's clandestine procurement network in Europe, and Safa Al Habobi, the person responsible for Iraqi procurement in Europe. Ali and Habobi represented Nassr Establishment.

A representative of the British company TI Machine Tools Ltd., which was later bought by Iraq and renamed Matrix Churchill, also attended the sessions in Bonn and agreed to make deliveries of equipment to the same project. Huetten said that the German negotiators worked with TI to lower the price of their offer to Iraq and ensure that it was included in the deal.

The final negotiations were conducted in Bonn in early July and involved Hinze, Huetten, Ali, Habobi, and Wadi. On July 9, 1987 H +H signed a contract with Nassr for the supply of eight DV 450 flow-forming machines, one DV 600 flow-forming machine, and ancillary equipment at a total cost of 27 million DM. Neue Magdeburger, represented by Hinze and Huetten, signed a contract with Nassr on the same day for 13 CNC machines at a cost of 16 million DM. Kieserling and Albrecht GmbH sold machine tools worth 19 million DM. These contracts also included training programs at the suppliers' facilities

Because the machines were to make specific parts for Nassr's armaments factory, the Iraqis provided these companies with design drawings of the pieces that the machines were to make. The judges in Hinze's and Huetten's trial concluded that Hinze and Huetten knew the true purpose of these sales from these drawings, which had a military character, and were of items well known to H+H personnel. They knew the true purpose, according to the court, even though the court accepted that the Iraqis never discussed with them the actual use of these parts.

Hinze and Huetten also received commissions for arranging the subcontracts with Neue Magdeburger and Kieserling and Albrecht. These commissions would be an important motivation for Hinze and Huetten to act as procurement agents for Iraq. Their company Hinze and Huetten Vermittlungs GbR received the fees for arranging sales to Iraq.

Iraq's first payment to H+H came from the Dresdener Bank in Bonn. Later payments were also received from London, Switzerland, and directly from Iraq as letters of credit.

Iraq Secretly Acquired 50 Percent of H+H

While H+H was negotiating its first contract with Iraq in June 1987, it assumed it would be able to obtain the necessary bank loans to make the equipment. However, the German banks said no. This denial gave Iraq the opportunity to buy 50 percent of H+H Metalform. Iraq then was able to exercise significant influence on H+H both as a shareholder and its largest client.

After being denied bank loans, Hinze approached Habobi and told him that H+H would have to refuse the contract. Habobi responded that H+H's offer was 12 million DM cheaper than that offered by H+H's competition, Leifeld & Co. "How much money do you need," he said. Hinze replied that he needed 5 million DM. After quickly conducting an audit of H+H's worth, Habobi said that H+H could borrow 5.5 million DM for ten years, but the Iraqi company, Al Arabi Trading Co. Ltd., would secretly own half of H+H during that ten-year period and share equally in the profits. Hinze was amazed by the offer, because he knew it would lead to more contracts with Iraq. He agreed, and they went to a notary to sign the agreements. Five days later, Iraq placed 5.5 million DM in H+H's account. Subsequently, Iraq reduced the principal to 3 million DM, and H+H had 2.5 million DM in profit before they made a single machine. In total, H+H made seven million DM in profit on this contract alone.

Iraq's secret purchase of H+H shares was done by splitting each of Hinze's and Huetten's shares of 25,000 DM into two pieces of 12,500 DM. These new sets of shares were purchased by Al Arabi for 2.75 million DM each, or a total of 5.5 million DM. Habobi, representing Al Arabi, entered into a trust relationship with Hinze and Huetten whereby Al Arabi's shares would be held in trust by Hinze and Huetten for ten years. In practice, Habobi became a silent partner in H+H Metalform and several affiliated companies.

This arrangement, which was signed on the same day as the first contract, was designed to hide Iraq's partial ownership of H+H. All parties agreed to keep the trust relationship and the content of the agreement secret.

Al Arabi also committed "to do everything in its powers to procure orders for the company in the framework of the company's purpose." A preliminary draft of the trust agreement stated that Al Arabi promised to procure orders from H+H worth about 80 million DM per year. According to H+H's tax accountant, Habobi told Hinze and Huetten that together they will lift the company and based on the excellent business situation, Habobi "will make them rich men."

Iraq's secret partnership in H+H was not revealed until about 1992 when the German government investigated H+H's activities following the Persian Gulf War. As late as 1991, Hinze and Huetten were stating that they owned H+H in equal parts and were the "masters of their [own] house." Only after the German prosecutor obtained a copy of a notarized record dissolving the trust agreement between Al Arabi and Hinze and Huetten was it realized that Al Arabi was a part owner of H+H.

