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  • One of two presentations this year.This presentation focuses on implementing and improving (King’s College project & gov funding)Second focuses on analyzing effectiveness (phd)Both are intrinsically related.
  • Three sections – intro, challenges, vision.Highlights:Challenges realResponces help but do not solveSupply chains can add valueNeed change in approach.
  • EC’s based on npt commitment, but go beyond (dual use list, missiles etc)Also used for ‘national security’Three elements of a system:ListsProcess Enforcement (discourage cheating)
  • “cheating” a risk at the international level too. Khan network > 1540: all states to have controls. (27 countries not filed reports)Most countries with technical capability now have legislation. Is legislation sufficient? Effectiveness the next task.
  • How do sanctions fit into a presentation on supply-side controls?While sanctions are seen as denial of economic resources, the move toward targeted multilateral sancitons has significant impliactiosn for export controls. Iraq became subject to an effective embargo, crippling the econonmy and harming the population. Idea of targeted sanctions: find specific leveraging points that don’t really harm the population.
  • UN sanctions target elites and technologies. In effect, UN sanctions set export licensing criteria for target country. (Export control regimes are non-discriminatory) Modalities mean that while national authorities may have to legislate to introduce UN sanctions, it is private sector activity that is curtailed. Unilateral sanctions now utilise the same approach: the private sector are the sanctions mechanism. But targeted sanctions are broadening away from specific proliferation-related activities to systematic designations.
  • Trade in military technologies is a legitimate business as countries have a both a right to self defence and sole authority for the use of force in enforcing their national laws. International law and morality, however, recognise that some weapons or certain end uses for military capabilities are unacceptable, and export controls are used by national authorities to minimize the risk that goods will be used in an undesirable way. Proliferation-related procurement refers to the actions of a state in attempting to evade the controls placed on technologies by the international community or individual national authorities. Such trade is typically to support unconventional (WMD) programmes or to acquire prohibited military technologies.
  • Authors often talk about this challenge in the abstract. Little robust work has been done to find out what countries now have what manufacturing capabilities. (part of the effectiveness framework)
  • In terms of technology – there are grey areas. Those that clearly have potential uses in WMD programmes are easy to recognise, and relatively easy to determine their level of control. For example – complete centrifuges are clearly items of concern. However, it is more difficult for industry to identify and comprehend the concerns with various dual-use items such as the high-strength aluminium tubes which can be used to build a centrifuge. Non-listed goods present the biggest challenge. Because although they are not listed, they can certainly be of use to proliferators. It is clear that assistance in identifying concerns in terms of technology would be useful to industry. Scope of WMD programs? Flooring materials?
  • There are a wide variety of reasons for companies to be concerned with proliferation –It is a risk which has to be mitigated – and companies benefit from mitigating it proper
  • Presentation belfer

    1. 1. Project on Proliferation Procurement and Anti-Proliferation in the Private Sector Ian J. Stewart Lead Researcher, Project on Proliferation Procurement, King’s College LondonPhD Candidate, “Effectiveness of Export Controls and Sanctions” King’s College London Research Fellow, Managing the Atom, Belfer Center, Harvard Kennedy School Engaging the Private Sector: Ian J. Stewart
    2. 2. Research Overview / ContextRole and effectiveness of supply-side controls at preventingproliferation• Evaluating effectiveness of export controls and sanctions Gaps and challenges: Presentation on • No robust dataset 19th April 2012 • Indicators rather than measures of effectiveness • No causality known for sanctions (impact is not effectiveness)• Improve performance • Information sharing / spread expertise • Engaging private sector Today • Develop export compliance standards Engaging the Private Sector: Ian J. Stewart
    3. 3. Engaging the Private Sector: Overview Section 1: Supply-side controls overview Section 2: Challenges to current supply-side controls Section 3: Anti-proliferation in the supply chain• Highlights current state-centric approach not sufficient to counter illicit procurement• Suggests that current responses are important but not sufficient• Explores whether private sector supply chains can supplement state-centric approach• Identifies prerequisites to private sector engagement Segways: Sanctions, Proliferaiton, Antiproliferaiton & DNA Engaging the Private Sector: Ian J. Stewart
    4. 4. WMD?Terrible phrase, but:• Nuclear, Chemical, Biological weapons• Delivery systems• Unsafeguarded nuclear fuel cycle activities• Nuclear fuel cycle activities subject to UN sanction Engaging the Private Sector: Ian J. Stewart
