A Resource on Strategic Trade Management and Export Controls

On May 17-18 in Seoul, EXBS and the Republic of Korea’s Ministry of Foreign Affairs and Trade co-sponsored the first ever Asia-Pacific Proliferation Financing Conference.  Representatives from 16 countries and several international organizations discussed ways to combat financing of proliferation activities in line with the Financial Action Task Force’s (FATF) new standards for financial institutions.  The U.S. Government delegation was led by ECC Office Director Elizabeth Rood and included representatives from Justice, State, and Treasury.

Proliferation financing refers to providing funds or financial services for the export, transfer (including brokering and transshipment), or use of nuclear, chemical or biological weapons, their means of delivery, and related materials.  United Nations Security Council Resolution 1540 (2004) requires states to establish and enforce domestic measures to prevent proliferation financing.  However, implementation remains slow due, in part, to difficulties identifying proliferation financing transactions.  First, procurement networks may mask acquisitions as legitimate by acquiring dual-use component parts rather than complete WMD weapons systems.  Second, many countries do not possess comprehensive strategic trade control systems requiring licenses for dual-use transfers to proliferation sensitive end-uses or destinations.  Finally, procurement networks may involve circuitous routing through ports with a high volume of trade, use of front companies, and falsified documentation to obscure entities involved and the end-user.  Banks are not currently set up to screen such complicated transactions and may not able to detect and prevent them.

Unfortunately, existing international arrangements and the multilateral export control regimes do not focus on proliferation financing.  FATF’s recently adopted revised set of standards is designed to close these long-standing loopholes.  However, few outreach opportunities or technical assistance resources are currently available to facilitate compliance and implementation.

Proliferation networks utilize the formal international financial system to pay suppliers and intermediaries.  As a result, “following” the flow of financial transactions may enable authorities to better understand links among entities of concern, their suppliers, transport routes, and ultimate end-users, deny proliferators and their support networks access to the international financial system through targeted financial sanctions, and, ultimately, to prosecute the proliferators.  Before this can happen, states must understand their obligations and the tools and techniques they may apply to this effort.  Drawing on its long record in capacity-building, EXBS may be well suited to strengthen national regulatory frameworks and institutional capacities to fight proliferation financing.  EXBS is currently considering hosting a follow-on regional conference in 2013 to provide effective models for combating proliferation financing on a national level.