Category Archives: Analysis

Big Data and Non-proliferation: The Alpha Proliferation Open Source Tool (Alpha-POST)

Over the last two years, Ian Stewart, director of Project Alpha, has been developing a ‘big data’ platform for non-proliferation purposes. This platform is used to inform Project Alpha’s work and acts as a test bed for big data and machine learning approaches in the non-proliferation sphere. Today, Project Alpha is publishing a paper on Alpha-POST’s design and capabilities to provide background on the platform.

The abstract of this paper, which can be downloaded HERE, reads as follows.

This paper outlines the Alpha-Proliferation Open Source Platform (Alpha-POST), developed by Project Alpha to leverage big data analysis for non-proliferation purposes. The article demonstrates how a variety of open source software tools can be fused together into a ‘software stack’ capable of ingesting, processing and leveraging vast quantities of data to aid human analysts. While Alpha-POST leverages tools such as Natural Language Processing (NLP), link chart analysis and machine learning in the non-proliferation domain, Project Alpha argues that the approaches outlined in this paper could be applied to any discipline or sphere .

A forthcoming article in the Journal of Nuclear Material Management will examine how the big data approaches developed in this platform can be used more generally in the non-proliferation domain.  Additionally, the platform will be demonstrated at the 2018 IAEA safeguards symposium.

 

 

 

 

 

 

 

Iran and the FATF: More Efforts Needed

Emma Scott and Jean-Annet de Saint Rapt

Public Statement Issued by the Plenary

The FATF plenary which took place on 17-19 October 2018 decided to continue the suspension of counter-measures against Iran. The Plenary said it was disappointed with the pace of Iran’s AML/CFT reforms. Iran now has until February 2019 to bring the necessary legislation into force, in line with international standards or risk a call for counter-measures.

Iran has been categorised as a high-risk jurisdiction and is one of only two countries on the FATF ‘call for action’ list (or blacklist), together with the DPRK. A call for action requests all countries to impose countermeasures against the jurisdiction. Countermeasures include, but are not limited to 1) the application of enhanced due diligence, 2) refusing the establishment of subsidiaries, branches or representative offices of financial institutions, 3) limiting business relationships or financial transactions with the identified country or persons in that country, and 4) requiring financial institutions to review and amend, or even terminate, correspondent relationships with financial institutions in the country concerned.[1] Since the FATF implemented its new monitoring system in 2008, Iran has been permanently on the black list. Although, the FATF has recognised that Iran made some efforts to comply, the risk of terrorism financing emanating from Iran remains a significant obstacle.

 

Iran Tries to Ease its Relationship with the FATF

In 2016, Tehran agreed to cooperate with the FATF financial body. Tehran’s motivation was that it wanted to escape the FATF blacklist to help it better integrate into the world economy after the signing of the Joint Comprehensive Plan of Action (JCPOA). Simultaneously, President Hassan Rouhani initiated major banking sector reforms, which aimed to contribute to the development of the economy and attract foreign investment. Transparency and regulation are key to such reforms as these would bring Iran into compliance with international norms such as the Basel Standards, International Accounting Standards (IFRS) and FATF recommendations.

To address its AML/CFT deficiencies, in 2016, the FATF set an Action Plan which Iran had to complete. Iran agreed to follow this Action Plan,[2] and in response the FATF suspended the call for countermeasures for a 12-month period but left Iran on its public statement. The FATF pubic statement currently includes a short summary of the recent actions taken by Iran in accordance with its Action Plan, and lists the remaining deficiencies, that still need to be addressed, in its ani-money laundering and combating the financing of terrorism regime. Only when all the action points are complete will Iran be in full compliance with the FATF requirements. In 2017, “In light of Iran’s demonstration of its political commitment and the relevant steps it has taken in line with its Action Plan”,[3] the FATF decided to continue its suspension.

Outstanding Issues of the FATF Action Plan on Iran
1) Criminalise terrorist financing (including removing exemptions)
2) Freeze terrorist assets
3) Ensure a customer due diligence regime
4) An independent Financial Intelligence Unit
5) Identify and sanction unlicensed money/value transfer service providers
6) Implement the Palermo and TF Conventions  
7) Verify wire transfers contain complete information
8) Establish a range of penalties for ML offense
9) Ensure legislation to provide for confiscation of property of corresponding value

In February 2018, for the same reason, the FATF prolonged again the suspension of counter-measures,[4] but in June 2018, in its public statement, the FATF expressed its disappointment with Iran for failing to implement the Action Plan. However, it maintained the suspension “Given the Iranian government’s continued efforts to finalize and pass amendments to its AML and CFT laws[5].

By this stage, the need for Iran to cooperate with the FATF became even more pressing. The U.S., under the Trump Presidency, had withdrawn from the JCPOA and decided to re-impose sanctions. Consequently, Iran’s economy witnessed a withdrawal of foreign investment and a depreciation of the rial. By complying with the FATF recommendations, Iran hopes to resolve its economic problems and minimise its differences with the remainder of the international community.

