Project Alpha

Centre for Science

and Security Studies

Catch me if you can:

The illicit trade network of Daniel Frosch

Proliferation Case Study Series

Nick Gillard1

5 January 2015

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About Project Alpha

Alpha was established in 2011 at King’s College London’s Centre for Science and Security

Studies (CSSS) with government funding to improve the implementation of trade controls.

Alpha conducts research to understand both illicit trade and the effectiveness of supply-

side controls in countering such trade. This research forms the basis of Alpha’s outreach

and capacity building activities.

About the Case Study Series

This series was developed to highlight individual cases of illicit trade so that broader policy

lessons can be identified an enacted. The series draws upon a variety of open source

information, including US government cables, information from Internet-trading platforms,

media reporting and court transcripts.

Acknowledgements

Alpha’s work is funded from a variety of sources, including the British Foreign and

Commonwealth Office and the MacArthur Foundation.

Copyright 2014 King’s College London

The author/s of this report invites liberal use of the information provided in it for

educational purposes, requiring only that the reproduced material clearly cite the source,

using: ‘Catch me if you can: the illicit trade network of Daniel Frosch,’ Proliferation Case

Study Series, Nick Gillard, Project Alpha, 5 January 2015.

About the Author

1. Nick Gillard is a Researcher working on Project Alpha at the Centre for Science and

Security Studies, Department of War Studies, King’s College London.

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Summary

This case study details the process by which an Austrian citizen, Daniel Frosch, allegedly

sold dual-use items to Iran’s missile programme while operating from Austria, the UAE,

and the Philippines. In 2012, Frosch was extradited from the Philippines to Austria. He has

subsequently been found guilty of fraud and foreign trade law violations in the Austrian

criminal justice system. This study provides new open source research on Frosch’s

activities and law enforcement action against him, much of which has not previously been

reported. Daniel Frosch himself is still subject to US government sanctions for his alleged

proliferation activity, and further details may still emerge on this case.

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Contents

1. Introduction .......................................................................................................... 5

2. Daniel Frosch in Austria......................................................................................... 5

2.1 Daniel Frosch Export ...................................................................................... 5

2.2 Allegations against Daniel Frosch Export regarding proliferation-related trade ..... 7

2.3 Erich Frosch is arrested; Daniel Frosch disappears ........................................... 10

3. Daniel Frosch in the UAE ..................................................................................... 10

3.1 Bazaar Trading LLC ...................................................................................... 10

3.2 Cross-jurisdictional enforcement problems ....................................................... 12

3.3 International General Resourcing (IGR) FZE .................................................. 12

3.4 Frosch flees the UAE ..................................................................................... 13

4. Daniel Frosch in the Philippines ............................................................................ 14

4.1 Industrial Equipment Service Group (IESG) Trading & General Merchandise .. 14

5. Criminal proceedings against Daniel Frosch ........................................................... 17

6. Analysis and Lessons ............................................................................................ 18

6.1 Global procurement hubs ............................................................................... 18

6.2 Proliferation in the Philippines ........................................................................ 19

6.3 Cross-jurisdictional and inter-agency issues ...................................................... 19

6.4 Lessons for due diligence ............................................................................... 20

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1. Introduction

For almost the past ten years, authorities in the US have reportedly followed the activities

of an Austrian individual named Daniel Frosch. Beginning in about 2005, Frosch allegedly

supplied dual-use goods to Iran’s missile programmes – originally from a small trading

company in Austria, and then from the UAE and subsequently the Philippines. In 2012,

Frosch was extradited to Austria and has subsequently been found guilty of fraud and

other offences by Austrian courts. He remains subject to US sanctions which were placed

on him for providing assistance to Iran’s missile programmes over the course of ‘several

years’.1

This case study provides insights into the complexities associated with tracking dual-use

procurement and with prosecuting alleged violations of export controls.

2. Daniel Frosch in Austria

Daniel Frosch was born on 26 April 1982 in Austria.2 After studying at the Graz

Polytechnikum, Frosch undertook an apprenticeship to become an office clerk, a role in

which Frosch says that he developed his interest in the export industry.3 In 2002, around

the time that he turned 20 years old, Frosch opened his first international trading

company, called Daniel Frosch Export.4

2.1 Daniel Frosch Export

The earliest publicly-available information on Daniel Frosch’s trading activity dates to

mid-2003. An archived request for quote from July of that year on an Internet-trading

website lists ‘Daniel Frosch Export (DFE) Industrial Spare Parts’ as seeking seamless

carbon steel tubes.5 The contact for that request was listed as Erich Frosch; the company

also provided a website, dfexport.at, and a physical address, listed as Schoenaugasse 22,

Graz, Austria.

1 US Department of State, ‘Increasing Sanctions Against Iran,’ 12 July 2012, http://m.state.gov/md194924.htm, accessed 31 July 2014. 2 US Treasury Office of Foreign Assets Control, ‘Non-proliferation Designations; Non-proliferation Designation Removals; Iran Designations’ http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20120712.aspx#frosch, accessed 30 July 2014. 3 Information provided by a representative of Project Alpha who attended the trial of Daniel Frosch, Graz Landesgericht für Strafsachen, 29 December 2014. 4 Information provided by a representative of Project Alpha who attended the trial of Daniel Frosch, Graz Landesgericht für Strafsachen, 29 December 2014. 5 E-Pipe, ‘Seamless low carbon steel tubes’, http://www.e-pipe.co.kr/cgi-bin/way-board/way-board.cgi?db=KInquiry&j=v&no=696&pg=32, accessed 30 July 2014.

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22 Schoenaugasse, Graz, Austria. Image source: Russianchild007, Flickr,

https://www.flickr.com/photos/russianchild007/8244963338/in/photostream/, accessed 30 July 2014.

Located in suburban Graz, it was an unusual location for a multinational trading firm.

