Category Archives: News and Events

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.

Brexit and Export Controls: Challenges Facing the UK and the EU in Controls and Enforcement, and the Implications for Proliferation and National Security

Steve Osborne, Research Associate (stephen.osborne@kcl.ac.uk)

Biographical Sketch

Steve Osborne recently joined King’s College London as a research associate for Project Alpha, a programme dedicated to the countering of illicit trade. He has many years’ experience of counter-proliferation and export control in the UK government.

Abstract

Strategic trade controls for Weapons of Mass Destruction (WMD) exist to help prevent the proliferation of goods and materials that might benefit the WMD programmes of countries of concern. As such they are an essential component of national security. For instance, the EU’s single market has allowed, indeed required, development of complex systems that encourage the free trade of dual-use goods within the EU, but control their export from it. The UK benefits from, but has also contributed strongly to, these processes. Brexit will bring about considerable change in this area, as in so many others. This paper seeks to understand the risks, challenges and ramifications of Brexit for the maintenance and continued enforcement of strategic trade controls. As well as drawing on a number of actual cases, the paper constructs a series of scenarios designed to expose potential points of weakness in the systems working to prevent the spread of sensitive goods and technology. It seeks then to draw on this analysis to propose a number of recommendations to help maintain effective counter-proliferation after Brexit.

Introduction

On 23 June 2016, the UK electorate voted by referendum to withdraw from the European Union, thus setting in motion the dismantlement of structures steadily built up since the UK joined the European Community in 1973. As part of this, the UK must extricate itself from the EU’s shared strategic trade control criteria. But as the UK disengages from EU processes, risks may grow that illicit procurement networks or sanctioned entities obtain dual-use goods more easily from the UK or the EU than before. Such an outcome would have clear proliferation and national security implications. The opposite might equally be true – that Brexit reduces the risk of proliferation. It is important therefore to try to identify all possible risks, so that these can be addressed as Brexit takes shape. This paper seeks to examine those questions by looking at the regulations and structures themselves, and then by examining actual cases and also imagined scenarios. It will examine issues of legislation, enforcement and information sharing.

It will also look at the five key challenges identified at the April 2017 workshop run jointly by King’s College London and the University of Liege to examine the implications of Brexit on strategic trade controls, namely: the UK’s as-yet uncertain position vis-à-vis the single market (the so-called Norway question); harmonising controls to maintain a united front against illicit procurement attempts; the ongoing need to share relevant information; the increased licensing and enforcement burden arising from the UK’s departure from the single market; and the loss of the UK’s significant contribution to the EU’s export control structures[1].

The article will be structured as follows: first, it will examine the current structures, in terms of strategic goods, sanctions and other end use concerns, and what challenges these face at Brexit; second, it will analyse the question of enforcement and penalties, and whether a system of harmonisation would be useful; thirdly, it will examine case studies and scenarios; fourth, it will examine how Brexit is likely to affect the EU’s and the UK’s ability to deal with similar cases or scenarios in future; and finally, it will offer a number of recommendations.

Export Controls

At its core, the issue of export control is common to all responsible trading nations: how to achieve the appropriate balance between promoting exports – the prosperity agenda – and maintaining control of sensitive goods – the national security agenda.

Under the current EU system, the EU’s Dual-Use Regulation, also known as Council Regulation 428/2009[2], forms the EU’s main legal basis for controls on dual-use goods. It was issued in August 2009, subsequently updated as 388/2012, and contains the EU Dual-Use list of controlled items. The latest update to Regulation’s Annex I list was made on 26 September 2017[3]. The Regulation, and the list, apply directly in all EU member states. In the UK, the list is also incorporated in the UK’s consolidated Strategic Export Control Lists[4]. 428/2009 provides an objective, shared basis across the whole EU for licensing and enforcement; and as a publicly published list, it is the primary guide to exporters as to whether to seek a license. Implementation is coordinated by European Council’s Working Party on Dual-Use Goods.[5]

On Brexit, the UK may adopt a national regulation on export control under the ‘Repeal Act’. This would mean that, instead of continuing to draw on Council Regulation 428/2009, the UK would derive its regulations directly from the international export control regimes on which 428/2009 is primarily based (UNSCR 1540[6], NPT[7], BTWC[8], CWC[9], MTCR[10], Australia Group[11] and the Wassenaar Arrangement)[12]. Although the UK and EU will both continue to update their lists to keep pace with technology and to reflect changes in the international control regimes, the UK’s process will be separate from the EU’s. This will mean that EU and UK export controls are likely to diverge in time[13].

What does this mean for UK (and EU) based companies? The divergence of the lists will be a gradual process, which should mean that, at first anyway, the UK’s and EU’s regulatory provisions for export control are relatively little affected by Brexit. Council Regulation 428/2009 will remain in place, and the UK’s Strategic Export Control Lists will continue to apply. Nevertheless, divergence is likely over time. The UK might partially address this by following the precedent set by Norway, namely to maintain alignment with the EU Regulation, but that would be to ignore the UK’s useful role in helping to set and amend the provisions, as well as in related programmes such as the P2P (Partner-to-Partner) Export Control Programme[14]. The UK’s participation in the bodies responsible for maintaining the listings and agreeing a consistent interpretation (the EC Dual-use Working Party and the EU WMD Monitoring Unit) is likely to cease. Negotiations on the future trade relationship between the UK and the EU might usefully address this divergence and separation process by identifying a mechanism for continued UK participation.

The biggest change is likely to be felt, however, where dual-use goods are being traded between the UK and other EU member states. Currently most such transactions are classed as intra-EU transfers rather than imports or exports, and thus are not subject to controls, except for the particularly sensitive items listed under Annex IV of Regulation 428/2009, which remain controlled for movement between member states. With the obvious caveat that the UK’s future position vis-à-vis the European single market is not yet resolved, what is clear is that movements to and from the UK that currently count as intra-EU transfers will become imports and exports once more, with clear implications for regulation, licensing and enforcement. Clearly, UK and EU companies alike will benefit from as de-regulated a process as can maintain sufficient control.

Another area that will need to be resolved at Brexit is End Use controls, also known as Catch-All controls (where the goods themselves are not listed, yet there may be specific concerns about military or WMD end use). They apply where unlisted goods, that nevertheless could contribute to a military programme, are sought by or through an entity with known connections to an end use or end user of concern. Catch-all controls rely on collateral information or suspicion, rather than a list, suggesting that this is already a much harder area in which to achieve EU-wide consistency, and one that relies heavily at EU level on case-by-case information sharing to prevent a procurer from tapping up suppliers in one EU state after another.

Finding a post-Brexit solution to maintain Catch-All provisions will be vital to enable the UK and the EU to continue to impede proliferation, in cases where procurers seek goods that undershoot the control thresholds, or use obscure networks that have been uncovered by just one member state. Yet many points remain unclear: whether Brexit will make Catch-All controls more effective or less effective for non-proliferation purposes; whether trade is facilitated or impeded; where any additional burdens are likely to fall – the EU or the UK. On the one hand, Catch-All harmonisation within a common market is already problematic, so introducing a new point of control may be a useful addition. The fact that the UK will no longer be bound by the decision of another member state (for instance in the case of goods leaving the EU via the UK) may also be an advantage. Nor should we assume that the current level of information sharing on this topic is fully effective. On the other hand, it is clear that information sharing and harmonisation, both within the EU and between the EU and the UK, will be particularly important in building and maintaining a system of Catch-All provisions.