A 1992 notarized agreement formalized Hinze and Huetten's decision after the Persian Gulf War to buy back H+H shares from Al Arabi for one million Deutsch Marks. Al Arabi was represented by Yassin Hussain Alewyi, who lived in Germany and had a general power of attorney to represent Al Arabi before H+H and companies owned by H+H. A set of documents related to this transaction can be viewed here.

According to Hinze, the Iraqis were good, correct businessmen. Although Iraq owned 50 percent of H+H, they never tried to influence the company, he said. Once a year, Habobi came for the meeting of the shareholders and expressed trust and faith in the management of H+H.

However, the evidence presented in the trial of Hinze and Huetten shows a less benign situation. Habobi received quarterly reports and directed the course of company policy at board meetings that were often held in London. An Iraqi named Naseer was assigned to work at H+H on behalf of the Iraqi partners and to represent H+H in Iraq. H+H personnel also taught him to use their equipment.

The evidence showed that Iraq exercised considerable influence on H+H. By owning 50 percent of the shares and providing lucrative contracts, Iraq was able to manipulate Hinze and Huetten to do their bidding.

Hinze and Huetten were extremely important to the Iraqis and dealt directly with several key leaders of Iraq's missile and nuclear programs. On two occasions, Hinze met Hussein Kamel, the powerful son-in-law of Saddam Hussein, the head of Iraq's ballistic missile program, and, after 1988, the leader of all of Iraq's weapons of mass destruction programs. During one of the meetings, Kamel told Hinze that H+H would have "a lot of business" with Iraq.

H+H Supplied Iraq's Ballistic Missile Program

H+H's initial contract was followed by many other orders from Nassr. Iraq purchased machine tools, components, and tooling for Iraq's ballistic missile projects. H+H also provided technical assistance in flow-forming various components of its ballistic missiles. If H+H could not provide the item itself, it often acted as an Iraqi agent in acquiring other types of equipment, technology, and materials for Iraqi armaments and ballistic missile programs.

Starting in the fall of 1987, H+H signed contracts to provide items to Iraq's ballistic missile program to increase the range of its missiles. In early 1988, Iraq's improved missiles would play an important role in the so-called "War of the Cities" against major Iranian cities.

Iraq increased the range of the Russian-supplied, liquid-fueled SCUD B missiles from a maximum range of 280 kilometers to over 600 kilometers, under "Project 144." According to evidence introduced in the H+H trial, the range was increased to about 650 kilometers in the variant "Al Hussein" and to about 900 kilometers for the "Al Abbas" model. Increased range was obtained mainly by enlarging the fuel tanks and reducing the weight of the warhead.

H+H also contributed to "Project 1728" that was aimed at the domestic manufacture of a three-stage intercontinental missile, called "Al Abid." The first phase of this project involved clustering of SCUD missiles, and the second phase involved an enlarged SCUD modification with a diameter of 1.25 meters. Iraq did not finish the development of the first phase prior to the Persian Gulf War.

In its 1994 ruling, the German court concluded that H+H managers knew by the end of 1987 or early 1988 that its deliveries were intended to support Iraq's ballistic missile program. The court added that Iraq did not tell H+H details of the missile project or discuss the true purpose of the supplied items with H+H. Based on the evidence introduced at the trial, however, the court concluded that H+H managers knew enough about missile programs to determine on their own the true purpose of their exports.

Some of the initial discussions between H+H managers and Iraqis were about civilian products, but the discussions also indicated that another end-use was actually intended. An internal H+H memorandum dated September 25, 1987 summarizes a meeting held with Iraqis at H+H. Dr. Modher, a leader of the Iraqi ballistic missile program and the delegation visiting H+H, started the meeting with a discussion of the type of milk separators Iraq wanted to produce. H+H immediately recommended a nearby company that was making such components. Modher laughed and said he knew of this company, but he decided not to contact this company. He said that he and his colleagues were already in the position to make separator and cheese factory equipment on their own. Although the subject of the letter is obtuse, the nature of the discussion must have at least raised questions in the minds of Hinze and Huetten about the true end-use of the equipment they were being asked to supply.

Contracts and False End-Use Statements

In October and November 1987, H+H signed its first two contracts with Nassr to supply equipment for making components for ballistic missiles. The contracts, worth over 3 million DM, were for a two-roller flow-forming machine, a press, and tooling for both machines. This high-technology equipment enabled Iraq to make SCUD missile components that were difficult to produce.

