NEW YORK — A yearlong undercover investigation into the black market trade in nuclear materials from the former Soviet Union ended Thursday with the seizure of seven tons of zirconium sold to U.S. agents posing as arms buyers for Iraq.
Five tons were seized in New York where three men, referred to by undercover agents as "the Greeks," were arrested and charged with export violations. One is the former president of a Manhattan bank.
It was the largest confiscation of such materials in U.S. history. Additional zirconium was seized in Cyprus, where local authorities cooperated in the lengthy sting operation. Russian police also participated in the probe, officials said.
Zirconium is a critical non-radioactive element in nuclear reactors and can be used to enhance the penetrating power of cluster bombs. Its export is strictly controlled.
Customs agents said the material originated in a Ukrainian nuclear plant near Kiev and its transfer may have been aided by Russian organized crime or renegade former Soviet military officers.
"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 K. Kallstrom, assistant director in charge of the FBI's field office here.
"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."
And U.S. Atty. Zachary W. Carter said, "It became immediately apparent the defendants intended to sell this potentially dangerous material to the highest bidder."
While the case may illustrate the availability of such material on the black market, there was never any chance that these seven tons of zirconium would end up in Baghdad.
The men acting as Iraqi agents were all American Customs agents, including one who posed as an Iraqi minister of defense during a series of meetings with "the Greeks" in Cyprus earlier this year.
After complex negotiations with Customs undercover agents, the defendants allegedly agreed to make an initial shipment to Iraq via Italy.
At one point, while the shipments were being prepared, the defendants allegedly asked undercover agents if their supposed Iraqi contacts would also be interested in buying enriched uranium, plutonium and tires for Russian-built MIG jet fighters.
They stressed, however, that those additional transactions would have to await a satisfactory conclusion to the zirconium deals, sources said.
Indicted on charges of illegally attempting to export zirconium in violation of U.S. trade sanctions against Iraq were Demetrios Demetrios, 40, the owner of Interglobal Manufacturing Enterprises with offices in Greece, Moscow and New York; Renose Kourtides, 55, a former president of Marathon National Bank in New York, and Constantin Zahariadis, 50, a Greek citizen in the import-export business.
According to interviews and court documents, the investigation began in May, 1994, when the defendants told a business contact they were seeking a buyer for the zirconium. Earlier attempts to ship the metal from Ukraine to Germany had been foiled by German customs agents, forcing the businessmen to ship it to New York where five tons were stored in a Queens warehouse.
The business contact turned out to be a confidential informant for the FBI who subsequently introduced the defendants to an undercover Customs agent introduced to them as Joe Kennedy.
Negotiations began with the defendants seeking $500 to $600 per kilo and Kennedy offering $50, authorities said. During those secretly taped meetings, however, the agent agreed to pay $350 per kilo with the understanding that the metal would be going to a "blacklisted" country--Iraq.
Last October, a sample ingot of 800 pounds was prepared for shipment, ostensibly to Iraq, via Italy with the understanding that Iraqi authorities wanted to test it for quality. Instead, it was tested in a U.S. lab where, according to the criminal complaint, tests "revealed that the sample consisted of nuclear-grade zirconium."
The undercover agents agreed to pay $2 million for the five tons, but the shipment was repeatedly delayed by what the defendants were told was routine Customs export inquiries. Meanwhile, a second two-ton shipment of zirconium was negotiated.
The second shipment was transported to the Ukrainian port city of Odessa and sent to Cyprus. Once it arrived, the sting operation was complete and the arrests made.
Investigations continue, however, in Ukraine and Cyprus.