    5. 5. Section 1Current Supply Side Measures:Export Controls and Sanctions Engaging the Private Sector: Ian J. Stewart
    6. 6. Overview of Export ControlsExport Controls: interpretation of NPT-like norms and commitments.Three core elements of a export control system: • List of proliferation-sensitive technologies • Licensing process • Border enforcement: detect, deterAdditional desirable elements: consistent/transparent decisionmaking, catchall controls, transshipment/re-export, brokering. Engaging the Private Sector: Ian J. Stewart
    7. 7. Export Controls CoverageUNSCR 1540• “Decides” all states will have export controls• Passed in response to the Khan network• Coverage expanded but not universalInternational export control regimes Nuclear Suppliers Group – nuclear manufacturing states Missile Technology CR – most BM producers, not China Wassenar: military / dual use - NATO/Warsaw pact Australia Group (CBW) – NATO/Warsaw pact “Non-discriminatory” Engaging the Private Sector: Ian J. Stewart
    8. 8. Sanctions “To deny a target access to an economic resource… “ ?Unilateral – imposed by one or more likeminded countriesMultilateral – imposed by the UNSC on target country for specific reason Full economic embargo – high impact, high effectiveness? Iraq Targeted sanctions Focus on decision makers – travel bans, asset freezes or Aimed at proliferation-related activities: Proliferation financing Proliferation procurement Engaging the Private Sector: Ian J. Stewart
    9. 9. Targeted Sanctions in Practice• UN or national authority produce list: – Designate entities – List technologies• Private sector implement: – Financial services screen payments against lists – Shipping companies screen deliveries against lists – Manufacturers/exporters submit licences for controlled technologiesIssues:1: Broadening Scope: targeted sanctions could become economic sanctions: Designating the Iranian banking system as a “money laundering concern”2: Incomplete lists: proliferation is dynamic3: Implementation varies: National authority > private sector4. Causality? Engaging the Private Sector: Ian J. Stewart
    10. 10. State-centric framework• Focus on compliance – National authorities legislate / enforce int. commitments • State accountable for P/S non-compliance – Private sector complies with national authority • Seeks licenses if – goods controlled – End user designated (1.5% false positive). – Other suspicions Encourages private sector to externalize proliferation risk Engaging the Private Sector: Ian J. Stewart
    11. 11. Summary of section 1Export controls: • Lists and criteria vary from country to country • Commonality achieved in likeminded states* • Private Sector externalise riskSanctions: • Focus on countries of concern • List designated entities, activities and technologiesImplementation: • UNSC mandates implementation at the national level • Private sector’s role: be compliant Engaging the Private Sector: Ian J. Stewart
    12. 12. Section 2Challenges to the State-centric Model Engaging the Private Sector: Ian J. Stewart
    13. 13. ProliferationThe NPT recognizes the right of every state to havepeaceful nuclear energy, but with rights comeresponsibilities: • Safeguards • Declaration of Nuclear Fuel Cycle activities • Transparency / honesty Engaging the Private Sector: Ian J. Stewart
    14. 14. Definition: ProliferationIn the defiance of UN resolutions/ internationalcommitments:• The acquisition of WMD by states that previously did not possess them• The growth in quantity or quality of already existing unconventional arsenals• The illicit procurement of military capabilities Assuming insufficient indigenous capability… Proliferation through trade: Declared end use / end user of concern Declared end use false Declared end user + end use false Engaging the Private Sector: Ian J. Stewart
    15. 15. EUU
    16. 16. Relevance of Supply-side Controls• The manufacturing base has spread• CAD/CAM design/manufacture Challenges• Information difficult to controlBut… few (if any) countries have capability to manufacture every element of nuclear fuel cycle. – 7 companies manufacture vacuum equipment – A dozen countries have carbon fiber capability – Several firms make spark gaps Engaging the Private Sector: Ian J. Stewart
    17. 17. Illicit Procurement? “Acquiring technology for something other than the declared end use”International norms prohibit state-sanctioned exports to WMD programs, but…• No norm formed against state-led illicit procurement• Weak punishments for nuclear traffickers• Proliferation high priority: state’s intelligence, military, and other assets utilized to forward programs (and acquire technology) Engaging the Private Sector: Ian J. Stewart
    18. 18. Technologies of concern (Is it the nuclear industry?) IdentifyDescription Sensitivity Controllability Example concerns from…“Specifically Complete Technology /designed for High High centrifuge country …” Centrifuge “Dual use sized high- Medium Medium goods” strength“Non-listed Low Low aluminum tube Motor winding ? goods” machine Engaging the Private Sector: Ian J. Stewart
    19. 19. Illicit tradeProliferant Country 1 Country 2 Supplier Licensing authority Goods Licence application Middle Middle men men False end Middle user Agent men certificate Manufacturer Middle men Gov to Gov assurance Engaging the Private Sector: Ian J. Stewart
