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Nuclear News - 08/24/01
RANSAC Nuclear News, August 24, 2001
Compiled by G. J. Marsh

A. Cooperative Threat Reduction
    1. U.S. Defense Fund in Russia Is Target of Criminal Probe, John M. Donnelly, Defense Week (08/20/01)
B. Plutonium Disposition
    1. Plutonium Fuel Funding Nearly Exhausted: Bad Cost Estimates Plague Program, Press Release, Blue Ridge Environmental Defense League (08/23/01)
    2. Suitcase Bomb Plutonium, Editorial, Los Angeles Times (08/23/01)
    3. U.S. Balks on Plan to Take Plutonium Out of Warheads, Matthew L. Wald, New York Times (08/21/01)
    4. Excerpted Transcript: Plutonium Disposition/Congress, Daily Press Briefing, U.S. Department of State (08/21/01)
C. Nuclear Smuggling
    1. U.S. Customs Kicks Off Training to Help Former Soviet Republics Combat Spread of Weapons of Mass Destruction, Press Release, U.S. Customs Service (08/21/01)

A. Cooperative Threat Reduction

U.S. Defense Fund in Russia Is Target of Criminal Probe
John M. Donnelly
Defense Week
August 20, 2001
(for personal use only)

A Pentagon program to convert former Soviet doomsday-weapons organizations into commercial projects is under criminal investigation, Defense Week has learned.

Since 1994, the United States has spent $67 million in grants for a not-for-profit corporation that the Pentagon oversees called the Defense Enterprise Fund. The fund has invested in jobs such as transforming a former military satellite-tracking organization in Kazakhstan into a telecommunications firm. After receiving seed money, the projects (also in Russia, Belarus and Ukraine) were supposed to attract private capital and sustain themselves.

The fund's story illustrates the perils of investing in the former Soviet states, even in the good name of stemming the spread of weapons of mass destruction.

Of the $67 million, the fund spent $24 million on its own operations and invested $43 million in 13 projects, the Pentagon says. Today, however, only six of those projects survive and the $43 million investment is worth less than half that amount, just $19 million.

An August 2000 Defense Department Inspector General audit criticized the Pentagon's Defense Threat Reduction Agency, which is supposed to oversee the fund, for inadequately doing so. Shortly thereafter, the Inspector General's Defense Criminal Investigative Service began its criminal probe, according to three people familiar with it. They declined to discuss specifics, except to say that the investigation is examining misuse of government money alleged by a former program employee.

The Bush administration has taken a hard look at how the United States spends some $5 billion on programs meant to turn Soviet swords into post-Cold War plowshares. Some of the programs have been criticized by lawmakers for mismanagement, despite the destruction of thousands of nuclear weapons.

The defense fund's story may also highlight the risks run by whistle-blowers like the former fund employee. After he took his concerns to his bosses, he was re-assigned, then fired, along with others, in 1999. Since then, he says, he has had trouble feeding his family.

"Today, me and my family (wife and two daughters, aged 7 and 2) are penniless, and we have lost the apartment we were living in," said the whistle-blower, a Russian-born U.S. citizen named Matthew Maly, in an email to Defense Week . "I am sure that I have been blacklisted. ... Aged 42 and holding degrees from Columbia and Yale, I am unlikely to find a position at McDonald's."

Meanwhile, the man who allegedly mismanaged the program's assets, Richard Nordin, has been promoted. Formerly senior vice president at Global Partners Venture (GPV), the fund's first portfolio manager, Nordin is now president of the Defense Enterprise Fund.

"The serious allegations Mr. Maly has raised ultimately led to the matter being brought to the attention of the Office of the DoD Inspector General, where it remains under review," the Pentagon said in a statement to Defense Week.

Maly's allegations include:

· $3 million of the $6 million the fund invested to convert RAMEC, a Russian military-electronics company, into a maker of personal-computer products was instead used by a Russian partner to open a restaurant in St. Petersburg;

· $5 million that was meant to go to a project to recover precious metals from electronic scrap was loaned to Valme Industries, a French partner, even though fund officials knew Valme was bankrupt and should have known the project was technically questionable;

· fund employees delivered manila envelopes containing up to $500,000 in U.S. dollars to a former Russian vice premier, Valery Serov, who was lobbying the Russian government on behalf of MPS-Telekom, a telecommunications project the fund had invested in;

· Nordin spent $1 million of fund money on his own Moscow apartment.