Today, the pink building is home to a hairdresser and tanning salon, and a club with a

Saturday-night drag act.6

Daniel Frosch Export, or DFE, was a small enterprise. Austrian authorities later described

it as a three-man company,7 whose known members were Daniel Frosch, variously

described as the company’s director,8 managing director

9 or CEO;

10 and Erich Frosch,

Daniel’s father. Erich Frosch has been listed elsewhere as a competitive chess player with a

FIDE Master ranking.11

To this day, Erich’s precise role in DFE remains unclear. His name was listed as the sole

contact for DFE on multiple archived trading websites, and occasionally he was listed as

‘Director/CEO/General Manager’.12

According to a statement later tendered in court by

6 s´Murnockerl Showtime, http://www.smurnockerl.at/s%60Murnockerl/Videos_%40_sMurnockerl.html, accessed 30 July 2014. 7 Michael Weinmann, ‘Austria probes firm over atom-related exports,’ Washington Post, 15 December 2006, http://www.washingtonpost.com/wp-dyn/content/article/2006/12/15/AR2006121501264.html, accessed 30 July 2014. 8 Michael Weinmann, ‘Austria probes firm over atom-related exports,’ Washington Post, 15 December 2006, http://www.washingtonpost.com/wp-dyn/content/article/2006/12/15/AR2006121501264.html, accessed 30 July 2014. 9 Trade Banq, ‘http://importer.tradebanq.com/buyer/151102/Enquiry-Rotor-Liner.html’, accessed 30 July 2014. 10 ‘DANIEL FROSCH EXPORT UPDATE: AUSTRIAN AUTHORITIES ARREST ERICH FROSCH, STILL SEARCHING FOR DANIEL FROSCH’, 24 Aug 2006, https://wikileaks.org/plusd/cables/06VIENNA2541_a.html accessed 30 July 2014. 11 ‘Erich Frosch,’ 365 Chess, http://www.365chess.com/players/Erich_Frosch, accessed 30 July 2014. 12 See, e.g., http://www.etradeasia.com/company_detail/123402/0/Daniel_Frosch_Export.html; http://www.tjskl.org.cn/suppliers/cz8d87b1/t-daniel_frosch_export.html (listed as Director/CEO/General Manager); http://free.globalimporter.net/freedetail/14/3181; http://webcache.googleusercontent.com/search?q=cache:ktg2C5s6pfQJ:www.chinatopsupplier.com/d-c14253260-Daniel_Frosch_Export/+&cd=22&hl=en&ct=clnk&gl=au (listed as Director/CEO/General Manager); all accessed 30 July 2014.

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his defence lawyer, however, Erich Frosch was only employed part-time by DFE, where

he earned 500 euro per month.13

DFE bragged of its ability to obtain more or less any piece of industrial equipment. “We do

not run a store, nor do we keep a catalogue with the products we sell,” DFE’s archived

website states.14

“Instead we are able to supply any kind of spare parts any of our

customers could ever need.” A DFE catalogue archived online and probably dating from

2004 advertises a panoply of goods ranging from millimetre-diameter wires, to pumps and

gauges, cranes, steel tubes and pipes, to ‘complete production lines and whole plants for

any industrial requirement’.15

DFE quickly developed a customer base. Undated records which can be found online

show the firm seeking suppliers for its orders for machine tool parts,16

electrical

components,17

zirconium silicate,18

and austenitic stainless steel tubes and ferritic alloy steel

tubes suitable for high-temperature use.19

The company probably processed many more

orders for goods like these – some of which were dual-use, suitable for military as well as

civilian purposes.

2.2 Allegations against Daniel Frosch Export (DFE) regarding proliferation-related trade

In 2010, the Wikileaks organisation began publishing a series of classified US State

Department cables. Several of these cables, dated from 2005 onward, provide detailed

allegations that DFE was involved in supplying dual-use goods to Iran’s missile programme.

In August 2005, according to one of these cables, Austrian authorities seized at Schwechat

Airport a shipment, ostensibly originating with DFE, of a German-origin friction tester.20

Austrian authorities later told US officials that the shipment had been destined for Mehr

Trading and Engineering Company, a front company for Iran’s Shahid Bakeri Industrial

Group (SBIG), the country’s primary manufacturer of solid-propellant ballistic missiles.21

13 Kleine Zeitung, ‘Iran-Waffenleiferungen seit Jahren bekant,’ 28 January 2011, http://www.kleinezeitung.at/nachrichten/politik/oesterreich/2661660/wikileaks-iran-waffenlieferungen-seit-jahren-bekannt.story, accessed 30 July 2014. 14 ‘Daniel Frosch Export,’ 14 October 2004, https://web.archive.org/web/20070115073830/http://www.dfexport.at/about.html, accessed 30 July 2014. 15 ‘Daniel Frosch Export – Delivery Program,’ file modified 26 August 2004, https://web.archive.org/web/20050208071205/http://www.dfexport.at/pdf/dp.pdf, accessed 30 July 2014. 16 Trade Banq, ‘http://importer.tradebanq.com/buyer/151102/Enquiry-Rotor-Liner.html’, accessed 30 July 2014. 17 ‘Terminal, feedthru, insu,’ http://tex.todaytex.com/info/InfoView.asp?id=355984, accessed 30 July 2014. 18 ‘Global Importer’, http://webcache.googleusercontent.com/search?q=cache:m2azznIllaQJ:vip.globalimporter.net/vipdetail/14/3181+&cd=1&hl=en&ct=clnk&gl=au, accessed 30 July 2014. 19 ‘E-pipe,’ 23 October 2003, http://www.e-pipe.co.kr/cgi-bin/way-board/way-board.cgi?db=KInquiry&j=v&no=841&pg=7, accessed 30 July 2014. 20 ‘DANIEL FROSCH EXPORT UPDATE: AUSTRIAN AUTHORITIES ARREST ERICH FROSCH, STILL SEARCHING FOR DANIEL FROSCH’, 24 Aug 2006, https://wikileaks.org/plusd/cables/06VIENNA2541_a.html accessed 30 July 2014. 21 ‘SUBJECT: MTAG 5-96: RESPONSE TO ADDITIONAL INFORMATION ON DANIEL FROSCH EXPORTS' MISSILE-RELATED COOPERATION WITH IRAN,’ 2 March 2006, https://wikileaks.org/plusd/cables/06VIENNA643_a.html, accessed 30 July 2014.

