March 22, 2012 / 11:36 AM / 8 years ago

UPDATE 2-SPECIAL REPORT-Chinese firm helps Iran spy on citizens

By Steve Stecklow	
    March 22 (Reuters) - A Chinese telecommunications equipment
company has sold Iran's largest telecom firm a powerful
surveillance system capable of monitoring landline, mobile and
internet communications, interviews and contract documents show.	
    The system was part of a 98.6 million euro ($130.6 million)
contract for networking equipment supplied by Shenzhen,
China-based ZTE Corp  to the
Telecommunication Co of Iran (TCI), according to the documents.
Government-controlled TCI has a near monopoly on Iran's landline
telephone services and much of Iran's internet traffic is
required to flow through its network.	
    The ZTE-TCI deal, signed in December 2010, illustrates how
despite tightening global sanctions, Iran still manages to
obtain sophisticated technology, including systems that can be
used to crack down on dissidents.	
    Human rights groups say they have documented numerous cases
in which the Iranian government tracked down and arrested
critics by monitoring their telephone calls or internet
activities. Iran this month set up a Supreme Council of
Cyberspace, headed by President Mahmoud Ahmadinejad, who said it
would protect "against internet evils," according to Iranian
state television.	
    Mahmoud Tadjallimehr, a former telecommunications project
manager in Iran who has worked for major European and Chinese
equipment makers, said the ZTE system supplied to TCI was
"country-wide" and was "far more capable of monitoring citizens
than I have ever seen in other equipment" sold by other
companies to Iran. He said its capabilities included being able
"to locate users, intercept their voice, text messaging ...
emails, chat conversations or web access."	
    The ZTE-TCI documents also disclose a backdoor way Iran
apparently obtains U.S. technology despite a longtime American
ban on non-humanitarian sales to Iran - by purchasing them
through a Chinese company.	
    ZTE's 907-page "Packing List," dated July 24, 2011, includes
hardware and software products from some of America's best-known
tech companies, including Microsoft Corp,
Hewlett-Packard Co, Oracle Corp, Cisco Systems
Inc, Dell Inc, Juniper Networks Inc 
and Symantec Corp.	
    ZTE has partnerships with some of the U.S. firms. In
interviews, all of the companies said they had no knowledge of
the TCI deal. Several - including HP, Dell, Cisco and Juniper -
said in statements they were launching internal investigations
after learning about the contract from Reuters.	
    Li Erjian, a ZTE spokesman in China, said his company only
sells "standard" equipment to Iran. "Our main focus for business
in Iran is to provide standard communications and network
solutions for commercial use to help operators upgrade their
    "We are a small scale telecommunication equipment supplier
in the Iran market. We sell standard equipment in Iran as we do
globally," he wrote in an email. 	
    TCI officials in Tehran either didn't respond to requests
for comment or could not be reached. 	
    The United States, Europe and many Arab countries accuse
Iran of attempting to develop nuclear weapons, which Iran
denies. But Beijing, along with Moscow, has repeatedly vetoed
attempts to strengthen sanctions against Tehran. China is Iran's
largest trading partner with business between the countries
surpassing $45 billion last year, up $16 billion from 2010,
according to Iran's FARS news agency.	
    ZTE, China's second largest telecom equipment maker, is
publicly traded but its largest shareholder is a Chinese
state-owned enterprise. The fast-growing firm, which says it
sells equipment to more than 500 carriers in more than 160
countries, reported annual revenue of $10.6 billion in 2010.	
    TCI is owned by the Iranian government and a private
consortium with reported ties to Iran's elite special-forces
unit, the Islamic Revolutionary Guards Corps.	
    In a recent interview Mahmoud Khosravi, managing director of
Iran's government-controlled Telecommunications Infrastructure
Co., boasted that sanctions have had no effect on Iran's telecom
industry. "We have the latest technology in our networks," he
    Sanctions on Iran have focused on banking, terrorism, Iran's
oil industry, and individuals and companies that Western
capitals believe are involved in the country's nuclear
development program, which Iran maintains is peaceful. Although
sanctions have not specifically targeted Iran's
telecommunications industry, its future growth is expected to
suffer from "severe fluctuations in the currency, the rial, as
international sanctions begin to impact the economy," according
to a report this month by Pyramid Research in Cambridge, Mass.	
    Last month, European Union diplomats said the bloc's 27
governments had reached an agreement in principle to target
telecommunications equipment that can be used by Iranian
authorities for monitoring anti-government dissent. But no final
decision has been made and there is no target date for
implementing such a ban.	
    Like most countries, including the United States, Iran
requires telephone operators to provide law enforcement
authorities with access to communications. Some telecoms
equipment makers that previously provided Iran with gear capable
of intercepting communications have cut back sales. 	
    After Iran's controversial election in June 2009 sparked the
country's biggest demonstrations in decades, Ericsson and Nokia
Siemens Networks, a joint venture between Nokia and Siemens,
said they would reduce their business there. NSN had provided
TCI with a monitoring center capable of intercepting and
recording voice calls on its landline and mobile network.
Ericsson had sold equipment to Iranian telecoms that included
built-in interception capabilities. 	
