On September 14, the Tokyo District Public Prosecutor’s Office indicted four former executives of the Mitutoyo Corporation, a global leader in the production of precision measuring devices, on charges of violating the Foreign Exchange and Foreign Trade Law. [1] The indictments followed months of investigations and years of suspicions regarding the illegal export of precision equipment that may be used in the manufacture of centrifuges for uranium enrichment, a process that can produce material for nuclear weapons. While such precision equipment falls under export control regulations established by the Japanese Ministry of Economy, Trade and Industry (METI), formerly the Ministry of International Trade and Industry (MITI), Mitutoyo is suspected of deliberately circumventing customs laws in order to export equipment without the risk of denial by Japanese licensing authorities. [2] Through such illicit transfers, Mitutoyo was able to sell its sensitive devices to clients linked to the nuclear smuggling network organized by Pakistani nuclear scientist A.Q. Khan and to Iran, North Korea, and China. This case demonstrates that, even in a country with advanced controls over the export of proliferation-sensitive goods and technology such as Japan, loopholes can still be found by entities concerned more with profits than with the potential role their exports may play in the proliferation of weapons of mass destruction (WMD).

Dual-Use Measurement Devices
The devices of particular concern that were illegally exported by Mitutoyo are considered to be proliferation sensitive due to their highly accurate, three-dimensional measuring capabilities, which can determine precise cylindrical dimensions and minimize surface distortions. These qualities make such devices important for carefully designing many moving parts in automobile engines, but are also essential in the manufacturing of gas centrifuges for uranium enrichment, which require precise measurements to achieve continuous high rotational speeds. Such equipment is therefore of interest to countries seeking the capability to enrich uranium for the development of nuclear weapons. Due to such applications, measuring devices with a certain degree of accuracy, including the precision exhibited by the machines exported by Mitutoyo, have been included on the dual-use control lists of the Coordinating Committee for Multilateral Export Controls (COCOM), and its successor regime, the 1996 Wassenaar Arrangement. [3] As a participant in these regimes, Japan has agreed to adopt detailed control lists as part of its own national export controls, and the legal framework and enforcement provisions for violations are contained in Japan’s Foreign Exchange and Foreign Trade Control Law administered by METI. In spite of these regulations, however, Mitutoyo has been able to export such devices to countries of proliferation concern for about two decades.

Front Company Linkages
Based on investigations by the Japanese Metropolitan Police Department (MPD), the primary customer of Mitutoyo’s illicit sensitive exports has been Iran. These exports to Iran were primarily arranged by a Tokyo-based trading company, Seian, which served as a broker for Iran-bound exports for Mitutoyo and major Japanese electronics manufacturers for many years. Seian was established in 1982 and has been run by an Iranian named Ahmad Eftekhari Masumi. [4] While Japan maintains a substantial trading relationship with Iran, and the brokerage of Japanese goods to Iranian firms is not uncommon, the Iranian entities to which Seian brokered its items were affiliated with Iranian military and nuclear establishments and would have raised the suspicions of Japanese licensing authorities had these entities sought to purchase Mitutoyo devices directly; Seian is believed to have operated as a front company for these entities, purchasing controlled goods on their behalf. The clients to which Seian provided technology from Mitutoyo and other Japanese firms included Iranian military entities, such as the Iranian Revolutionary Guard, the Iranian Ministry of Defense, and Iran’s Armed Forces Logistics. [5]

Seian also transferred these items to entities on Japan’s Foreign End User List, a list of proscribed entities believed to be associated with WMD programs in foreign countries, including Iran Electronics Industries (IEI) and Pars Switch, a leading Iranian circuit-breaker manufacturer. [6] According to documents seized during a police raid of the Seian offices in 2000, Seian was responsible for routing Mitutoyo equipment directly to Iranian military and military-related entities between 1984 and 1992. [7]

Strategic Circumvention
In the context of the global strengthening of export controls after the discovery of illicit WMD programs in Iraq and North Korea in the early 1990s, Japan followed suit in 1992 by enhancing its customs regulations, adding the requirement for detailed information on end-users and increasing the number of categories on its control lists, including in the area of precision instruments. [8] One relevant example of the effectiveness of these new end-user controls was MITI’s denial of Mitutoyo’s request to export a three-dimensional measuring device to Iran in 1993. [9] These new customs requirements therefore made it more difficult for Mitutoyo to engage in the same export behavior to suspect entities from which it had profited in previous years.

In March of 1992, the company recorded its first deficit, which would then be followed by three years of continued deficits. [10] Amidst a declining financial situation and stronger customs laws, the corporation’s leadership established a project team in November of 1992 to enhance Mitutoyo’s performance and return it to profitability. This project team was headed by a number of executives, including two of the individuals indicted in September 2006: Vice Chairman Norio Takatsuji (then head of overseas sales) and Managing Director Hideyo Chikugo (then tasked with managing overseas trade). [11] The project team decided that, in order to rescue Mitutoyo’s flagging fortunes, it would implement a two-fold strategy to increase Mitutoyo’s overseas sales.