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An Iranian Sejil solid-propellant ballistic missile, most likely manufactured by SBIG.

Image source: Fars News Agency via Wikimedia, http://www.farsnews.com/plarg.php?nn=M533918.jpg,

accessed 1 January 2015.

Then, in October, according to State Department reporting, Austrian police stopped at

Graz airport a shipment allegedly underway from DFE of graphite cylinders bound for

Iran. Police were reportedly acting on ‘extremely detailed’ information provided by the

US, UK and Israel, who had independently approached Austria about the shipment.22

The

alleged end-user for the cylinders23

was a subordinate entity of Iran’s Aerospace Industries

Organisation (AIO), the overall manager and overseer of Iran’s missile programme and

industries.24

In January 2006, according to an Austrian official cited in the leaked State Department

cables, Austria’s intelligence service, the Federal Office for the Protection of the

Constitution and Counterterrorism (BVT), approached Daniel Frosch.25

According to the

Austrian official’s account, Frosch told the BVT that he was ‘planning to stop all of his

22 ‘SUBJECT: MTAG 5-96: FOLLOW-UP ON AUSTRIAN FIRM'S OFFER TO SELL GRAPHITE TO IRANIAN MISSILE PROGRAM (S)’, 27 October 2005, https://search.wikileaks.org/plusd/cables/05VIENNA3464_a.html, accessed 30 July 2014. 23 ‘SUBJECT: MTAG 5-96: FOLLOW-UP ON AUSTRIAN FIRM'S OFFER TO SELL GRAPHITE TO IRANIAN MISSILE PROGRAM (S)’, 27 October 2005, https://search.wikileaks.org/plusd/cables/05VIENNA3464_a.html, accessed 30 July 2014. 24 ‘Treasury Designates Iranian Nuclear and Missile Entities,’ 12 August 2008, http://www.treasury.gov/press-center/press-releases/Pages/hp1113.aspx, accessed 30 July 2014. 25 ‘SUBJECT: RESPONSE TO DEMARCHE ON ADDITIONAL PROCUREMENT ACTIVITY BY AUSTRIA'S DANIEL FROSCH EXPORT ON BEHALF OF IRAN'S MISSILE PROGRAM (S),’ 24 January 2006, https://search.wikileaks.org/plusd/cables/06VIENNA208_a.html accessed 30 July 2014.

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dealings with Iran,’ and promised to provide BVT with ‘all of his files’ on Iran. BVT

reportedly warned Frosch not to proceed with exports of US-origin goods to Iran.26

At about the same time, according to the account of an Austrian official cited in the State

Department cables, Austria’s Finance Ministry obtained copies of all of DFE’s business

transactions in order to search for evidence of illegal exports.27

Meanwhile, US

government agencies apparently opened their own lines of investigation into DFE. In

November 2005, according to another cable, US Immigrations and Customs Enforcement

(ICE), the principle investigative arm of the Department of Homeland Security, reportedly

opened a criminal investigation into Daniel Frosch ‘targetting Frosch for the illegal

transshipment of commodities to Iran’.28

Austrian authorities reportedly provided ICE with

‘an enormous amount of electronic data from DFE’ in order to assist ICE’s investigations.29

By US accounts, the Austrian investigation into DFE’s exports to Iran continued for

another six months, apparently stymied by an incomplete evidence trail and uncertainty as

to whether DFE had actually breached any Austrian laws. An Austrian official cited in the

State Department cables reportedly said that he suspected DFE’s business records had

been carefully excised to exclude any mention of connections between its exports and

military applications.30

Austrian officials reportedly had difficulty finding sufficient

evidence to show that DFE had knowingly exported goods for military or WMD use

without a licence, or that DFE had exported licenced goods without permission.31

In the

absence of such evidence, Austrian investigators apparently had difficulty convincing

prosecutors to lay charges against Daniel and Erich Frosch.32

In March 2006, according to State Department reports, Daniel Frosch reportedly told

BVT that he was going to shut down his business in Austria, and that he planned to start a

new firm in Dubai.33

26 ‘SUBJECT: RESPONSE TO DEMARCHE ON ADDITIONAL PROCUREMENT ACTIVITY BY AUSTRIA'S DANIEL FROSCH EXPORT ON BEHALF OF IRAN'S MISSILE PROGRAM (S),’ 24 January 2006, https://search.wikileaks.org/plusd/cables/06VIENNA208_a.html accessed 30 July 2014. 27 ‘SUBJECT: RESPONSE TO DEMARCHE ON ADDITIONAL PROCUREMENT ACTIVITY BY AUSTRIA'S DANIEL FROSCH EXPORT ON BEHALF OF IRAN'S MISSILE PROGRAM (S),’ 24 January 2006, https://search.wikileaks.org/plusd/cables/06VIENNA208_a.html accessed 30 July 2014. 28 ‘SUBJECT: UPDATE ON DANIEL FROSCH EXPORT CASE,’ 27 October 2006, https://search.wikileaks.org/plusd/cables/06VIENNA3173_a.html, accessed 30 July 2014. 29 ‘SUBJECT: UPDATE ON DANIEL FROSCH EXPORT CASE,’ 27 October 2006, https://search.wikileaks.org/plusd/cables/06VIENNA3173_a.html, accessed 30 July 2014. 30 ‘DANIEL FROSCH EXPORT UPDATE: AUSTRIAN AUTHORITIES ARREST ERICH FROSCH, STILL SEARCHING FOR DANIEL FROSCH’, 24 Aug 2006, https://wikileaks.org/plusd/cables/06VIENNA2541_a.html accessed 30 July 2014. 30 ‘Erich Frosch,’ 365 Chess, http://www.365chess.com/players/Erich_Frosch, accessed 30 July 2014. 31 ‘DANIEL FROSCH EXPORT UPDATE: AUSTRIAN AUTHORITIES ARREST ERICH FROSCH, STILL SEARCHING FOR DANIEL FROSCH’, 24 Aug 2006, https://wikileaks.org/plusd/cables/06VIENNA2541_a.html accessed 30 July 2014. 31 ‘Erich Frosch,’ 365 Chess, http://www.365chess.com/players/Erich_Frosch, accessed 30 July 2014. 32 ‘DANIEL FROSCH EXPORT UPDATE: AUSTRIAN AUTHORITIES ARREST ERICH FROSCH, STILL SEARCHING FOR DANIEL FROSCH’, 24 Aug 2006, https://wikileaks.org/plusd/cables/06VIENNA2541_a.html accessed 30 July 2014. 32 ‘Erich Frosch,’ 365 Chess, http://www.365chess.com/players/Erich_Frosch, accessed 30 July 2014. 33 ‘SUBJECT: MTAG 5-96: RESPONSE TO ADDITIONAL INFORMATION ON DANIEL FROSCH EXPORTS' MISSILE-RELATED COOPERATION WITH IRAN,’ 2 March 2006, https://wikileaks.org/plusd/cables/06VIENNA643_a.html, accessed 30 July 2014.