In October 1987, H+H filed an export license application with German authorities at the Federal Office for Trade and Industry (BAW) for the flow-forming machine stating that the end-use was to make objects using "flow-forming procedures for milk and oil separator parts." Because civilian use was listed on the application, the BAW returned the application to H+H later in the month containing a stamp stating the "export of goods mentioned in the application…did not require an export license based on currently valid regulations." In Germany, this determination is referred to as a "zero declaration," because a zero is put in a key blank in the application to designate this decision. If H+H had stated that the purpose of the items was for ballistic missiles, however, the BAW would have denied the export application.

H+H filed an export application for the press, without its associated tooling, stating the end-use as "pressing operations for the manufacture of deep-drawn components made of rust-proof steel." The BAW issued a zero declaration in this case as well.

In 1988, H+H entered into a 2.3 million DM contract for the delivery of equipment and tooling to make several specific missile components and 50-200 samples of several missile parts. Iraq gave detailed drawings of these components to H+H that included oxidant intake tubes, air intakes on oxidant and fuel tanks, valves of different types, and special fasteners.

In these cases, H+H declared the end use as oil separators exclusively for civilian applications. In addition, a senior H+H official characterized Nassr to German officials as comparable to a large civilian company. The BAW again issued zero declarations for these exports.

Click here to see a design drawing for one of the missile components shipped to Iraq and pictures of the component itself. H+H shipped several hundred of these components in 1990 that were used to fasten a platform that holds the controls of the SCUD missile or its modifications. The export application listed the end-use as a fastener for oil and milk separators.

H+H also provided several hundred components for the Al Abid missile. H+H listed the end-use as parts for use in the fish-processing industry and luxury food containers.

Over a three-year period, H+H signed a multitude of contracts with Nassr to supply missile-related items. It also filed roughly 20 export applications with the BAW, all stating that the end-use was strictly civilian.

In addition to equipment and components, H+H personnel provided a steady stream of technical assistance. This assistance was more extensive than normal, because the Iraqis had difficulty operating the machines to make parts of the required specifications. For example, Modher telephoned Hinze one time and said that a machine was broken, because the parts did not meet the required specifications. However, nothing was broken with the machine, according to Hinze. The problem was that the Iraqis were using material with a slightly different physical property, and the technicians were unable to recognize that they needed to adjust the machinery to cope with these differences in the material.

H+H personnel often warned the Iraqis that sand could destroy the ability of a flow-forming machine to work adequately. Although Iraq built proper workshops to hold the machines, Iraqis would open windows that let sand blow onto the machines.

A senior H+H manager characterized the Iraqis as lacking technical understanding. They were used to buying high-technology items, but they did not understand the underlying processes adequately to operate the machines without extensive continuing assistance.

Profit and Growth

Fueled by Iraqi contracts, H+H's enormous profits continued until Iraq invaded Kuwait in August 1990. In total, H+H received Iraqi business worth about 48 million DM for machines and components. Hinze and Huetten also received about 16 million DM in commissions.

The table shows H+H's sales and profit figures during these initial years. As the table shows, profit started to rise dramatically in 1987 and 1988 after H+H started to do business with Iraq's military industry. According to trial statements and documents, about 90 percent of H+H's business was usually with foreign firms, and from 1987 to mid-1990, about 60 percent of its overseas sales were with Iraq alone.

The H+H workforce increased from five employees in 1984 to about 30 in 1991. Hinze and Huetten also recruited many technical specialists from their near-by competitor Leifeld.

In mid-August 1990, after Iraq invaded Kuwait, German officials seized an H+H shipment at the storage area of Iraqi Airways at the Frankfurt airport. The shipment for Nassr Establishment contained aluminum parts declared for civilian use and technical literature for a space program. The latter had been inadvertently included in the shipment by an H+H employee. Because of these documents, officials suspected that the parts were not for their declared civilian use and launched an investigation of H+H.

Export Violations

Following a one-year trial during 1993 and 1994, Hinze and Huetten received prison sentences of two years, ten months and two years, six months, respectively. At the time, the maximum sentence they could have received was three years. In the end, each served less than two years in prison.

The court concluded that they "ruthlessly violated the interests and concerns" of Germany, and participated in Iraq's ballistic missile program. The danger and political explosiveness of this program in the Middle East was well understood at the time, the court added.

According to the court, H+H officials took advantage of every opportunity to make a sale to Iraq. They even hired a consultant to help them manipulate the export control process in their favor. Click here for more information on understanding the strengths and weaknesses of export control laws and regulations.

Hinze and Huetten ignored warnings in the media and from governments that started appearing in 1989 about the dangers of the Iraqi missile program. In trying to understand H+H's unwillingness to stop exporting to Iraq, the court surmised that H+H personnel already knew that the fate of their company depended on Iraqi business.