The first part of this strategy was designed to evade Japanese control lists in order to increase the company’s sales of sensitive equipment without being subjected to screening by Japanese customs. This evasion entailed the development of software which misrepresented the accuracy of Mitutoyo’s measurement devices included on Japan’s control lists by indicating that the equipment operated below the level of accuracy that subjected the equipment to close regulation. [12] The software was known within Mitutoyo as “COCOM,” after the export regime to which Japan was then a party. [13] In essence, the company named the software after the laws which it was designed to violate. It is believed that Mitutoyo was particularly interested in increasing exports to the growing Chinese market, exports that were prohibited at the time, due to COCOM regulations on transfers to Communist countries. [14] The falsified specification data generated by the COCOM software, which also effectively reduced the declared monetary value of the products, was then provided to Japanese customs officials to obtain an export license exempting the equipment from screening by customs authorities. [15] In this manner, Mitutoyo was able to circumvent export controls and transfer its sensitive devices unchecked until the license needed to be renewed every three years.

The second aspect of the project team’s strategy was to route exports through Mitutoyo subsidiaries in third countries which would then ship the devices to Mitutoyo’s actual clients. Mitutoyo heavily relied on its Singapore subsidiary, in particular, and the annual export of devices to that country increased five-fold after 1992. [16] By listing the recipients as its subsidiaries in other countries, Mitutoyo avoided Japanese regulations restricting trade to certain end-users. This also enabled Mitutoyo to take advantage of states, such as Malaysia, where customs regulation and enforcement were weaker than in Japan. However, many devices were also sent to subsidiaries in advanced countries, including about 1,600 units that were sent to the United States. [17]

Using this strategy, Mitutoyo is suspected of exporting nearly 10,000 devices between 1995 and 2002, most of which were transferred in violation of Japan’s and other nations’ export control laws. [18] It is likely that this strategy was aborted in 2002 due to the further strengthening of Japanese export control laws that year, including METI’s introduction of “catch-all” regulations, which require exporters to seek individual licenses for commodities that they know or have reason to know are destined for foreign weapons of mass destruction or missile programs, even if the commodity is not specifically included on the exporting nation’s export control list. Other strengthened measures included increased coordination between METI and customs authorities, greater foreign and domestic intelligence sharing, and more robust enforcement capabilities. [19]

Mitutoyo’s Contribution to Proliferation
Although most of the 10,000 devices exported by Mitutoyo in the last decade are believed to have been transferred illegally—that does not necessarily mean that all, or even most were delivered to countries of proliferation concern, or to WMD programs within those countries. The illegality of the transfers stems from the contravention of Japanese export controls and the failure both to obtain appropriate licenses and adhere to restrictions on exports to certain countries. However, mounting evidence suggests that a portion of Mitutoyo’s illegal exports did indeed aid the pursuit of nuclear weapons by Libya, Iran, and North Korea.

Libya
The specific proliferation incidents for which the Mitutoyo executives were charged were the illicit export of two three-dimensional precision measuring devices to Malaysia. The discovery of one of these devices in a Libyan nuclear research facility by International Atomic Energy Agency (IAEA) inspectors after Libya renounced its illicit WMD programs largely served as the impetus for further investigations into Mitutoyo’s export practices. Investigations into this incident have determined that the devices were first exported from Japan to Mitutoyo’s subsidiary in Singapore. From Singapore, these two devices, along with a number of other precision measuring devices, were transported over land to Malaysia to their purchaser, Scomi Precision Engineering (SCOPE), a subsidiary of the Malaysia-based Scomi Group.

Investigations into the nuclear smuggling network established by Pakistani nuclear scientist A. Q.
Khan have determined that SCOPE was responsible for manufacturing centrifuge components that were supplied to the Libyan nuclear weapons program. [20] (For additional background on the A. Q. Khan network, see “Special Report: The A. Q. Khan Network – Crime… and Punishment?” in the March 2006 issue of WMD Insights.) Like these components supplied by SCOPE, the Mitutoyo device found in Libya was shipped to Libya via Dubai. Shah Hakim Zain, the Chief Executive Officer of Scomi Group, which oversaw SCOPE’s activities, acknowledged receiving six machines from Mitutoyo, including two three-dimensional measuring devices. [21] He further indicated that one of the three-dimensional devices was shipped to Dubai, while the other was retained by Scomi. It is unclear at this point whether the other device was also intended to be shipped to Libya or was used by SCOPE to manufacture the centrifuge components that it provided to Libya. While subsequent investigations into the Japanese company have determined that its exports went to countries of proliferation concern, this discovery in Libya is the clearest evidence that Mitutoyo equipment was directly used in an illicit weapons program.