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2.3 Erich Frosch is arrested; Daniel Frosch disappears

On 17 August 2006, according to State Department cables, the Graz Public Prosecutor

issued warrants for the arrest of Daniel Frosch and Erich Frosch, and instructed police to

find further evidence against the Frosches. By 24 August, Erich was reportedly in custody.

Daniel, though, had disappeared.34

Erich Frosch was soon released from custody, according to US accounts.35

It is unclear

exactly how long he was detained – a chess statistics website records an individual believed

to be Erich Frosch competing at an Austrian tournament on 30 September; although in

October, an Austrian official told the US embassy that Erich Frosch was still in

detention.36

Still, it appears that Erich did spend at least some time in prison. In June 2008,

Erich Frosch was convicted of fraud and sentenced to time served, according to the Los

Angeles Times.37

3. Daniel Frosch in the UAE

Daniel Frosch, meanwhile, had moved to the UAE and obtained an apartment in Dubai,

according to US cables.38

The exact date of his arrival in the UAE is unknown: Frosch

possibly left Austria before his arrest warrant was issued.

3.1 Bazaar Trading LLC

US cables state that before moving to the UAE, Frosch had made an existing network of

business contacts in Dubai through DFE’s UAE intermediary, Bazaar Trading LLC.

Bazaar Trading was likely another small trading firm, with only two reported employees.39

40

The firm was apparently located in a high-rise building overlooking the Dubai Creek.

At the time Daniel Frosch arrived in the UAE, Bazaar Trading was possibly already under

surveillance by one or more national authorities, given its suspected financial ties to DFE.

Indeed, on 19 October 2006, the US Department of Commerce Bureau of Industry and

Security (BIS) added Bazaar Trading – misspelled as ‘Bazar Trading Co’ – to its

publicly-available ‘orange flag’ list of suspicious importers.41

US cables from the same time

34 ‘DANIEL FROSCH EXPORT UPDATE: AUSTRIAN AUTHORITIES ARREST ERICH FROSCH, STILL SEARCHING FOR DANIEL FROSCH’, 24 Aug 2006, https://wikileaks.org/plusd/cables/06VIENNA2541_a.html accessed 30 July 2014. 35 ‘SUBJECT: UPDATE ON DANIEL FROSCH EXPORT CASE,’ 27 October 2006, https://search.wikileaks.org/plusd/cables/06VIENNA3173_a.html, accessed 30 July 2014. 36 ‘Eric Frosch,’ ChessDB, http://chess-db.com/public/pinfo.jsp?id=1602217, accessed 30 July 2014. 37 Shashank Bengali, ‘Shady operator provides glimpse of supply line to Iran,’ Los Angeles Times, 21 October 2012, http://articles.latimes.com/2012/oct/21/world/la-fg-iran-sanctions-20121022, accessed 31 July 2014. 38 ‘SUBJECT: IRANIAN PROCUREMENT ENTITIES NON-PAPER DELIVERED AT MARCH 1 U.S.-UAE COUNTERPROLIFERATION TASK FORCE’, 22 March 2007, https://search.wikileaks.org/plusd/cables/07ABUDHABI493_a.html, accessed 31 July 2014. 39 ‘SUBJECT: IRANIAN PROCUREMENT ENTITIES NON-PAPER DELIVERED AT MARCH 1 U.S.-UAE COUNTERPROLIFERATION TASK FORCE’, 22 March 2007, https://search.wikileaks.org/plusd/cables/07ABUDHABI493_a.html, accessed 31 July 2014. 40 ‘SUBJECT: UPDATE ON DANIEL FROSCH EXPORT CASE,’ 27 October 2006, https://search.wikileaks.org/plusd/cables/06VIENNA3173_a.html, accessed 30 July 2014. 41 Federal Register, Vol. 71, No. 202, Thursday, October 19, 2006, Notices, http://www.gpo.gov/fdsys/pkg/FR-2006-10-19/pdf/E6-17358.pdf, accessed 31 July 2014.

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record US officials worrying that they had inadvertently tipped off Bazaar Trading at the

very time that law enforcement was turning its attention to Daniel Frosch in Dubai.42

Austrian authorities reportedly continued to pursue Daniel Frosch, despite his flight

overseas. An Austrian official reportedly told US officials that BVT had been working

with ‘British intelligence’ to bring Frosch back to Austria from Abu Dhabi.43

But Frosch was moving quickly. By February 2007, according to US cables, Daniel Frosch

had rebuilt his trading business from his new base in the UAE, and showed no sign of

having rescinded his alleged trade with Iranian customers. US information alleges that

Frosch continued to supply goods – wittingly or unwittingly – to end-users in Iran’s

ballistic missile programme. According to US cables, Frosch’s customers from this period

included:

- Payam Trading Company, a front company for Iran’s M. Babaie Industries, which

is responsible for the development of surface-to-air missiles;

- Tiz Pars Company, a front company for Iran’s liquid-fuelled ballistic missile

developer, the Shahid Hemmat Industrial Group (SHIG); and

- the Electronic Equipment Company, a front company for the Ya Mahdi Industrial

Group, which oversees production of anti-tank missiles.44

Frosch had also reportedly ended his relationship with his alleged former UAE

intermediary, Bazaar Trading, according to US cables, and opened a new business from his

apartment.45

On the 27th

February, the Emirati authorities reportedly raided Bazaar Trading’s office, but

by that time Frosch had probably severed any ties that he may have had with the

company.46

And a week later, when US BIS upgraded its risk notice for American

companies regarding the dangers of WMD-related diversion associated with

Bazaar Trading,47

it was likely too late to have effect on any trade associated with Frosch.

