Category Archives: Analysis

Implementation of UN Security Council Resolution 2231 (2015) Three Years On: the UN Secretary General’s Sixth Report

By Emma Scott, Research Assistant

The UN Secretary General has now released his sixth report on the implementation of UN Security Council Resolution 2231 (2015), which governs the Joint Comprehensive Plan of Action (i.e. the nuclear deal with Iran). The UN Secretary General issues a report every six months to assess the implementation of the resolution. Project Alpha has been following these reports. Herein, we provide an analysis of the of this sixth report’s key findings in light of the former reports, and specifically related to the implementation of the nuclear related provisions; the ballistic missile related provisions; and the restrictions on the missile transfers or activities.

 

Key findings of the report include:

  • 5 new proposals submitted through the Procurement Channel, which brings the total number of proposals submitted to 42
  • 2 of the 6 cases of illicit procurement activity set out in the previous report did not meet the criteria set out in the Nuclear Suppliers Group Guidelines of Nuclear Related Dual Use Equipment, therefore did not require advanced approval by the Security Council; enquiries into the other 4 cases are ongoing
  • Component parts of 3 additional ballistic missile launches at Saudi Arabia by the Houthis had features consistent with those of the Iranian Qiam-1 short-range ballistic missile, as previously examined
  • Two container launch units for anti-tank guided missiles recovered by Saudi-led coalition in Yemen had characteristics of an Iranian manufacturer

 

Nuclear-related provisions

Since 12 June 2018, only 5 new proposals have been submitted through the Procurement Channel, bringing the total number of proposals submitted from 37 to 42. This figure is significantly down on the 13 proposals submitted in the previous reporting period 8 December 2017 – 12 June 2018. There has been no increase on the number of proposals approved or disapproved since the last report in June 2018, and there has been a slight increase from 7 to 9 proposals withdrawn since June 2018. Although, the procurement channel was slow to take-off from the beginning, it appears that it is slowing down further and not really functioning as a mechanism on the whole, and particularly, in the aftermath of the Trump withdrawal from the JCPOA.

Status of the Procurement Channel
Reporting Period No. of proposals submitted in the reporting period No. of proposals submitted since implementation day (16 January) No. of proposals approved No. of proposals not approved since implementation day No. of proposals withdrawn implementation day No. of Proposals under review
16 January 2016 – 12 July 2016 1 1 0 0 1 0
13 July 2016 – 30 December 2016 5 6 3 0 1 2
31 December 2016 – 20 June 2017 10 16 10 0 2 4
21 June 2017 – 8 December 2017 8 24 16 3 5 0
9 December 2017 – 12 June 2018 13 37 24 3 7 3
13 June 2018 – 6 December 2018 5 42 28 4 9 1

 

Ballistic Missile-related activities by Iran

In early January 2017, approximately, one year following implementation day of the JCPOA, and in the weeks following President Trump assuming office, reports started to emerge of Iran testing a range of ballistic missiles. The UN Secretary General’s reports have indicated approximately 20 tests conducted in the last two years, the details of which are briefly outlined in the table below.

Ballistic Missile launches or tests by Iran since 16 January 2016
Date of Launch/Test Type of missile/SLV Type/Reason for Launch Reporting State/outlet
15 November 2016 Qiam Flight test Israel
29 January 2017 Khorramshahr medium range ballistic missile Flight test Confirmed by Iran
18 June 2017 Ballistic missiles Retaliation against targets in Syria Israel
19 June 2017
4 July 2017 Medium range ballistic missile medium range ballistic missile Flight test US + E3
27 July 2017 Simorgh SLV Not mentioned US + E3
2 January 2018 Shahab-3 variant Flight test Israel
5 January 2018 Scud variant Flight test Israel
February 2018 Zolfaghar Flight test Israel
April 2018 Khorramshahr Flight test Israel
May 2018 Zolfaghar Flight test Israel
May 2018 Shahab-3 variant Flight test Israel
June 2018 Shahab-3 variant Flight test Israel
August 2018 Qiam Flight test Israel
August 2018 Zolfaghar Flight test Israel
30 September Unknown (x 5) Retaliation against targets in Syria Israel (reported in Iranian media)
1 October
1 December 2018 Medium range ballistic missile Test firing United States

 

While Iran has not categorically confirmed all of these tests, it has not denied all of them either with the exception of those reported by Israel between January and August 2018. Iran explicitly confirmed the 2017 test of the Khorramshahr missile maintaining that the test did not contradict the JCPOA nor resolution 2231. Paragraph 3 of resolution 2231 “calls” upon Iran “not to undertake any activity related to ballistic missiles designed to be capable of delivering nuclear weapons, including launches using ballistic missile technology […]”.[1] The phrase “calls” is not the affirmative “decides” language of the Security Council as specified in resolution 1929 (2010) prior to the signing of the JCPOA. Consequently, the Security Council is blocked over the continuation of the program and the interpretation of 2231.

