H+H Metalform
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.)
Background
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.