Daniel Frosch has left no obvious digital footprints online for the three years that followed

the reported Emirati raid on Bazaar Trading.

42 ‘SUBJECT: UPDATE ON DANIEL FROSCH EXPORT CASE,’ 27 October 2006, https://search.wikileaks.org/plusd/cables/06VIENNA3173_a.html, accessed 30 July 2014. 43 ‘SUBJECT: UPDATE ON DANIEL FROSCH EXPORT CASE,’ 27 October 2006, https://search.wikileaks.org/plusd/cables/06VIENNA3173_a.html, accessed 30 July 2014. 44 ‘SUBJECT: IRANIAN PROCUREMENT ENTITIES NON-PAPER DELIVERED AT MARCH 1 U.S.-UAE COUNTERPROLIFERATION TASK FORCE’, 22 March 2007, https://search.wikileaks.org/plusd/cables/07ABUDHABI493_a.html, accessed 31 July 2014. 45 ‘SUBJECT: IRANIAN PROCUREMENT ENTITIES NON-PAPER DELIVERED AT MARCH 1 U.S.-UAE COUNTERPROLIFERATION TASK FORCE’, 22 March 2007, https://search.wikileaks.org/plusd/cables/07ABUDHABI493_a.html, accessed 31 July 2014 46 ‘SUBJECT: MARCH 1 US-UAE COUNTERPROLIFERATION TASK FORCE,’ 13 March 2007, https://wikileaks.org/plusd/cables/07ABUDHABI422_a.html, accessed 31 July 2004. 47 Federal Register Volume 72, Number 41 (Friday, March 2, 2007), http://www.gpo.gov/fdsys/pkg/FR-2007-03-02/html/E7-3538.htm, accessed 31 July 2014.

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3.2 Cross-jurisdictional enforcement problems

For at least the next year, according to US cables, US authorities repeatedly pressed their

UAE counterparts for action against Daniel Frosch as part of a broader push to encourage

the introduction of export controls into Emirati law.48

The Emiratis reportedly promised to

cancel Frosch’s visa and ‘blacklist’ him from the UAE.49

In turn, the US embassy in Dubai

asked that State Department’s Bureau of International Security and Nonproliferation

(ISN) request that the FBI place Daniel Frosch on Interpol’s Red Notice list – Interpol’s

highest alert rating for criminals – most likely in the hope that he would be caught in the

event of attempting to cross a border.50

It is unclear, though, whether Frosch was ever put

on the Red Notice list.

Austrian efforts against Daniel Frosch, meanwhile, had limited results – at least according

to US cables. An Austrian official reportedly complained that the Emirati government was

unresponsive to its requests to extradite Frosch;51

in turn, an Emirati official, reportedly

complained that the Austrian government had not replied to a letter which he had sent

them about Frosch.52

3.3 International General Resourcing (IGR) FZE

By early 2010, archived records on an Internet-trading platform show that Frosch had

established an Emirati trading company called International General Resourcing (IGR)

FZE.53

(The ‘FZE’ stands for Free Zone Enterprise, an Emirati business structure allowing

complete foreign ownership, and with no import or export taxes, deferred corporate taxes,

and zero personal income taxes.54

) The company operated from an ‘e-office’ in the UAE’s

Ajman Free Trade Zone. Frosch apparently used the email address

manager.sale@hotmail.com, before later switching to a Gmail address.55

48 ‘SUBJECT: JUNE 11 U.S.-UAE COUNTERPROLIFERATION TASK FORCE WORKING GROUPS,’ https://search.wikileaks.org/plusd/cables/07ABUDHABI1015_a.html, 19 June 2007, accessed 31 July 2014. 49 ‘SUBJECT: JUNE 11 U.S.-UAE COUNTERPROLIFERATION TASK FORCE WORKING GROUPS,’ https://search.wikileaks.org/plusd/cables/07ABUDHABI1015_a.html, 19 June 2007, accessed 31 July 2014. 50 ‘SUBJECT: JUNE 11 U.S.-UAE COUNTERPROLIFERATION TASK FORCE WORKING GROUPS,’ https://search.wikileaks.org/plusd/cables/07ABUDHABI1015_a.html, 19 June 2007, accessed 31 July 2014. 51 ‘SUBJECT: UPDATE ON THE DANIEL FROSCH EXPORT CASE’, https://search.wikileaks.org/plusd/cables/07VIENNA626_a.html, accessed 31 July 2014. 52 ‘SUBJECT: JUNE 11 U.S.-UAE COUNTERPROLIFERATION TASK FORCE WORKING GROUPS,’ https://search.wikileaks.org/plusd/cables/07ABUDHABI1015_a.html, 19 June 2007, accessed 31 July 2014. 53 EC21, Company Profile – IGR FZE, http://danielf.en.ec21.com/company_info.jsp, accessed 31 July 2014. 54 UAE Free Zones, http://www.uaefreezones.me/uaefreezones.me/uae_free_zones.asp, accessed 31 July 2014. 55 EC21, Company Profile – IGR FZE, http://danielf.en.ec21.com/offer_detail/Buy_DC_Servo_Motor_for--9192641.html?gubun=B, accessed 31 July 2014.

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IGR logo.

