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VIENNA, May 12 (Reuters) - A confidential new report by a U.N. panel highlights Iran's methods of evading sanctions - from concealing titanium tubes inside steel pipes to using its petrochemical industry as a cover to obtain items for a heavy-water nuclear reactor.
The latest report by the U.N. Panel of Experts, which monitors compliance with the Security Council's sanctions regime on Iran, said Tehran's attempts to illicitly procure materials for its disputed nuclear and missile programmes may have slowed down as it pursues talks on a long-term deal with world powers.
But the experts' report, which reached the Security Council's Iran sanctions committee days ahead of a new round of Vienna talks between Iran and six world powers, said an alternative explanation could be that Tehran had merely learned how to outsmart security and intelligence services in acquiring sensitive components and materials.
Though Iran insists its nuclear activities are for peaceful purposes, Western powers and their allies suspect the country of trying to develop a nuclear weapons capability.
Hamid Babaei, spokesman for Iran's UN mission, said: "Iran's procurement for its peaceful nuclear activities are not illicit; all Iran has done so far is in compliance with its NPT (Nuclear Non-Proliferation Treaty) rights and obligations ... The irony is whatever Iran does in good faith still tends to be seen with suspicion rather than normal behavior of an NPT member."
One example of concealment given by the panel's report was a set of titanium tubes hidden inside a shipment of stainless steel pipes manufactured in and shipped from China. The pipes were ordered by Ocean Lotka International Shipping and Forwarding Co. on Valiasr St. in Tehran.
The report, seen by Reuters, includes a photo of 10 titanium tubes snugly fitted inside steel piping. The report provides no details of the potential nuclear applications of the titanium tubes, noting only that "the Panel's investigation into this reported incident is ongoing".
The experts recommend that governments exercise greater vigilance over freight-forwarding firms, which often appear as the ordering party on shipments of items destined for Iran. While such practices are not necessarily illegal, the panel says Tehran could use them to conceal final destinations or uses.
"In three cases inspected under the current mandate, names of freight forwarders were recorded on shipping documentation in the place of consignors or consignees," the report said.
"The Panel notes that the International Freight Forwarders Association (FIATA) has issued a notice to its members warning about the increased use of counterfeit Bills of Lading in connection with shipments to and from Iran," it added.
Another example of deception the experts have focused on for the past two years is efforts by Iran to obtain German and Indian valves for its heavy-water reactor at Arak, a plant that has proven to be a major sticking point in Tehran's nuclear negotiations with the six powers. A case involving valves is currently under investigation in Germany, the expert panel notes.
That case centres on the procurement of 1,767 valves for Modern Industries Technique Company (MITEC) - which has been under U.N. sanctions since 2010 due to its work on the Arak reactor - from 2007 though 2011. According to the experts' 2013 report, 1,163 valves appear to have reached the company.
The annual report includes a document related to the valves that shows how Iran used its legitimate petrochemical industry activities as a cover for procurement for the Arak project in violation of U.N. sanctions. The panel says the document "came from the computer of an Iranian national who was responsible for overseeing the procurement network".
It said German prosecutors gave the document to the panel.
If the Arak reactor goes online in its current form, it will yield significant amounts of weapons-grade plutonium, but the document merely explains how it would produce radioisotopes that could be used in "radiation processing, radiation therapy, radiography, scanning and tracer purposes and other peaceful applications of nuclear energy".
The owner of the Arak project, according to the document, is "Chemical & Petrochemical Company" with "MEC Engineering & Construction" listed as a consultant.
The United States and its European allies want Iran to either scrap the project or convert it to a non-threatening light-water reactor. Tehran has hinted that it would not oppose modifying the plant.
Iran does need valves for its petrochemical industry, for "which Iran has an established demand", according to the panel's report. But that makes the job of detecting illicit procurement even more difficult, the experts add.
"This further complicates efforts to understand which items may be for prohibited purposes," the panel says, noting that the Arak case "highlights the issue of Iran's use of a petrochemical company as cover for procurement".
The experts also cite a January media report on Khatam al-Anbiya Construction Company (KAA), which is on the U.N. blacklist for supporting Iran's nuclear programme, and cites its links to the construction of a uranium enrichment facility at Fordow that Western powers would like to see shut down.
The media report, which several Western diplomats said was supported by intelligence, said the Special Economic Directives Division of Iran's Supreme National Security Council had issued a directive in 2013 ordering that Iranian banks and state firms facilitate the creation of new front companies linked to KAA in order to assist the Revolutionary Guards in evading U.N. and other sanctions.
"The order, which was issued in April 2013, is reportedly intended to obscure the relationship of such companies to Khatam al-Anbiya and make the activities of the company appear innocent," the report said.
One Western diplomat told Reuters that the April 2013 directive remained in effect well after Iran's new pragmatist President Hassan Rouhani took office in August. (Editing by Will Waterman)