NEW YORK — Federal authorities arrested a former bank president and two companions Thursday on charges of attempting to illegally export nuclear-related materials to Iraq.
The investigation, in which U.S. Customs agents posed as arms merchants for Saddam Hussein, also resulted in the seizure here of five tons of zirconium, said to be the largest confiscation of such materials in U.S. history. An additional two tons of zirconium were recovered in Cyprus.
U.S. law and United Nations resolutions prohibit all trade with Iraq except for humanitarian items and forbid any nuclear weapons development by that country. Zirconium is critical to the operation of nuclear reactors.
All of the materials, Customs agents said, originated in Ukraine and may have been shipped with the backing of renegade former Soviet military officers or Russian organized crime.
"In the wake of the breakup of the Soviet Union, there have been concerns that nuclear weapon components produced there might fall into the hands of terrorists or rogue nations," said James Kallstrom, assistant director in charge of the FBI's New York field office.
"The potential result of their obtaining such material could only be described as catastrophic," Kallstrom said. "The possibility of the sale and diversion of nuclear material is too real."
The arrests resulted from an elaborate sting which lasted more than a year and even featured a U.S. agent posing as an Iraqi defense minister.
Indicted on charges of illegally attempting to export zirconium in violation of U.S. trade sanctions against Iraq was Demetrios Demetrios, 40, the owner of Interglobal Manufacturing Enterprises with offices in Greece, Moscow and New York, and two companions, Renos Kourtides, 55, and Constantin Zahariadis, 50.
Kourtides is a former president of Marathon National Bank in New York City. Zahariadis, a Greek citizen, is in the export-import business, federal officials said.
Zachary W. Carter, U.S. attorney for the Eastern District of New York, said the complex investigation began in May, 1994, when the defendants allegedly told a confidential informer they were looking for a buyer for the metal. The informant introduced the sellers to an undercover Customs agent, who posed as an international arms and materials broker.
"It became immediately apparent the defendants intended to sell this potentially dangerous material to the highest bidder," the U.S. attorney said.
Carter said that after complex negotiations the defendants shipped a sample 800-pound ingot of zirconium to Italy and agreed to make additional shipments of the metal.
At one point in the negotiations, federal operatives posing as shoppers for Iraq's dictator indicated Saddam Hussein was interested in also buying spare tires for Russian jet fighters and other equipment for Iraq's elite Republican Guard.
The defendants allegedly also raised the possibility of selling plutonium or enriched uranium from the former Soviet Union. But they stressed purchases of these sensitive items would have to await completion of the zirconium transactions, authorities said.
During the negotiations, the undercover Customs agent told the defendants that he wished to buy the zirconium on behalf of a country "blacklisted" by the United States--Iraq.
According to court papers, Demetrios drove with the undercover agent to a warehouse in Queens and showed the operative 15 wooden crates which he said contained ingots of zirconium.
"Inside one of the crates CI-1 [the agent] saw a gray metal cylinder which appeared quite heavy," the court papers say. "On the outside of the boxes, the [agent] saw markings which he recognized to be in Russian language. Demetrios told CI-1 that the zirconium came from the Ukraine, via Germany."
To circumvent the U.S. trade embargo instituted by former President George Bush in August, 1990, the defendants listed Italy on shipping documents as the final destination of an 800-pound sample ingot of the sensitive metal, as well as the final destination of the five-ton cache in New York, court papers say.
In October, 1994, the defendants shipped the sample ingot of zirconium to Italy and "a laboratory test revealed that the sample consisted of nuclear-grade zirconium," the federal complaint charged.
"In later meetings, the defendants, still believing the ultimate destination was Iraq, negotiated with UC-1 [the undercover agent] to ship the remaining 14 zirconium ingots to Italy for a price of $1.4 million," the court papers continue.
In November, the undercover agent met with two of the defendants to discuss payment for the ingots. The second man was introduced "as a financial representative of people from Iraq," court papers say.
Prosecutors said the defendants sought $2 million for five tons of the metal and that the price was later reduced to $1.8 million. The shipment, destined first for Italy, was delayed by Customs investigators in December at Kennedy International Airport. A second purchase was then negotiated.
If convicted, the three defendants face a maximum of 10 years in prison and a $250,000 fine.