Nordin, in an interview, said he didn't punish Maly because of his allegations. And Nordin dismissed the substance of Maly's claims.

"The stuff that I was personally involved in that he accused [me of] just simply did not happen," Nordin said. "And the stuff he accused other people of doing, I don't believe any of this has any merit ... in terms of criminal behavior, malfeasance and so forth." Nordin says in retrospect, though, that he might have managed the fund differently.

Robert Odle, an attorney representing the fund's board, said in an interview that the board thinks Nordin has performed well. Odle's firm investigated Maly's charges and, he said: "We found no documents, no evidence, no witnesses, nothing that supports [Maly's] allegations, not one piece of paper or human being and not any other kind of evidence."

However, because Odle represents the organization under scrutiny, Maly thinks Odle's review was a whitewash performed, in effect, by the defendant's lawyer.

Maly's allegations were reported in April by The Moscow Times, an English-language paper, but have not been published in the United States.

The Defense Enterprise Fund has received no U.S. government money since fiscal 1995. It will exist until 2004, whereupon it will either become self-sufficient or be dissolved.

The Pentagon itself managed the fund's investments from 1994 to 1998. Then, in 1998, the Defense Department turned to GPV, the portfolio manager, to steer the investments.

Maly says that he began warning Nordin about shortcomings of the fund's management as early as 1997. For example, Maly says, he urged Nordin to hire a staff lawyer and to conduct due diligence before investing, neither of which Nordin did, he says.

"After six months of these conversations, Mr. Nordin had enough of me and sent me to Ukraine, where I spent the next two years," Maly said in an email. He added that he never got any communications from Nordin, nor any raises, nor even one of the six-month performance reviews that his fellow employees got.

Nordin counters that he wasn't Maly's supervisor and says he sent him to Ukraine because he was needed there.

In 1999, Maly took his case to the State Department. In a letter to Amb. William Taylor, head of U.S. aid programs for the newly independent states, Maly said the defense fund was misspending federal money and was guilty of "serious wrongdoing." He laid out the case.

A month after Maly wrote the State Department, he and the other employees of GPV were dismissed, and the fund's board hired a new portfolio manager, Russia Partners, a unit of New York City-based Siguler Guff.

Maly says that, until he recently found work advising a Russian gubernatorial candidate, he hadn't held a steady job since that day in August 1999 when he was let go.

In his letter to the State Department, Maly said the fund's misdeeds were "primarily" the work of Nordin, an Army Ranger and Harvard grad who Maly says had no experience running investment funds.

The Inspector General's August 2000 report did not address any criminal activity but did confirm the losses. Those included the mere $1 million now left over from $6 million spent to convert RAMEC, the military-electronics company.

The Inspector General said the losses were partly due to the poor investment climate in Russia after the ruble's collapse in August 1998. But Maly contends that at least $20 million of the setbacks were due to mismanagement, not the Russian economy's state.

The State Department's Taylor responded to the complaint, Maly says, by saying that the matter would be reviewed in a "thorough and impartial" manner.

However, Maly says, the investigation was conducted by Odle's firm, Weil, Gotshal & Manges, which represented the fund's board. Maly considers that a conflict of interest.

Odle says he wasn't representing the portfolio manager or its employees, just the board. Today, he represents not only the fund's board but also the new portfolio manager, Russia Partners.

"We were satisfied that, while there could have been some bad judgment, maybe some hotels that were more expensive than they needed to be and maybe some first-class travel that shouldn't have been used ... there were no bad acts," Odle said of his inquiry. He would not provide a copy of it, arguing that it is protected by attorney-client privilege.

Odle said the fund has lost so much of its value not because of mismanagement or criminal activity, but because the Russian economy collapsed in August 1998 just as congressional funding for the project also dried up.

Nordin said that he originally expected to get $440 million from Congress, not $67 million. Had he known funding would have been so much less, he would have invested more gradually and put his own managers in place on large projects, he said.

