All posts by Project Alpha

Project Alpha to Host Workshop on Trade Finance and Proliferation Finance

On June 20, 2017, Project Alpha will host the workshop “Trade Finance and Proliferation Finance – Mitigating the Risks,” in London.The workshop’s aim is to better understand how trade finance might be exploited to finance WMD proliferation and will build upon a typologies study of proliferation finance currently being carried out by Project Alpha. The report is available here.

The objectives of the workshop are to:

  1. Review current mechanisms for trade finance and identify how these may be exploited for financing proliferation;
  2. Identify possible measures governments and financial sector could take to mitigate risks;
  3. Consider mechanisms for information sharing to support risk mitigation.

Workshops participants will include experts and practitioners from the financial sector, consulting firms with experience advising clients in trade finance or proliferation finance contexts, banking association representatives, government agencies, and research and academic organisations.

For inquiries regarding attending the workshop as a speaker or participant, please contact Andrea Viski through email to Andrea.Viski@kcl.ac.uk.

Brexit and Strategic Trade Controls: key implications

Quentin Michel and Ian Stewart

On 24/25 April, Quentin Michel from the University of Liege and Ian Stewart from King’s College London convened a small group of government officials, academics, and industry practitioners with the purpose of examining the implications of Brexit on strategic trade controls. The workshop was conducted under Chatham House rules with participation in private capacities. The purpose of this short article is to capture the key impressions and issues identified by the hosts. This document does not reflect the views or comments of any specific participant.

The main finding of the workshop was that the exit of the UK from the European Union strategic trade control system will have an impact that goes far beyond trade control law regulations and procedures. Much attention was given to the implications of the trading arrangement that will replace the UK’s access to the ‘single market’. Concerns abound that board tariffs will be adopted by both the EU and UK. However, while the issue of export controls will likely receive scant public attention, inadequate arrangements could have a negative impact that is even more significant than the effect of tariffs. The EU, and separately the UK, must devise mechanisms to ease transfer and, more specifically, licensing of dualuse goods after Brexit. It is unclear presently whether the EU will have the capacity to take the steps required, while also conducting an unrelated review of its own dual-use items export control Regulation, 428/2009. Considering the usual two years delay necessary to finalise the process to adopt a regulation, it is strongly recommended to integrate already the Brexit into the review process.

During the course of the workshop, numerous specific implications were identified. These can broadly be categorised into five areas:

  • The legal basis and the ‘Norway issue’: Before addressing other issues related to Brexit, an answer is needed on what legal basis the UK will use to implement export controls in the future. One alternative would be that the UK will adopt national legislation (initially through the ‘Great Repeal Act’) implementing the requirements of the international export control regimes directly, rather than drawing on the EU regulation applicable in all EU Member States. If this is the case, UK and EU export controls can thus be expected to diverge over time after Brexit. The alternative would be for the UK to align systematically its national provisions to the EU regulation, perhaps following the path of Norway. However, Norway at present cannot take part in EU working groups on export controls and therefore has not possibilities to defend its views when the regulation is amended or updated. Moreover, Norway is excluded from information sharing arrangements whereas that will change probably soon.
  • Harmonisation of controls and competition: There is a real possibility that EU and UK export controls will diverge post-Brexit and that this could result in unhealthy competition and a ‘race to the bottom’ in terms of controls. This might could result in an increase in undesirable transactions, for example. It could also distort markets, particularly if the EU moves forward with the adoption of an autonomous control list in relation to human security issues, as proposed by the European Commission under the recast review, which the UK did not adopt.
  • Information sharing: trade facilitations between States and effective implementation of export controls is contingent on various types of information being shared. This includes not only information on licence denials, which is necessary to prevent ‘undercutting’ and a race to the bottom, but also more sensitive intelligence or other information related to specific transactions. In many cases such information sharing could take place through other channels. However, there would be specific advantages to a structured exchange of information in relation to denial notifications and the updating of any relevant control lists. Ideally, the UK will continue to have access to the DUeS platform.
  • Licensing conditions: The UK is to leave the single market which will mean that the transfer of all strategic items will require licensing to and from the UK and not only a limited number (e.g. Annex IV of Dual Use Regulation 428/20009). This will affect a substantial range of goods and sectors. A solution will be required to allow such items to be easily transferred while minimising the burden on industry. The easiest option might well be to create ‘general’ or ‘open’ licences. However, this would generally require companies to report transfers to authorities and be subject to audit, which might in itself be a substantial burden for industry and licensing authorities. Alternatives include reliance on individual licences (which could be burdensome for companies and authorities) or the creation of some new mechanism intended to record transfers in a low-burden way.
  • Technical capacity: Presently, it is the UK that drafts the EU control list. The UK also provides vital expertise and advice to EU Member States in assessing technical parameters of certain items. While the UK might still be in a position to provide such support post-Brexit, the EU27 might nonetheless need contingency plans.