A number of pieces of legislation were sent to the Iran’s Parliament. The Parliament had already approved the Bill of Amendment to the Countering Financing of Terrorism Act, which amongst other things, lays out a legal basis for the confiscation of assets or funds to commit terrorism financing, and a Bill of Amendment to the Anti-Money Laundering Act. In September it passed a bill to join the UN Convention Against Transnational Organised Crime (i.e. the Palermo Convention), and finally, Sunday 7 October saw the Parliament pass a bill to join the 1999 International Convention for the Suppression of the Financing of Terrorism, albeit with a number of exemptions.

 

Iran’s Definition of Terrorism

The FATF Action Plan for Iran requires it to criminalise terrorist financing, “including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism””.[6] In Iran’s domestic legislation bringing into force the 1999 Convention for the Suppression of the Financing of Terrorism, Iran’s lawmakers carved out an exemption to article 2(b) of the Convention by stating that struggle against colonial domination and foreign occupation does not apply to the country’s definition of terrorism. The Parliamentarians further carved out an exemption to Article 6, maintaining that it doesn’t apply to the right of legitimate struggle.

That said, a number of other Middle Eastern regional states including Egypt, Jordan, and Yemen, issued reservations when joining the 1999 Convention, stating that they do not consider acts of national liberation as terrorism, and they are not on the FATF blacklist. So, that should not be an impediment to Iran’s implementation of the FATF’s standards. While the FATF may overlook Iran’s non-compliance with action point 1 if it complies with the other action points, so far, this is not been the case. The difficulty for Rouhani’s government will be to take concrete steps in freezing assets and implementing the laws passed, which is what the FATF expects.

 

Iran’s Banking Problems: Get in the Way

A broader problem for Iran is the implementation of the banking sector reform. Last March, the International Monetary Fund pointed out that the Iranian banking system had been in “distress” now for a number of years.[7] The IMF called for urgent comprehensive restructuring and recapitalisation of the banks. Since that report, the economic situation in the country has deteriorated due to the U.S. withdrawal from the JCPOA and the re-imposition of sanctions. Thus, reform has become even more critical as the monetary crisis and inflation have worsened.

The problem with Iran’s economy is that for decades, the Iranian financial sector consists not only of regulated but also unregulated financial actors, which is one of the issues the FATF has with Iran. Some of these unlicensed actors, usually affiliated with politico-religious groups, have very limited due diligence procedures on their clients and transactions. Additionally, such unregulated actors  can promise to pay high interest rates on deposits to fund credit activities, and subsequently go bankrupt resulting in significant losses for Iranian businesses and individuals. This situation also acts as a deterrent to foreign investors willing to take a risk to invest in Iran. Furthermore, international standards on credit analysis and capital requirements are not often met.

Rouhani’s reforms need to restructure the banking system in a way that will help the economy recover. The intension is to place all credit and financial institutions under Central Bank supervision, while the Central Bank intends to comply with the Basel Standards, which, for instance, set capital requirements for credit activities. For starters, in 2017, the latter issued new policies to be implemented by financial institutions.

Thus, as part of the banking reforms, Rouhani and his administration have decided to implement the FATF recommendations. The implementation of these international standards will make Iran more likely to be accepted into the international finance system. As a senior member of the Iranian government put it: “there is no guarantee all our problems would be solved if we comply […with the FATF] but I am sure that not complying would give the U.S. more excuses to increase our problems.”

 

Reaching a Consensus at the FATF: A Long Process

The decision to remove Iran from the blacklist is a FATF Plenary consensus decision. However, the U.S., holding the influential position of Chair for a one-year period, is likely to continue to push for Iran to remain on the list. The other countries may not want to keep Iran on the list if it continues its efforts to comply with the recommendations.

An on-site inspection team needs to deploy to Tehran, and report back to the Plenary on the implementation of the Action Plan, before Iran is removed from the list. The improvement of Iran’s relationship with the FATF will continue to be a gradual process as Iran slowly attempts to improve and implement a more stringent regulatory environment and reform its banking system.

Ultimately, even if Iran complies with the FATF recommendations and takes action against designated individuals or entities on UN sanctions lists, the issue of U.S. sanctions lists will remain. As a result, even with Iranian reforms, there remains the risk that any entity trading with Iran will be accused by the U.S. of sanctions evasion, and henceforth could become the target of secondary sanctions.