The court ruled that there were several extenuating circumstances in the case. Hinze and Huetten both eventually plead guilty to several of the charges, saving the court considerable time. They had no prior convictions and had been considered respectable businessmen. In addition, they were viewed as numbed by years of selling equipment to military programs worldwide, including programs located in regions of tension.

The court also partly blamed Germany's export control system for the crimes of Hinze and Huetten. Although H+H placed false end-use information on its export application, it did not face many obstacles in circumventing the procedures for obtaining an export permit from the BAW.

The BAW at the time had less than 100 employees to deal with about 100,000 export license applications yearly. As a result, these officials performed no more than a cursory examination of a statement that an item was for civilian use. They used information provided by the applicant, which typically was identical to the information provided by a foreign end user. The officials did not check any of the facts on the applications or acquire any additional information to determine the authenticity of data on the application. No official at BAW during that time had any missile expertise.

According to the court, the intensive investigation required by German trade law, aimed at preventing certain military goods reaching the wrong hands was almost impossible to achieve under the conditions existing at the BAW. This state of affairs, said the judges, contributed to Hinze and Huetten's decision to become involved in illegal exports, particularly since other German and foreign companies were also exporting weapons-related goods to Iraq.

No evidence emerged in the trial that the BAW knew about the specific destination of H+H's exports. But the authorities were remiss on several counts.

They failed to notice that, starting in 1986, there was a sharp drop in applications to export military goods to Iraq. This drop was against a background of a huge number of exports to Iraq. This decline was not related to Iraq's need for military hardware, because it remained at war with Iran until 1988. Yet, this trend did not cause any suspicions at the BAW that the exporters were misleading the authorities about the true end-use of their exports.

By 1987, the German authorities were learning from the media and their own and foreign intelligence agencies that Iraq was not just buying SCUD missiles from the Soviet Union, but was developing its own indigenous missile production program. In 1989, Iraq advertised its diverse missile programs at its Air Fair in Baghdad. A representative from the BAW was actually at the fair, although he was there for other reasons. Nonetheless, he and other officials of the BAW could not have missed Iraq's increasingly troubling missile developments, according to the court.

Despite these developments, the BAW did not noticeably change its approval practices for export licenses. On occasion, employees felt compelled to raise questions about particular exports, but suspicious circumstances were not usually pursued any further.

Hinze knew that authorities ignored suspicions raised by exporters. He said that in one case he had himself raised concerns about the end-use of a particular item in Iraq. The response from the official was to ask Hinze if he knew something definitive. Hinze responded no, and the official said that H+H would get an approval for the export.

The culture at the BAW was not to question the end-use of exports, even in cases where similar exports had been for missile programs. The authorities also allowed exporters to use neutral terminology, such as pressure tanks, pipes, and unmachined parts, without challenge. Compounding these problems, officials at the BAW had an attitude that emphasized exports over security concerns.

In view of the export approval process, the court said that Hinze and Huetten had reason to believe that the executive branch of the German government was turning a "blind eye" to the highly sensitive exports to Iraq. The court accepted that Hinze and Huetten believed that the government would be satisfied as long as an export was stated to have a civilian end-use and "the files were kept clean."

This impression was reinforced when Hinze and Huetten received information from the BAW suggesting that they did not need "their own CIA" to check the accuracy of end-use information provided by a customer. They were also told of the possibility of splitting applications for exports into several applications each for innocuous constituent pieces, even when the law required the order to be treated as a uniform order.

The court had little choice but to conclude that the German export control system had failed and, in fact, encouraged the illegal exports by H+H and other German companies. Following a rash of public export scandals in the late 1980s and early 1990s, Germany dramatically strengthened its export control laws and devoted significantly more resources to the BAW, subsequently re-organized and renamed the Federal Export Authority (BAFA). For more information about these changes and the stringent internal compliance systems created at German companies, click here to read papers presented at an April 2002 workshop in Russia.


Flow-forming is a process that takes a thick-walled tube, or "pre-form," and stretches it while under great pressure. In particular, flow forming is used to make rotationally symmetrical hollow parts. A pre-formed blank is clamped between mandrel and tail stock and rotated. A characteristic of the process is that the metal is formed by localized compression resulting from the radial pressure of the rollers. The metal is made to flow and, in a single roller pass, assumes the contour of the mandrel on the inside. Cylindrical flow forming enables long tubes to be formed, where three rollers, offset at 120° are in contact with the metal.



All information contained in this web product is (C) Copyright ISIS, 2003