    Even the giant Chinese telecommunications equipment firm
Huawei Technologies said it has curtailed new business
in Iran. In August 2009, Huawei and British company Creativity
Software beat out ZTE to win a contract to supply Iran's second
largest mobile phone carrier, MTN Irancell, with a
"location-based services" system, according to a press release
from Creativity. 	
    Such systems can be used to track phone users' whereabouts.
Last December Huawei said that "due to the increasingly complex
situation in Iran, Huawei will voluntarily restrict its business
development there by no longer seeking new customers and
limiting its business activities with existing customers."	
    ZTE's pursuit of the surveillance market is no secret. Its
subsidiary, ZTE Special Equipment Co., or ZTEsec, specializes in
security and surveillance systems and often co-sponsors an
international trade show called ISS World where companies peddle
their wares to governments and law-enforcement agencies.
According to the trade show's website, a ZTEsec official gave a
training seminar in Brazil last July on "ZTEsec Deep Insight
Solution - Comprehensive and Intelligent Interception Solution."	
    The packing list for ZTE's TCI contract refers to "Equipment
Model: ZXMT," a system the Chinese firm's marketing documents
refer to as an "integrated monitoring system" and a "turnkey
solution for lawful interception" that simultaneously monitors
telephone networks and the internet.	
    Reuters asked project manager Tadjallimehr and a former ZTE
network engineer who helped to install the ZXMT system in
another country to review the ZTE packing list. Both men said
that among the items were parts for a surveillance system that
can monitor voice, text messaging and internet communications.
The former ZTE employee said the system does not use any
U.S.-made parts or software.	
    Both men said the ZXMT system utilizes "deep packet
inspection," a powerful and potentially intrusive technology
that can read and analyze "packets" of data that travel across
the internet. The technology can be used to track internet
users, search for and reconstruct email messages that have been
broken up into data packets, block certain types of traffic and
even deliver altered web pages to users.	
    Andrew Lewman, executive director of The Tor Project, which
distributes software so that dissidents in places like Iran and
China can surf the internet undetected, says the group has
collected evidence showing that Iran has been using deep packet
inspection since 2010 to monitor and block internet traffic.	
    "They seem to be rolling it out countrywide and they seem to
be willing to experiment with blocking more and more traffic,"
said Lewman, the project's executive director.	
    Tor, which has nearly 50,000 daily users in Iran, repeatedly
has had to tweak its circumvention technology to outfox Iranian
censors. Lewman said after using deep packet inspection to
isolate and block specific traffic like Google's Gmail, the
Iranian government can then record every online request for the
service and trace individual users. "They can figure out the
households," he said.	
    ZTE markets its monitoring system as low-cost and
user-friendly. In May 2008, the firm made a presentation to the
government-controlled Iran Telecommunication Research Center
about its latest networking products, including the "ZTE Lawful
Intercept Solution," according to Privacy International, a
London-based non-profit that advocates the right to privacy and
obtained a copy of the presentation. 	
    In a 91-page document called "Talking to the future," ZTE
noted that its ZXMT system was applicable to military and
national security agencies. Citing "10 Reasons to Select ZXMT,"
it said the system offered "High security and good secrecy" and
was "Invisible to the targets."	
    The ZTE parts list includes items apparently not connected
with its surveillance system. Among them are the U.S. products,
including HP computer parts and printers, Microsoft Windows
software, Cisco switches, Dell flat-screen monitors, Oracle
database products and Symantec anti-virus software.	
    According to a spokesman for the U.S. Treasury Dept., a U.S.
company would violate sanctions "if it exports products
requiring a license to a third party with the knowledge that its
products will end up in Iran."	
    In the case of the U.S. products on the ZTE packing list,
many - and possibly all - do not require an export license and
the companies say they did not know they were being shipped to
Iran. Several said their agreements with foreign companies like
ZTE stipulate that their products cannot be distributed to
embargoed countries.	
    For example, an HP spokesperson said, "HP's distribution
contract terms prohibit the sale of HP products into Iran ... As
a matter of company policy, HP investigates any credible
allegations of breaches of these contractual obligations by our
partners or resellers and we are actively examining this
    Cisco said, "Products such as these, which are not subject
to individual export licenses, can be purchased from
distributors and resold without Cisco's knowledge or control. We
continue to investigate this matter, as any violation of U.S.
export controls is a very serious matter."	
    ZTE'S contract with TCI is also signed by ZTE's Iranian
subsidiary, ZTE Parsian, and another Chinese company - Beijing
8-Star International Co., which the documents state is
responsible for providing certain "relevant third-party
equipments." Reuters did not have access to an annex to the
contract that identified the third-party products to be supplied
by Beijing 8-Star. 	
    A Reuters reporter recently visited the company's office in
eastern Beijing. Two male workers there described Beijing 8-Star
as a trading company with business all over the world. The
otherwise sparse office contained several crates of French wine
marked Bordeaux, which the workers said had been imported from
    A man who answered the phone at Beijing 8-Star declined to
answer any questions about the Iranian contract or confirm his
identity. "This part of my company's business is a commercial
secret," he said, adding, "I think on this matter, you'd better
not ask me. Because it's my commercial secret, I don't wish to
tell you."
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