 

[1] The FATF Recommendations: International standards on combating money laundering and the financing of terrorism and proliferation, updated February 2018,available at http://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html

[2] Outcomes of the Plenary meeting of the FATF, Busan Korea, 22–24 June 2016, available at http://www.fatf-gafi.org/countries/a-c/austria/documents/plenary-outcomes-june-2016.html#iran

[3] FATF Public Statement, 23 June 2017, available at http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-june-2017.html

[4] FATF Public Statement, 23 February 2018, available at http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-february-2018.html

[5] FATF Public Statement, 29 June 2018, available at http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-june-2018.html

[6] FATF Public Statement, 19 October 2018, http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-october-2018.html

[7] International Monetary Fund, Islamic Republic of Iran, IMF Country Report Mo. 18/93, March 2018 available at https://www.imf.org/~/media/Files/Publications/CR/2018/cr1893.ashx

Preventing the Proliferation of WMDs: Measuring the Success of UN Security Council Resolution 1540

Editors: Daniel Salisbury, Ian J. Stewart, Andrea Viski

Click here to access the book_Preventing the Proliferation of WMDs: Measuring the Success of UN Security Council Resolution 1540

 

This edited volume provides a fresh analysis for researcher and practitioners regarding United Nations Security Council resolution 1540, the status of its implementation, and its future by providing an original evaluation of progress in implementation and challenges faced during the resolution’s first decade. In doing so, the book will consider the resolution’s utility as a non-proliferation tool with a view to identifying what further actions are required for the objectives and goals embodied by UNSCR 1540 to be achieved and sustained.  The book progresses by exploring the history of the resolution, implementation trends, implementation from a regional perspective, challenges, and future ways forward. The book appeals to a wide readership of scholars, policymakers, and other stakeholders of the 1540 process.

Non-Proliferation and Foreign Direct Investment Reviews: Implications for Reform in the UK

Felix Ruechardt, Researcher (felix.ruechardt@kcl.ac.uk)

Click here to access the report: Foreign Investment Reviews and Non-Proliferation: Implications for Reform in the UK

In October 2017, the UK government published a Green Paper entitled “National Security and Infrastructure Investment Review” which outlined short-term and long-term proposals to reform the nation’s Foreign Direct Investment (FDI) review system. It currently rests on limited powers granted to the government in the Enterprise Act of 2002. By expanding the scope of its FDI review system, the government seeks to counter increased foreign (especially Chinese) investments into UK infrastructure and critical technology sectors.

However, the Green Paper does not address the role that an FDI review on national security grounds will take in enhancing the export control and non-proliferation regimes of the United Kingdom. While not dismissing the valid and important security concerns regarding critical infrastructure and critical technology sectors, this report emphasises the importance of including non-proliferation as a key function of a reformed FDI review system in the UK.

Using strategic FDI transactions has in the past been a successful stratagem by proliferation actors in the cases of the weapons of mass destruction (WMD) programme of Iraq and the alleged WMD programme of Iran. This is demonstrated by three case studies in this report in which proliferation actors circumvented export control and non-proliferation rules by purchasing Western companies holding technologies of proliferation concern: Matrix Churchill (UK) and H+H Metalform (GER), two companies that were purchased by an Iraqi proliferation network in the 1980s, and MCS Technologies (GER), a company secretly bought by Iran in 2003. The UK government should use its current reform efforts to close this gap that remains an issue today.

FDI review systems that have non-proliferation as one of their functions are able to address this evasion strategy. Two allies of the United Kingdom, the United States and Germany, have successfully demonstrated this in their FDI review procedures. Both countries tie the powers to scrutinize FDI transactions and potentially block them to whether businesses manufacture goods or hold technologies that are subject to export control rules. In Germany, a stricter reviewing procedure and a mandatory notification regime even apply in these cases – something that is debated in the United States currently as well.

The UK government can learn from the abovementioned cases of FDI as a proliferation strategy as well as the systems the United States and Germany have put in place to counter said strategy. This report calls for it to:

  • Make non-proliferation a clearly stated function of the reformed FDI review system while not dismissing other key functions such as protecting critical infrastructure;
  • Base a mandatory notification regime for mergers and tightened rules on the Strategic Export Control Lists and companies who manufacture goods on those;
  • Refrain from excluding smaller companies from falling under the scope of an FDI review system as those companies are also increasingly holding proliferation-relevant technologies.

The direction of the reform process will to a certain extent of course depend on the outcome of the negotiations the UK government is currently holding with the other EU member states over their relationship after the UK leaves the EU bloc. But if the UK government strengthens the non-proliferation component of its FDI review reform proposals, those will set it on track to establish a system that is comparable to those in other countries that have national security based FDI reviews in place to date.

A Terrorist’s Stockroom?: The Effectiveness of e-Marketplace Prohibited Item Policies

Christina Krawec, Research Associate (christina.1.krawec@kcl.ac.uk)

Introduction

In attempts to regulate the trade of hazardous materials used in explosives or weaponry, internet marketplaces such as eBay, Amazon, and Alibaba have all implemented seller policies on their sites. Alibaba, for example, has a list of 410 radioactive, poisonous, toxic, flammable, explosive, and ozone-depleting substances that are prohibited from being listed.[1] Some work has been done to illustrate that, despite these regulations, sellers are able to sell hazardous materials. For example, Raymond A. Zilinskas and Philippe Mauger established in a 2015 study that biotechnology of concern could be acquired by non-state individuals via Alibaba.[2] Similarly, eBay has a list of 16 “explosives precursors” that are also restricted.[3] Despite eBay’s efforts to prohibit these substances, listings for some can still be found. This study shows that eBay’s listing policies are not effective in deterring users from selling what the site considers to be hazardous material.

