In 2003 President George W. Bush called on members of the United Nations General Assembly (UNGA) to pursue more targeted forms of sanctions that would prevent sub-state and non-state actors from acquiring Weapons of Mass Destruction (WMD). Out of this came United Nations Security Council (UNSC) Resolution 1540. UNSC Resolution 1540 (simply ‘1540’ below) does not replace any existing nonproliferation treaties or sanctions, but criminalizes a wide variety of activities associated with proliferation activity: the sale, transport, transfer of weapons, weapons parts, fuel etc., It is modeled on a similar resolution (UNSC Resolution 1373) aimed at terrorism support, but brings to focus WMDs and includes targeting financial activity that results or intends to support WMD.1 The efforts to use explicit sanctions on banks, companies and individuals is new, and has introduced a new field of transnational economic statecraft: counter-proliferation finance.2
The case studies of known proliferation are few but have been studied as intensely as one can a clandestine and relatively rare practice can be. The case of Iraq, Iran, Pakistan and North Korean proliferation schemes vary somewhat in style, scope, timing and result, but there do seem to be a few common practices.
There are three phases of activity that comprise “Finance of Proliferation (FoP).” The first phase involves raising money for the illicit program.3 North Korea fund-raised by forging US currency, drug trafficking and arms sales. A defector, speaking to ABC news in January of this year valued the illicit trade between “$500 million…to $US2 billion,” annually.4
The second phase involves obscuring the origin of the money. The practice here is the reverse of typical money laundering. Instead of taking dirty money and cleaning it for use on in the white market, money is intended for a black market. If the proliferator seeks to acquire material for a clandestine WMD program, it will take money acquired legally, and move it through a network of small agents, into the larger foreign financial system, then use that money to pay intermediaries and pay for illegal activities. Iraq, Iran and Libya needed to “dirty” money in order to buy illegal proliferation goods (missile or uranium processing parts, centrifuges) from western countries. They would have no such need if they were buying from another willing proliferator like AQ Khan in Pakistan, or North Korea.5 This phase presumes that the proliferation activity is procurement and not sales. North Korea and the Pakistan through AQ Khan engaged in both sales and purchase of proliferation goods.
A third phase involves the procurement of materials. With money now off-shored, “international financial institutions (FIs) will be involved in processing the related transactions.”6 A clever criminal might move the money between one knowingly complicit FI through a series of other FIs to further obscure the ignominious source of the funds and use the improved reputation of an unwitting international bank to move larger sums, pay intermediaries or pay companies for dual-use parts. Dual-use parts are pieces of equipment, materials or parts that can be used for making weapons or used for otherwise legitimate manufacturing purposes. A chilling example of a dual-use product is isopropyl alcohol. The same kind of alcohol (but in much higher concentrations) that are found in most American cupboards is considered a sarin-gas precursor. The website bellingcat.com recently revealed that (perhaps unwittingly), a Belgian company illegally shipped 96 Tonnes of isopropyl alcohol to Syria. The only explanation offered is by Belgian Customs is “that the appropriate export licenses had not been submitted by the companies after the chemicals had already been exported to Syria.”7 It is these kinds of events that raise suspicion to investigating agencies and bodies like the Financial Action Task Force (FATF). There is most certainly a set of financial transactions that surround the event which may help uncover a Syrian-based WMD proliferation finance network. AQ Khan’s network was uncovered when, “several tens of centrifuge components were discovered on their way to Libya,” in a German ship in 2003.8
The major organization that has the most appropriate mandate for counter-proliferation finance, to combat such actions and punish the culprits with legal action, is the FATF. While they were first created to track money laundering, they have developed additional capacities, namely tracking and countering drug trade, proliferation finance, as well as other illicit activities. Following money back froma trusted source, such as a major global bank, to smaller, regional and local banks can be quite challenging. FATF’s mission crosses 35 jurisdictions. Then again finance tends to cross jurisdictions just as readily. As technology has improved and diffused globally and the ease of moving goods and materials across the planet has grown, their role has increased to include following the money of possible proliferators and see where the weapons are being sold, who is selling them, and who is buying them. This would allow for further economic sanctions to be put in place and it would also enable international law enforcement to understand who they should investigate and potentially place on trial. The FATF is also able to place restrictions on financial actions that countries such as North Korea can take. They can’t engage in selling or purchasing weapons, they can’t engage in wire transfers for anything that could be related to a weapons program, and they can’t fund any projects that would lead to the development of such weapons 9. Rules such as these allow the FATF to set the rules that these counties must follow and also to enforce them whenever there are countries that are found to be going against the rules put into place by the FATF.