The US, alongside the United Kingdom, and France, as well as Germany have jointly reacted to the recent launches. These states maintain that they are “destabilising and provocative” and conducted in defiance of resolution 2231.[2] They, alongside Israel, further maintain that the phrase “ballistic missiles designed to be capable of carrying nuclear weapons” includes all Missile Technology Control Regime (MTCR) Category I systems, defined as those capable of delivering at least a 500kg payload to a range of at least 300km. Consequently, they say, as the missiles can be categorised as such, they are inherently capable of delivering nuclear weapons.[3]

Within the context of Security Council reporting, China has been silent on the issue, while Russia has been coming to Iran’s aid. Russia maintains firstly that there is no legal prohibition through resolution 2231 on the development by Iran of missile and space programs and secondly there is no information that Iran’s ballistic missiles are designed to be capable of carrying nuclear weapons. In line with Iran, Russia also maintains that the Category I parameters of the MTCR (of which Russia is a member) were never intended to be used in the context of the resolution.[4]

Iran’s position is threefold. Firstly, it maintains that its ballistic missiles have not been designed to be capable of carrying nuclear weapons, and are thus outside the purview of resolution 2231. Secondly, Iran’s missile activities are part of its conventional deterrence and defensive capabilities, and nothing in resolution 2231 prohibits conventional missile activity.[5] Thirdly, Iran argues the definition of the MTCR is not an internationally agreed upon definition, and there is no reference to MTCR criteria in paragraph 3 of annex B to resolution 2231, therefore MTCR criteria is not applicable.[6]

Iran’s most recent test on 1 December 2018 caused further cause for complaint by the US and key European member states, but in the closed-door Security Council meeting which followed there was no consensus. Taking advantage of the blockage, Iran has said it will continue to develop and test ballistic missiles and is unwilling to engage in dialogue on the issue.[7] Consequently, despite the growing frequency, range and performance of the missiles, the status quo seems unlikely to change.

 

Ballistic Missile-related transfers or activities with Iran

Beyond the question of missile development and testing, the issue of ballistic-missile related transfers to and from Iran also remains. The question is whether Iran has transferred the missiles, parts thereof, or related technology to the Houthis in Yemen. Any such transfer post 16 January 2016 would constitute a violation of annex B to resolution 2231, which requires states to obtain prior approval from the Security Council for the supply, sale or transfer to or ‘from’ Iran of all items set out in the Missile Technology Control Regime list.

The Houthis could not apply for such authorisation because they are not a recognised UN member state, but rather a non-state actor, and such authorisation if requested by Iran would in any case never be granted because UN Security Council resolution 2216 (2015) on Yemen established an arms embargo on the Houthis. Therefore, the transfer of weaponry by Iran to the Houthis would also constitute a violation of 2216.

Launches of missiles by the Houthis in Yemen at Saudi territory began in July 2017. Since, there has been 14 launches in total. According to assessments by UN authorities, the missiles launched shared key design features with a known type of missile manufactured in Iran – the Qiam 1 short range ballistic missile.[8] Putting the question of regional stability aside, the overarching problem is the proliferation of ballistic missile technology in the Middle East, and the spread of such technology to non-state actors. Iran’s categorical denials of these transfers illustrate that it is not the Iranian government’s official position to support the Houthis and proliferate ballistic technology, probably because the views in Tehran are unlikely to be united on these issues. However, Iranian denials are questionable in view of the evidence presented by the Secretary General, leaving a certain amount of responsibility for proliferation in the region with Iran.