The second pillar of export control is sanctions. As a major global economy, the UK’s adherence to sanctions, as well as its key role on sanctions within the EU, have been central to their effectiveness. The EU may not necessarily originate sanctions, but it has been successful in aligning EU member states with international sanctions, and harmonising the position of all EU states and, in some cases, issuing specific EU-restrictive measures. Whether the UK will continue to enforce sanctions after Brexit is not in question. Of concern is whether sufficient harmonisation within the EU, and between the UK and the EU, can be maintained, and whether a way can be found for the UK’s significant contributions (for instance in providing evidentiary support for designations) to continue in future.

Enforcement

Enforcement, or rather the harmonisation of enforcement, is another area that is already challenging, and will require careful attention at Brexit. One of the main existing issues is that while regulation is set at EU level, enforcement occurs at national level. Common legislation is nationally applied. The EU’s non-proliferation framework, like UN Security Council Resolution 1540 on which it draws, makes member states responsible for establishing effective law enforcement measures and penalties. Article 19 of EC Dual-Use Regulation 428/2009 requires that “Each Member State should determine effective, proportionate and dissuasive penalties applicable in the event of breach of the provisions of this Regulation[15]”. Unsurprisingly, a survey carried out by the EU in 2006 showed considerable variation in penalties from state to state. The Stockholm International Peace Research Institute (SIPRI), in its 2009 report “Enforcing European Union Law on exports of Dual-use Goods”[16] highlighted some of these. According to SIPRI, at the time of the survey, the maximum penalties for breaches of the EU legislation on dual-use goods ranged from 12 months’ imprisonment (in Ireland) to 15 years (in Germany). All states participating in the survey applied criminal sanctions for serious violations of the EC Dual-Use Regulation’s licensing requirements, but while 15 of the then 22 member states imposed strict liability for violators, 7 considered only intentional violations to be criminal. Common to most administrations were fines, license revocations and warning letters.

SIPRI addressed this again in its 2013 paper “WMD-related dual-use trade control offences in the European Union: penalties and prosecutions”. The paper argued that the main barriers to effective enforcement and prosecution were discrepancies in penalties, the lack of a shared legal framework, and differing interpretations of key terms such as ‘transit’, ‘trans-shipment’ and ‘brokering’[17]. The Chaudfontaine Group, in its 2011 Green Paper “The dual-use export control system of the European Union: Ensuring security and competitiveness in a changing world”, highlighted widespread discrepancies among EU member states in regulation and implementation, and considered how to balance competitiveness, both within and beyond the EU, with harmonisation of controls[18].

It should be said that, since its adoption in 2013, the EU Customs Code[19] has provided valuable guidance on enforcement, setting procedures, establishing common information systems, and providing a harmonised set of definitions. Enforcement goes beyond the matter of penalties, being equally a product of the legal, technical and human resources available, and the relation between bodies responsible for enforcement, licensing and prosecution. The Customs Code goes a long way towards providing harmonisation in these areas.

In enforcement, as in the case of Catch-all controls, Brexit appears to offer potential benefits as well as risks. The introduction of a new, independent point of control may be a useful addition. Dual-use and exports from, and via, the UK will inevitably require more scrutiny than before, which may well make enforcement more effective (though increasing the administrative burden). The increased option for the UK and the EU to deny exports to each other may also have benefits for enforcement. On the other hand, even though the UK’s systems will separate and diverge from those of the EU, the issue of harmonisation will not go away. Harmonisation is necessary, and will remain necessary, to help prevent procurement agents from targeting countries where controls are (perceived to be) weakest.

If export controls are perceived to be more permissive in the UK than in the EU (whether this is a matter of the severity of the penalty, the interpretation of the law, the ease of obtaining an export license, the effectiveness of customs, the capacity of intelligence, or the appetite and capacity for legal proceedings), UK exporters will potentially be at a competitive advantage against their EU counterparts, but could become a target for procurement networks looking for goods for military or WMD programmes. Conversely, if the controls are perceived to be more effective in the UK than in the EU, UK industry will be put at a competitive disadvantage, but the UK will not be especially targeted by WMD procurement networks.

Licensing and enforcement “shopping” could have a knock-on effect on the trade of dual-use goods between the UK and the EU. As mentioned above, Brexit introduces (or reinstates) the option for the UK and the EU to deny exports to each other. Any perception that the UK is a ‘back door’ out of the EU would tend to make EU member states (and their respective licensing authorities) reluctant to export dual-use goods to the UK. The same would apply in reverse. The studies by SIPRI and the Chaudefontaine Group referred to above strongly suggest that such weak points already exist, and are a systemic feature of a model that regulates at EU level yet enforces at national level. Whether this is true or not, Brexit cannot afford to overlook this factor, as it has implications for national security and for the facilitation of trade.

Logically, a post-Brexit solution will consist of two elements. Firstly, it will ensure that the UK’s implementation and enforcement of export controls are perceived to be at least as strict as those of EU member states. That at least would prevent the UK from being targeted as a soft touch by procurement agents. Secondly, it will allow for continued collaboration and information sharing, to help prevent procurement agents from exploiting discrepancies between the UK and the EU, whether in penalties, capacity, customs effectiveness, intelligence capacity or other factors. Underpinning both those elements is the continuing process of harmonisation. Harmonisation is clearly a work in progress, and the question at Brexit must be how that work proceeds.

Case Studies

Statistics published by the UK’s Department for International Trade (DIT) suggest the UK’s current licensing effectiveness is high, particularly from a trade facilitation perspective. According to the DIT’s Strategic Export Control summary for the 4th quarter of 2016, out of 3428 Standard Individual Export Licenses applied for, 3340 were issued, and 88 were either refused or revoked. Over 98% were decided within the statutory timeframe of 60 days. Of the refusals, 15 were for exports to Iran, 22 to Pakistan, 13 to Russia, and 19 to China[20][21]. However, these figures do not shed light on the UK’s effectiveness in other aspects of export control, such as enforcement, intelligence, or non-proliferation activities such as outreach and awareness raising. Though useful, a gauge of the wider effectiveness of the UK’s export control effectiveness would be far more difficult to achieve.

Such statistics are also self-selecting, to the extent that they describe only that proportion of dual-use exports that are following a legal route (goods ‘snagged’ by customs and subsequently entering the licensing system are included, but separate figures on these are not published), and there is no obvious way to assess how large a proportion that may be. If we wish, therefore, to examine the specific problem of illicit exports from the EU (and look at how Brexit might increase or reduce the risk of these), it makes sense to look at specific cases where illicit exports have occurred. Over the years, a number of cases have been reported, and have only been detected after the event, and it is by looking at these that we might establish something of the methodology of the procurers, and the performance of the export control structures.