Finally, Odle and Nordin said that the decision to fire GPV and hire Russia Partners in 1999 only weeks after Maly sent his letter had nothing to do with mismanagement. Russia Partners simply cost less than GPV, they said.

It is unclear how much longer the now year-old Defense Department criminal investigation of the Defense Enterprise Fund will run. The Pentagon does not discuss ongoing criminal probes.
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B. Plutonium Disposition

Plutonium Fuel Funding Nearly Exhausted: Bad Cost Estimates Plague Program
Press Release
Blue Ridge Environmental Defense League
August 23, 2001
(for personal use only)

Documents obtained this week by the Blue Ridge Environmental Defense League (BREDL) indicate that funding for the Department of Energy's (DOE) Plutonium/MOX fuel program contract is nearly exhausted. According to Modification 13 of its contract with Duke Cogema Stone & Webster (DCS), DOE has already obligated eight-six percent (86%) of the total estimated cost for contract performance (Figure 1). BREDL estimates that 77-80% of the "cost-plus-fixed-fee" is obligated through this fiscal year, suggesting the possibility of unexpected future liabilities for DCS.

"DOE has submitted grossly misleading cost-underestimates to Congress, largely based on Duke Cogema Stone & Webster's proposal," said BREDL Organizer Don Moniak of Aiken, South Carolina. "We believe the program should be cancelled before taxpayers are saddled with another multi-billion dollar DOE boondoggle that increases the nuclear danger; an investigation into the validity of original cost-estimates should be conducted; and DOE should lift its suspension of the plutonium immobilization project."

The huge cost-overrun is substantially greater because the one-year old performance cost estimate fails to incorporate: a 40% increase in the design cost estimate for the plutonium/MOX fuel fabrication facility; higher-than-expected costs of Nuclear Regulatory Commission licensing of the fuel facility; the fact that numerous Base Contract obligations have yet to be submitted and/or approved--including final design packages, reactor licensing amendment applications, the MOX fuel security plan, and the entire Lead Test Assembly program.
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Suitcase Bomb Plutonium
Los Angeles Times
August 23, 2001
(for personal use only)

What's the biggest national security threat the United States faces? China? North Korea? Despite the fall of the Berlin Wall, the answer remains: Russia's thousands of nuclear missiles. The Bush administration is trying to develop a prohibitively costly missile defense to counter Russia, China, rogue states and terrorists when it should be facing an older, bigger problem with aging Russian missiles. A solution exists. But not only is the administration avoiding this solution, it's trying to kill it.

In June 1993, then-Vice President Al Gore, working with then-Russian Prime Minister Viktor S. Chernomyrdin, announced a joint commission for U.S.-Russian cooperation that was, among other things, supposed to assist Russia in decommissioning and disabling nuclear weaponry. The U.S. would also pay to move Russian nuclear scientists to peaceful projects. This program failed because of corruption in Russia. But one plan did emerge that still makes sense: taking plutonium out of warheads. The idea was that the United States and Russia would each convert 50 tons of plutonium by turning it into fuel or combining it with nuclear waste to immobilize it. Now the Bush administration is trying to back out, complaining that at $6.6 billion it is too costly. As opposed to what? The administration is requesting $8.3 billion for missile defense for fiscal 2002, a 57% increase over current spending. The U.S. should be doing all it can to disable plutonium before corruption spreads it around. It's precisely the idea of a suitcase bomber armed with bootleg plutonium that should concern the administration.
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U.S. Balks on Plan to Take Plutonium Out of Warheads
Matthew L. Wald
New York Times
August 21, 2001
(for personal use only)

WASHINGTON, Aug. 20 - A program conceived by the Clinton administration to rid the world of 100 tons of American and Russian weapons-grade plutonium is likely to be abandoned by the Bush administration, according to people who have been briefed about the project.

Under the plan, which was first proposed in the mid-90's, 50 tons of American plutonium and 50 tons of Russian plutonium would be taken out of nuclear weapons and either converted into fuel for nuclear reactors or rendered useless for weapons by mixing it with highly radioactive nuclear waste, a process known as immobilization.

When the plan was drafted, Clinton administration officials said the program would reduce the risk that the plutonium would fall into the wrong hands, where it could easily be turned into weapons.