 

Launches by the Houthis at the Territory of Saudi Arabia
Date of Launch Number of Missiles Launches Name/Type of Missile Launched
22 July 2017 1 Qiam-1 (a Scud variant)
4 November 2017 1 Qiam-1
19 November 2017 1 Qiam-1
5 January 2018 1 Qiam-1
30 January 2018 1 Qiam-1
25 March 2018 3 Qiam-1
11 April 2018 1 Qiam-1
9 May 2018 2 Not mentioned
5 June 2018 1 Not mentioned
24 June 2018 2 Qiam-1

 

Arms-related provisions

Since the first report, the Secretary General has reported extensively on arms shipments to and from Iran. Resolution 2231 has two main provisions related to conventional arms. The first provision, paragraph 5 of annex B requires states to obtain prior approval from the Security Council on a case-by-case basis for supplying, selling, or transferring ‘to’ Iran the seven categories of arms defined by the United Nations Register of Conventional Arms.[9] In the three-year period since implementation day of the JCPOA, the UN Secretary General has only reported on one proposal to the Security Council,[10] the outcome of which has not been publicly divulged thus far. In addition, there have been another three instances of attempted unauthorised shipments to Iran – two of which were prevented by Ukrainian authorities, and one by Turkish authorities.

In the second provision concerning paragraph 6 (b) of resolution 2231, the Security Council decided to prevent, unless decided otherwise on a case-by-case basis, the supply, sale or transfer of arms ‘from’ Iran. No reports exist of Iran trying to use this mechanism and it seems unlikely in view of political circumstances, that any such request would be authorised. Instead, approximately 14 cases have been mentioned in the Secretary General’s reports where arms and related materials assessed to be of Iranian origin have been seized or recovered by fellow UN member states’ authorities. Iran has not responded to the accusations.

Finally, Iran has also been found to be displaying defence equipment in international defence exhibitions on 5 occasions, in Iraq (x 3), in Turkey (x1), and in Azerbaijan (x1). Iran’s justification for not asking for prior Security Council authorisation was that no prior approval was required because Iran retained ownership of the items exhibited. The Secretary General has requested to the Security Council to clarify whether paragraph 6 also includes temporary transfers, but the Security Council has yet to respond.

Although, the evidence from member states seems to indicate that Iran is not respecting the arms embargo imposed upon it, the Secretary General and the Secretariat continue to examine much of the evidence submitted by them. To determine a violation of resolution 2231, the transfers emanating from Iran must have taken place after implementation day on 16 January 2016.

 

Conclusion

Three years on Iran’s nuclear, ballistic missile, and arms programs are as divisive as ever, both in the region and further afield. So far, Iran is implementing its nuclear related commitments under the JCPOA. In the author’s opinion, the possibility of US military action aside, Iran will continue to do so until the easing of restrictions begin on the nuclear program in 2025. The question here is in view of President Trump’s withdrawal from the current deal, will Iran be willing to sign up to an agreement covering the period post 2025?

Restrictions will be lifted of the ballistic missile activity in 2023. However, at present, Iran seems determined to continue its ballistic activities and ballistic proliferation in the region in defiance of Western calls of condemnation and concern. The ballistic programme already high on the U.S. agenda is also rising on political agendas in Europe, so the question for another article is how should Europe respond?

The embargo on conventional arms will be lifted in 2020, but even for now, it is proving difficult to impose. In this case, the question is whether and which states will be publicly willing to engage in conventional arms transfers with Iran in the post-2020 period – only two years from now.

 

[1] UN Security Council, Resolution 2231 (2015), S/RES/2231 ()2015, 20 July 2015.

[2] UN Security Council, Third report of the Secretary General on the implementation of Security Council resolution 2231 (2015), S/2017/515, 20 June 2017.

[3] Ibid.

[4] UN Security Council, Fourth report of the Secretary General on the implementation of Security Council resolution 2231 (2015), S/2017/1030, 8 December 2017.

[5] Op. cit. UN Security Council, Third report of the Secretary General…, S/2017/515, 20 June 2017.

[6] UN Security Council, Fifth report of the Secretary General on the implementation of Security Council resolution 2231 (2015), S/2018/602, 12 June 2018.

[7] Tasnim News Agency, ‘’Iran to Continue Testing Homegrown Missiles: General”, 02 December 2018, https://www.tasnimnews.com/en/news/2018/12/02/1889585/iran-to-continue-testing-homegrown-missiles-general

[8] UN Security Council, Fifth report of the Secretary General…, S/2018/602, 12 June 2018.

[9] The seven categories of arms as defined by the United Nations Register of Conventional Arms include battle tanks, armoured combat vehicles, large-calibre artillery systems, combat aircraft, attack helicopters, warships, missiles, or missile systems.