Case I: Hossein Tanideh

First, the case of Hossein Tanideh, an Iranian national based in Turkey who, between 2007 and 2013, facilitated the purchase, and shipment via Turkey, of multiple consignments of valves manufactured in Germany and India. By the time Turkish authorities arrested Tanideh in January 2013, he had procured possibly over a thousand valves for Iran’s Arak heavy water reactor, including 92 specialised valves from Germany[22]. In November 2013, a German court convicted four of Tanideh’s German-based accomplices (Rudolf Mayer, owner of German company MIT Weimar, Gholamali Kazemi and his son Kianzad, and Hamid Khouran, who acted as middleman between the Kazemis and Mayer)[23][24][25]. German authorities requested Tanideh’s extradition, but this was denied by Turkey, who instead released Tanideh without charge in 2014, allowing him probably to return to Iran[26]. Listed by the UN under UNSCR 1929[27], by the US in its list of Specially Designated Nationals[28][29], and by the EU, all associated entities have now been de-listed again as part of the Joint Comprehensive Plan of Action on Iran[30]. This was a sanctions-related case rather than a dual-use export control violation, and some of those sanctions have now been lifted. Nevertheless, this case sheds light on the methods of illicit procurement.

It is not possible to reach a judgement on how typical this case is for Europe. Certainly, the cases reported are few and far between. However, there is no means of knowing how much successful illicit procurement has occurred undetected. It is important therefore to analyse this not as an indication of the scale of the problem, but as a methodology that can be used to evade export controls.

The success of the enterprise relied on complicit suppliers based in the EU (in this case Germany), and the presence of a complicit intermediary in Turkey, whose links to sanctioned entities in Iran were not initially apparent to German authorities. By the time Germany became aware of those links, and took what action it could against the network, a lot of goods had already been shipped.

The question with regard to Brexit is clear? In future, could procurers within a WMD programme, whether subject to sanctions (in the case of North Korea or Iran) or subject to dual-use and/or catch-all controls (such as Pakistan), successfully obtain goods from the UK or the EU using that method? Clearly, many factors remain unaffected by Brexit. Nothing substantive appears to have happened in Turkey since that case to make it less susceptible to such exploitation. Detection and disruption would depend, then as now, on being able to establish a connection between an end user of concern and either the Turkey-based intermediary or the complicit supplier in the EU or UK. If the goods were on the dual-use list, then a license application (if applied for) might prompt an investigation in the supplier country as to the intended use and destination. If the goods were themselves unlisted, a license would only be required if end use or end user concerns could be demonstrated.

Where Brexit might make a positive difference is in the introduction of an additional point of control (if the UK was in the supply or transportation chain). The risk from Brexit is diminished information and intelligence sharing. If an EU member state had information that might raise concerns in the UK as supplier country, or vice versa, will it be possible to share such information as effectively as currently?

Case II: Hamid Reza Hashemi and Murat Taskiran

Second, the case of Hamid Reza Hashemi and Murat Taskiran, charged in the US in late 2012 for illegal exports from the US to Iran. According to the Iran Watch website published by the Wisconsin Project on Nuclear Arms Control, Hashemi was accused of procuring a number of consignments of carbon fibre from 2007 onwards. His principal broker was Turkey-based Taskiran. Along with an EU-based broker, Hashemi and Taskiran were alleged to have shipped carbon fibre from the US via the EU and the UAE to Hashemi’s company in Iran[31]. In late 2013 Hashemi pleaded guilty and was sentenced to 46 months’ imprisonment[32]. Turkey’s Hurriyet reported in March 2016 that Taskiran was still at large in Turkey[33].

This case too assists understanding of how a successful procurement enterprise works. Like the Tanideh case, it relied on a complicit intermediary in Turkey (Taskiran), whose links to Iran were not apparent at the time of the transactions. Like the Tanideh case too, the network needed a complicit EU based entity – in this case a broker rather than a supplier, as the goods were being imported from the US.

The Brexit question again: could this still work, and, moreover, could it work if the broker, or supplier, were in post-Brexit UK? The answer is similar. Turkey as a diversionary destination remains a risk. Detection would continue to depend on establishing a link between an end user of concern and either the Turkey-based intermediary or the complicit broker. In this case the goods were dual-use, and it was the failure to seek authorisation to export them from the US that formed part of the eventual charges. After Brexit, if the supplier were based in the UK, a license would be required to export carbon fibre (certainly beyond the EU, and perhaps even to the EU), which would give the UK licensing authorities the opportunity to check against risks of diversion or links to known illicit networks. The risk lies in how well separately operating export control systems in the UK and the EU might be able to share and access information from each other that might be crucial to a licensing decision.

Case III: Machine tools from Spain

The 2014 annual report by the UN Panel of Experts on Iran refers to a report by Spain of its investigation of a Spanish company regarding transfers from Bilbao, Spain, to an alleged front company in Turkey of electrical discharge machine tools and their components[34]. The end user of the tools was identified as Mapna Turbine Blade Manufacturing Engineering Co., in Tehran, designated by Canada, the United Kingdom and Japan on grounds of links to Iran’s nuclear and ballistic missile programmes. The Turkish front company is not named. In this case too, the common element is the presence of an intermediary in Turkey. The difference in this case appears to be that the Spanish supplier was unaware that Iran would be the final destination for the goods. Evidently it is possible for successful illicit procurement to occur using an unwitting supplier.

In considering the implication of Brexit for the Spanish case it is interesting to note that the Iranian entity was listed by the UK (along with Canada and Japan) but not the rest of the EU. The Panel of Experts report does not make clear what prompted the Spanish authorities’ concern, or at what point the Spanish authorities became aware that the end user appeared on designation lists in other countries, but clearly there is a risk that, after Brexit, the sharing of such information as might trigger Spanish concerns might be hampered by the separation of the UK’s export control structures from those of the EU.

Scenarios

These cases make it possible to construct other plausible scenarios of how procurement agents might obtain goods from the EU undetected, and to test how these scenarios might be affected by Brexit.

Take for example a hypothetical situation in which Shahid Hemmat Industrial Group (SHIG), a sanctioned end-user in Iran and one of the main organisations believed to be responsible for developing Iran’s Ballistic Missiles, would need to obtain specialised goods from Europe. SHIG cannot trade outside Iran under its own name, because of sanctions, so it tasks a local agent in Iran. That agent establishes a presence in an EU member state, or a relationship with a freight forwarder in an EU member state. It also appoints a complicit agent in Turkey. The agent in Iran, (though pretending to be elsewhere), approaches a seller in, say, Germany, and arranges to buy goods for export to, say, the UAE. The terms being ex-works, a situation where the seller is required to make goods ready for pickup at his or her place of business, the buyer then arranges for its EU-based accomplice to pick up the goods, and the seller has nothing more to do. The complicit agent takes the goods to an EU border (e.g. the land border between Bulgaria and Turkey), where, for the first time, documentation must be produced. He declares the goods for export to the UAE. Neither Bulgarian nor Turkish Customs officials would necessarily challenge this. Once delivered to the Turkish warehouse, the goods can in effect be re-sold to the Iranian buyer. This involves issuing a new Bill of Lading. Bill of Lading Switching is a service offered even by the most reputable freight companies, though these levy a burden of evidence on the parties to prove the switch is for legitimate purposes, for example in cases where the original buyer goes out of business and the goods are re-sold in transit, rather than for illicit diversion. Whatever the context, switching a bill of lading is legal, and straightforward. The goods can now continue, overland or by any other route, to Iran, where the Iranian agent can hand them over to the final buyer, SHIG.