Methodology

Table 1 shows the availability of eBay’s restricted explosives materials across eBay, Amazon, and Alibaba. A listing was included in this table if the advertised substance was over 95% pure (if the purity was listed and with the exception of hydrogen peroxide), and was included regardless of quantity, physical state (e.g. liquid or solid), or marketed use. Therefore, laboratory-grade and food-grade substances in small quantities were included. This was done because eBay’s policy does not provide detail regarding the nature of the prohibited substances; it simply lists the names of the restricted compounds. Furthermore, this study assumed that the listings were truthful about the product being sold, which may not have been the case. Listings were also only included in this table if their advertised material was in stock and available for any user to purchase.

Table 1: Listings of restricted explosives precursor materials as of 4 January 2017

Explosives precursor restricted by eBay Listings on eBay Listings on Amazon Listings on Alibaba
Aluminium/aluminum powder 4 10+ 1000+
Ammonium nitrate* 0 10+ 5+
Calcium ammonium nitrate 0 0 100+
Calcium nitrate 0 10+ 100+
Hydrogen peroxide above 12% weight by weight 0 10+ 100+
Magnesium nitrate hexahydrate 3 2 100+
Magnesium powder 0 0 100+
Nitric acid** 0 0 100+
Nitromethane 0 0 50+
Potassium chlorate 10+ 0 2000+
Potassium nitrate (saltpetre) 10+ 10+ 1500+
Potassium perchlorate 0 0 500+
Sodium chlorate 3 0 1000+
Sodium nitrate 4 8 2000+
Sodium perchlorate 0 0 300+
Sulphuric/sulfuric acid 6 10+ 700+

*Material also prohibited by Alibaba                                                        **Material also prohibited by Amazon                                                                 Note that there were hundreds, if not thousands, of results for some of these chemicals. The + indicates that at least that number of listings was found, but there were so many results that there may have been more.

Findings

For the purposes of this study, searching for the prohibited materials on Amazon and Alibaba serves as a comparison of availability. Amazon, in its listing policies, has a section on explosives, but does not discuss precursors. The page does, interestingly, list nitric acid as a prohibited hazardous material, but this is the only substance that has crossover with eBay’s list.[4] In addition, the only chemical in both Alibaba’s and eBay’s lists is ammonium nitrate. Otherwise, Alibaba has thousands of legitimate listings for explosives precursors. It is notable that these lists do not correspond with internationally-recognised control lists, including those published by the export control regimes.

For Amazon, there were more listings than were included in the table. These listings either had items that were “currently unavailable” in which there was no timeline for restocking, were temporarily sold out, or they were only available for purchase by Amazon Business accounts. For example, there were over ten listings for calcium nitrate available for any user to buy on Amazon. However, with an Amazon Business account, at least five more listings became available. If a non-state actor is able to fabricate a front company and successfully create an Amazon Business account, then this could be an effective means of opening more pathways for hazardous material acquisition.

The availability of these substances despite their restricted nature illustrates eBay’s need for further oversight and more detailed policies. While monitoring e-marketplace activity is difficult due to the size of the user base and speed of transactions, the current policy does not deter users from listing certain substances. One difficulty arises from the dual-use nature of these goods. For example, potassium nitrate (saltpetre) is used in the process of curing meat, but can also be used to make gunpowder. The question of controlling the sale of dual-use items has long been a challenge for the international export control regime. How can e-marketplaces prove that buyers are obtaining saltpetre for their cured pork and not for the development of explosives?

Recommendations

These observations lead to possible recommendations for the improvement of e-marketplace prohibition policies.

  1. At present, listed chemicals can be bought by anyone on eBay. If the site were to restrict certain substances from being bought by anyone without a registered business (as is the policy on Amazon), this might lower the possibility of an individual with ill intent to obtain an explosives precursor. However, implementation of this policy would require careful oversight: it could also restrict innocent users from acquiring these materials for legitimate purposes.
  2. eBay could consider adding more detail to its restricted product policy. Determining an allowed quantity and purity would make the policy clearer; adding a section describing the dual-use nature of the goods would also be informative to eBay users. Having clearer policies does not solve the issue, but more detail would at least provide education for the eBay community.
  3. Standardising naming conventions would allow e-marketplaces to more easily track prohibited chemicals being posted on the site. On Amazon, eBay, and Alibaba, chemicals can be found by their written name, their formula, or their Chemical Abstracts Service (CAS) identification number. In many cases, chemicals are only listed by their written name. There are so many variations to names that it would be easier to identify listings for specific substances if they were required to include a searchable CAS number as well. The e-marketplaces could also screen postings against lists of keyword terms. In addition to preventing listings where the item might be prohibited, such an approach could be used to identify account holders who are intent on engaging in prohibited activity. In this context, retailers could be encouraged to submit some form of “suspicious activity report” similar to those used in the financial sector.

The issue of selling weapons precursor materials online has no easy answers. However, increasing awareness of these issues and the imperfections in current policies allows further discussions to be made. The international export control regime will continue to struggle with the case of dual-use goods, and e-marketplaces should be aware of the difficulties they face as part of the ongoing challenge.