[10] UN Security Council, Second report of the Secretary General on the implementation of Security Council resolution 2231 (2015), S/2016/1136, 30 December 2016.

Discussion Paper: UN Maritime Sanctions and the International Maritime Organisation

By  Ian J Stewart & Stephen Osborne

ABSTRACT

This paper examines the interplay between sanctions adopted pursuant to Chapter VII of the UN charter and rules governing the maritime sphere. This paper demonstrates that UN sanctions adopted on DPRK and Iran, and expanded by national measures, place requirements on maritime actors that go beyond those of IMO rules. Moreover, the paper demonstrates that IMO rules as presently constituted are poorly designed to facilitate the effective implementation of sanctions. As such, it is argued that maritime governance arrangements run counter to international peace and security requirements. In this context, a number of issues and opportunities are identified for leveraging IMO regulations.

 

INTRODUCTION

The UN Security Council has adopted a number of binding resolutions under Chapter VII of the UN charter that impose obligations in the maritime domain. These obligations are principally aimed at the programmes of countries subject to UN sanctions, which in recent years has included Iran and North Korea. However, the obligations also require that other actors in the maritime space take certain actions to deny sanctioned parties access to services. UN sanctions thus impose a global compliance obligation in the maritime space that is over and above any existing requirements set down by the International Maritime Organisation or other treaties to which states might be party.

 

The existence of such extra compliance requirements raises questions about their compatibility with existing rules. These questions include whether the sanctions are consistent with these existing rules and, if appropriate, which takes primacy. The questions also include whether IMO regulations are capable of supporting and facilitating implementation of the Security Council requirements. This paper will argue that IMO rules and regulations are presently poorly suited to implementation of UN sanctions requirements and thus that IMO rules and practices should evolve to better account for threats to international peace and security. In this paper, specific recommendations are identified to this end.

 

In order to ground these findings and recommendations, this paper proceeds as follows. First, the paper examines the scope of the maritime sanctions compliance requirement imposed through Chapter VII of the UN charter together with complementary national measures. Second, the paper examines the functioning of the IMO together with its rules and regulations in areas affected by sanctions. This is used to inform an analysis of the gaps in the system. Third, the paper identifies areas where IMO regulations and practices could improve to facilitate sanctions implementation. These recommendations consider governance opportunities beyond IMO regulations which, in practice, includes possible national actions and company-specific actions.

 

The paper draws on research into North Korean maritime sanctions evasion undertaken by Project Alpha at King’s College London. The paper also draws to some extent on research into Iranian sanctions implementation and evasion up until the nuclear deal in 2016 which saw sanctions eased.

 

REQUIREMENTS OF UN RESOLUTIONS

UN sanctions resolutions adopted against a number of countries including Iran and North Korea in recent years have increasingly imposed obligations in relation to the maritime domain.  These measures are generally targeted at the programmes, activities and vessels of the target country. However, they impose an obligation on all other states not to provide certain services or assistance to certain sectors or designated parties. In the case of North Korea, the requirement goes somewhat further as some entities linked to North Korea in third country jurisdictions have also been designated. The requirements of UN resolutions include:

  • Not to provide flag services to North Korean Vessels
  • Not to provide financial services to North Korean vessels, including financial services such as insurance and port services
  • To prevent ship-to-ship transfers
  • To stop and inspect vessels suspected of carrying proscribed goods to or from North Korea

 

RELEVANT IMO REGULATIONS

The International Maritime Organisation (IMO) is the body that regulates the high seas. It is a specialized agency of the United Nations and describes itself as the global standard-setting authority for the “safety, security and environmental performance of international shipping. Its main role is to create a regulatory framework for the shipping industry that is fair and effective, universally adopted and universally implemented.” 1 The IMO also audits states to ensure compliance with the states’ commitments to the IMO as laid down in the many conventions and treaties associated with the organisation. The IMO is thus a primary standard setter with regards to maritime issues.

The IMO has 174 members including countries that have recently been subject to UN sanctions including North Korea and Iran. There are a vast number of requirements resulting from the conventions, some relevant ones includes:

  • Vessels larger than 100 tonnes must operate an AIS (automatic identification system) transponder
  • Vessels operating in international waters must be registered with a flag state
  • All cargo vessels of 300 tonnes or more must have a unique 7-digit number issued by the IMO (I.e. IMO number) and use only this number for its entire life
  • Companies owning, managing and operating vessels must also have an IMO number (i.e. an IMO company number)

It should also be noted that the IMO is funded largely by membership fees which are calculated annually based upon the volume of vessels registered by each shipping registry; and the IMO generally takes decisions on a consensus basis in its committees and council which include all member states.