    20. 20. Effectiveness of Supply-side ControlsPrerequisite to effectiveness: legislation and implementation in all appropriate countries.Are there effective?• No technology manufacturers dataset• Implementation assessed on ‘indictors’ rather than measures of ‘effectiveness’• Little transparency on prosecutions, licensing statistics etc. Engaging the Private Sector: Ian J. Stewart
    21. 21. Stinnett et al: Complying by Denying: Explaining Why States Develop Nonproliferation Export ControlsImplementation assessed on ‘indictors’ rather than measures of ‘effectiveness’ Engaging the Private Sector: Ian J. Stewart
    22. 22. Dynamic Challenges• Globalized manufacturing base – Outsourcing – Spread of information – Redistribution of equipment• Globalising distribution pathways – Transshipment hub – Multinational / multisite manufacturing Any one national authority has a decreasing ability to control trade. Engaging the Private Sector: Ian J. Stewart
    23. 23. Summary to Section 2 Challenges to the State-centric ModelNational authorities take proliferation risk from private sector &P/S externalise proliferation riskBut risk may not be mitigated:• National authorities cant always get it right – Limited capacity – Dynamic nature of proliferation• Not all goods of concern controlled• Supply chains are multinational• Some firms not compliant (ignorant or willful) Engaging the Private Sector: Ian J. Stewart
    24. 24. Section 3 Concept:Anti-proliferation in the Supply Chain Engaging the Private Sector: Ian J. Stewart
    25. 25. Private Sector: The ImplementerCompanies possess:• Greatest understanding of: – Supply chains and market – Products & credibility of declared end uses• Visibility of the enquiry and background• Knowledge to order• Knowledge of the customer• Resource Private sector as the first line of defence against WMD proliferation Engaging the Private Sector: Ian J. Stewart
    26. 26. Anti-proliferation in the Private Sector• Implement proliferation-resistant compliance: – Increase vigilance in response to increased risk • Know / understand proliferation risk in technology • Understand proliferation risk posed by countries • Undertake due diligence on potentially risky exports Beyond compliance: • Not just applying for licenses • More than just entity screening Private Sector internalizes proliferation risk Engaging the Private Sector: Ian J. Stewart
    27. 27. Illicit tradeProliferant Country 1 Country 2 Supplier Licensing authority Goods Licence application Middle Middle men men False end Middle user Agent men certificate Manufacturer Middle men Gov to Gov assurance Engaging the Private Sector: Ian J. Stewart
    28. 28. Prerequisites to Anti-proliferation Proliferation-resistant compliance systems Proliferation awareness: Control status of goods Proliferation risks with technology Diversion / proliferation risks with countries Entity diligence: Red flag indicators Suppliers / Distributors due diligence Engaging the Private Sector: Ian J. Stewart
    29. 29. Engaging the Private Sector• Not Defence, Nuclear, Aerospace (DNA) firms that pose the proliferation risk, but their supply chains• But… DNA key leveraging point – Hold influence over their supply chain – Are committed to compliance excellence – Can disseminate export compliance Engaging the Private Sector: Ian J. Stewart
    30. 30. Technology-based ApproachFocus on highest risk technologies (chokepoints)Carbon FibreHigh-strength alloysCorrosion-resistant metalsMetal powders Main markets:Materials resistant to UF6 Defence,Vacuum equipment Nuclear,Glove boxes AerospacePrecursor chemicalsCasting / machine toolsInvertor’sControl systems* Engaging the Private Sector: Ian J. Stewart
    31. 31. Mitigating Supply-chain Risk• Suppliers and distributors present a compliance risk: – Reliance on suppliers to classify goods? – Possess your sensitive parts, components, technical information – Not just export compliance issue: IPR etc.Firms bear their proliferation risk; do they haveconfidence in suppliers and distributors exportcompliance system? Engaging the Private Sector: Ian J. Stewart
    32. 32. Why Should Companies Care?• Proliferation is a risk. – Legal implications (controlled goods or know / suspect) – Reputational / market costs – even inadvertent involvement in proliferation-related procurement can seriously affect company’s market position• Corporate responsibility Engaging the Private Sector: Ian J. Stewart
    33. 33. Dissemination of Anti-proliferationPersuading Private Sector: Strategies:Normative: - relevant businesses are receptivePreventive: - make it less desirable to have no complianceCognitive: - demonstrate costs / benefitsPunitive: - make it easier to focus on wrongdoers• Code of Conduct / supply chain – DNA / government set standards• Market forces – Insurance & investment• Incentivisation?• Licensing structure Engaging the Private Sector: Ian J. Stewart