The ex-works terms of sale contribute to the challenge. As explained earlier, ex-works is a widely-used commercial term defined by the International Chamber of Commerce, under the terms of which the buyer arranges collection of the freight from the seller’s location, and is responsible both for clearing the goods through customs and for completing all export documentation. In other words, ex-works terms place minimum responsibility on the seller, and maximum responsibility on the buyer or freight agent, to bring the goods to their final destination[35]. In the scenario described, the complicit freight agent, as the EU-based entity acting for the buyer, appears to take on responsibility for the export.

Under EU rules, the exporter must be based in the EU, so an illicit procurement network would find it useful to appoint a complicit node in an EU member state. It makes sense for this accomplice to be a freight agent, who can obtain goods from a variety of unwitting suppliers across the EU and arrange their export, rather than the network having to co-opt, or deceive, each supplier in turn.

The free movement of goods within the single market is also a factor. With the exception of Annex IV items, goods on the dual-use list can pass from one EU country to another without a customs declaration, counting as intra-EU transfers rather than exports. The above scenario appears to show how this feature can be exploited. Assuming the complicit freight agent has (in the case of dual-use goods) either obtained a license by giving false information, or decided to try to export illegally without a license, the customs burden is felt at the EU border rather than the country of origin. Regardless of motivation or responsibility, the capacity of customs at, say, the Bulgaria-Turkey border, to identify shipments to WMD-related end users, or unlicensed exports of dual-use goods to any destination, will be limited.

A slightly different scenario involves an illicit procurement network in, say, Iran, Syria or Pakistan setting up or co-opting a company in an EU country, a company whose main purpose is then to procure goods to order and to ship them to the final buyer within a WMD programme. This company would take care of supply and all arrangements for export from the EU (under EU regulations the exporter must be within an EU member state). This scenario might entail exporting without a license or obtaining a license based on false information. Obtaining a license would rely either on diverting the goods via a third country, or at least declaring them for a third country at the point of exit from the EU. Detection and disruption would rest on being able to establish a connection between the EU-based members of the procurement network and the WMD programme which they serve – a connection that would not be apparent on any company or freight documentation.

This is a scenario familiar to licensing authorities across the EU, whose mission includes establishing the credibility of end use declarations, and the risk of diversion. In the UK the Department for International Trade achieves this through maintaining control lists, maintaining the online export licensing system SPIRE[36], and drawing on the expertise of other departments through the Restricted Enforcement Unit[37]. Leaving the single market may make the UK a less attractive base for such activity, as goods entering the UK from the EU will presumably become imports rather than intra-EU transfers. However, case-by-case examination of license applications as well as in-depth investigations of suspected illicit procurement companies will continue to depend on effective information and intelligence sharing, and the UK’s departure from the EU may affect the UK’s ability to benefit from, and contribute to, a common information base.

Another ploy to obtain key goods from the European Union (or post-Brexit UK) would be to understate the specifications of the goods. The specification thresholds at which, say, a vacuum pump, a lathe or a high-speed camera become controlled are published in the EU Regulation (and the UK Control Lists), and this same information that is so helpful to responsible exporters is also a handbook to those who would circumvent the controls. Although the threshold is a licensing issue, once deliberately understated it becomes a customs problem. If paperwork accompanying a controlled item to the EU border describes an item that looks similar but which falls below the control threshold and so allegedly requires no license, it may be too technically difficult for customs authorities on the spot to identify the goods as potentially listed. In this scenario too, Brexit may bring advantages to the UK, by introducing an additional point of customs control.

The same scenarios after Brexit

What happens to these scenarios after Brexit? The sanctioned end-user in Iran (SHIG), still needs to obtain specialised goods from Europe. How has the picture changed? Much will depend on the UK’s relationship with, or access to, the single market after Brexit. Consider first a Brexit without single market access. In the scenarios described above, illicit networks may it find less attractive to operate in, or acquire goods from, the UK after Brexit than before, for a variety of reasons. Firstly, a complicit freight forwarder or procurement company whose role is to acquire goods from unwitting suppliers is faced with a narrowed supply base. Secondly, goods being shipped out of the UK will be subject to an additional point of control. In other words, the UK may be better placed to counter such activity once it has recovered the ability to control the transfer of goods to the mainland. A Brexit that retains single market access, on the other hand, may leave the UK as susceptible as the rest of the EU to such activities, but the mutual benefits of information sharing and a common framework would mitigate this.

With or without single market access, illicit procurement with no UK connection (i.e. no UK entities in the supply chain, or along the transportation route) would occur as easily after Brexit as before. Structures governing trade within the EU single market, and export from it, will all continue to operate as they do currently – with the result that the same activities designed to circumvent the controls will continue to work. Furthermore, detection of illicit activity, and maintenance of lists of goods and entities of concern, will become more challenging unless a means is found to retain the UK’s input into information-sharing arrangements.

Direct acquisition from the UK will remain difficult. If, say, SHIG (operating through a front company) tried to organise a direct shipment from the UK to Iran, the export would attract scrutiny from UK licensing authorities. Operating through an intermediary in a third country, say Turkey or the UAE, might conceal the Iranian end user, but UK authorities will continue to be alert to the risks of onward diversion of dual-use goods to end users of concern. This is not to downplay the challenges of this area of implementation, merely to note that it will not be made any more, or less, challenging by Brexit.

The shipment of goods from the UK via the EU, or from the EU via the UK to a deliberately obscured end user of concern is a scenario where Brexit may create new risks; likewise the shipment of dual-use goods from the UK via the EU, or from the EU via the UK, to any destination. There are implications for licensing, customs and intelligence. If the UK leaves the single market, it remains in the mutual interest of the UK and the EU for trade to be as de-regulated as the terms of Brexit will allow, and this will include dual-use goods. This suggests that a complicit agent based in an EU member state may still be able to procure dual-use items relatively easily from the UK, particularly on an ex-works basis, and arrange export via the EU. It is not clear whether it would be up to the UK supplier or the EU-based freight forwarder to apply for a license to export from the EU. Clearly there will have been a UK, or an EU, export control violation, or both, but thwarting it in the UK or the EU would only be possible if licensing or customs bodies could either establish a connection between the complicit agent and an end user of concern, or detect an attempt to export a dual-use item without a license. Even assuming that the EU’s export controls work as well as they do now, reduced information and intelligence sharing between the UK and the EU after Brexit, combined with a pragmatically de-regulated system for trading dual-use goods between the UK and the EU, might create the risk that UK companies will be deliberately targeted as sources of dual-use goods for export via the EU.

Assuming the UK instates effective legislation to replace EU Dual Use Regulation 428/20009, there is in theory little risk that complicit agents could acquire dual-use or controlled goods from the EU, import them to the UK, then re-export them to a country of concern. The classification of the goods, under EC Regulation 428/2009 or its equivalent post-Brexit UK system, should provide a robust basis for control. In the case of unlisted goods, however, such illicit trade could easily occur, if the ostensible buyer could not be linked to an end use or end user of concern, or was based in a country about which the UK licensing authorities had no, or low, concerns. Again, there are implications for licensing, customs and intelligence. Collaboration in all three areas would be needed to maximise the chance of uncovering and taking enforcement action against illicit procurement networks using this route.