 

GAPS AND EVASION PRACTICES

As sanctions are imposed, efforts to evade them often emerge. Effective implementation, therefore, is not merely a question of enactment of legal requirements set out in a UNSCR, but also of identifying and countering sanctions evasion. In both the cases of Iran and North Korea, there are well documented examples of evasion of sanctions.  Indeed, in both cases it could be argued that there has been a widespread and systematic effort by both countries to evade the controls. Whilst these efforts have included crude physical measures, such as concealment of illicit cargoes underneath legal ones, or mis-description of goods or ports of lading on crates or manifests, there have also been ways in which the international administration of shipping has been exploited to evade sanctions. Any ship, whatever its activity, must have a flag state; must provide information to the IMO; and must provide regular position information. If ships can operate in breach of sanctions, perhaps that activity points to systemic weakness in administrative processes.

 

Flagging Issues  

The IMO requires that all vessels operating in international waters be registered with a flag state. UN sanctions require flag states not to provide flag services to vessels subject to sanctions (i.e. vessels owned or operated by North Koreans or engaged in illicit trade with a sanctioned country). In practice, however, sanctioned vessels are often able to obtain flag services through open registries. In such circumstances, the flag registry is not always wilfully non-compliant with the requirements of UN resolutions. It could be the case, for example, that the vessel manager presents false documentation to the flag registry or that the vessel becomes sanctioned after being listed on the registry. However, research at King’s College London suggests that many flag registries have in place inadequate processes and systems to conduct due diligence for potential sanctions issues. Many registries appear not to conduct a review of vessels other than at the time of registration, for example, and flag registries often do not require companies to provide registration documents to confirm their legitimacy. In many cases, open registries are run by private contractors, and the government may not have sufficient oversight in the running of the registry.

 

Presently, IMO regulations do not standardise the requirements of flag registration. Moreover, the IMO does not have a role in ensuring flagged vessels are not North Korean vessels, leaving the obligation instead to its members. Additionally, it appears that IMO audits of states currently do not check what measures states take to ensure they are not flagging North Korea vessels or indeed that the state is complying with any other aspect of UN maritime sanction. IMO regulations, while requiring vessels to have a flag, are thus not helpful in implementing UN sanctions in relation to flag issues.

 

Another phenomenon relevant to sanctions implementation, but also with wider applicability across the broader issues of lawful activity at sea, is the use of false, fake, or unauthorised shipping registries. Congo, Fiji, Samoa and the Federated States of Micronesia have all been reported as falling prey to a fraudulent registry activity.2 Previously, Mongolia and Tuvalu both contracted the services of a private company, Sovereign Ventures, to run their registry, which was reported to have ties to North Korea.3 In November 2014 the government of Zanzibar terminated its contract with the company Philtex (Belize Ltd), which it had authorised to manage its open shipping registry following allegations that Iranian oil tankers were operating under its flag. These cases are challenging for the IMO and for the relevant member state. It might be impossible for the IMO to detect the activities of a fake registry, but the IMO could take useful steps against the practice. This might include warning all mariners and other stakeholders about the prevalence of the practice; maintaining a standing request for any information suggesting such practice was going on; and acting forcefully on receipt of information to warn all stakeholders, giving full details. More strategically, the IMO could set standards for the relationship between the government and a private contractor appointed to run the registry.

 

Ownership and Management Structures  

UN sanctions can extend to individuals and entities known to be involved in prohibited activities. Generally, this requirement is limited to listed individuals and entities. However, in the case of North Korea, it extends to all North Koreans. The requirement includes an obligation not to provide financial services to individuals and entities owned and controlled by sanctioned persons. In the maritime domain this means that before any vessel can be mortgaged, insured or enter a port, confirmation is needed that the individuals and entities linked to it do not fall into this category.

 

In practice, this obligation can be partially met through the use of software that screens the entities associated with a vessel against the lists of sanctioned parties. Such software is increasingly being used by maritime flag service providers. Here, again, IMO regulations appear inadequate. An IMO service provider issues company certificates for companies wishing to be listed as the owner of a vessel. However, presently, it does not appear that the IMO requires sanctions screening at this stage, leaving the responsibility to member states.

