Financing the proliferation of WMD is poorly understood and difficult to identify. Procurement networks hide their financial tracks to circumvent sanctions or other controls. Sources of funds,
which may be countries under sanctions, are concealed behind front companies or individuals acting on their behalf. Goods and materials procured by proliferation networks are generally industrial in nature and usually obtained from established overseas, often via brokers. Financial transactions are typically processed through the international banking system and usually appear to be related to legitimate trade. They may take place on “open account” terms” or
supported by trade finance operations.
In this context, on June 20, 2017, the workshop “Trade Finance and Proliferation Finance – Mitigating the Risks,” took place at King’s College London, UK. The objective of this workshop was to examine what is known about how current mechanisms for financing global trade might be exploited for the purposes of financing of proliferation (FoP) of Weapons of Mass Destruction. The workshop took place in the context of a study carried out by Project Alpha,
funded by United States Department of State, of current typologies of FoP. Participants included representatives from the commercial sector, amongst these banks, consultancy firms, insurance
companies, and others, and the government sector, including the UK and US governments, and crown dependencies.
The discussion took place under the Chatham House rule and was structured roughly into: challenges, regulatory expectations, possible solutions. The workshop aimed to
1) Review current mechanisms for trade finance and identify how these may be exploited for financing proliferation;
2) Identify possible measures governments and financial
sector could take to mitigate risks; and
3) Consider mechanisms for information sharing to support risk mitigation.
The attached report is a summary of main points and is not intended to be a comprehensive record. It is structured as follows: First, the main issues discussed during the workshop highlighted as the main challenges for the financial sector are described. Second, the specific
options for mitigating risks are delineated. Finally, a list of recommendations and follow up action items have been compiled by the workshop organisers and based on the workshop discussions are noted.
On 12 June 2017, the VCDNP, with support from King’s College London, organised an event entitled “JCPOA Procurement Channel: Status and Lessons Learned.” The event was chaired by Laura Rockwood, VCDNP Executive Director, with opening remarks by the Ambassador of the European Union (EU) to the International Organisations in Vienna Didier Lenoir. The speakers included officials actively engaged in the Procurement Channel from the UN Secretariat, the EU External Action Service (EEAS) and the Islamic Republic of Iran. The event was organised under the auspices of the VCDNP’s newly launched European Non-Proliferation and Security Initiative (ENSI); Ian Stewart, who directs the ENSI, also participated.
The event focused attention on an underutilised mechanism of the Joint Comprehensive Plan of Action (JCPOA) intended to ensure that trade in nuclear-related items is consistent with the principles and requirements of the agreement: the JCPOA Procurement Channel.
In her welcoming remarks, Laura Rockwood noted that, a year and a half into the implementation of the JCPOA, it was timely to consider whether the Procurement Channel was living up to its expectations. It was with this in mind that the VCDNP had organised the event.
The JCPOA Procurement Channel includes measures intended to ensure that while Iran is able to benefit from regular trade in the field of single and dual‑use items of nuclear relevance, such items cannot be diverted to support a nuclear programme in Iran inconsistent with the JCPOA. The Procurement Channel is run by the Procurement Channel Working Group (PWG) which is coordinated by the EEAS, and has seven participating States: United Kingdom; the United States of America; France; Germany; Russia; China; and Iran. The channel is designed to receive proposals from States interested in exporting goods to Iran. The PWG has 20 working days (extendable to 30 days) to consider the proposals on any one export good. The PWG operates by consensus and once their decision has been made it is sent to the Security Council for its final decision. The Security Council has five days to make its decision, which is then communicated to the proposing State in the form of a written letter.
In his remarks, Erik Marzolf, Senior Political Affairs Officer in the Security Council Affairs Division of the UN Secretariat, outlined that the JCPOA, was endorsed by the Security Council through resolution 2231 (2015), just six days after the agreement was reached by the E3/EU+3 and Iran. This resolution terminated the provisions of all previous Security Council resolutions on the Iranian nuclear issue and replaced prohibitions with certain restrictions, including on nuclear-related transfers to Iran.