Image source: http://web.archive.org/web/20140731155409im_/http://igr.cwsurf.de/HTML/000001.png,

accessed 5 January 2015.

Evidence can be found online of apparently vigorous trading activity by IGR FZE,

including for hydraulic oil filters, an anti-foam gas treatment system, parts for a Schaublin

lathe, electronic components and vernier calipers.56

IGR also advertised its specialisation in

Siemens (Germany), ABB (Switzerland), Telemecanique (France) and Parker (US)

brands57

– all manufacturers of electronic industrial control equipment, including dual-use

equipment with missile- and nuclear-related utility. There is no evidence available on the

public record, however, that IGR FZE conducted any business with Iran, or indeed with

any entities from Iran’s proscribed nuclear and ballistic missile programmes.

By 2011, open source records suggest that Frosch had been joined at IGR FZE by another

individual, who for privacy reasons this study will call Person A. Person A’s name appears

on IGR requests for air conditioning equipment58

and for high-speed steel scrap cutting

tools.59

While there is no evidence whatsoever that Person A has been involved in any

illicit activity, these records suggest an association between Person A, IGR FZE and

Daniel Frosch.

Person A also apparently introduced a Philippine connection to the Daniel Frosch case.

Person A’s response to the cutting tools request provided IGR FZE’s name and its Dubai

address (E.O.C. E2145 Ajman), but a Filipino mobile phone number as a contact.60

3.4 Frosch flees the UAE

On 12 July 2012, the US Treasury designated Daniel Frosch and his UAE company,

International General Resourcing FZE, on the grounds of providing or attempting to

provide material support to Iran’s main ballistic missile producer, the Aerospace Industries

Organisation. The Treasury designation reads:

56 EC21, Company Profile – IGR FZE, http://danielf.en.ec21.com/offer_list.jsp?gubun=B, accessed 31 July 2014. 57 EC21, Company Profile – IGR FZE, http://danielf.en.ec21.com/company_info.jsp, accessed 31 July 2014. 58 Components Electronic, http://www.components-electronic.com/buyer/i9192652-enquiry_lpg_air_conditioner_or_cchp.html, accessed 31 July 2014. 59 Worldscrap, http://intl.worldscrap.com/modules/trade/sell_detail.php?id=17979, 31 July 2014. 60 Worldscrap, http://intl.worldscrap.com/modules/trade/sell_detail.php?id=17979, 31 July 2014.

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Daniel Frosch for several years has shown a steady pattern of providing support to Iran’s

missile program, including Shahid Hemmat Industrial Group (SHIG) and SBIG, by

supplying it with sensitive material. He started dealing with Iran’s missile industry while in

his home country of Austria, under his now defunct company Daniel Frosch Exports. He

moved to the United Arab Emirates (UAE) in 2006, where he continued supporting Iran’s

weapons programs. Frosch has supplied Iran’s missile industry with a wide range of goods,

including electronics, testing equipment, and raw materials such as graphite with potential

applications in Iran’s ballistic missile program. Frosch is the owner of International General

Resourcing FZE, located in the UAE. 61

The Treasury statement implies that at the time of designation, Frosch remained in the

UAE; but whether this was the case or not is unclear.

Certainly, by October 2012, when the Los Angeles Times stated definitively in a profile piece

on Daniel Frosch that ‘he remains in the UAE,’ Frosch was almost certainly in the

Philippines.62

4. Daniel Frosch in the Philippines

Information on Daniel Frosch’s activities in the Philippines is limited, and there is no

evidence on the public record that either Frosch or his associates have conducted any illicit

activity in the Philippines. Still, Frosch himself has stated in a brief online biography that

he spent two years in the country, making it an important part of his story and one that is

worth investigating.63

4.1 Industrial Equipment Service Group (IESG) Trading & General Merchandise

A significant digital footprint left by entities apparently associated with Frosch may

provide insight into the nature of his activity in South-East Asia.

Open source analysis reveals that the Filipino mobile number provided as a contact for

Frosch’s US-sanctioned UAE company, IGR FZE, has also been used by a Filipino

trading company named Industrial Equipment Service Group (IESG) Trading & General

Merchandise (see below).

61 US Department of State, ‘Increasing Sanctions Against Iran,’ http://m.state.gov/md194924.htm accessed 31 July 2014. 62 Shashank Bengali, ‘Shady operator provides glimpse of supply line to Iran,’ Los Angeles Times, 21 October 2012, http://articles.latimes.com/2012/oct/21/world/la-fg-iran-sanctions-20121022, accessed 31 July 2014. 63 ‘Aforius team members,’ http://www.en.aforius.com/who-we-are/members, accessed 31 July 2014.

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This Filipino company, IESG Trading & General Merchandise, has several hallmarks of

previous enterprises of Daniel Frosch. Person A, who was listed online as a contact in the

purchasing department of Frosch’s UAE company, IGR FZE, is also listed as IESG’s sales

contact on multiple trading websites.64

IESG, which states that it was established in 2011,65

even used a similar logo to IGR FZE:66

64 See http://german.alibaba.com/store/109619315; http://www.gasgoo.com/showroom/purchaseiesg/contact-info.html. 65 Philippines Business List, http://www.businesslist.ph/company/264625/iesg-tradinggeneral-merchandise-industrial-tools-and-equiptment, accessed 1 August 2014. 66 Alibaba, http://iesgtrading.trustpass.alibaba.com/, accessed 1 August 2014.

Image source: http://www.businesslist.ph/company/264625/iesg-tradinggeneral-merchandise-industrial-tools-and-

equiptment, accessed 14 July 2014.

Image source: http://intl.worldscrap.com/modules/trade/buy_detail.php?id=11450, accessed 14 July 2014.

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Image sources: http://globalcatalog.com/iesgtradinggeneralmerchandise.ph;

http://web.archive.org/web/20140731155409im_/http://igr.cwsurf.de/HTML/000001.png,

accessed 14 July 2014.