 

Additionally, the entity legally responsible for a ship is the beneficial owner, sometimes seen as the group beneficial owner or ultimate owner. It appears that IMO regulations do not require information on beneficial owners and most databases that draw on IMO data to provide details of ship ownership do not include details of the beneficial owner. In the case of those that do offer group beneficial owner as a data field, this information is rarely available. It appears that either the IMO does not collect such data, or that it does not make it available either on a free or subscription basis.

 

A result of this is that, in the case of North Korean-owned ships, the data trail often leads only as far as a one-ship company. As one of many such examples, the North Korea-flagged Dai Hong Dan (IMO 7944695) is given in databases as owned by Daihongdan Shipping Co Ltd. Details of the ultimate owner are not available. Consequently, ship owners wishing to conceal their identity for any purpose can do so by setting up such companies. Additional layers of anonymity can be achieved by giving a care-of address, or naming a shareholder, director, or other nominated third party, as the beneficial owner. The IMO, in compiling its register, may be best placed to instigate greater transparency in the matter of ownership, by at least insisting that ultimate owner information be provided for publication.

 

Identification and Tracking (including at-sea transfers) 

A final area where tension exists between IMO regulations and UN sanctions is in vessel identification and tracking. Two separate systems for ship identification and tracking have been introduced by the IMO under Chapter V of the 1974 International Convention for the Safety of Life at Sea (SOLAS). One is the Automatic Identification System (AIS), the other is the Long-Range Identification and Tracking (LRIT) system. The two systems have different purposes, (the former being primarily for collision avoidance, the latter for security) but provide similar information. Presently, IMO regulations require every cargo vessel over 300 tonnes to report its position using LRIT at least every 6 hours; vessels of this size are generally also required to transmit using AIS.

 

A key difference between AIS and LRIT is that AIS is a broadcast system, meaning that data can be collected and made public. Access to LRIT data, on the other hand, is granted only to those authorised by contracted governments. The availability of AIS data on the internet has given rise to a number of free-to-use and subscription-based services providing near-real-time positional information. There are a number of reasons that vessels may wish to hide their position, including to avoid piracy and to evade authorities. As a result, ships may disable AIS to prevent exploitation by nefarious actors such as pirates, or to evade detection when undertaking unlawful activity; such as smuggling, illegal exploitation of natural resources, or sanctions evasion. Furthermore, insurance providers charge premiums for vessels that enter certain areas, so it has become common for vessels to disable tracking when operating in these areas. Furthermore, it is often difficult to determine whether AIS signal loss is the result of deliberate disablement or whether it is a result of signal range, or technical malfunction. Nonetheless, AIS disablement as a means of sanctions evasion is increasingly common. At-sea transfers with sanctioned vessels are prohibited but are regularly undertaken when AIS is disabled on both participating vessels. Examination of recent AIS data indicates that almost no AIS data is broadcast around North Korean ports, or from North Korean-flagged ships irrespective of location. Assuming that vessels are indeed entering and leaving North Korea, and that North Korean flagged vessels are indeed to be found in other locations, all such wilful disablement of AIS represents a breach not only of UN but of IMO requirements. Better implementation and enforcement of IMO requirements would strengthen implementation of UN requirements.

 

Given the potential justification for AIS disablement in certain circumstances such as anti-piracy, it is understandable that the UN panel of experts has been quite specific in asking commodity trading companies to ensure that their vessels transmit when operating close to Korea rather than in other areas of the world where vessel tracking is often disabled for other purposes.

 

The fact that, unlike AIS, LRIT data is only available to parties authorised by a participating government, should rule out its use by pirates, thereby removing legitimate or semi-legitimate grounds for switching it off or failing to make a scheduled or unscheduled broadcast. This potentially makes it a stronger asset to sanctions implementation in the following areas:

 

  • Flag States may request information on the location of their vessels. Either a location within an area of concern, or failure by a ship to report its position, might trigger a query being sent out to the vessel or its associated onshore companies; investigation by the flag state using other due diligence sources; reporting to the UNSC or the IMO.
  • States may request information on ships of any flag near their coasts; historical data as well as current data would be necessary to form the information picture.
  • Port States may request information on ships that have declared one of their ports as a destination; historical data as well as current data would be necessary to form the information picture.
  • Other service providers potentially involved in a transaction concerning a ship (trading companies, banks, etc.) may wish to know locational information; historical data as well as current data would be necessary to form the information picture.