He noted that resolution 2231 generated a distinct working mechanism which differs from that which existed during the sanctions period. In particular, there was no longer a dedicated committee of the Security Council charged with overseeing implementation. Instead, all tasks are directly undertaken by the Security Council and one of its members (on a rotating basis) acts as the facilitator. This year it is Italy, last year it was Spain. The specific role of the Secretariat is to support the facilitator and to report every six months to the Security Council on the implementation of resolution 2231. The Procurement Channel is a system derived and endorsed by the resolution and administratively supported by the UN Secretariat.
Mr. Marzolf noted that the Secretariat acts as the point of contact for States in submitting proposals to the Procurement Channel. He emphasized that the Secretariat is not involved in the substantive review of the proposals. States are encouraged to submit proposals through UN Missions in New York, using the templates available on the UN website in all six official languages. Once proposals have been received, the UN Secretariat is tasked with translating them into English before providing the proposals to the PWG for its consideration. Translations are usually completed within a 24 to 48 hour time period. The proposals are handled in the participating States capitals and the EEAS in Vienna serves as the coordinator. The duration of the review process ranges from 42 and 58 calendar days and to date averages 47 days. Once the outcome of the review is determined, the Secretariat informs the Member State of the decision of the Council. Mr. Marzolf indicated that all proposals submitted thus far had been processed in due time with consideration given to confidentiality.
Klemen Polak of the EU External Action Service and coordinator of the PWG noted that trade with Iran had entered a new era as a result of the JCPOA. The Procurement Channel, he said, had been quickly set up, with the necessary administrative items, such as templates, available as of Implementation Day. The Procurement Working Group has met every third week in Vienna since then and is the only working group under the JCPOA that has regular scheduled meetings.
Mr. Polak also mentioned the need to balance transparency with confidentiality, given that the information provided through the Procurement Channel could involve potential commercial sensitivities. In the spirit of transparency he highlighted that the PWG reports every six months to the Security Council on its review of the proposals. Mr. Polak concluded that to date a positive trend could be seen and it appeared that the Procurement Channel was working properly and that the PWG had provided sufficient information and guidelines for States to submit proposals. He also noted that of the proposals received to date, most included items on the dual-use list, which includes manufacturing equipment such as for the automobile industry. Though the Procurement Channel is working he recognized that it is still a new mechanism and more work needs to be done, especially on a national basis within each participating State.
Dr. Behzad Saberi, Counselor, Permanent Mission of the Islamic Republic of Iran to the International Organisations in Vienna who represents his country in the Procurement Working Group, reflected on the functioning of the Procurement Channel from an Iranian perspective. He noted that the Procurement Channel was one of the last measures to be agreed on in the JCPOA negotiations, due to mutually exclusive principled positions of different parties which were only brought to agreement through creative solutions and flexibility shown by all sides. He clarified that it had taken some time for Iran to set up the internal mechanisms necessary for the issuance of the end user certificates required under the Procurement Channel, and further explained that Iran had now established the Atomic Energy Organisation of Iran as the certifying authority for nuclear items and the Ministry of Industry, Trade and Mine as the certifying authority for non-nuclear civilian end users.