[1] “Prohibited Chemicals Reference,” Alibaba.com Rules Center, 2016.

[2] Raymond A. Zilinskas and Philippe Mauger, “E‐commerce and biological weapons nonproliferation,” EMBO, 2015.

[3] “Hazardous, restricted, or regulated materials,” eBay Rules & Policies, 2017.

[4] “Hazardous & Dangerous Items,” Amazon Seller Central, 2017.

Sources:

“Hazardous & Dangerous Items.” Amazon Seller Central. 2017. Accessed January 4, 2018. https://sellercentral.amazon.com/gp/help/external/200164570.

“Hazardous, restricted, or regulated materials.” eBay Rules & Policies. 2017. Accessed January 4, 2018. http://pages.ebay.com/help/policies/hazardous-materials.html.

“Prohibited Chemicals Reference.” Alibaba.com Rules Center. 2016. Accessed January 3, 2018. http://rule.alibaba.com/rule/detail/2069.htm?spm=a271m.8038972.0.0.cobpgz.

Zilinskas, Raymond A., and Philippe Mauger. “E‐commerce and biological weapons nonproliferation.” EMBO reports 16, no. 11 (2015): 1415-1420.

eBay, Alibaba, and Amazon search engines and results.

US Engineer Sentenced in Nuclear Espionage Case for Supporting China’s Nuclear Energy Program

Overview

On 30 August, a US nuclear engineer, Szuhsiung Ho, was sentenced to serve 24 months in prison and one year of supervised release for his part in illegally exporting US nuclear technology to China. The complex case highlights the need for an integrated and comprehensive approach to nuclear trade compliance.

Background

The case involved the illegal sharing of sensitive U.S nuclear technology and trade secrets with China. Szuhsieng Ho, a Taiwan-born naturalized US citizen and nuclear engineer working as an operative for the Chinese government was sentenced today to a two year prison term by a U.S District Court. He will also face a supervised one year probation period and a fine of $20,000. Ho had previously pleaded guilty under an agreement reached in January to engaging or participating in the unauthorized development or production of special nuclear material outside of the United States and originally faced a prison term of up to ten years and a fine of $250,000. Under the agreement, the US agreed to dismiss remaining counts against Ho from his original indictment in April 2016.

Ho operated a nuclear energy consulting business that engaged in the provision of technical consultancy to China General Nuclear Power Company (CGNPC), one of China’s nationalized nuclear entities. Ho assembled a network of experts from a number of different companies in order to help CGNPC indigenize knowledge related to the operation of nuclear reactors.

Ho’s illegal activity began as owner and president of Energy Technology International (ETI), a nuclear consulting firm. He acted, through ETI, as a senior advisor to the China General Nuclear Power Company (CGNPC), which is the largest Chinese state-owned enterprise specialized in the development and manufacture of nuclear reactors. CGNPC’s Board of Directors is comprised on Chinese Communist Party members and is controlled by the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC), a special Chinese government agency.

Under the direction of CGNPC, Ho recruited and sent US-based experts to Chinese nuclear facilities where they shared technical information and assistance related to the production of special nuclear material for CGNPC, including for CGNPC’s small modular reactor, advanced fuel assembly, and fixed in-core detector systems, as well as the verification and validation of nuclear reactor-related computer codes.

Under the US Atomic Energy Act (AEA) 42 U.S.C § 2011, the technology Ho arranged to export to China is controlled as sensitive and therefore requires special authorization from the US Secretary of Energy. The National Nuclear Security Administration of the US Department of Energy implements the AEA under 10 C.F.R Part 810, “Assistance to Foreign Atomic Energy Activities.” The US regulates civil nuclear cooperation and circumventing the authorization process can result in damage to US national security by compromising US nuclear technology and expertise. According to the plea agreement, Ho was aware that his activities required such authorization after meeting with US Department of Energy officials to discuss the work to be undertaken and received confirmation that the export was not covered by 10 C.F.R. § 810.3. This was not the only relevant statue, however, and Ho ultimately plead guilty to violations of 10 C.F.R. § 810.8.

The individuals involved in the Ho case provided numerous reports containing sensitive information and trade secrets to CGNPC. From the period of 1997 to 2016, Ho, CGNPC and ETI engaged in this activity with the alleged intent of securing China with a technological advantage for the production of nuclear material. However, according to the terms of the plea deal, Ho’s defense team negotiated for a guilty plea discounting Ho’s motivation to injure the US or secure an advantage to China, arguing that Ho became involved in the plot only to make money and cheapen the cost of Chinese nuclear energy by speeding up the production process.

One of the individuals Ho engaged was Ching Ning Guey, a nuclear engineer with the Tennessee Valley Authority (TVA). Guey provided CGNPC with reports and technical assistance related to the operation of nuclear reactors. The Tennessee Valley appear to have informed Ho’s associate, Guey, about the authorization requirements associated with the information that he would later transfer. Guey later admitted to the TVA Office of the Inspector General, to supplying sensitive information regarding the production of special nuclear material. TVA contacted the FBI and Ching cooperated in the investigation under a plea deal in 2015 where he pleaded guilty to participating in the development of special nuclear material outside of the United States in violation of 42 U.S.C. Guey is set to be sentenced September, 2017.