There are further similarities between IESG and past Frosch endeavours. The company’s

location was on a residential street. It advertised using generic Gmail contact addresses.67

The range of products advertised by IESG is also familiar: electronic components,

measuring equipment, machine tools, even ‘production lines and whole plants’.68

It claims

supply links to European and US brands, including Siemens, Schaublin and International

Harvester.69

An archived Alibaba product list shows IESG selling a CNC hydraulic press,

Telemecanique electronic control equipment, and a Rietschle motor.70

IESG Trading even

had an Iranian connection, albeit an innocuous one: it advertised for sale Iranian-origin

pistachio nuts.71

There is no conclusive evidence that links Daniel Frosch to IESG, nor is there any

evidence whatsoever that IESG has been involved in illicit activity of any kind. Still,

IESG’s association with a telephone number and a person apparently associated with

Daniel Frosch, and IESG’s apparent similarities to Frosch’s past enterprises (including the

67 Hello Companies, http://company.hellocompanies.com/english/1122/312469155/IESG-Trading-General-Merchandise-Philippines-Industrial-Equipment-Service-Group.html, accessed 1 July 2014. 68 Tradesoon, http://www.tradesoon.com/supplier/iesg-trading-general-merchandise_18383/about.htm, accessed 1 August 2014. 69 Philippines Business List, http://www.businesslist.ph/company/264625/iesg-tradinggeneral-merchandise-industrial-tools-and-equiptment, accessed 1 August 2014. 70 Alibaba (Google cached version), http://webcache.googleusercontent.com/search?q=cache:mVwYgfLoxwwJ:german.alibaba.com/store/109619315+&cd=1&hl=en&ct=clnk&gl=uk, accessed 1 August 2014. 71 Hello Companies, ‘Pistachios’, http://product.hellocompanies.com/Food-Beverage/1132/313414509/Pistachios-uid-0o5Rpt.html, accessed 1 August 2014.

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US-designated company IGR FZE) suggest at least the possibility that this company is or

was in some way associated with Daniel Frosch.

IESG may also be an ongoing enterprise, although it apparently no longer trades in

industrial goods with potential dual-use utility. An online advert dated in January 2014

apparently shows IESG selling Petrofer-brand industrial lubricants.72

In August 2014,

IESG’s page on Alibaba.com was still advertising machine tools and other dual-use goods,

but as of December 2014, the same page no longer uses IESG as a business name, and only

offers health supplements for sale.73

5. Criminal proceedings against Daniel Frosch

In about November of 2012, apparently after a request by Austrian authorities to their

Filipino counterparts, Daniel Frosch was extradited from the Philippines to Austria.

Reportedly, Frosch’s passport had expired, which would have made his expulsion from the

Philippines legally straightforward. On his return to Austria, Frosch was detained in

Graz-Jakomini prison while Graz prosecutors prepared charges against him for ‘fraudulent

bankruptcy and serious fraud.’74

Three months later, in February of 2013, Frosch was

released on €500,000 bail.75

Frosch’s first criminal trial took place in April of 2013 in Graz’s Straflandesgericht, or

Criminal Court. According to media reporting, the presiding judge stated that Frosch had

caused damages worth €88,000 to his ‘business partner,’ although it is not clear who this

partner is.76

On April 28th, Frosch was sentenced to ten months’ imprisonment and a

suspended sentence of twenty months for fraudulent bankruptcy and serious fraud.77

Prosecutors noted that they were still gathering evidence relating to further possible

violations of Austria’s Kriegsmaterialgesetz and Außenhandelsgesetz – laws relating to foreign

trade and the supply of military material.78

Eight months later, on the 19th

of December 2014, Frosch returned to the Graz Criminal

Court to face charges of violating Austria’s foreign trade laws. Frosch told the Court that

he was unemployed, without any means of income, receiving social welfare and in debt to

the state as a consequence.79

72 Manufacturer365, ‘Supply Cut VG5 H’, http://manufacturer365.com/sell/show-htm-itemid-247504.html, accessed 26 August 2014. 73 http://ae118335541.fm.alibaba.com/company_profile.html, accessed 1 August 2014; 1 January 2015. 74 Wilfried Rombold, ‘Von der CIA gejagter Steirer sitzt in Haft,’ Kleine Zeitung, 19 December 2012, http://www.kleinezeitung.at/steiermark/graz/graz/3194519/cia-gejagter-steirer-sitzt-haft.story, accessed 1 August 2014. 75 Günther Oswald, ‘Steirischer Iran-Exporteur muss in Haft,’ 2 April 2013, Der Standard, http://derstandard.at/1363706699507/Haftstrafe-fuer-Iran-Exporteur-Zehn-Monate-unbedingt, accessed 29 December 2014. 76 Günther Oswald, ‘Steirischer Iran-Exporteur muss in Haft,’ 2 April 2013, Der Standard, http://derstandard.at/1363706699507/Haftstrafe-fuer-Iran-Exporteur-Zehn-Monate-unbedingt, accessed 29 December 2014. 77 Günther Oswald, ‘Steirischer Iran-Exporteur muss in Haft,’ 2 April 2013, Der Standard, http://derstandard.at/1363706699507/Haftstrafe-fuer-Iran-Exporteur-Zehn-Monate-unbedingt, accessed 29 December 2014. 78 Günther Oswald, ‘Steirischer Iran-Exporteur muss in Haft,’ 2 April 2013, Der Standard, http://derstandard.at/1363706699507/Haftstrafe-fuer-Iran-Exporteur-Zehn-Monate-unbedingt, accessed 29 December 2014. 79 Statement by Frosch’s lawyer as described by a representative of Project Alpha who attended the trial of Daniel Frosch, Graz Landesgericht für Strafsachen, 29 December 2014.

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Frosch also confessed to breaking Austrian laws. According to his lawyer:

Mr. Frosch, while he was self-employed as an established export merchant, was

trying to be in accord with the Austrian law to the best of his knowledge. However,

he admits his past failings and that there were some instances where he was involved

in illegal activity. He has only now become aware of the fact that these activities

indeed were against the Austrian federal law and external trade regulations. Mr.

