Financial Networks of Mass Destruction

Executive Summary

The international community has long prioritized reducing the risk of weapons of mass destruction proliferation, whether from state actors such as North Korea and Iran, or from non-state actors, particularly criminals and transnational terrorist networks. Despite this concern, however, there remains a significant blind spot: the efforts to prevent the financing of WMD proliferation are only in their infancy. The legal framework to prevent the financing of proliferation is weak, and implementation across the world is spotty. These weaknesses derive from one overwhelming fact: The international community has not prioritized financial controls to fight proliferation. Very few countries have demonstrated the political will to put further emphasis on this threat to international peace and security.

The role of the United States is essential in building a stronger regime to counter proliferation finance. As the world’s largest economy, with a sophisticated financial sector, well-resourced law enforcement and intelligence capabilities, and the ability to restrict access to the U.S. dollar, the United States has a great deal of leverage in helping those countries that wish to do more, and in compelling laggard countries to focus more intensively on the issue.

This is a crucial national security concern for the United States, even though to date it has not been approached as such. These networks are quite sophisticated at evading detection and know how to exploit weak regulations and enforcement in jurisdictions around the world. North Korea and Iran in particular have operated (and North Korea continues to operate) egregious, publicly documented, sophisticated global networks of trusted agents. These networks have contributed significantly to what had been an active uranium-enrichment program (in the case of Iran), and a substantial nuclear weapons capability (in the case of North Korea). These states are creative and diligent in developing new ways to continually disguise their activities, pioneering new technology and networks to sustain themselves and grow. The United States has prioritized dealing with North Korea and Iran as high-level security threats, but the proliferation finance aspect of that strategy has been woefully underdeveloped.

Stepping up action to combat the financing of proliferation will take legal change at home, including financial transparency measures and new methodologies to facilitate information sharing between banks and between banks and national authorities. It will also require intensive leadership in international forums such as the Financial Action Task Force (FATF) and at the United Nations (U.N.) to elevate due diligence and compliance around preventing the financing of proliferation. This will include revising FATF’s recommendations to incorporate more proactive risk-based measures so that countries are judged on more than just compliance with screening against a list of proliferators subject to sanctions. The latter should focus on strengthening the work of the United Nations Security Council Resolution (UNSCR) 1540 nonproliferation committee, improving the guidance that FATF provides on proliferation finance, and encouraging dozens of countries to improve their legal frameworks and dedicate the required level of attention and resourcing to fulfill their international obligations.

The risk of inadequately responding to the risk of proliferation finance is stark. The use of a weapon of mass destruction by a malign state actor or a non-state actor, especially a nuclear one, would be a generation-defining catastrophe. In the aftermath, the international community would ask what went wrong. What such a retrospective would discover is that such capabilities may have been facilitated through ordinary commercial channels. The response to such a discovery may have broad macroeconomic consequences. Avoiding that disaster, and the growth of threats emanating from WMD stockpiles in the hands of rogue actors, is the goal of this report.

This report explores the weaknesses of the current countering proliferation finance regime. Using case studies, it highlights how a lack of political will allows proliferation networks to obtain goods and move money in violation of international controls. It offers a survey of the current legal framework for approaching countering proliferation finance. This framework provides some important tools to U.S. and international authorities, but is alarmingly weak in many areas. The report then discusses how even a solid legal framework may flounder because of fundamental problems with political will at the national and international levels. It then offers recommendations for the United States and its international partners to build a much stronger countering proliferation finance regime. The report is designed to help security and foreign policy leaders understand the gravity of the issue and the necessity of elevating countering proliferation finance work in broader nonproliferation activities and analysis of transnational threats, especially North Korea and Iran policy. It argues that strong measures to counter proliferation finance must be a key piece of a holistic approach to national security policy, and it outlines a roadmap for how to get there.