An additional key area of consideration relates to sanctions. Presently, the UK is a principle actor in relation to EU sanctions. It is understood that the UK has produced several of the evidentiary packages that have been used in relation to specific sanctions designation listings, for example. As one of the largest global economies (equal in size to the 20 smallest EU States) and as a central player in the global financial system, UK adherence to sanctions has been central to their effectiveness. Any move away from harmonisation of sanctions with the European Union could thus undermine either common foreign policy goals or the effectiveness of sanctions. Moreover, practical questions related to sanctions such as who will maintain evidentiary packages for EU sanctions submitted by the UK before Brexit and who will produce evidentiary packages for EU sanctions in the future, if not the UK, must also be considered.

Two important final questions emerged from the discussions. The first concerns how the EU will devise a response to the issues outlined above. It seems apparent that only a group of officials, such as the Council’s Dual-use Working Party, will have the necessary expertise to examine these issues in depth and devise a policy for future dual-use trade between the EU and UK. The second question, which is related, is whether it is feasible to advance both Brexit and the recast of the EU export control regulation (428/2009) in parallel. Given the sheer volume of the dual-use trade implications of Brexit and the fact that the recast, which has now been underway for more than 4 years is the main way in which the EU could adopt a new or amended general export licence for the UK, it seems at the least that it would be useful to consider Brexit issues as part of the recast

Report of the UN Panel of Experts on North Korea

The UN Panel of Experts on North Korea at the end of February released a substantial report on North Korea’s proliferation-related activities.

The report contains a significant number of cases concerning North Korean illicit trade and sanctions violations. The report also notes a ‘significant increase’ in the number of national implementation reports by UN Member States since the adoption of UNSCR 2270.

The report contains numerous recommendations to the UN Security Council as listed below. It is notable that the intensely political Security Council in recent years has often failed to adopt the recommendations of its Panel of Experts. The Security Council has nonetheless now renewed the mandate of the Panel of Experts for a further 12 months. The recommendations contained in the new resolution are also reproduced below.

Continue reading Report of the UN Panel of Experts on North Korea

DNI Report Concludes Russian Intelligence Conducted Cyber-Operations Against US Election; Evidence Remains Circumstantial

By Alexandra V. Dzero, Associate Sanctions and Illicit Trade (Alexandra.dzero@kcl.ac.uk).
On 6 January, the Office of the Director of National Intelligence (DNI) released the official report on alleged Russian “activities and intentions” regarding the 2016 US elections. The report assesses an “influence campaign” by the Kremlin, whose aim was to undermine the US public’s faith in the electoral process and help Trump’s election chances through a blend of covert intelligence activity, such as cyber‑attacks, and overt pro-Trump propaganda.

Continue reading DNI Report Concludes Russian Intelligence Conducted Cyber-Operations Against US Election; Evidence Remains Circumstantial

US sanctions Russian individuals and key security agencies over alleged election cyber‑attacks

On 29 December 2016, US President Barack Obama authorised sanctions against 11 Russian entities and individuals, including two key Russian intelligence services ─ the Federal Security Service (FSB) and Main Intelligence Directorate (GRU) ─ over alleged cyber-attacks against the Democratic National Committee (DNC) and attempts to influence the 2016 US election.

Four top GRU officers, including the Chief, Deputy Chief and First Deputy Chiefs, have been designated, along with three companies that provided material support to the GRU’s cyber operations. Two individuals have also been designated for using cyber-enabled means for personal financial gain.

This is the most extensive US response to a state-sponsored cyber-attack. Along with the Executive Order designation, the US State Department also declared 35 Russian government personnel as persona non grata, with a 72-hour notice period to leave the US. The Department also closed two estates in Maryland and New York that it claimed were used for “Russian intelligence-related purposes”.