Lessons and Preventing a Recurrence

The case highlights a number of important points.

First, the US government is intent on enforcing controls on nuclear transfer including with countries like China that has a relatively mature nuclear sector. In this case, the US government relied upon a previously unused part of the Atomic Energy Act (10 C.F.R. § 810.8) as opposed to the more usual 10 C.F.R. § 810.3.

Second, there is a need for firms of all sizes to take a systematic and holistic approach to trade controls. Just because the transfer was not covered by 810.3 does not mean the transfer is not subject to controls. The parts could equally be covered under the EAR.

Third, intellectual property from the Tennessee Valley Authority and others was transferred to China without authorisation. It is possible that better training could have protected TVAs intellectual property and its staff.

Fourth, in this case, employees of TVA and other companies appear to have exploited their positions and ignored warnings, highlighting the need for checks and balances in addition to training.

North Korea’s Proliferation & Illicit Procurement Apparatus within China

North Korea’s development of weapons of mass destruction, missile delivery systems and conventional military equipment continues despite ever increasing international sanctions. It is known that North Korea relies upon trade in and through China to bypass sanctions. A key knowledge gap relates to what apparatus North Korea maintains in China, especially the border region, to facilitate this. An initial study by King’s College London identified a number of findings:

  • The presence of extensive procurement networks in the Chinese border regions are significant to both North Korea’s economy and support to its military-related programmes, including WMD.
  • It is assessed that North Korea employs a covert system in its attempts to prevent the activities between North Korea-based entities and suppliers being identified.
  • The majority of those entities identified in the China border regions were located in Dandong, although significant numbers were also identified in Dalian and Shenyang. The research to date also found potential presence of North Korean-associated companies in other locations within the Chinese border provinces.
  • Within the cities of Dandong, Dalian and Shenyang many of the entities were found to be collocated suggesting centres for North Korean-related trade, and close proximity to logistic centres.
  • The nationality of the majority of people identified and associated with the entities in this report are assessed to fall into three basic categories;
    • Chinese (citizens) business people who trade with North Korean.
    • Ethnic Koreans of which there are over 2 million who are Chinese citizens living in the border provinces of Jilin, Liaoning and Heilongjiang.
    • North Korean persons living and/or working in the border regions within China.
  • From open source information this study has identified a large number of networks/groups that North Korea could potentially use in support of proliferation-related procurement. However, this is considered to be only part of the potential number of entities that exist.
  • Most of the entities/companies included in international sanctions lists are based in North Korea. So far, of the entities and people identified in this study only two appear in any sanctions list, these being;
    • Korea Ryonha Machinery Joint Venture Corporation (UNSCR 1718)
    • Dandong Hongxiang Industrial Development Company Ltd. (US)
  • A number of companies and individuals identified have been included in UNSCR 1718 PoE reports with the assertion that they have aided North Korean proliferation activity, but have not been included in any sanctions list.

Although this initial study has not identified any new policy recommendations, it has shown that the extent of the problem is potentially far greater than many have previously considered. To have effective sanctions against North Korean proliferation activity cooperation with, and support to, Chinese authorities should be considered.

North Korean Scientists – Chemical and Biological Weapons Programmes

Many consider the North Korean ideology of Juche (self-reliance) to include science and technology as one of its three priority pillars alongside ideology and the military. Given its prominence, in the late 1990’s the DPRK formulated a plan for science and technology development that included investment and scientific exchanges with foreign countries. North Korea continues to be one of the most closed nations, and acquiring information relating to scientists and their work is no exception.  Some technological fields, such as nuclear and military arms technology are considered to be relatively well advanced, but very little is understood regarding any current chemical and biological weapons programmes.

The study by King’s College London aimed to identify where possible scientists that have been recognised through awards and honours for their work in support of North Korea’s ideology and objectives. Specifically those that may be involved in or have conducted research work in support of the DPRK’s suspected chemical and/or biological weapons programmes. Analysis was also conducted in an attempt to identify persons that worked at entities and/or locations suspected of being involved in chemical and/or biological weapons programmes. The findings included;

  • The Order of Kim Il-sung is the highest order of North Korea, along with the Order of Kim Jong-il. Recipients can be individuals or organizations, who have contributed “outstanding services to the Republic of the Korean nation and communism”.
  • The People’s Scientist is an award by the People’s Prize Awarding Commission that works directly under the Cabinet of North Korea.
  • The names of some of the recipients are available but in many cases details of their role, profession and parent organisation are not reported.
  • The overwhelming trend is not to name scientists associated to nuclear or missile-related programmes who have received awards.
  • According to a study by ScienceCentral, analysis of publications from North Korea indexed in the Web of Science Core Collection found 318 articles from North Korea mostly in collaboration with other countries. The study also identified that most research results by North Korean researchers have been published in journals in North Korea.
  • Analysis of data acquired by KCL of over 29,000 papers published in North Korea identified a total of 33 of potential interest. 24 were identified against a list of key terms and a further 9 were identified as topics of potential interest.
  • In most cases there was no additional information about the authors of these papers, or their parent organisations.
  • Entity/location analysis of data extracted from open source websites has identified approximately 1200 people linked to entities or locations that are of possible concern. Of those identified, some are award recipients.
  • Due to its dual use applications chemical and biological research, development and production those involved are possibly more likely to have some public recognition.