Recommendations

At the time of writing, the in-depth negotiations that will shape the post-Brexit trade relationship between the UK and the EU have only just begun. The above analysis suggests the following practical considerations should be taken into account as part of the negotiations.

  • Information and intelligence sharing on a case-by-case basis. There is already a risk that a procurement agent acting clandestinely for an overseas WMD programme could approach suppliers in multiple EU member states simultaneously or in quick succession. It might be argued that the departure of the UK from the single market effectively removes one supplier or intermediary from the system, thereby reducing opportunities for parallel shopping. But the only way to counter-act such activity is through the sharing of official and confidential intelligence, and Brexit may put this at risk. Maintaining the flow of official and confidential intelligence between the UK and its EU partners, during and after the UK leaves the EU, is therefore recommended.
  • Continued UK participation in EU bodies such as the European Council’s Dual-use Working Party and the EU WMD Monitoring Unit. This will allow the UK to continue to input to lists and regulations, and be an effective way to ensure long-term correlation between UK and EU dual-use controls, and sanctions listings.
  • Sharing of license denial information. Currently EU member states share all license denial information. This is an important tool to try to prevent illicit procurers from attempting to buy from one member state after another. With the UK’s departure from the EU it is not clear how, or indeed whether, denial information can continue to be shared. As there need be no national security concerns about the UK and the EU continuing to share denial information, a mechanism could be sought to allow such sharing to continue after Brexit.
  • Special arrangements covering the transfer of dual-use goods between the UK and EU member states. If UK company believes the goods listed on the dual-use list it is exporting to an EU member state are remaining in the EU, then logically a solution can be sought to make this process efficient. The same will apply when an EU member state is exporting items from the dual use list to the UK. The challenge will be to provide assurance that there will be no onward diversion to a country of concern, while simultaneously minimising the burden on exporters, licensing and customs authorities. There may be scope for applying the UK’s existing system of Open General Export Licenses (OGEL) for this purpose (and the EU’s equivalent system the General Export Authorisation (GEA)). Both EU and UK-based companies will have a strong interest in as de-regulated a system as possible for trade between the UK and the EU in dual-use goods. A general export license may be an efficient solution. An important element of such an arrangement will be trust. Licensing and Customs authorities in the UK and any EU member state would need confidence that dual-use goods exported from the EU to the UK or vice versa would not be at risk of diversion to any country of concern.
  • The UK should maintain an association with the Customs Union. While most debate on this issue focusses on customs duties, it is the sharing of information and intelligence that is the main benefit against WMD-related exports. As part of an overall strategy to maintain the integrity of dual-use controls post-Brexit, the UK should consider either maintaining membership of the Customs Union, or at least negotiating the means to maintain the information-sharing benefits[38].

Taking the above into account should help to ensure that potential risks arising from the UK’s departure from the single market and exclusion from EU collaborative work are mitigated. However, the ongoing review (recast) of the EU’s Dual-Use Regulation 428/2009 will need to go beyond merely trying to maintain the integrity of the export control process after Brexit[39]. The real-life cases and constructed scenarios presented above show clearly that the EU’s export control processes, while robust, workable, accessible and transparent, do nevertheless have vulnerabilities that can be exploited by illicit procurement networks. To address these, the review might usefully consider the following:

  • A more detailed sharing of entities of concern. Such listings are currently held confidentially within member states, but not shared. The reasons for not sharing all such data are understandable – the datasets are populated from covert as well as overt investigations – but a greater level of sharing would nevertheless strengthen member states’ ability to detect activity by an illicit procurement network. Such a measure would be most effective if the UK were to participate in it after Brexit.
  • The unequal burden on certain member states. Clearly airports and seaports create EU borders all over the place, but for overland transport the burden falls most heavily on the member states on the EU’s eastern border, particularly Bulgaria. Most reporting on Bulgaria’s location on the EU’s border tends to focus on refugee issues, namely the challenges for Bulgaria as one of the main entry points to EU[40]. But the enforcement of export controls is also an area where Bulgaria bears an unequal burden, as it is one of the main transit routes for goods leaving the EU over land. The free movement of goods within the single market means that the first customs control point encountered is at an EU border, such as the one between Bulgaria and Turkey. Documents shown at this point may falsely declare the goods or the destination, and furthermore may be in any of the EU’s 24 official languages. Universal checks by Bulgarian customs and border officials would significantly delay and disrupt legitimate trade. The long-awaited recast of EU Dual-Use Regulation 428/2009 might therefore usefully explore options to ease the burden particularly on Bulgaria, as well as on other significant countries of exit. Measures might include additional funding specifically to support export control (for goods transiting Bulgaria on their way out of the EU); or the establishment of a multi-national, multi-lingual team, either at the border or more centrally located, with access to any shared intelligence, both current and aggregated. The cases and scenarios described earlier in this article argue strongly that any new measures should be with the participation of the post-Brexit UK, which has a clear stake in helping the EU maintain a strong export control system.
  • Considering enhanced responsibilities for suppliers of dual-use goods throughout the EU (and, possibly, post-Brexit UK). Suppliers could be required to notify their national customs of any transfer of goods on the dual-use list to any other member state (thus extending obligations beyond those in place for Annex IV items). No permission or license would be required, but at least customs authorities across the EU would have the means, if they needed it, to track movements of such goods, information that would evidently make it harder for illicit procurement networks to buy dual-use goods from one country and export them via another. Such a measure might also assist a (relatively) de-regulated trade in dual-use goods between post-Brexit UK and the EU, although it is questionable how it would be compatible with EU single market principles.
  • The level of guidance offered by national licensing authorities to suppliers, exporters and freight forwarders varies considerably across the EU. However, no member state appears to suggest checks that a potential supplier might carry out to test the credentials of cold-calling buyers. It is relatively simple to look up an IP address to see if a sender is located where he claims to be. Simple too to check the timestamp of the received message, as this reflects the timezone in which the sender is located. The potential seller might also check the website of the would-be buyer, to check if it appears authentic. The licensing bodies of EU member states (and the UK) might usefully consider offering this guidance in their on-line resources, to assist the process of due diligence. This is another area where the UK will retain a clear interest in helping the EU maximise its effectiveness in future.

Conclusions

In focussing on the national security agenda, this study has perhaps overlooked the obvious point that nearly all trade occurring between any EU member state and a non-EU member state is entirely lawful and legitimate. It is important not to lose sight of the trade facilitation imperative, for the EU or the UK. It is also important to realise that the UK’s trading relationships beyond the EU also need to be re-set, once it resumes trading as an independent country rather than an EU member state. This evidently has implications for global non-proliferation, which would require further study to analyse in proper depth.

Brexit may offer the UK some opportunities for improved export control. However, it also raises risks to export control for the UK and the rest of the EU, risks which, if not addressed, will have clear national security implications. These risks fall broadly into the following categories: divergence i.e. a reversal of the harmonisation and alignment process undertaken by the EU in terms of regulation, enforcement and penalties; the UK’s exclusion from export control fora and from information-sharing; the future trade of dual-use goods between the UK and the EU. The chance exists to mitigate all of these, by continued information and intelligence sharing, continued UK input to EU regulations, continued UK collaboration with EU export control and sanctions bodies, and by maintaining alignment with EU regulations.