Despite the US government’s strong response, evidence tying the GRU or FSB to a plan to influence the election is lacking. A 29 December Joint Analysis Report conducted by the Federal Bureau of Investigation and the Department of Homeland Security detailed Russian military and civilian intelligence services’ capabilities associated with cyber-attacks. But the report fell short in identifying any Russian intelligence election interference.

The timing of the sanctions is notable. They come less than a month before president-elect Donald Trump is sworn into office, leaving him to decide whether the latest sanctions should be lifted in a move contrary to what the majority of the Republican party want. It is unlikely the new designations will have a significant impact on either of the Russian intelligence agencies, which generally do not hold assets in the US and whose officials rarely travel there.

Nonetheless, the allegations that Russia was behind cyber operations that affected the US elections are serious and have driven Republications to hold Congressional hearings. Given the power of Congress in adopting sanctions and the traditional viewpoint held by Congressional Republicans that the US and Russia are strategic rivals, it is unclear whether the Trump administration could reset relations with Russia even if it was minded to do so. This uncertainty also affects other sanctions on Russia, including those related to the country’s annexation of Crimea. As a result, it remains unclear whether the US – and indeed the EU – will maintain or ease their Russia sanctions regime in 2017.

The individuals added to the sanctions list are as follows:

  • KOROBOV, Igor Valentinovich (Chief, GRU)
  • GIZUNOV, Sergey Aleksandrovich (Deputy Chief, GRU)
  • ALEXSEYEV, Vladimir Stepanovich (First Deputy Chief, GRU)
  • KOSTYUKOV, Igor Olegovich (First Deputy Chief, GRU)
  • BELAN, Aleksey Alekseyevich
  • BOGACHEV, Evgeniy Mikhaylovich

The entities added to the sanctions list are as follows:

  • Federal Security Service (FSB)
  • Main Intelligence Directorate (GRU)
  • Special Technology Centre
  • ZORSECURITY
  • Autonomous Non-Commercial Organization Professional Association of Designers of Data Processing Systems

The US White House and Treasury announcement can be found here:

https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20161229.aspx

 

Project Alpha has launched a new research initiative focused on identifying Russian sanctioned and non-sanctioned organisations and networks involved in Russia’s strategic industries.

US Adds Pakistan Entities to the End User List

On 15th December, the US Department of Commerce issued an update to its Entity List, adding seven entities in Pakistan which appear to be linked to Pakistan’s missile programme.

The move by the BIS End User Review Committee follows close scrutiny of Pakistan’s nuclear and missile programmes prompted, in part, by a report published by Project Alpha in November. That report had identified most of the entities that were added to the US list on the 15th December as well as up to a dozen more front companies procuring illicit goods on behalf of Pakistan, including front companies thought to act on behalf of the newly designated entities.

The timing of the move is noteworthy. With little over a month to go until the inauguration of President Trump, it is possible that the Obama administration acted to list these entities foreseeing a window in which the move would not necessarily hamper US diplomatic ties with Pakistan. While there are signs that Pakistan is discontent with the US action, the Pakistani government will wish to start fresh with the Trump administration regardless.

It is also notable that the US appears to have focused these additions around entities involved in Pakistan’s missile programme. Given that Pakistan earlier this year applied to join the Nuclear Suppliers Group, any move by the US to designate entities connected to Pakistan’s nuclear programme would likely be taken as an overtly political act by the outgoing Obama administration.

The entities sanctioned the US are noted below.

  • Ahad International
  • Engineering Solutions Pvt. Ltd.
  • National Engineering and Scientific Commission (NESCOM)
    • Air Weapons Complex (AWC)
    • Maritime Technology Complex (MTC)
    • New Auto Engineering (NAE)
  • Universal Tooling Services

The US announcement can be found here:

https://www.federalregister.gov/documents/2016/12/15/2016-30061/addition-of-certain-persons-to-the-entity-list

The public version of the Alpha in-depth Report on Pakistan’s nuclear and missile programs can be accessed here: http://projectalpha.eu/research-opens-a-window-into-pakistans-nuclear-weapons-programme/

UNSC adopts Resolution 2325 (2016) after Comprehensive Review of Resolution 1540 (2004)

The UN Security Council on 15 December unanimously approved resolution 2325 (2016), updating resolution 1540 (2004) as a result of a thorough review process – known as the 2016 Comprehensive Review of the Status of Implementation of resolution 1540 (2004) – by member states.