North Korea: 2016 in review and the challenges of 2017

By Ian K. Bolton, Research Associate Interdictions and PSI (ian.bolton@kcl.ac.uk)

2016 was an exceptionally busy year for the world of counter-proliferation (CP); in January, Implementation Day of the Joint Comprehensive Plan of Action with Iran was reached. By November, the United Nations’ First Committee voted to begin negotiations in 2017 on a global legally binding instrument to prohibit nuclear weapons for all countries. However, it was North Korean events which were the most dramatic.

On 6 January 2016, North Korea conducted its fourth nuclear test, with a yield believed to be in the region of 10 kilotons[1]. The nuclear test was widely condemned; notably China seemed to be genuinely angered by the test[2]. Before the world had been able to respond through the United Nations, North Korea escalated matters. On 7 February, North Korea confirmed it had launched a long-range rocket from its Sohae site, claiming the rocket was carrying a satellite for its space program. However under Security Council resolutions, North Korea is prohibited from conducting any such activity which is contributing to their ballistic missile programme.

The International Community delivered its response to the January nuclear test on 2 March, passing a new UN Security Council Resolution – UNSCR 2270. This resolution created one of the most wide‑ranging sanctions regimes against North Korea in the UN’s history. The restrictions adopted under UNSCR 2270 are broad and include entire sectors, such as coal and iron ore. The exception to these restrictions were when they would impact on the livelihoods of North Korean nationals. UNSCR 2270 also introduced an obligation on UN Member States to inspect all cargoes originating in, or destined for, North Korea.

Before the ink of UNSCR 2270 was dry, North Korea was once again challenging the resolve of the International Community. On 15 April, they tested the Musudan Intermediate Range Ballistic Missile. Although the test was seen by the CP community as having failed, this was indicative of things to come. On 23 April, North Korea tested a Submarine Launched Ballistic Missile[3]. By the end of August there been 7 further ballistic missile tests, ranging in their success. One North Korean watcher described this pattern of testing as Mr. Kim having ‘missile lust’, and not giving up on efforts to develop them further[4].

The next significant provocation came on 9 September when the regime conducted their fifth and largest‑to‑date nuclear test[5]. The test sparked international condemnation and heightened tensions across the region, with the US conducting an overflight of South Korea by two US B-1B Strategic Bombers. Once again the International Community looked to take decisive action. On 30 November 2016, the UN Security Council passed a new resolution, UNSCR 2321, which built on UNSCR 2270.

Adopted unanimously by the UN Security Council, resolution UNSCR 2321 tightened even further the sanctions and controls on North Korea[6]. The new resolution looked to address some of the issues which had come to light in the aftermath of UNSCR 2270, such as easy work-arounds on sectoral sanctions. New restrictions were put in place on mineral sectors, including copper, nickel, silver and zinc. The amount of coal North Korea could export was also restricted to defined amounts. It introduced restrictions on North Korean workers based overseas, as well as the provision of statues from North Korea. Additionally the UNSCR raised concerns about the activities of North Korean diplomatic missions and holdings and how these could be misused. All in all UNSCR 2270 and UNSCR 2321 together have created one of the most extensive UN sanctions regimes ever to be passed.

Challenges in 2017

It is clear that international condemnation, pressure and sanctions have not deterred North Korea from carrying out further provocations. Proof of this can be seen in the ballistic missile test that took place yesterday, 12 February 2017. The successful testing of the Pukguksong-2 missile will be an early test of the International Community’s resolve and ability to respond. Indeed satellite imagery and evidence[7] suggests North Korea has restarted its nuclear reactor at Yongbyon, the reactor used to produce plutonium for North Korea’s nuclear weapons programme[8]. This action would seem to indicate North Korea is preparing to conduct further nuclear tests.

The Trump administration has been sabre rattling in the region, both during the recent visit by Defence Secretary Mattis[9], in President Trump’s tweets[10], and during the visit of the Japanese Prime Minister. The critical question is what will the International Community, and the Trump administration, do in response to further provocations? It is hard to see what further scope there is for tightening sanctions on North Korea, and were such tightening to be suggested there would be concern regarding the humanitarian impact, a key concern for many countries, including Russia and China. Trump has already pointed the finger at China for failing to control North Korea[11], but traditionally China has resisted pressure to tighten its sanctions implementation. Given the antagonistic relationship between Trump and China so far, the US may undertake some form of unilateral military action against North Korea, though highly unlikely. Apart from further sanctions and possible military action, the best hope for a change in direction is the potential restarting of 6-party talks; the US administration has said they are willing to talk to North Korea. In practice it is difficult to see what this could accomplish, but the same was said by many before the start of Iran talks.