By reducing the availability of weapons-grade plutonium, the project had the added benefit of bolstering treaties between the United States and Russia to cut the number of nuclear warheads deployed by each side, by making it harder to turn plutonium from decommissioned weapons back into warheads.

Bush administration officials deny that the program is dead, but acknowledge that it has difficulties, primarily financial ones.

"The issue is under review," said an administration official who would speak only if not identified. "We've made no secret of that. But no decisions have been made."

But the official continued, "It's no secret that there are a lot of equities to balance here."

One major equity, he said, is money. Early this year the Energy Department predicted a cost of $6.6 billion, about triple the initial estimates, to convert the American stocks to fuel for civilian nuclear reactors. It put Russia's cost at $1.76 billion, which is money Russia does not have.

The expectation under the Clinton administration was that the United States and other rich countries would help pay, but no concrete pledges were ever made.

In 1999 the Clinton administration did agree to pay a consortium of power companies $130 million to use plutonium that the government would convert into fuel. But the conversion factories are not yet built, and the conversion itself was contingent on an agreement with the Russians to take similar steps to dispose of plutonium from their weapons.

Despite the program's expected benefits, the Bush administration's proposed Energy Department budget this spring did not include the money needed to mix some of the plutonium with nuclear waste.

The second path - converting it to fuel for American nuclear reactors, the strategy the Clinton administration hoped would induce the Russians to do the same - also appears likely to be dropped soon.

"There is no enthusiasm for it whatsoever," said a Congressional aide who was briefed by officials of the National Security Council, referring both to the current strategy of immobilization and to conversion to reactor fuel.

The issue of what to do with plutonium from decommissioned nuclear weapons has haunted policy makers for years.

One particular fear is that the material from Russian weapons would be bought or stolen by terrorists or a "rogue" government who could construct a nuclear bomb. In recent years, the security of bomb materials in Russia has been improved markedly by joint Russian-American efforts, administration experts say.

Bush administration officials insist that they share the goal of disposing of American and Russian plutonium.

"There's no philosophical shift that says suddenly we're perfectly fine with surplus plutonium laying around - we're not," said an administration official familiar with the Clinton-era program. But, he added, conversion to fuel for existing reactors or mixing with waste are "not the only options for disposing of it safely."

As an alternative, the Bush administration appears to be considering a variety of untested technical options, including a new generation of nuclear reactors that could burn plutonium more thoroughly.

"They're trying to improve on it by giving up on getting started any time soon," said Matthew G. Bunn, a nuclear expert at the Kennedy School of Government at Harvard, who was an adviser to the White House Office of Science and Technology Policy in the Clinton administration. He and other experts are skeptical that a new generation of reactors, which was also mentioned in President Bush's energy plan as a way to dispose of nuclear waste, would ever be built. Construction on the last nuclear plants built in the United States country was begun more than 25 years ago.

"We're back at Square 1 with the program, and they're looking at imaginary options, like advanced reactors," said Tom Clements, executive director the Nuclear Control Institute, a nonprofit group that opposes the use of plutonium for reactor fuel. "For financial reasons, it's not going to be viable."

Though the administration is considering dropping the program to convert or immobilize weapons- grade plutonium, a separate Russian-American program to reduce the inventory of another Russian bomb fuel, highly enriched uranium, is continuing. In fact, uranium that was intended for Russian bombs now meets more than half the needs of American power reactors.

But diluting uranium to the type used in power plants is technically far simpler and cheaper than the process required for plutonium, which must be converted from the metal form used in weapons to a plutonium-uranium ceramic used in American power plants.

In fact, enriched uranium has economic value as reactor fuel, while converting plutonium appears to be a money-losing proposition.

Even so, Russian officials have said repeatedly that they view plutonium as an asset and would like to build new breeder reactors, so named because they produce plutonium faster than they consume the other main reactor fuel, uranium.

The end of the plutonium program would be mixed news for groups concerned with proliferation.

For example, the Nuclear Control Institute has pushed vigorously for immobilization and against converting plutonium to reactor fuel, which is known as mixed oxide, or MOx.