Resolution 1540 imposes binding obligations on member states to adopt legislation to prevent the proliferation of WMDs and establish appropriate domestic controls to prevent their illicit trafficking. As part of its review process, the 1540 group of experts Committee [the Committee] was tasked with assessing implementation of the resolution based on information which included the 1540 approved matrices, as well as inputs from member states and other relevant information provided by intergovernmental and regional and sub-regional organisations. On 9 December, the Committee submitted to the Security Council a report on the conclusions of its review. It found that “while overall progress has been made with the implementation of resolution 1540, there remains more to be done to accomplish the objective of full implementation of the resolution, which is a long-term task that requires continuous efforts at national, regional and international levels.”

Resolution 2325 (2016) urges governments to make greater efforts to comply with the implementation requirements of resolution 1540, and contains a new series of recommendations regarding the work of the Committee, which, it said, had substantially expanded its outreach since its establishment. However, noting a decreasing capacity of the Committee to respond to member states’ requests for assistance, it called on governments to, whenever possible, participate in voluntary contributions and high-quality assistance for capacity-building that would meet national needs for comprehensive implementation of the 1540 regime, including through greater cooperation among all stakeholders, civil society and academia.

While the resolution is helpful in reiterating the requirements of UNSCR1540, it does not contain much that is new other than highlighting a need to redouble efforts towards full implementation and to ensure that the resolution’s requirements are kept up to date with the evolving technological landscape. It is understood that more ambitious proposals had been discussed including, on the one hand, a dedicated provision of capacity building capability and, on the other hand, the creation of a chemical and biological terrorism convention at Russia’s request. However, it seems that agreement could not be reached within the Security Council, which has been politically charged in recent years as a result of re-emerging tensions between Russia and the US/ Europe.

An official statement on the adoption of resolution 2325 (2016) is available here:

https://www.un.org/press/en/2016/sc12628.doc.htm

unscr2231

What is Resolution 2231?

On 20 July 2015, the fifteen members of the UN Security Council unanimously passed Security Council Resolution 2231 (S/RES/2231). This resolution endorses a long-term plan agreed by the international community to provide enhanced international monitoring of Iran’s nuclear program and modifications to Iran’s proliferation-sensitive nuclear activities in exchange for relief from sanctions.

The full text of Resolution 2231 can be accessed here.

The UN also maintains a website dedicated to UNSCR2231. It can be accessed here.

What is the Joint Comprehensive Plan of Action?

The Joint Comprehensive Plan of Action (JCPOA) is the long-term plan agreed between Iran and China, France, Germany, Russia, the United States, United Kingdom and European Union (known as the P5+1 or E3+3). It contains a detailed set of obligations to be undertaken by Iran and the E3+3 over the next 25 years in order to manage Iran’s nuclear programme, reduce sanctions on Iran, and improve international cooperation between Iran and the E3+3. The JCPOA will also permit Iran to legally purchase equipment for its nuclear programme under what is known as the procurement channel.

The text of the JCPOA can be accessed here.

Who will implement Resolution 2231 and the JCPOA?

Resolution 2231 and the JCPOA place requirements on all parties involved in the negotiations on Iran’s nuclear programme, and indeed on all other nations. Implementation will be monitored by the United Nations Security Council. The European External Action Service will also play a key role in coordinating the implementation of Resolution 2231 and the JCPOA. The International Atomic Energy Agency (IAEA) will continue to monitor Iran’s obligations under its nuclear safeguards agreement with the IAEA.

Check your own back yard: DPRK proliferation links to the UK

While North Korea’s provocative actions show no sign of abating, scrutiny of Pyongyang’s sanctions-busting activities abroad has been focussed on North Korean activities in China, the Middle East and Africa. Dubious North Korean-related activity can be found closer to home, however: an investigation undertaken by John Druce, a researcher affiliated with Project Alpha at King’s College London, has found that associates of North Korean entities appear to maintain front companies in the United Kingdom.

Continue reading Check your own back yard: DPRK proliferation links to the UK