The Multinational Monitor


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Canada's Shady
Nuclear Deals

by Craig Forcese

IN DECEMBER 1994, THE SOUTH KOREAN AGENT retained by Atomic Energy of Canada Ltd. (AECL) to peddle its products to the Korean Electric Power Corporation (KEPCO) was convicted in a Korean court of bribing a senior KEPCO official. The agent, Park Byung Chan, was sentenced to 18 months in prison. KEPCO Chair Ahn Byong-wha was also imprisoned. The convictions marked the end of South Korea's highest profile corruption trial, but questions persist about AECL's knowledge of, or role in, the bribery scheme.

In 1991, AECL, Canada's hard-pressed nuclear parastatal, was energetically pursuing a KEPCO contract that had the potential to land the corporation its second reactor sale to Korea in two years. AECL hired Park, head of Samchang Corporation, a lobbying firm, for his familiarity with Korean business and government practices.

In October 1991, Park delivered two paper bags containing a total of $250,000 to the executive director of KEPCO, Choi Kwan-ki, in the lobby of the Seoul Rivera Hotel and asked that the money be passed on to KEPCO Chair Ahn Byong-wha to "help ensure that construction goes smoothly." News reports say Park later told Korean prosecutors that he acted on behalf of AECL.

Anne McLellan, Canada's Minister of Natural Resources, insists that AECL "had no indication that [Park] was acting contrary to his contractual obligations [to abide by] Canadian and South Korean Laws." AECL spokesperson Rhea Cohen adds that the company "had no prior knowledge of Mr. Park's illegal activities and all dealings with him were immediately suspended" when Korean prosecutors began to investigate him.

In September 1992, a year after Park's delivery, then-Canadian Minister of International Trade Michael Wilson announced that AECL had won the bid to build Wolsong 3 and 4. These two additional reactors supplemented the two AECL Canadian Deuterium Uranium (CANDU) reactors already constructed for KEPCO at the Wolsong site near Pusan in 1976 and 1991.

Wilson touted the sale as "an excellent illustration of Canada's ability to compete in the global high technology marketplace, which will give a substantial boost to the Canadian nuclear industry's prospects for future prosperity."

These and other foreign sales are critical to AECL's survival. AECL's 1994 annual report says that it "has been concentrating its marketing thrust abroad" and that, "encouraged by the momentum gained by the success in South Korea, its top priority is the next sale of a CANDU reactor."

It is AECL's apparent desperation to export its product abroad that tempts the company to engage in dubious business practices, critics contend. Too often, this pressure has resulted in reactor sales to unsavory regimes with poor nuclear non-proliferation standards.

A shady past

AECL was never questioned by South Korean officials over its role in the Park affair. Canadian officials have asked that AECL be given the benefit of the doubt in the Korean scandal, arguing that the company should not be presumed guilty simply because of its its association with Park. But critics such as Norm Rubin of Toronto-based Energy Probe say the corporation's controversial 43-year history does little to inspire confidence in AECL. "AECL has a very long and sorry history of shady deals," Rubin says.

AECL's 1975 sale of a CANDU reactor to South Korea, for example, involved a mysterious disbursement of $18 million to its on-site agent, Shaul Eisenburg, without any vouchers, financial records or adequate explanations of how these funds were spent. Eisenburg -- fingered in 1992 by Newsweek as the agent brokering covert sales of Israeli weapons to China and Iran -- could account for only a small portion of these funds. This omission prompted what Kenneth Dye, Canada's Auditor General between 1981 and 1991, calls the "legendary" 1976 Auditor General's fraud investigation into an "uncooperative, misleading and evasive" AECL.

AECL's reactor sale to Argentina's military dictators in 1973 was controversial for similar reasons. In 1976, Canada's Auditor General found that AECL deposited $2.5 million in an unnamed Swiss bank account for undisclosed reasons. An Argentine investigation, launched in 1985 after the fall of the junta, would later reveal that the account's owner was former Argentine Energy Minister José Ber Gelbard, the official who administered the AECL contract.

In 1977, AECL was called upon to explain the Korean and Argentine disbursements to the Public Accounts Committee of the Canadian Parliament. The committee lacked the power to compel testimony and was unable to establish the ownership of the Swiss bank account. However, the presiding Parliamentarians noted that some AECL officials were evasive and failed "to answer questions fully and ... [failed to] display a cooperative attitude." It concluded, as a consequence, that "some of the payments [made to agents] were indeed used for illegal or corrupt purposes."