Officials of the institute say conversion to MOx is very expensive and would encourage international commerce in weapons material.

"We think their assessment of MOx is correct," said Mr. Clements, referring to the administration. "The problem is, it appears they've also rejected the cheaper alternative, which is immobilization."
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Excerpted Transcript: Plutonium Disposition/Congress
Daily Press Briefing
U.S. Department of State
August 21, 2001
(for personal use only)

TUESDAY, AUGUST 21, 2001 -- 1:15 P.M.
BRIEFER: Philip T. Reeker, Deputy Spokesman

-- Plutonium Disposition Program/Consultation with Congress

QUESTION: Maybe you don't have anything on this. The plutonium report -- what is the status of US aid to the plutonium elimination program, or whatever you call it?

MR. REEKER: I think, as you are aware, that plutonium disposition is one of several US nonproliferation programs with Russia that was reviewed at the beginning of the Bush Administration. That would be Bush 43. The review was completed recently, and of course we need to consult with Congress prior to making any decisions on that. No decisions have been made, pending those consultations, and so at this point it would be premature to go into anything further. I would consider it still under way.

QUESTION: The review was complete. The review is complete.

MR. REEKER: Our basic review is complete. We need to have discussions, consultations with Congress, to see if there is anything else that needs to be reviewed or additional information provided. And we will continue to pursue that, but I just don't have anything new to suggest now.

QUESTION: Was any money allocated in this year's budget to this plutonium disposition program, or was this a new program that hadn't been financed before?

MR. REEKER: I think this is a continuing program, the program that was discussed in some press articles today. All of these programs, in terms of plutonium disposition, are programs that we have had and that are being reviewed. In terms of the specifics on the budget, we would have to go back to the budget papers that we had when we gave you the briefing.

QUESTION: So the review is whether you should continue funding this program?

MR. REEKER: Just like so many things, we review programs, in this case nonproliferation programs. One of those -- there are several of them -- one of those has to do with plutonium disposition and how we might work that program in the future, or what its status would be. So that's a review, and we don't have anything to report on that at this point.

QUESTION: You say the review was completed recently, but no decisions have been made. Presumably the review came to some decisions. I mean, that's what reviews are for, aren't they? Or not?

MR. REEKER: Not necessarily. Reviews "review" -- that's the active verb -- a program or a situation. As I said, we need to consult with Congress -- that is very much involved in this -- and until that is done and we have then looked at the whole picture, as it were, we won't have any final conclusions to make.

QUESTION: Well, so the review made a series of options, left open a series of options?

MR. REEKER: I just don't have a description for you of the review or its outcome, other than to say that it is something I think we talked about before, probably several times, we have been carrying out. And we will consult with Congress on that because that, in and of itself, is part of the overall review of the policy.

QUESTION: Well, presumably, though, you have come to one of three options that it would recommend at the end, which would be either get rid of it, keep it, or change it somehow. Right?

MR. REEKER: That's very prescient, Matt, and I just don't have any recommendation or option or anything else to share with you on it, other than to say that we have reviewed the program, we are going to consult with Congress as part of the big picture review, and then if we have something more to say, we will get back to you.

QUESTION: Okay, but I just want to -- but the quote from an unnamed official in one of today's reports that we were talking about --

MR. REEKER: Always a dangerous proposition.

QUESTION: -- says the review is -- you know, it's under review still. So I just want to be clear that is incorrect. The review is complete? The Administration's review is complete?

MR. REEKER: Well, it depends how you want to define "review." I mean, we have reviewed the program and completed a certain review. Now we have to consult with Congress and see what else needs to be done in the bigger picture of the review. So I am trying not to get too down in the weeds, but we have completed an aspect of our review. There are more parts to go. That's why any commentary or even suggestions by unnamed senior officials is premature at this time.
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C. Nuclear Smuggling

U.S. Customs Kicks Off Training to Help Former Soviet Republics Combat Spread of Weapons of Mass Destruction
Press Release
U.S. Customs Service
August 21, 2001
(for personal use only)

Washington, D.C. -- The U.S. Customs Service today announced the launch of a three-week training session in Hidalgo, Texas, designed to help customs and border officials from Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan combat the cross-border smuggling of nuclear, chemical, and biological weapons components.

