The wider context
Proliferation finance is resemblant to other types of financial crime such as money laundering or terrorist financing both in methods employed and approaches. The shared playbook includes ploys such as the use of complex corporate structures aimed at obscuring business activity, the exploitation of opaque jurisdictions with limited financial and business transparency otherwise known as tax havens, and the use of cash or other tangible means of exchange. Furthermore, PF can and does support a number of other dangerous initiatives. Due to proliferation finance’s semblance, it is often intertwined with issues including corporate fraud, money-laundering, bribery and kleptocracy.
The origins of Proliferation Finance
PF first gained large-scale attention due to the A.Q. Khan Network, a proliferation network run and orchestrated by Abdul Qadeer (A Q) Khan. Nicknamed the father of Pakistan’s nuclear-weapons programme, Khan helped several nations develop nuclear capabilities by sharing sensitive information and technology. Following decades of undetected activity, which used the a private network of suppliers, the Khan Network was exposed in 2003, following a interdicted shipment aboard a German ship, the BBC China, which was en-route to Libya. The shipment contained sensitive material critical for nuclear weapon manufacturing. The lack of control measures and understanding revealed by this high-profile example, highlights the grave implications for international security. If left unchecked, the Khan network could have potentially empowered other states to develop WMD abilities or expediated the creation of similar networks.
As a result of the Khan network, the United Nations Security Council (UNSC) unanimously adopted Resolution 1540 (2004) under Chapter VII of the United Nations Charter. The resolution affirmed that the proliferation of WMD weapons systems and their means of delivery constitute a threat to international peace and security. Consequently, the financing of such weapons is an issue that all UN-member states are mandated to help prevent. However, the proliferation of WMDs remains a constant threat to regional and global peace, despite the efforts by UNSCR 1540 (2004) and subsequent UNSC resolutions which require states to implement safeguards against WMD proliferation.
Aside from national attempts to curb PF, the Financial Action Task Force (FATF) also plays a vital role. The FATF is a global watchdog responsible for tackling financial crime including money laundering, terrorist financing, and proliferation financing. Guided by UNSC resolutions, the FATF assists its member states in combating illicit financial activity by offering effective and systematic policy recommendations. However, the FATF’s stance has become stricter following a standard shift in 2020. Now member countries and all associated financial/ non-financial entities are required to publish a national risk assessment showcasing the PF risk posed and relevant preventative and mitigatory responses.
An ongoing issue
Unfortunately, PF remains a serious concern. One notable case which sought to raise funds for WMD purposes occurred in July 2013. Panamanian authorities stopped and inspected a vessel owned and flagged by North Korea, named the Chong Chon Gang, in the Panama Canal. Concealed under more than 200,000 bags of sugar, authorities found arms and other military material. Items included six trailers associated with surface-to-air missile systems, two disassembled MiG-21 aircraft, 15 engines for MiG-21 aircraft, components for surface-to-air missile systems, ammunition, and miscellaneous arms-related material. These items, originally from Cuba, were allegedly en-route to be repaired in North Korea and returned. However, it is reported that this was a case of services for payment. As all North Korean business activity is considered supportive of North Korea’s nuclear weapon initiatives, this example illustrates that preventing PF is imperative when aiming to limit who or what has viable proliferation ability, either partly or in whole.
Next steps
Attempting to overcome proliferation finance presents some difficulties due its complexity, flexibility, and the fact that it is state sponsored, meaning it can draw on significant resources. Understanding that any degree of proliferation finance success is considered ‘a win’ for the associated network and that any such success can have damaging consequences when considered collectively, is paramount when understanding the scope of the issue. Similarly, the variety of methods employed by PF networks and the tenacity to which they are undertaken, is extremely diverse. Techniques range from cybercrime, through ransomware attacks, to stealing virtual assets, to demanding payment in cryptocurrencies, to the sale of counterfeit goods, such as fake cigarettes. All proceeds are then used to source goods or services on behalf of the proliferating country.
The above point is personified by the diversity of the preventative and mitigatory attempts aimed at curbing PF. Proliferators can act independently or as part of larger contingents. The differentiating factor is that PF networks are concerned with one goal: the furtherment of WMD capabilities. This objective is supported by as little as one dollar through to one hundred million dollars. As such, it’s important to understand that PF is unique in its approach, that being the lack of personal furtherment, group agenda or fiscal gain, when attempting to interpret functionality and risk. In the context of an increasingly complex global security and financial landscape, the scope for malign actors to succeed in the development of highly dangerous weapon systems through these techniques is untenable. As such, continual efforts should be made to understand and tackle the risk posed by PF.
Considering recommendations is similarly important in the context of present and future international security implications. As such, the following points are advocated: (1) A universally accepted definition as to what proliferation finance is. Presently, there is no unified definition, meaning interpretations and deterrent techniques toward PF vary, ultimately hampering prevention. (2) It is also recommended that PF is given the same credence as money laundering and terrorist financing in respect to awareness and capacity building. This is due to similar approaches all three facets share and the negative impacts of PF, regardless of scale. To conclude, PF presents some very real threats, not least the fact it can make use of more engrained financial crime types. As such, all those who have a responsibility to identify and deal with illicit financial activity, should continually be on the lookout for PF and work to share awareness and learning on preventative and mitigatory methods.