Dr. Saberi noted that the working mechanisms of the Procurement Channel were indeed set up effectively, and with a positive working spirit, but that, to date, too few cases had been referred through the Channel than expected. He elaborated on a number of reasons why he thought the use of the Channel had not yet yielded a greater output. These included, inter alia: (a) the considerable time that inevitably had been needed for setting up the arrangements and working methods related to the Procurement Channel in (and among) the Working Group, the UN, Iran and other participants of the Working Group. He mentioned that before the JCPOA Implementation Day there existed other more pressing priorities, and that therefore serious work on the necessary preparations for the Procurement Channel began only afterwards; (b) the novelty of the mechanism, meaning that States, industries (both in Iran and in the exporting countries), banks and financial institutions would require some time to become aware of the new possibilities and learn how to use it; (c) the fact that cases resulting from commercial transactions could naturally take some time to negotiate; (d) uncertainties among the private sector about re-engaging with Iran, as a result of the “shenanigans, sabotages and actions” by certain governments and interest groups who have retained their mind-set of sanctions and pressure; and (e) the fact that the appetite on the demand side seems to be less than expected. In this regard he highlighted that, for a country that had been under sanctions for a number of years, industries had had to learn either to indigenize the needed technology and become independent from foreign supply, or to modify their production lines to obviate the need for sanctioned items. Therefore, it will take time for such industries to gain trust in the efficiency and sustainability of this new network and to re-structure their planning to include items that may not have been available from abroad before the JCPOA. In his final remarks, he stressed the need for the Procurement Channel to be seen as available to all and as a reliable mechanism. In building this trust, more proposals could filter in through the channel in the future.
The overall sense from the three speakers was that the mechanisms were well‑established but underutilised. Ambassador Lenoir Didier of the EU Delegation in Vienna described the JCPOA as a bright force in an uncertain era and commented that the improving Iranian economy was a positive sign for the JCPOA’s viability. Nonetheless, the JCPOA’s challenges were noted. Ambassador Lenoir highlighted that the JCPOA – and the Procurement Channel in particular – was a technically complex and politically sensitive agreement, which required daily engagement among officials. All speakers noted the positive trend of the channel but also were not blind to the current shortfalls. However, the common belief that the JCPOA and the Procurement Channel are a success and in the best interest of all prevailed, and the speakers highlighted their own entities serious commitment to achieving the results defined in the agreement.
During the discussion period, the question of whether the Procurement Channel was necessary was raised. It was suggested that the Procurement Channel provides a useful additional mechanism for all parties to maintain confidence that Iran, and the other members of the E3/EU+3, are maintaining their commitments to the JCPOA. Further, it was suggested that, given broader geopolitical uncertainties, such additional confidence building measures would be useful in maintaining the JCPOA in the years ahead.
Another participant emphasized the technical nature of the Procurement Channel process, highlighting that the Channel only looks at the technical aspects of the mechanisms and proposals. As long as proposals are consistent with the JCPOA and resolution 2231, there is no reason why such proposals should not be approved. Referring to the 10 year timeframe for the Channel, the participant noted that little outreach could be done in such a short period. Thus, in encouraging States to submit proposals, it is important to recognize that no one State will be “black listed” or shunned should a proposal be denied, but rather the State would be encouraged to re-submit a proposal that is within the technical guidelines defined in both the JCPOA and resolution 2231 so that it could be accepted by the Procurement Working Group and the Security Council.
In concluding, Ian Stewart observed that mechanisms like the Procurement Channel would help to sustain the JCPOA over the next decade, but that it was incumbent on the E3/EU+3, Iran and other parties to secure a longer-term resolution of the issues that the JCPOA sought to address. He noted that, with the newly launched ENSI at the VCDNP, the Center hoped to play a useful role in this context through the organisation of further follow-on events and activities.
More information on the Procurement Channel can be found here.
This event was also featured on the EEAS website here.
On 19 January 2017, in partnership with the James Martin Centre for Nonproliferation Studies (CNS), Project Alpha will be hosting a workshop on evidentiary issues in EU and UK sanctions delisting actions. This workshop is part of a broader project that CNS and Project Alpha are doing on open source evidentiary packages to support sanctions listings.
The workshop will be a one day conference which will consider:
Current evidentiary issues such as the standards of proof, quality of evidence, burden of persuasion and lessons learned.
The Courtroom Experience: How Cases are Handled, Evidence Received, Opinions Delivered
Practical Matters: Building cases, presenting evidence, EU members supporting the Council
The concluding session be on open source tools techniques and examples for use in building evidence packages.
The workshop will be attended by Government representatives from the UK, US, France, Germany, the European External Action Service, EU and legal experts.