    34. 34. BEST PRACTICE GUIDELINES ON CORPORATE STANDRDS SUPPORTING THE EFFORTS OF THE INTERNATIONAL COMMUNITY TO COUNTER- PROLIFERATION OF WMD1. Implement internal systems to ensure due-diligence checks are carried out on potential customers and business partners and the goods, software and technology that they wish to acquire, utilising public information provided by the United Nations, States and other parties with an interest in supporting the multilateral counter-proliferation effort,2. Monitor, collate and vet enquiries relating to the acquisition of proliferation sensitive goods, software and technology,3. Cease dealings with entities identified as being of proliferation concern either from public sources, from corporate monitoring systems or from contact with relevant competent authorities in states themselves,4. Share information about attempts to procure items for illicit Weapons of Mass Destruction programmes with security and other relevant agencies in the State where they are established and with business partners and others in instances where the State judges that broader publicity would be appropriate,5. Promote the adoption of due diligence and information sharing within the supply chain and with other business partners,6. Incorporate counter-proliferation measures and export control compliance into existing Corporate Social responsibility statements,7. Encourage relevant industry-wide trade and professional bodies to recognise the importance of supporting and encouraging the counter-proliferation effort and the measures set out herein. Engaging the Private Sector: Ian J. Stewart
    35. 35. Certification Schemes Entities can present three types of risk:Risk Mitigation AssessorDiversion risk Export Compliance Certification Private sector, national authorityNoncompliance risk Export Compliance Certification Private sector, national authorityUndesirable end Certified end user program Private sector, national authorityuse Emergence: companies naturally seek out others which embed antiprolieration. Engaging the Private Sector: Ian J. Stewart
    36. 36. Overall findings• Private sector has a role to play• Compliance with law not sufficient to mitigate proliferation risks• For illicit procurement, mostly not the DNA that matters, but the supply chain• Compliance systems and information currently available to private sector not sufficient• Need for governments to think differently too Engaging the Private Sector: Ian J. Stewart
    37. 37. Recommendations: System Architecture• That national authorities should work with professional organizations for export compliance to encourage the structured training and development of compliance officials.• That national authorities set up joint working groups to develop sector-specific anti-proliferation export compliance guidance.• That competent authorities work with non-governmental organizations to develop a set of principles regarding antiproliferation in the supply chain.• That competent authorities include in the provision of discretionary license types a requirement that exporters have in place an export compliance system• That national authorities should establish a route through which desensitised suspicious enquiries could be anonymously shared with the national authority, international organizations, and others in the business sector.• That national authorities in consultation with their private sector consider the merits of insentivisation structures to encourage the adoption of proliferation-resistant export compliance systems where incentives could include access to discretionary licensing categories or shorter target windows for export licensing decisions.• That national authorities should encourage their private sector include a consideration of the effectiveness of a potential supplier or distributor’s export compliance process when considering entering business relationships in order to best mitigate supply chain risk.• That competent authorities consider the merits and possible models of an extended end user certification scheme as an element of export control reform. Engaging the Private Sector: Ian J. Stewart
    38. 38. Recommendations: Awareness• That national authorities support the development of web-based tools that articulate to both the export licensing officials in third countries and their own private sector the proliferation concerns associated with controlled technologies• That interested parties work through the export control regimes to define the scope of WMD programmes.• That national authorities detail to exporters non-controlled goods, or categories of goods, of proliferation concern• That national authorities provide to their private sector consolidated lists of all entities with which trade requires special consideration, including entities designated by international or unilateral sanctions together with sector-specific guidance on how to ensure compliance.• That national authorities seek to highlight instances of non compliance to others in the business sector as the non-compliant firm Engaging the Private Sector: Ian J. Stewart
    39. 39. To Summarise• Proliferation risk currently taken by national authorities whereas risk is actually shared with P/S• Antiproliferation needed in private sector to mitigate risk, but prerequisites: compliance systems, guidance, information, tools• Compliant firms have a role too – promote compliance in their supply chainsOverall - it is in the interest of both the private sector and national authorities to get this right Engaging the Private Sector: Ian J. Stewart
    40. 40. Resources (• Code of Conduct (NSG)Proliferation Briefs• Technology Briefs• Export compliance guidance• Due diligence / red flag guidance• Country profiles Engaging the Private Sector: Ian J. Stewart