This study also shows that there are vulnerabilities in the EU’s export control structures and practice that are not of Brexit’s making. Yet it is in the UK’s interest, as much after Brexit as before, to help the EU to maintain and strengthen those structures.

 

[1] Stewart, Ian J, and Michel, Quentin. “Brexit and Strategic Trade Controls: Key Implications,” a write-up of the 24 -25 April 2017 workshop, published on the Project Alpha website on 03 May 2017. A full text of the write-up can be found at https://projectalpha.eu/brexit-and-strategic-trade-controls-key-implications/.

[2] The full (English language) text of Council Regulation (EC) No 428/2009 can be found here. http://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX%3A32009R0428. The legislation is also available in other official EU languages at the same website.

[3] The 26 September update can be found here: http://trade.ec.europa.eu/doclib/docs/2017/october/tradoc_156134.pdf

[4] Strategic Control Lists are published by the Export Control Organisation of the UK Department of International Trade. They can be accessed at https://www.gov.uk/guidance/uk-strategic-export-control-lists-the-consolidated-list-of-strategic-military-and-dual-use-items.

[5] The EC Working Party on Dual-Use Goods meets approximately monthly. Minutes of the meetings are only partially accessible to the public, but are available on request from the Council. Minutes of the 14 June 2017 meeting can be accessed on request from the European Council under reference ST 10683 2017 INIT. The online stub is at: http://www.consilium.europa.eu/register/en/content/out/?&typ=ENTRY&i=LD&DOC_ID=ST-10683-2017-INIT.

[6] UN Security Council Resolution 1540 was passed on 28 April 2004. The full text can be accessed from the UN website at https://www.un.org/press/en/2004/sc8076.doc.htm.

[7] The Treaty on the Non-Proliferation of Nuclear Weapons entered into force in 1970, with one of its aims being to prevent the spread of nuclear weapons and weapons technology. The full text can be found here: https://www.iaea.org/sites/default/files/publications/documents/infcircs/1970/infcirc140.pdf.

[8] The Biological and Toxin Weapons Convention (BTWC), also known as the Biological Weapons Convention, came into force in 1975. The full text can be found here: https://www.un.org/disarmament/geneva/bwc/.

[9] The Chemical Weapons Convention came into force in 1997. The full text can be found here: https://www.opcw.org/chemical-weapons-convention/download-the-cwc/.

[10] The Missile Technology Control Regime was established in 1987, and now has 35 members. The current version of the Equipment, Software and Technology annex, last updated on 18 May 2017, can be found on the MTCR website at http://mtcr.info/mtcr-annex/.

[11] The Australia Group was established in 1985, and has some 40 members. Its objective is to prevent the spread of chemical and biological weapons technology through the harmonisation of export controls. The Australia Group control lists can be found here: http://www.australiagroup.net/en/controllists.html.

[12] The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies was established in 1995. The control list, published as Public Documents, Vol II – List of Dual-Use Goods and Technologies and Munitions List (WA-LIST (16) 1 Corr. 1), can be found at http://www.wassenaar.org/control-lists/.

[13] A tool intended to allow, among other things, cross-referencing among the various lists, is The Big Table, devised by the EU’s Joint Research Centre. Details are found at http://www.biological-arms-control.org/projects_trademonitoring/MSP2012%20-%20Cristina%20Versino%20-%20The%20Big%20Table%20and%20the%20Trade%20Flow%20tools.pdf., and also at http://publications.jrc.ec.europa.eu/repository/bitstream/JRC62804/reqno_jrc62804_lb-na-24823-en-n.pdf%5b1%5d.pdf

[14] The P2P Programme is a capacity building and outreach project with strong UK involvement. Details are found at https://export-control.jrc.ec.europa.eu/.

[15] Article 19, Counicl Regulation (EC) No 428/2009, 05 May 2009, setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items.

[16] Wetter, Anna, “Enforcing European Union Law on Exports of Dual-Use Goods”. Stockholm International Peace Research Institute (SIPRI) Research Report 24 (Oxford, Oxford University Press 2009)

[17] Bauer, Sibylle, “WMD-Related Dual-Use Trade Control Offences in the European Union: Penalties and Prosecutions”, Non-Proliferation Paper No 230 of the EU Non-Proliferation Consortium (comprising: The Foundation for Strategic Research; The Peace Research Institute in Frankfurt; The International Institute for Strategic Studies, and the Stockholm International Peace Research Institute), 2013.

[18] Professor Dr Michel, Quentin et al.“Green Paper: The dual-use export control system of the European Union: Ensuring security and competitiveness in a changing world – Contribution of the “Chaudfontaine Group”, Chaudfontaine, Belgium 2011.

[19] “Union Customs Code” European Union Taxation and Customs Union https://ec.europa.eu/taxation_customs/business/union-customs-code_en

[20] Strategic Export Control Summary, 4th Quarter 2016, UK Department for International Trade.

[21] This study has not examined equivalent statistics that might be published by other EU member states.

[22] “Haftstrafen fuer Embargo-Verstoss: Gericht verurteilt vier Geschaeftsleute,” Die Welt, November 9, 2013

[23] Salisbury, Daniel, “Illicit Procurement of German and Indian Valves for Iran’s Arak Heavy Water Reactor,” Project Alpha, 14th April 2015, published on the Project Alpha website, Centre for Science and Security Studies, King’s College London (https://projectalpha.eu/illicit-procurement-of-german-and-indian-valves-for-irans-arak-heavy-water-reactor/).

[24] “Final Report of the Panel of Experts Established Pursuant to Resolution 1929 (2010),” Report No S/2013/331, U.N. Security Council, 03 June 2013, p 11.

[25] Gilbert, Cathrin, Stark, Holger and Ulrich, Andreas, “Nuclear Technology for Iran: German Investigators Uncover Illegal Exports,” Spiegel Online, October 1, 2012.

[26] “German Authorities Sentence Four Men for Supplying Iran with Valves for Heavy Water Reactor”, Iran Watch website (the website is published by the Wisconsin Project on Nuclear Arms Control), 25 February 2015.

[27] “Security Council Imposes Additional Sanctions on Iran, Voting 12 in Favour to 2 Against, with 1 Abstention”, UN coverage of Security Council Meeting SC/9948, 09 June 2010.

[28] “Recent OFAC Actions: Specially Designated nationals Update”, Issued by the U.S.Treasury on 21 November 2011.

[29] “Factsheet: Executive Order 13382 Designations on Iran, November 21 2011”, published on the Iran Watch website on 21 November 2011.

[30] “JCPOA-related Designation Removals, JCPOA Designation Updates, Foreign Sanctions Evaders Removals, NS-ISA List Removals; 13599 List Changes”, US Department of Treasury, 16 January 2016.

[31] Indictment of Hamid Reza Hashemi and Murat Taskiran, United States District Court, Southern District of New York, December 2012.

[32] Hamid Reza Hashemi was added to the Iranian Entities section of the Iran Watch website (the website is published by the Wisconsin Project on Nuclear Arms Control) on 09 September 2014.