Iran
Unlike the Libyan case, the equipment that Mitutoyo illegally shipped to Iran has not been tied conclusively to Iran’s covert enrichment activities, but circumstantial evidence strongly suggests that the equipment has contributed to this effort. The front companies and military entities linked to Mitutoyo’s immediate customer, the Seian trading company, for example, are known to be involved in Iran’s nuclear activities. Moreover, the period in which Seian began to provide sensitive equipment to Iran, the mid-1980s, coincides with the beginning of Iran’s illicit uranium enrichment program. While Japanese firms were prohibited from exporting equipment to particular Iranian front companies, such as Pars Switch, due to suspicions of their involvement in WMD programs, it appears that Mitutoyo was not concerned about such considerations. For example, in 1997, the company is suspected of exporting one of its sensitive devices to Pars Switch after changing the name—but not the address—of the end-user in relevant export control documents at the request of Pars Switch and Seian, who served as the intermediary. [22]

The subterfuge used by these Iranian entities in order to obtain dual-use equipment from Mitutoyo, the fact that these specific devices are now known (from the Libyan case) to be suited for the construction of uranium enrichment centrifuges, and the fact that Iran was working on precisely the same type of centrifuge equipment which A. Q. Khan would later supply the Libyans point to a high likelihood that devices provided by Mitutoyo ultimately contributed to Iran’s centrifuge development.

North Korea
Whether sensitive Mitutoyo measuring equipment may have found its way to North Korea remains under investigation, but other items manufactured by the company are unquestionably being used there, as evidenced by a North Korean film aired in August 2005, which featured a steel mill making use of devices with the Mitutoyo logo. [23] While it is reasonable to speculate that North Korea, like Libya and Iran, may have obtained dual-use commodities from Mitutoyo during the time the company was allegedly engaged in a pattern of illegal exports and that such commodities may have supported the North Korean uranium enrichment effort, also supplied by A.Q. Khan, Japanese authorities have yet to make public specific evidence of such transfers.

Export Control Challenges
The case of Mitutoyo demonstrates one of the key challenges faced, not only by Japan, but by nearly every country in implementing export controls: legal regulations are insufficient, in themselves, for preventing proliferation-sensitive exports and must be supported by active enforcement measures in order to detect and deter violators. Such measures invariably include both outreach to industry to ensure companies that manufacture and export sensitive goods and technologies are aware that their activities may contribute to proliferation, as well as investigative and punitive measures to verify the legitimacy of exports and prosecute violators.

The responses to the Mitutoyo case within Japan highlight some of the challenges faced in tightening controls over the export of sensitive items. As one investigator involved in the Mitutoyo probe describes, “While there is a low awareness of export control, [the] performance-oriented corporate culture is one of the background reasons for the constant stream of illegal activities to be uncovered.” [24] The Mitutoyo case has been an acute example of a firm that knowingly sought to improve its financial performance at the expense of Japanese nonproliferation objectives. Moreover, even for a state with a significant technical capacity and a history of adherence to international export control standards, deploying the resources required for adequate enforcement has proven to be difficult. According to an editorial on Mitutoyo’s violations, “…the system is not working, as the Mitutoyo case clearly demonstrates, mainly because of ineffective enforcement.” [25] The author adds that, “It is unsurprising, given that there are only 38 inspectors nationwide to check all applications for export permission.”

Cracking Down on Violations
The September indictments in Japan followed a series of enforcement measures taken against Mitutoyo earlier in 2006. In February, the MPD raided Mitutoyo’s offices on the suspicion that the company illegally exported three-dimensional measuring equipment to China and Thailand in 2001. [26] At the time, Mitutoyo officials denied the allegations. Following up on subsequent investigations, the MPD arrested five Mitutoyo executives in August (the fifth individual, Katsuhide Kizu, was released without being indicted). [27] On September 8, METI submitted a criminal complaint against the company and its leadership for the unlawful export of the two devices sent to Malaysia in 2001. [28] According to Japanese press, Mitutoyo former vice-chairman Takatsuji has essentially admitted to the allegations, while former president Kazusaku Tezuka and former managing director Chikugo have denied them. [29] Penalties for violating the Foreign Exchange and Foreign Trade Law may include up to five years in prison, a fine of up to ¥2 million (about $17,000), or both. [30]

The investigations in Japan may also reinvigorate efforts to hold others involved in the A.Q. Khan network responsible for their proliferation activities. In Malaysia, secretary-general of the opposition Democratic Action Party (DAP) Lim Guan Eng called for a reopening of the investigation into SCOPE’s involvement in the provision of centrifuge components to Libya. [31] Highlighting the fact that Scomi is owned by Malaysian Prime Minister Abdullah Ahmad Badawi’s son, Kamaluddin Abdullah, Eng stated that, “Since Abdullah has said that he is not sure of what his son is doing, he should get to the bottom of this matter and give the people a clear response, including whether the five arrested in Japan are directly linked to SCOPE.” [32]

Furthermore, in light of a number of other recent discoveries of export control violations in Japan that have likely assisted WMD proliferation, in addition to the Mitutoyo case, including the transfer of a freeze dryer usable for the production of biological weapons to North Korea in 2002, Japan is considering further efforts to tighten the rules governing exports to countries of proliferation concern. [33] These strengthened regulations may include abandoning the type of license that exempted the export of items valued under ¥50,000 ($425) from screening—the same type of license abused by Mitutoyo. [34] The Mitutoyo case appears to have served as a lesson for Japanese customs authorities, and is likely to serve as a reminder for such officials elsewhere of the readiness of unscrupulous exporters to exploit weaknesses in national export control systems.

Peter Crail-Monterey Institute Center for Nonproliferation Studies