After the scandalous revelations of the mid-1970s, the Canadian government compelled AECL to begin disclosing agent fees and to sign agreements with agents that oblige them to abide by the laws of Canada and the purchasing country. This measure was intended to rein in AECL's questionable foreign dealings and to bring the more than $38 million that AECL had spent on agent fees since the 1970s into line with the business norms expected of a publicly-owned company.

Canadian officials say that they are satisfied that these safeguards were met in the recent South Korea case and that AECL acted properly.

But Gordon Edwards, president of the Montreal-based Canadian Coalition for Nuclear Responsibility, rejects this view. "There's little doubt that AECL would do anything it considered necessary to get a deal," says Edwards. "AECL has simply let it be known with a wink and a nod that they don't really want to know how the money is being spent. This is a direct incitation to, and encouragement of, illegal behavior."

Former Canadian Auditor General Kenneth Dye is also skeptical and says that the Crown corporation's foreign tactics are all too common. "The strategy [for many firms in the Third World] is to deal with agents where the Canadians don't have to know what goes on behind the facade of the agent," Dye said in a May 1995 interview with the Canadian Broadcasting Corporation (CBC). "The agent does whatever is done in these developing countries and the Canadian is blissfully unaware."

This time around, with AECL claiming that the money given Park was earmarked for legitimate business promotion activities, it is unlikely that Office of the Auditor General is in a position to blow the whistle and establish whether AECL had foreknowledge of Park's activities. A spokesperson for the Auditor General office says that unless AECL's spending is out of line with the fees it says it paid its agents, there is little the Auditor General can do to answer questions about whether AECL knew about Park's shenanigans.

AECL Countdown

With no reactor sales in North America since 1978, its subsidies from the federal government potentially expiring in 1997, and its major Canadian utility customer -- Ontario Hydro -- groaning under reactor cost overruns, costly breakdowns and energy surpluses, AECL is likely to become even more dependent on the emerging markets in Asia and Latin America to bolster its fortunes. In recent years, the Crown corporation has done its best to move into these regions.

In 1993, in the wake of its Korean sale, AECL:
* Prepared a bid on a Turkish turn-key project with its partners, John Brown Engineers, Netherlands-based Constructors BV Europe and the Turkish construction firms GAMA and GURIS;
* Hooked up to sell reactors to Egypt with Bechtel Inc. -- which the Federal Bureau of Investigation investigated in 1984, but never charged, for allegedly bribing South Korean utility officials;
* Explored sales in Indonesia, Thailand, the Netherlands, the Philippines and the United States.

In November 1994, just before Park's conviction in South Korea, AECL announced an agreement in principle that could lead to the sale of two CANDU reactors to China for $2.7 billion. These reactors account for almost half of the $6 billion in trade deals brokered during the Chinese visit of Canadian Prime Minister Jean Chrétien and nine of 10 Canadian provincial premiers.

Team Canada -- as this high-powered trade team came to be known -- also visited Latin America in January 1995. CANDU reactor sales were again part of the agenda, prompting outcries from South American environmentalists. The Argentine environmental group FUNAM staged protests against Canadian "nuclear colonialism," renewing criticism of the serious accidents that occurred at Argentina's first CANDU reactor in 1982 and 1987. Greenpeace Southern Cone also denounced Team Canada's potentially "dangerous transfer of nuclear technology."

Environmentalists in Argentina and Chile also accused Canada of pressuring Chilean officials into purchasing CANDUs in return for Canadian support during Chile's bid to enter the North American Free Trade Agreement. In January 1995, Agence France-Presse reported that the Canadian government and unnamed Canadian companies would build a 700-megawatt reactor in northern Chile.

Trade uber alles

Team Canada's trade mission to China was denounced by Canadian human rights and social justice groups for overlooking human rights issues in China. But human rights have never been high on AECL's priority list, critics contend.

"AECL seems to make very few sales to desirable customers," says Energy Probe's Rubin. "Most sales are to countries, like China, where access to information is limited," preventing people from learning about the reactors or voicing opposition.

AECL's overseas clients during the 1970s and 1980s included what were then some of the world's more unsavory regimes: Argentina, South Korea, Romania and Pakistan.

AECL's first overseas delivery was to India in 1956. It is widely believed that AECL's NRX reactor provided India with the plutonium required to build the nuclear bomb that it exploded in 1974. Canada broke off nuclear ties with India soon after the explosion, leaving India with the NRX facility and two CANDUs. Canada also broke off nuclear ties with Pakistan in 1977 -- some six years after India's arch rival fired up its own AECL CANDU reactor.