[33] Canikligil, Riza: “US attorney in Zarrab case probing two other Turkish men”, Hurriyet Online (www.hurriyetdailynews.com), 25 March 2016 (accessed on 16 August 2017).

[34] “Final Report of the Panel of Experts Established Pursuant to Resolution 1929 (2010),” Report No S/2014/394, U.N. Security Council, 05 June, 2014

[35] INCOTERMS are published by the International Chamber of Commerce, and can be found at https://iccwbo.org/resources-for-business/incoterms-rules/

[36] https://www.spire.trade.gov.uk/spire/fox/espire/LOGIN/login

[37] A description of the REU’s work is given in the minutes of the Foreign Affairs Select Committee for 1998. https://publications.parliament.uk/pa/cm199798/cmselect/cmfaff/745/8051417.htm

[38] This is currently governed by Council Regulation 515/97 “on mutual assistance between the administrative authorities of the Member States and cooperation between the latter and the Commission to ensure the correct application of the law on customs and agricultural matters”. This can be found at http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A31997R0515.

[39] The European Commission’s proposal to modernise and strengthen controls on exports of dual-use items (the recast), was announced in an EC press release on 28 September 2016. The item can be found here: http://europa.eu/rapid/press-release_IP-16-3190_en.htm.

[40] Koroutchev, Rossen Kostadinov, “The Current Refugee Crisis and the Challenges for Bulgaria as an Entry Gate for the European Union” Journal of Liberty and International Affairs, Vol.3, No.1, 2017, published online by the Institute for Research and European Studies on 05 May 2017.

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.

Whitepaper: Entity Screening and Vessel Tracking for UN Sanctions

Click here to access the whitepaper: Use of Entity Screening and Vessel Tracking to Assist Implementation of UN Sanctions – a Whitepaper

Many of the UN sanctions placed against North Korea since its first nuclear test in 2006 impose restrictions on North Korean merchant shipping. Most recently, the Security Council voted unanimously on 5 August 2017 to impose its harshest-yet economic sanctions on North Korea, prohibiting exports of coal, iron, iron ore, lead, lead ore and seafood.

However, the latest UN Panel of Experts report on North Korea (S/2017/150 published on 27 February 2017) found that “implementation remains insufficient and highly inconsistent.” The report identified and gave examples of various denial and deception measures practiced by North Korea and made a number of recommendations. These included building a register of North Korean vessels and the aliases under which they operate; proactive work by flag registries to refuse services to vessels crewed or commanded by North Koreans; states taking on the responsibility to check if North-Korea-crewed vessels hold valid insurance; for greater vigilance around the import of proscribed North Korean goods.

All of this suggests that the availability of information on vessels in breach of sanctions against North Korea and the capabilities to obtain such information needs to improve. Improvements in these areas would assist the UN Sanctions Committee, individual Member States, and businesses in implementing UNSCRs.

For a number of years, vessels and shore-based maritime entities have used the Automatic Identification System (AIS), originally designed for collision avoidance. Since about 2010, AIS data has started to become publicly available on the internet, and this has given rise to a number of new applications and services, particularly in the field of vessel tracking and screening. This paper aims to assess the potential usefulness of entity screening and vessel tracking for sanctions compliance, implementation, and enforcement in three broad areas:

  • For the private sector (particularly banking, freight, or insurance) in its efforts to comply with export control and sanctions legislation;
  • For states in their work to prevent the facilitation and movement of illicit trade from, to, or across their territories;
  • And for intelligence analysts to improve the information available on illicit freight forwarding networks and methodologies.

The paper looks at a range of vessel screening and tracking resources. It restricts its scope to North Korea, although the entity screening and vessel tracking capabilities have relevance to sanctions in force against other countries of interest, and builds upon previous work undertaken by Project Alpha in partnership with the Australian government as published through the UN Security Council.

Final Report: Typologies of Proliferation Finance

Click  here to access the report: Study of Typologies of Financing of WMD Proliferation

Disrupting the financing of proliferation (FoP) is potentially a key tool to combat state-sponsored WMD programs. However, detecting FoP is difficult. The majority of governments and financial institutions are unclear about what FoP looks like and how to identify it, so the tool is rarely exploited. This report describes typologies of financing the proliferation of WMD to address this issue.

The most comprehensive study of FoP to date was published by the Financial Action Task Force (FATF) in 2008. This includes a list of 20 “indicators of possible proliferation financing,” including, for example, transactions connected with designated individuals or entities or with countries of proliferation concern. Since then, more information has become available, particularly related to the proliferation programs of DPRK and Iran.

Project Alpha has carried out an analysis of data relating to DPRK, Iran, Syria, Pakistan and India provided by governments and financial institutions, contained in records of judicial proceedings, UN Panel reports, and media reports. The analyses are summarized in the form of 60 case studies. They enable identification of common elements between networks set up to finance proliferation or to circumvent financial sanctions, and of ways networks may mutate in response to sanctions.

Based on the 60 cases, the indicators in the FATF 2008 Report have been modified and categorised as “potentially highly indicative,” “potentially moderately indicative” or “potentially poorly indicative” of FoP. The study identified additional possible indicators, including transactions involving individuals connected with countries of proliferation concern, the use of cash, the involvement of small trading or intermediary companies, and others. By illustrating different types of FoP, the case studies are intended to support the work of governments and financial institutions worldwide in identifying FoP.  They are intended to facilitate FoP risk assessments, to support regulators in providing guidance to financial institutions and to support financial institutions in complying with sanctions or other WMD controls.

Above all, combating proliferation of WMD by identifying and disrupting the financing is most likely to be successful when governments and the private sector cooperate and coordinate in sharing information. It is hoped that the FoP case studies included in this report will help this process.

Alpha: Internship Opportunity

Project Alpha works to understand and counter procurement of technologies with a use in UN-restricted nuclear and missile programmes, as pursued by Iran, North Korea, and others. The Project has numerous strands that contribute to this objective, including educating industry on export controls and proliferation risks, researching the techniques used by proliferators to acquire goods illicitly, and conducting international outreach to improve the implementation of trade controls in third countries. Alpha also actively supports the work of UN organisations, the IAEA, and national governments.

The Alpha team are looking for one or more interns to work with the project for the academic term, with possible extension over the summer. Continue reading Alpha: Internship Opportunity

India’s Strategic Nuclear and Missile Programmes – A Baseline Study

Click here to access the report –  Alpha in Depth (India) Public Release – final

What is the report?

This ‘Alpha in Depth’ report uses open-source research to identify and characterise entities involved in India’s strategic weapons programme. Relatively little analysis has been conducted since the US normalised relations with India and lifted the majority of sanctions by 2005 – 2008. This report aims to update the record on Indian entities and will be of interest to government and private sector customers dealing with proliferation issues, particularly with regards to sensitive and dual-use items headed for end-users in India.

This baseline study examines the visible activity of 243 entities that have contributed to India’s strategic nuclear and missile programmes as key weapon stakeholders, unsafeguarded nuclear fuel cycle entities, defence supply chain entities, developers of auxiliary systems such as vehicles, and entities conducted dual-use research of concern. In many cases, entities are openly known to be  major stakeholders in strategic weapons programmes. However, this report finds a wider  and deeper network of suppliers and researchers involved in this system. The extent of this network is laid  bare in this report, and includes more than the original list of entities designated as involved in nuclear and missile activities by the US in 1998 – 2001.