Created in 1989 by the G-710, the FATF now claims 37 member states, covering 35 jurisdictions and is supported by 23 of the largest international organizations, including the UNSC and the Egmont Group.11Egmont Group bills itself as “united body of 155 Financial Intelligence Units”12who share the FATFs mission of combatting money laundering and financial terrorism. The effort to combat CPF by the FATF did not enter into their recommendations until 2012 according to researchers at Royal United Services Institute.13 Another at the Center for New American Security notes that the FATF created a “typologies” report— it explains different examples or types of proliferation finance systems and transactions—was published in 2008 and that “only two of forty FATF Standards published in 2012 address the FoP threat.”14
Iran and North Korea are two countries that have been at the focal point of those investigating proliferation financing. They have both been working to develop nuclear weapon programs for decades. When Democratic People’s Republic of Korea (DPRK) was pressed by IAEA inspectors during the 1990s, they toyed with them, attempting to earn more and more concessions for cooperation. Ultimately they dropped out of the NPT in 2003.15 North Korea started their program in the 1960s but seriously started working towards developing nuclear weapons in the 1980s. Iran began to look into creating a nuclear weapon during the 1980s.16These are both countries with leaders that the majority of countries don’t trust and believe would possibly approve of actually using such weapons. There is also wide consensus that the spread of nuclear weapons should cease. To prevent these two countries from developing their nuclear programs any further than they already have, several international organizations as well as numerous individual countries have placed sanctions on North Korea. There are also US sanctions against Iran although most other countries are still following the Joint Comprehensive Plan of Action. This agreement lifted the sanctions as long as Iran promised to only pursue nuclear power and there was no evidence of nuclear weapons development. The US has since backed out of that agreement. North Korea and Iran are two major targets in the West’s fight against in proliferation finance. The sanctions pressure that lead to the JCPOA was broadly considered successful, whereas no such set of restrictions seem to have truly prevented North Korea from acquiring nuclear weapons technology.
A great example is the Chinpo case. Chinpo was a Singaporean shipping company that was discovered to have been shipping arms from Cuba to North Korea. This was clearly against the sanctions and benefited from North Korea’s experience with proliferation financing.17 There have been numerous cases regarding Southeast Asian shipping companies helping to supply North Korea with goods that the sanctions are designed to prevent them from getting. These are all examples of illegal activities intended on bypassing sanctions and avoiding the consequences associated with proliferation. These are all actions that counter proliferation is trying to keep from occurring in the future.
Countering nuclear nonproliferation, via targeted financial pressure, comprehensive “coercive economic pressure” as Brewer describes, or through traditional sanctions is truly a race against time. No program that has been arrested has gotten as much, or as far as North Korea has in the face of the nonproliferation regime. This trap has been described nicely by Robert Jervis and Mira Rapp-Hooper as a “time-technology dilemma” which they explain this way,
The more time that passes, the less the United States will be able to gain from negotiations, and the more North Korea will be able to secure for itself. Pyongyang may, for example, get away with making minor concessions in exchange for significant sanctions relief or security assurances, strengthening its hand without meaningfully improving the security situation for the United States and its allies.18
As the last few years have shown, North Korea shows no real likelihood at taking the program backward. They may stall, they may bargain, they may give away concessions that amount to nothing, but they are too close to being a different kind of world player—a nuclear state—to just trade that for being a weak poor, developing state pinched between the east and west. But nor are they likely to be the last nuclear proliferator we could see. As such, the UNSC has given the world resolution 1540 to grow a CPF regime around, the FATF as an agency, akin to the IAEA in this regard, to grow that regime from, and the economic and statecraft values as a wellspring of political will to draw from. This field is in its infancy, but if the growing volume of sophisticated research being produced, in the form of reports like those sourced here, and typologies from the FATF, we may be seeing the emergence of a new form of economic statecraft.