 

Thus, there are some obvious opportunities to improve vessel tracking practices to aid sanctions implementation. Vessels could be required to transmit LRIT signals more frequently in areas used for ship-to-ship transfers to reduce the risks of unauthorised transfers or clandestine port visits, for example.

 

National and International Implementation

While UN sanctions and IMO regulations place obligations first and foremost on its member states, the member states in turn are required to distil these obligations through national legislation to the private sector. Given that much of the maritime sector is operated on a commercial or private sector basis rather than by governments, the question of effective implementation is central to the question of whether security council regulations can be effective.

 

A key challenge here is that neither the UN nor the IMO has set out clear guidance on what member states or service providers must do in order to comply with the requirements of UN sanctions. Indeed, while the United Nations Security Council (UNSC) has gradually provided more information and guidance on its own website, and issues implementation assistance notices, there is presently no information on the IMO website about UNSC sanctions at all. Guidance issued by the IMO, which sought to integrate sanctions compliance processes with other compliance processes, would evidently be helpful to the IMO’s members.

 

This lack of mention of UN sanctions on the IMO website, in particular, raises questions about why the IMO has not been more responsive to UNSC decisions. According to the UN Charter, it is after all the Security Council that has primacy in relation to international peace and security and its decisions are binding on all UN member states. The answer to this question is not yet fully clear. Certainly, it is apparent that the structure of the IMO, which usually requires consensus among its membership and includes countries subject to sanctions such as North Korea and Iran, does not lend itself to proactive decision making on sanctions issues. However, this would not necessarily prevent the IMO secretariat from hosting or publishing guidance from the UNSC on sanctions issues.

 

Another key challenge relates to information sharing. Presently, some governments have decided to list the vessels they have de-flagged as a result of connections with North Korea. Other governments have published examples of vessels conducting at-sea transfers. However, presently there is no requirement for member states to share information with the IMO or with other states when action is taken against a vessel or company as a result of UN sanctions. Addressing this gap would make evasion of sanctions more difficult by reducing information asymmetry between states.

 

CLOSING THE GAPS

 

Having examined the requirements of both UN Security Council sanctions and the IMO, it is apparent that UN sanctions and IMO regulations are disjointed. Sanctions are of course intended to be a limited duration event (or at least not permanent) and it might thus be acceptable that sanctions compliance requirements are not fully integrated with enduring IMO regulations. However, as the proceeding sections have highlighted, there are numerous areas where action to leverage the IMO could make sanctions compliance easier for member states. In this context, the IMO at the very least should be involved in the promulgation of UN guidance to its members.

 

There is also an opportunity to better leverage the IMO to improve sanctions implementation. These moves would likely require either a decision of the UNSC or a decision by the IMO’s own governing bodies and would thus require championing by states.

 

Vessel Tracking 

  • Vessels operating in areas relevant to sanctions could be required to transmit LRIT on a more regular basis so that flag states can identify suspicious activity.
  • States should be encouraged to investigate and report on suspicious activity by its vessels in areas relevant to sanctions.
  • Encouraging, or requiring, states that operate open flag registries to become contracting governments for the LRIT system.
  • The IMO might specifically require AIS activation at all times when vessels are outside areas agreed as being prone to piracy. This would provide the same  benefits LRIT above and would additionally permit an automated comparison of the position data from LRIT and AIS, disparity could then trigger challenge or investigation.

Flagging  

  • The IMO could improve transparency in the matter of ownership by requiring and publishing ultimate owner information.
  • The IMO should require its service provider to conduct its own due diligence before issuing company IMO numbers, including by screening the company against the UN sanctioned entity list.
  • The IMO should require its service provider to screen flagged vessels against sanctions lists and proactively raise any resulting concerns with flag states.
  • The IMO should share information among its members on vessels that have been de-flagged in connection with sanctions.

Audits 

  • The IMO should include sanctions requirements when conducting its audit of member states.

 

CONCLUSION  

 

This paper sought to examine the compatibility of IMO regulations with the requirements of UN Security Council resolutions (UNSCRs). This examination has shown that sanctions implementation does not appear to have been part of the IMO’s calculus in the international maritime administrative structures it has set up. In many cases, however, these could be adapted to make them directly supportive of UNSCRS. Likewise, it seems likely that the UN Security Council has passed Resolutions on maritime issues concerning North Korea without fully considering the mechanisms for implementing them. As the setter of standards for the industry, the IMO is perhaps uniquely placed to include in those standards the compliance with UNSCRs.

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.