The Restricted version of the report includes the full range of entity profiles sorted by Governmental department, major and minor industry suppliers, and entities conducted dual-use research of concern. An accompanying data file in table format provides a collated record of identifying information such as phone numbers, fax numbers, addresses and key individual names.

The Public version of this report includes the key findings, contextual overview, and informational charts.

Why does India warrant examination?

India is a burgeoning, de facto nuclear weapons power which is beginning to achieve force modernisation through a triad of delivery systems (air, ground and sea) designed to deter through assured retaliation.  In line with this, the Indian arsenal has been increasing, and has diversified to utilise highly enriched uranium, previously the product of enrichment facilities serving the civil energy programme and submarine reactor needs. However, there are multiple areas of concern, some of which might destabilise the intended path towards a stable mutually deterrent relationship between India and its neighbours. Furthermore, an acute nuclear crisis in South Asia would see India mobilise its science and technology potential to undergo a new massive expansion of nuclear capabilities (a ‘third breakout’).

What are the key points of this report?

First, India’s unique nuclear status mimics that of a Non-Proliferation Treaty (NPT) recognised nuclear weapon state. India has a waiver from the Nuclear Suppliers Group (NSG), permitting trade without requiring it to have NPT membership. India has chosen to selectively engage with international non-proliferation agreements, such as the NSG, whilst eschewing others,  such as the Fissile Material Cut-Off Treaty and Comprehensive Test Ban Treaty. Continued special treatment threatens to erode the interlinked non-proliferation regime by demonstrating the viability of achieving nuclear weapon state status outside the NPT and the possibility of Indian reintegration without significant concessions.

India’s continued efforts to join the NSG are primarily based on a desire to secure nuclear trade for its ambitious three-stage fuel cycle (which allows them to harness thorium as fuel). Admission to the NSG will necessitate a delicate balancing act between India’s national interest and commercial value of on one hand, and the concerns of India’s neighbours about proliferation and the second-stage of the fuel cycle. The second stage of Fast Breeder Reactors could be utilised to produce plutonium, and goods provided under an NSG membership waiver could enable India to pursue nuclear proliferation.

Second, India’s strategic weapons complex has the potential to push India’s nuclear capabilities to a full spectrum of weapon systems. India has so far focused on the establishment and enhancement of its ground and sea-based delivery systems:  the construction of four nuclear-powered ballistic submarines for continuous at-sea deterrent and ground-based intercontinental range capable missiles. Beyond this, this report highlights that India’s strategic weapons complex has explored and developed additional weapons systems that could be made nuclear-capable should there be political will. Historically, periods of capability breakout occurred around India’s milestone nuclear tests (1974 and 1998). In such instances, the initiative of the strategic weapons complex in developing ‘technology demonstrators’ (science feasibility projects that scale-up to a potential system), has pre-empted political decision making to adopt such technologies as military capabilities. The development pathway of the Agni is one such example wherein the decision to adopt ground-based long-range missiles as a nuclear delivery system was taken after scientists had demonstrated the feasibility of an indigenous nuclear‑capable ballistic missile, rather than the science and technology sector being directed by decision making authority.

The process of Indian science developments taking the lead over policy direction is why India’s technological latency should raise concerns. Beyond the establishment and further enhancement of India’s existing triad capabilities, new technologies developed into  capabilities in line with the capabilities of major nuclear weapons powers would allow India to drift towards a ‘maximalist’ nuclear arsenal utilising both tactical and strategic nuclear weapons in a graduated escalation posture. For example, air-launched supersonic/hypersonic cruise missiles, tipped with low-yield nuclear warheads, and coupled with new fifth generation fighter aircraft  could be considered by Indian policy makers in the near future as a means to conclusively end conventional conflict. India’s commitment to ‘No First Use’ and to a maximum retaliation-only posture would be eroded by these new possible capabilities.

This report also highlights the possible erosion of political control of the nuclear arsenal. Generally, the Indian interpretation of a nuclear weapon includes the mating of the fissile material pit with the warhead and delivery system itself .Traditionally, India’s nuclear weapons have been kept de-mated and under the control of different bodies, necessitating an inter-agency system commanded firmly by a political body (the Nuclear Command Authority chaired by the Prime Minister) to assemble and deploy the nuclear arsenal. The Agni V intercontinental range capable ballistic missile is pre-mated in the same manner as the pre-mated ballistic missiles used on-board Arihant-class SSBNs. This will have a significant impact on nuclear policy and command and control

Third, India’s scientific complexes (nuclear, missile, and space) are poorly separated. The nuclear programme in India has been partially submitted to international safeguards, but this remains limited and allows India to exercise de facto nuclear weapons state privileges regarding the production of special fissile material. India has invested in new special fissile material production facilities. This large unsafeguarded nuclear fuel cycle encompasses a number of entities performing dual civil and military functions.

India’s space programme is dedicated to civil and peaceful purposes, and for the most part this remains the case. Instances of historical technology transfer from civil rocketry to military missile programmes is perhaps no longer an active concern as  missile programmes are self-sustaining and have achieved key milestones. An inverse technology flow, from military to civilian sector, remains a possibility. Military and civil scientists and engineers continue to meet discreetly in forums and conferences, which should raise concerns about cross-field blurring. Domestic students and international guests are frequent attendees and these science and technology spaces are a proliferation risk.

Fourth, poor separation in these strategic sectors should sharpen the need for tight export controls on intangible transfers and tangible trade to India. Whilst end-user monitoring agreements are in effect for some entities, this report drives forward the imperative for sensitive industries to adopt ‘Know Your Customer’ best practices. This report highlights the complex relationships of India’s domestic technological base, and provides information on the degree of complicity to the nuclear weapons programme.

Fifth, Indian entities are at onward-proliferation risk. The potential danger lies with the re/export of sensitive items and knowledge out of India to foreign powers. The domestic industry supplying India’s  strategic weapons complex and the country’s nuclear programme have reached sufficient technical maturity to export expertise and tangible nuclear and missile-related goods. The Indian government’s support for its domestic industry in the face of international sanctions and technology denial has continued since the normalisation of trade relations in 2008. A science and technology culture of self-reliance and import substitution has formed, and although India’s strategic sectors remain reliant on imports, the balance of domestic supplied goods and foreign imports will tend towards domestic provisions in the coming years. This is one compelling reason why drawing India into firm non-proliferation commitments would enhance international security for the longer term. India has taken strong steps towards implementing a control list (SCOMET), synchronising it with key control regimes, and adopting best practices for businesses; this effort must be sustained.

In sum, greater care and attention needs to be paid to the current issues with India’s nuclear power while also anticipating a future shift in India’s capabilities. Looking forward, there remains room for India to be drawn into firm non-proliferation compliance.

 

Project Alpha to Host Workshop on Trade Finance and Proliferation Finance

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

The objectives of the workshop are to:

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

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

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

Brexit and Strategic Trade Controls: key implications

Quentin Michel and Ian Stewart

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

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

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

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

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

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