Romania's reactor, purchased by the Ceausescu regime in the late 1970s, was built by what Gordon Edwards of the Canadian Coalition for Nuclear Responsibility calls "virtual slave labor." AECL has conceded that military conscripts were employed on the project and that working conditions were poor. The reactor has yet to be completed, though work continues. AECL's partner in this venture is the Italian state-owned engineering company Ansaldo. In an Italian corruption investigation in September 1994, Giorgio Tradati, a close confidant of former Prime Minister Bettino Craxi, was arrested and charged with accepting a $610,000 bribe from Ansaldo for Italy's then-ruling Socialist Party.

The right stuff

A ECL's choice of foreign clients is particularly disturbing given that CANDU reactors are ideally suited to producing bomb-grade plutonium. "CANDU reactors are heavy-water reactors that are an outgrowth of reactors designed to make bomb-grade plutonium," says Bill Robinson of Ontario-based Project Ploughshares. "Their particular advantage for bomb-grade production is that they permit on-line refueling during operation. This makes them less efficient for power, but makes low burn-up of the fuel easier." Low fuel burn-up maximizes the concentration of plutonium-239, the key ingredient in nuclear weapons.

Government officials concede that plutonium can be extracted from AECL reactors, but discount fears that CANDUs might be used to produce nuclear weapons. "All CANDU reactors are governed by International Atomic Energy Agency (IAEA) safeguards," says Ariel Delouya, a spokesperson for Canada's Foreign Affairs Department. "Attempts to divert spent fuel for a weapons program would immediately be detected" by International Atomic Energy Agency (IAEA) inspection systems.

The IAEA keeps close inventories on nuclear fuel inputs, outputs and storage to prevent diversion of plutonium into weapons programs. But critics contend that these safeguards are inadequate. The Washington, D.C.-based Nuclear Control Institute reports that "when IAEA safeguards are actually applied to commercial-scale nuclear fuel facilities, the agency's accounting methods could miss the diversion of dozens of weapons' worth of nuclear material a year."

CANDU on-line refueling, which allows fuel to be moved about anytime rather than at select fueling periods, makes effective monitoring of spent fuel more difficult. "You have to have automated safeguards like cameras," says Rubin. "And if the cameras mysteriously go off for several hours, you don't know what happens to the fuel."

If IAEA skeptics are right, AECL's most recent overseas sales bid could prove worrisome. China, which the United States bars from its nuclear technology sales, has been accused of transferring nuclear know-how to Pakistan, Iran and Iraq, despite its membership in the Non-Proliferation Treaty. China has also resisted the international ban on nuclear weapons testing.

Despite these concerns, "reactor sales to China raise no difficulty for Canada," says the Foreign Affairs Department's Delouya. "China has signed an agreement with Canada pledging to use [Canadian] nuclear energy for peaceful, non-explosive purposes only." This agreement "takes China further down the non-proliferation route than any other bilateral agreement the Chinese have entered into," adds a spokesperson for the Natural Resources ministry.

But Edwards worries that AECL is not really committed to non-proliferation safeguards. "AECL is so desperate for any kind of sale that they are willing to countenance all sorts of irregularities," he says. "In fact, in the past they have advocated openly for the relaxation of non-proliferation standards because it hinders sales."

AECL spokesperson Rhea Cohen says the company has never "pushed to sell reactors to countries that have not concluded non-proliferation agreements with Canada." The Ministry of Natural Resources spokesperson adds that AECL "has never entered into an action to lobby the government to change its non-proliferation standards." The spokesperson acknowledges, however, that "AECL has certainly asked for approval to enter into trade with countries we [Canada] have not been able to get nuclear cooperation agreements with" and, in the 1970s, asked the government to assist overseas sales by pledging to stop strengthening safeguard regulations governing overseas nuclear cooperation.

Some peace and environmental activists wonder whether Canada will go one step further and roll back its current nuclear safeguard regulations. "There are low-level discussions [between Canada and India] about renewing co-operation," notes Robinson of Project Ploughshares. "AECL has had discussions about repair work on Indian CANDUs and at the back of those discussions is the possibility of future CANDU sales to India. It's a major loosening of restrictions to be dealing with a country that has never lived up to its commitments to Canada on non-proliferation."

