Main Image Credit Pakistani nuclear scientist Abdul Qadeer Khan is surrounded by policemen and lawyers after addressing a convention in Rawalpindi, Pakistan in January 2010. Courtesy of Reuters / Alamy Stock Photo
AQ Khan’s legacy may not be in the nuclear kit he sold, but rather in how he sold it. His departure is a reminder of the limited progress made in countering proliferation networks.
Abdul Qadeer (AQ) Khan – often described as the father of Pakistan’s nuclear bomb and probably the world’s best-known proliferator – died last week of COVID-19. Khan is likely to be remembered as the ‘real-life Bond villain’ at the head of an international proliferation black market that helped supply nuclear and missile technology to countries like North Korea, Iran and Libya. Yet nearly 20 years after the extent of his nuclear bazaar came into focus, governments have yet to adequately address the corporate and financial infrastructure that allowed his network to operate.
Taking advantage of globalised manufacturing, supply chains, and financial and transportation channels, Khan established an international network of private suppliers and intermediaries that could provide necessary nuclear and missile-related technologies to customers willing to pay for them. A key part of Khan and his associates’ success was their ability to avoid scrutiny by setting up front companies in jurisdictions with poor corporate transparency, falsifying trade documents, exploiting opportunities for corruption in their business dealings, hiding payments and relying on intermediaries and accounts at banks with lax money laundering measures to handle their financial transactions. While these tactics were far from novel in the world of organised and financial crime, it appears to have been the first time that they had crossed over at this scale to the world of nuclear proliferation.
In an effort to tackle these gaps in non-proliferation efforts, as well as to address concerns over terrorist groups’ ability to acquire and use weapons of mass destruction (WMD), the UN Security Council adopted Resolution 1540 in late 2004. The Resolution requires states to adopt ‘appropriate effective’ measures to prevent non-state actors from acquiring WMD and to prohibit the financing of such trade. In 2006, the Security Council also introduced sanctions on Iran and North Korea, in response to developments in the countries’ nuclear programmes. Among other restrictions, the sanctions prohibit the export of proliferation-sensitive goods to the two countries and mandate the freezing of assets belonging to the entities assisting Tehran and Pyongyang in their proliferation efforts. The expansion of these sanctions regimes over the years has targeted not just the governments responsible for the development of these nuclear programmes, but the expansive networks of suppliers, financiers and intermediaries that support them.
Proliferators continue to exploit some of the same weaknesses in financial crime and non-proliferation regimes that allowed Khan and his associates to run their nuclear black market
Some progress has been made over the last two decades in tackling the complex networks of bank accounts, front companies and professional intermediaries that facilitate proliferation. An increasing number of countries are criminalising the financing of WMD proliferation and including measures to tackle proliferation financing alongside money laundering and terrorist financing in their national financial crime regimes. The Financial Action Task Force (FATF) – the international standard-setter for measures to counter financial crime – now requires countries and certain private sector actors to assess and mitigate their exposure to proliferation financing activity.
Yet, in practice, proliferators continue to exploit some of the same weaknesses in financial crime and non-proliferation regimes that allowed Khan and his associates to run their nuclear black market. Last week, the UN Security Council released the 2021 midterm report of the Panel of Experts. To no surprise, the report found that – despite being subjected to a nearly comprehensive suite of sanctions on its financial and trade activity – North Korea continued to make improvements to its nuclear and ballistic missile programmes, procure proliferation-sensitive goods, maintain overseas bank accounts, illicitly import petroleum, and conduct cyber attacks on a global scale.
A World of Loopholes
Why do these challenges persist, despite an expanding suite of international sanctions and standards on countering proliferation and its financing? One key gap is that the non-financial intermediaries that help facilitate the trade and financing of proliferation-sensitive goods – including lawyers, corporate service providers, notaries and accountants – are often not covered by financial crime regulation or included in efforts to counter WMD proliferation. The International Consortium of Investigative Journalists recently released yet another report exposing the role that such intermediaries play in helping kleptocrats, tax evaders and human traffickers hide their wealth and illicit activities. These are the same regulatory blind spots that Khan used to build his proliferation network and the same gaps that North Korea now exploits to hide its sanctions-evasion activities.
Lack of awareness of what proliferation activity looks like and how it is financed is another issue. A global survey of sanctions and financial crime compliance professionals published by RUSI and the Association of Certified Anti-Money Laundering Specialists in February 2020 found that only 57% of respondents were aware of proliferation financing red flags. The focus on North Korea and Iran as key actors of proliferation concern has also meant that many businesses and governments still fail to effectively recognise and guard against proliferation financing infrastructure based in other countries.
National governments need to take responsibility for ensuring that proliferation networks are not permitted to take root within their borders
So, what is to be done? One way forward is to make substantive updates to UNSCR 1540. As the Resolution’s provisions are not specific to any particular state proliferator, a ‘strong’ UNSCR 1540 can serve as a catch-all instrument for tackling today’s global proliferation networks, as well as any proliferation threats that may emerge in the future. As a first step, the Resolution can be amended to explicitly recognise the role of non-financial intermediaries in proliferation-related activities. Providing clear guidance to member states on what ‘appropriate effective’ measures look like in the context of the Resolution would also be helpful, especially if these were to include requirements aimed at tackling the role of non-financial intermediaries in proliferation. Yet, given the political gridlock between the permanent five members of the Security Council (the US, UK, France, China and Russia), substantive changes to UNSCR 1540 are unlikely in the near future.
In the meantime, national governments need to take responsibility for ensuring that proliferation networks are not permitted to take root within their borders. This includes integrating relevant non-financial service providers in efforts to counter financial crime and proliferation, ensuring the adoption and application of effective legislation to counter proliferation financing, and raising awareness of proliferation financing threats and typologies across government agencies and the private sector. Unfortunately, while some countries are making important strides in these respects, political will and capacity remains low in many parts of the world.
Until the international community gets serious about addressing the complex criminal infrastructure that underpins WMD proliferation today, Khan’s legacy will live on in the networks he helped to pioneer.
The views expressed in this Commentary are the authors’, and do not represent those of RUSI or any other institution.
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Dr Aaron Arnold
Senior Associate Fellow
Centre for Financial Crime and Security Studies
Proliferation and Nuclear Policy