To explore ways to strengthen the partnership between the UK and India on strategic nuclear issues, Project Alpha of King’s College London, together with the Institute of Defence Studies and Analyses (IDSA) in India organised a two-leg dialogue during the first quarter of 2016. The sessions were attended by scholars, practitioners and officials from the two countries, who explored a number of relevant topics in order to build common understanding and identify opportunities to further strengthen the relationship between the UK and India.
The first event, held at the Royal Society for the Arts in London on January 18th to 19th 2016, focused on common interests and areas for collaboration, strategic challenges and stabilities, non-proliferation and disarmament efforts, as well as India’s entry into the export control regimes. The second event was held at the IDSA office in Delhi on March 1st to 2nd 2016, where the discussion focused on the Asian security landscape, export control governance, and discussion on the next steps to developing the India-UK alliance.
The detailed meeting summary of the event can be accessed below.
The direction of growth of global commerce is greatly influenced by international sanctions and control regimes. These change constantly in response to geopolitical or other developments. International agreements for example may include provisions for targeted and phased lifting of sanctions over lengthy periods (this is likely to be the case for any long-term agreement between Iran and the P5+1). To maintain a competitive edge in such an environment, companies in freight forwarding and related industries need a smart and adaptive approach to compliance.
Project Alpha Presents at Export Control Experts Group Meeting, Taipei, Taiwan
In June 2012, representatives from Project Alpha attended and presented their research at a meeting of the Council for Security Cooperation in the Asia Pacific (CSCAP) Export Control Experts Group (XCXG) in Taipei, Taiwan. The meeting was attended by representatives of most governments in the Asia-Pacific region. It provided Project Alpha representatives with the opportunity to share the outreach model which they have been pioneering in the United Kingdom.
CSCAP is an intergovernmental organisation with governments from 10 Asia-Pacific countries taking part. The XCXG is a specific study group which considers the role of strategic trade controls in preventing WMD proliferation. XCXG was set up to assess national export control systems; to identify potential vulnerabilities and loopholes; and to seek to outline recommendations both for improving national capacities and exploiting opportunities for regional cooperation.
The workshop was organised jointly by CSIS-Pacific Forum and National Chengchi University in Taipei. It is part of a broader, ongoing series of workshops which brings together export control experts from the Asia Pacific region and beyond. These workshops are intended to allow practitioners and academics to share ideas and to improve strategic trade controls and their implementation.
The workshop sessions included those on recent export control developments in the Asia Pacific; legislation; UNSCR 1540; transhipment; and the role of regional organisations. Discussions considered how far states in the region have come since the discovery of the AQ Khan network and the passing of UNSCR1540. It also emphasised that there was still a way to go, especially in building a compliance culture within the private sector.
Rightfully, much of the workshop focused on legislation, the licensing process and enforcement capacity; these are areas on which many states in the Asia Pacific region are currently focussing. This allowed Project Alpha to disseminate its ideas relating to private sector engagement and, more specifically, Ian Stewart spoke about the role of the private sector in implementing sanctions regimes.
Holding the workshop in Taiwan was significant in a number of ways. First, Taiwan has had some issues with illicit trade in the past. Taiwanese industry has been targeted significantly by proliferators for machine tools, and Taiwanese transportation nodes have also been exploited by proliferators, Illicit shipments of sensitive goods have been transhipped through or re-exported via ports in the country.
However, holding the workshop in Taipei was also significant for another reason. Due to the unresolved situation regarding Taiwan’s sovereignty, there are limits as to the degree to which Taiwan can participate in intergovernmental initiatives. Although a member of the United Nations (UN) and UN Security Council permanent member until 1971 (when Taiwan was replaced by the People’s Republic of China), Taiwan’s participation in multilateral fora, and specifically the multilateral export control regimes, has been limited.
Conferences allowing for these issues to be explored in Taipei are certainly welcomed. They also present a valuable opportunity to discuss these issues with other states in the region where strategic trade controls are still evolving. The next meeting is due to be held in October in Manila, in the Philippines. Project Alpha will be attending again and this time Daniel Salisbury will be present research on Transhipment hubs.