Frosch has understood this and intends to completely withdraw from this type of

business.1

Aided by Frosch’s confession and what the judge described as comprehensive

‘correspondence, e-mails, orders’ proving Frosch’s involvement in illegal activity, the trial

was short. Frosch was found guilty of committing fraud by deception in violation of s.147

of the Austrian Penal Code (Strafgesetzbuch), a crime with a statutory penalty of up to three

years. Frosch was given a fine equivalent to 180 days in custody. 80

6. Analysis and Lessons

The case of Daniel Frosch reveals a number of broader trends in illicit procurement and

international responses to it, as well as providing lessons relevant to counter-proliferation

efforts.

6.1 Global procurement hubs

Frosch’s moves from Austria to the UAE to the Philippines highlight the global

development of supply-side controls over the past decade and the flexible response of illicit

procurers to those controls. Whether intentional or not, each of Frosch’s transnational

moves was to a location with less well-developed export controls against Iran’s proscribed

nuclear and missile programmes. With Austrian law enforcement activity apparently

impeding his business in Graz, Frosch moved to the UAE – and before the UAE had even

enacted its long-awaited export control legislation, Frosch again moved, this time to the

Philippines.

As is the case with many accused of illicit procurement, Frosch was highly adaptable. His

business did not bind him to any particular location: the advent of e-commerce means that

procurers can operate from virtually anywhere so long as they have Internet access.

Frosch’s activities also highlight American efforts to boost supply-side controls worldwide.

In both Austria and the UAE, US authorities pressed local governments to increase their

efforts against Iranian procurement, using Frosch as a reason for action. While these efforts

almost certainly had broader effects on reducing proliferation-related trade in Austria and

the UAE, they were implemented too late to curb Daniel Frosch’s alleged activities.

80 Information provided by a representative of Project Alpha who attended the trial of Daniel Frosch, Graz Landesgericht für Strafsachen, 29 December 2014.

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Dedicated procurers will continue to find loopholes and to structure their businesses in

ways that limit their exposure to law enforcement actions.

6.2 Proliferation in the Philippines

Daniel Frosch is not the only alleged purveyor of dual-use goods to Iran’s proscribed

programmes to have sought refuge in the Philippines. While there is no connection to the

Frosch case, in May 2012, Iranian citizen Parviz Khaki was arrested in the Philippines and

charged in an American court with charged with exporting US-origin goods to Iran,

including goods with utility for Iran’s uranium enrichment programme.81

Prior to his arrest,

a Filipino alleged conspirator of Khaki’s had purportedly stated that she would use

“influential friends…politicians or bigtime businessmen” in the Philippines to help Khaki

evade the law.82

Despite these cases, there is insufficient evidence to suggest that the Philippines has

become a hotspot or hub for illicit WMD-related procurement. Still, the cases of Frosch

and Khaki illustrate the need for the government and private industry of the Philippines –

and across South-East Asia – to remain vigilant for illicit trade in all its forms.

6.3 Cross-jurisdictional and inter-agency issues

Attempts to prosecute Daniel Frosch for alleged export control violations crossed over

multiple jurisdictions and national boundaries, illustrating the difficulties of prosecuting

proliferators across borders. Authorities from at least five countries (Austria, the UAE, US,

Philippines, UK and Israel) were reportedly involved in efforts to follow and ultimately

apprehend Daniel Frosch. Interactions between these countries regarding Frosch were not

always seamless, as the reported miscommunications between Austria and the UAE

showed.

Not only were there issues between national counter-proliferation authorities, there were

inter-agency issues inside them. In Austria, the US, and UAE, efforts to investigate and

prosecute Daniel Frosch required intensive collaboration between different parts of those

governments. Prosecutors in Austria reportedly proved difficult to convince by local

investigators. Daniel Frosch remained able to travel internationally, despite the reported

suggestions of the US State Department to the FBI that Frosch be put on Interpol’s Red

Notice list.

Perhaps the best illustration that cross-jurisdictional enforcement gaps remain is that Daniel

Frosch’s case remains unresolved in the US. American investigations by ICE into Frosch

that reportedly began at least 10 years ago have never resulted in charges in an American

81 See Project Alpha, ‘Khaki-Yi Case Study,’ http://www.kcl.ac.uk/sspp/departments/warstudies/research/groups/csss/alpha/About-proliferation/Case-Studies/Metals-and-Castings/Khaki-Yi.pdf, accessed 14 August 2014. 82 United States v Parviz Khaki and Zongcheng Yi, US District Court for the District of Columbia, 12 July 2012, http://www.iranwatch.org/sites/default/files/us-doj-khaki-yi-indictment.pdf, accessed 14 August 2014.

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court. And perhaps most important for Daniel Frosch himself, he remains on the US

Treasury’s Office of Foreign Assets Control’s designated entities list,83

meaning his

reputation is left clouded and his ability to conduct financial and business affairs in the

international system heavily restricted.

6.4 Lessons for due diligence

Some elements of the activities reported in this case are useful to note as hallmarks that

should raise flags for businesses in their due diligence of export partners.

Residential location: Despite functioning as a multinational machine tool trading outfit,

Daniel Frosch Export was based at a residential address in Graz – a quick Google

Maps search of the area shows no storage facilities or heavy logistical infrastructure,

as might be expected for such a business.

Suspicious email addresses: Frosch-associated companies often solicited business and

responded to enquiries using Gmail or Hotmail e-mail addresses, rather than using

e-mail addresses from a company-owned domain.

Presence in lax export control environment: Export violations and illicit trade can happen

anywhere. But companies should be additionally cautious when dealing with firms

located in countries with limited or developing export control regimes.

Frosch’s case illustrates that due diligence requires thorough and often tedious analytical

effort. The connections between Frosch-associated entities were obscure and difficult to

uncover. In many cases involving illicit trade, these oblique connections are ultimately

discoverable, but can only be found through intensive or time-consuming open source

analysis.

83 US Treasury OFAC, Sanctions List Search, https://sdnsearch.ofac.treas.gov/Details.aspx?id=4384, accessed 29 December 2014.

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