Another key challenge in 2017 will be the full implementation of both UNSCRs 2270 and 2321. UNSCR 2321 followed so quickly on the heels of UNSCR 2270 that many countries have not yet fully implemented UNSCR 2270, and as such have not submitted implementation reports to the UN as set out in the resolution[12]. Individual national legislation will need to be adopted by many in order to enforce the sanctions. This legislation will need to give countries powers to seize vessels and cargoes as prescribed by the UNSCRs. Countries will need legislation and capacity to allow all cargoes going to, or originating in, North Korea to be inspected. Furthermore, countries will need to ensure they can inspect cargo travelling via land and rail transportation, as well as sea and air, an often overlooked area. For many countries, especially in South East Asia given the high traffic of North Korean activity, there may be a need to dramatically increase customs enforcement capacity. Countries will need to be able to enforce the sectoral controls introduced by the UNSCRs, this will include an ability to analyse and identify what materials/ores they may be dealing with and if they are sanctioned.

Even more complicated will be how restrictions on coal, which essentially provides export limits, will actually be enforced, especially by China, North Korea’s biggest coal customer. North Korea watchers are already pointing out the potential frailties of this[13]. Domestic ship, registries, agents, insurers and companies will need to be looked at to ensure they are not misused by North Koreans. Countries will also need to examine their ship registries to de-list North Korean owned, operated or controlled vessels. Countries will need to take action to prevent public and private financial support to North Korea by persons or entities within their jurisdiction, unless by prior approval of the UN North Korean Sanctions Committee. And all of this is just a snapshot of the many new obligations and capacities countries will have to undertake.

Given this huge implementation challenge, the international community, and in particular countries like the US and UK, along with institutions, such as the European Union and United Nations, must have a focus on providing critical assistance to other countries, especially those with limited enforcement capacity. It is this that really will be the biggest challenge of 2017. Without this, having extensive and wide ranging sanctions on North Korea is worthless.

[1] http://www.bgr.bund.de/DE/Gemeinsames/Oeffentlichkeitsarbeit/Pressemitteilungen/BGR/bgr-160909_nordkorea_BGR_kernwaffentest.html?nn=1542132

[2] http://www.telegraph.co.uk/news/worldnews/asia/northkorea/12084087/North-Korea-hydrogen-bomb-Kim-Jong-un-earthquake-live.html

[3] http://edition.cnn.com/2016/04/23/asia/north-korea-launches-missile-from-submarine/

[4] Thomas Karako, director of the Missile Defense Project at the Center for Strategic and International Studies, told Business Insider: http://uk.businessinsider.com/timeline-of-north-korea-tests-2016-10?r=US&IR=T/#february-7-the-rogue-regime-fires-a-long-range-rocket-2.

[5] https://www.nytimes.com/2016/09/10/world/asia/north-korea-nuclear-weapons-tests.html?_r=0

[6] https://www.un.org/press/en/2016/sc12603.doc.htm

[7] https://www.theguardian.com/world/2017/jan/28/north-korea-has-restarted-reactor-to-make-plutonium-fresh-images-suggest

[8] http://38north.org/2017/01/yongbyon012717/

[9] http://www.bbc.co.uk/news/world-asia-38824008

[10] https://twitter.com/realdonaldtrump/status/816057920223846400?lang=en

[11] https://twitter.com/realDonaldTrump/status/816068355555815424

[12] Currently just over 60 countries have completed implementation reports of UNSCR2270 as evidence on the UN website: https://www.un.org/sc/suborg/en/sanctions/1718/implementation-reports.

[13] http://38north.org/2016/12/aberger121616/

Study of WMD Proliferation Financing Typologies: Interim Report

A Report by Dr Jonathan Brewer

finance

Illustration credit: Jason Robinson—originally published in the ACAMS Today magazine, a publication of the Association of Certified Anti-Money Laundering Specialists (ACAMS).

Combating the proliferation of weapons of mass destruction is a key priority for the international community. One of the tools for doing this is disruption of the networks used to finance proliferation. However, detecting financing of proliferation (FoP) is difficult and requires a better understanding of the typologies.

The most comprehensive study of FoP to date was published by the Financial Action Task Force (FATF) in 2008. Since then, largely due to sanctions on Iran and DPRK, more information on FoP has become available. The King’s College Study of Typologies of Financing of Proliferation is collecting and analyzing information held by governments and the banking and financial sector in order to publish reports on current FoP typologies. Additional indicators identified by this report could possibly be visible to banks and financial institutions that may be unknowingly involved in processing related transactions.

This Interim Report comprises analyses of 18 case studies, based on information supplied to the Study to date, contained in reports of UN Panels on Iran and DPRK, and in documents relating to a small selection of US Department of Justice actions.

The King’s College London Study will continue to collect and analyse data on FoP from governments and the private sector, and will publish a final report in July 2017.

The study is accessible below:

Study of Typologies of Financing of Proliferation Interim Report 5 Feb 2017