In April 1995, the Canadian government announced that design flaws in India's CANDU reactors might cause "a Three-Mile Island repetition or a Chernobyl" and that Canada might enter into technical assistance talks with India. The Ministry of Natural Resources spokesperson does not deny that attempts to make additional reactor sales could accompany renewed nuclear cooperation with India.

Business as usual

AECL President Reid Morgan does not hold his corporation responsible for evaluating the ethical implications of its sales to suspect clients. "It's for the Canadian government to decide whether we are able to enter a particular marketplace," Morgan told CBC radio in May 1995. "They've made the judgment that the Chinese government is one with which we may do business. And so that's what we're doing."

"AECL practices regarding dealing with foreign agents ... are sound, responsible and compare favorably with those of other companies doing business in the international market," adds Rhea Cohen.

Critics say that nothing has been done to prevent the Korean bribery problems from recurring in AECL's dealings in China. "It is a matter of common knowledge that today's China is one of the most corrupt societies in the world," says Rubin. "Coincidentally or not, the countries and markets where AECL finds its friendliest customers seem to be the countries with the most corrupt officials making the decisions about whether to buy reactors."

Corporate Welfare at AECL

ATOMIC ENERGY OF CANADA LIMITED'S (AECL) sacrosanct status has helped it weather controversy, critics contend. Despite deep public spending cuts this year, "the Canadian Minister of Finance, Paul Martin, declared that AECL is not on the table in terms of cutting subsidies," says Gordon Edwards of the Canadian Coalition for Nuclear Responsibility. "Yet AECL receives more than twice the subsidies of all other energy sector players combined."

"AECL's lack of public accountability, and the lack of public debate in the House of Commons on giving AECL such a free hand with money, is very unhealthy," argues Edwards. "The government of Canada owns AECL and is pro-nuclear. Without the government, there would be no Canadian nuclear industry."

Edwards attributes AECL's influence to the former AECL staffers and scientists who now hold senior positions at the Ministry of Natural Resources, the ministry charged with AECL oversight. Nor does Edwards discount the influence of such industry giants as Westinghouse and Babcock and Wilcox -- which supply equipment used in CANDU projects.

Yet some critics say the present climate of fiscal restraint in Canada will affect AECL as popular government programs in health, education and social services are cut. In April 1997, the money allocated to AECL by the government of former-Prime Minister Brian Mulroney will dry up, unless it is renewed by the present government. That may be the time, says Norm Rubin of Toronto-based Energy Probe, "when this rather aging infant industry will be asked to act like a grownup."

A Ministry of Natural Resource spokesperson says the department is reviewing "the whole area of AECL funding to see if there are changes that, while ensuring AECL remains viable, reduce the cost to the government."

Rubin and other critics doubts AECL could survive without its $128 million annual subsidy. Historically, even AECL reactor sales to overseas clients have been underwritten by soft financing and Canadian government loans to the purchaser, notes Ron Finch in his book Exporting Danger. Many of these loans were never repaid.

Estimates on total government subsidies to AECL vary enormously. Greenpeace Canada puts the figure at $10.5 billion when unrepaid Canadian government loans made in the 1970s to Argentina and Korea are factored in. Another estimate cited in the Lermer report, a 1987 study funded by the Economic Council of Canada, suggests that taxpayers have paid a whopping $13.5 billion to AECL over its lifetime.

The public outlay to AECL may increase further if Canadian Auditor General L. Denis Desautels's 1993 report is right. The Auditor General predicts that the reactor decommissioning and site remediation costs AECL routinely omits from its liability statements may eventually result in "a significantly increased demand on government resources."

David Argue, an economist specializing in energy and utilities, says that AECL's failure to include these massive costs in its liabilities statements suggests that the corporation is not financially viable. "This is a company whose liabilities far exceed its assets, which is the definition of bankrupt," Argue told CBC radio in May 1995. Argue predicts that AECL will eventually turn to the federal government for a major bailout.

AECL and Ministry of Natural Resources officials dispute their critics' figures, pointing to a 1993 report by Ernst and Young that suggests that the Canadian nuclear industry has provided a five-fold return on what it calculated to be the government's $3 billion investment over the last 30 years.

The Natural Resources Ministry also disputes the methodology of the Lermer report. "In the ministry's estimation, the costs of the nuclear program compared to the benefits to the Canadian economy -- even with decommissioning taken into account -- will be quite small," a ministry spokesperson says.

-- C.F.

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