During the training session, which will extend through September 8, U.S. Customs officials from the Hidalgo Port of Entry and from the Office of International Affairs at Customs headquarters will provide International Border Interdiction Training (IBIT) to the foreign participants in classrooms and in the field.

"There are few missions more critical to U.S. Customs than helping our foreign counterparts combat the spread of weapons of mass destruction," said Acting U.S. Customs Service Commissioner Charles Winwood. "U.S. Customs counter-proliferation training programs have helped foreign authorities make numerous weapons-related seizures in recent years. We are confident this training will yield similar results."

The IBIT training in Hidalgo is being provided by U.S. Customs and U.S. Border Patrol officials under the auspices of the Export Control and Border Security (EXBS) program. Funded by the U.S. State Department, the EXBS program is a joint effort by the Departments of State, Commerce, Defense and Energy, in conjunction with U.S. Customs, to provide non-proliferation training and equipment to 28 nations, most of them in the former Soviet Bloc.

The IBIT training provided by U.S. Customs officers will include instruction in counter-terrorism techniques, the detection of hidden compartments in cargo and passenger vehicles, the use of high-tech detection technology, the selection of high-risk vehicles and passengers, and passenger interviewing and behavioral analysis techniques.

U.S. Customs inspectors will highlight the use of state-of-the-art detection technologies, including X-Ray equipment, density measuring units, fiber-optic scopes, and advanced computer technologies. U.S. Customs inspectors will also demonstrate "low tech" technologies and equipment used to detect weapons-related contraband at international borders.

U.S. Border Patrol officials will provide training in tactical radio communications, officer safety, patrol techniques, sensor placement, and false document identification.

Approximately 80 foreign officials are scheduled to participate in the IBIT training session. The officers have been selected from the ranks of supervisors and line officials who work in outposts in Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan and Turkmenistan that border China, Russia, Iran, Afghanistan, Pakistan and ports on the Caspian Sea.

Since the breakup of the Soviet Union, there has been a substantial increase in the threat of trafficking of weapons of mass destruction, their delivery systems, and related components. U.S. Customs has been at the forefront of U.S. government efforts to counter this threat.

Through all of its international non-proliferation programs, U.S. Customs has provided training to more than 2,600 foreign customs and border officers. U.S. Customs has also delivered millions of dollars worth of interdiction and detection equipment to officers in these nations.

Customs international non-proliferation programs have achieved encouraging results. Since 1998, there have been eight significant seizures by foreign customs or police agencies attributed to U.S. Customs non-proliferation training. Two recent seizures are exemplary:

-- In March 2000, authorities at the Gisht Kuprik border crossing in Uzbekistan seized 10 radioactive lead containers concealed in scrap metal in a truck entering from Kazakhstan. The Iranian driver of the truck and his radioactive cargo were bound for Pakistan. Uzbekistan authorities found the radioactive material after their portable radiation "pagers" alerted as the truck entered the customs post. The radiation pagers had been provided to Uzbekistan authorities by the U.S. Customs Service.

-- In May 1999, customs officials at the Ruse border crossing in Bulgaria discovered 10 grams of highly enriched U-235 (uranium) inside a lead "pig" concealed in an air compressor. The compressor was hidden in the trunk of a car. The Bulgarian customs officer who found the U-235 had received counter-proliferation training from the U.S. Customs Service just prior to the seizure. His supervisor, who was also involved in the seizure, had been trained by U.S. Customs officers in an advanced counter-proliferation course in Washington State. Furthermore, the Bulgarian laboratory director who examined and identified the materials had received technical training from the U.S. Customs Service.

In the months following completion of the IBIT session in Hidalgo, U.S. Customs Service officials and officials from other U.S. agencies plan to conduct follow-up training for the foreign officers who participated in the IBIT exercise. This training would be held in the foreign officers' home countries and would be designed to help them develop country-specific techniques using the information and equipment gleaned from the IBIT exercise.
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DISCLAIMER: Nuclear News is presented for informational purposes only. Views presented in any given article are those of the individual author or source and not of RANSAC. RANSAC takes no responsibility for the technical accuracy of information contained in any article presented in Nuclear News.

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