Tata AIG General Insurance Company - Insurer Innovation Award 2024
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Presentation belfer
1. Project on Proliferation Procurement
and Anti-Proliferation in the Private
Sector
Ian J. Stewart
ian.stewart@kcl.ac.uk
Lead Researcher, Project on Proliferation Procurement, Kingâs College London
PhD Candidate, âEffectiveness of Export Controls and Sanctionsâ Kingâs College London
Research Fellow, Managing the Atom, Belfer Center, Harvard Kennedy School
Engaging the Private Sector: Ian J. Stewart
2. Research Overview / Context
Role and effectiveness of supply-side controls at preventing
proliferation
⢠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. 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. 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. Section 1
Current Supply Side Measures:
Export Controls and Sanctions
Engaging the Private Sector: Ian J. Stewart
6. Overview of Export Controls
Export 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, deter
Additional desirable elements: consistent/transparent decision
making, catchall controls, transshipment/re-export, brokering.
Engaging the Private Sector: Ian J. Stewart
7. Export Controls Coverage
UNSCR 1540
⢠âDecidesâ all states will have export controls
⢠Passed in response to the Khan network
⢠Coverage expanded but not universal
International export control regimes
Nuclear Suppliers Group â nuclear manufacturing states
Missile Technology CR â most BM producers, not China
Wassenar: military / dual use - NATO/Warsaw pact
Australia Group (CBW) â NATO/Warsaw pact
âNon-discriminatoryâ
Engaging the Private Sector: Ian J. Stewart
8. Sanctions
âTo deny a target access to an economic resource⌠â ?
Unilateral â imposed by one or more likeminded countries
Multilateral â imposed by the UNSC on target country for specific reason
Full economic embargo â high impact, high effectiveness?
Iraq
Targeted sanctions
Focus on decision makers â travel bans, asset freezes
or
Aimed at proliferation-related activities:
Proliferation financing
Proliferation procurement
Engaging the Private Sector: Ian J. Stewart
9. Targeted Sanctions in Practice
⢠UN or national authority produce list:
â Designate entities
â List technologies
⢠Private sector implement:
â Financial services screen payments against lists
â Shipping companies screen deliveries against lists
â Manufacturers/exporters submit licences for controlled technologies
Issues:
1: Broadening Scope: targeted sanctions could become economic
sanctions:
Designating the Iranian banking system as a âmoney laundering
concernâ
2: Incomplete lists: proliferation is dynamic
3: Implementation varies: National authority > private sector
4. Causality?
Engaging the Private Sector: Ian J. Stewart
10. State-centric framework
⢠Focus on compliance
â National authorities legislate / enforce int. commitments
⢠State accountable for P/S non-compliance
â Private sector complies with national authority
⢠Seeks licenses if
â goods controlled
â End user designated (1.5% false positive).
â Other suspicions
Encourages private sector to externalize proliferation risk
Engaging the Private Sector: Ian J. Stewart
11. Summary of section 1
Export controls:
⢠Lists and criteria vary from country to country
⢠Commonality achieved in likeminded states*
⢠Private Sector externalise risk
Sanctions:
⢠Focus on countries of concern
⢠List designated entities, activities and technologies
Implementation:
⢠UNSC mandates implementation at the national level
⢠Private sectorâs role: be compliant
Engaging the Private Sector: Ian J. Stewart
13. Proliferation
The NPT recognizes the right of every state to have
peaceful nuclear energy, but with rights come
responsibilities:
⢠Safeguards
⢠Declaration of Nuclear Fuel Cycle activities
⢠Transparency / honesty
Engaging the Private Sector: Ian J. Stewart
14. Definition: Proliferation
In the defiance of UN resolutions/ international
commitments:
⢠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 capabilityâŚ
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
16. Relevance of Supply-side Controls
⢠The manufacturing base has spread
⢠CAD/CAM design/manufacture Challenges
⢠Information difficult to control
But⌠few (if any) countries have capability to
manufacture every element of nuclear fuel cycle.
â 7 companies manufacture vacuum equipment
â A dozen countries have carbon fiber capability
â Several firms make spark gaps
Engaging the Private Sector: Ian J. Stewart
17. Illicit Procurement?
âAcquiring technology for something other than the declared end useâ
International norms prohibit state-sanctioned exports to WMD
programs, butâŚ
⢠No norm formed against state-led illicit procurement
⢠Weak punishments for nuclear traffickers
⢠Proliferation high priority: stateâs intelligence, military, and other
assets utilized to forward programs (and acquire technology)
Engaging the Private Sector: Ian J. Stewart
18. Technologies of concern
(Is it the nuclear industry?)
Identify
Description Sensitivity Controllability Example concerns
fromâŚ
âSpecifically
Complete Technology /
designed for High High
centrifuge country
âŚâ
Centrifuge
âDual use sized high-
Medium Medium
goodsâ strength
âNon-listed
Low Low
aluminum tube
Motor winding
?
goodsâ machine
Engaging the Private Sector: Ian J. Stewart
19. Illicit trade
Proliferant 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. Effectiveness of Supply-side Controls
Prerequisite to effectiveness: legislation and implementation in
all appropriate countries.
Are there effective?
⢠No technology manufacturers dataset
⢠Implementation assessed on âindictorsâ rather than measures
of âeffectivenessâ
⢠Little transparency on prosecutions, licensing statistics etc.
Engaging the Private Sector: Ian J. Stewart
21. Stinnett et al: Complying by Denying: Explaining Why
States Develop Nonproliferation Export Controls
Implementation assessed on âindictorsâ rather than measures of âeffectivenessâ
Engaging the Private Sector: Ian J. Stewart
22. Dynamic Challenges
⢠Globalized manufacturing base
â Outsourcing
â Spread of information
â Redistribution of equipment
⢠Globalising distribution pathways
â Transshipment hub
â Multinational / multisite manufacturing
Any one national authority has a decreasing ability to control trade.
Engaging the Private Sector: Ian J. Stewart
23. Summary to Section 2
Challenges to the State-centric Model
National authorities take proliferation risk from private sector &
P/S externalise proliferation risk
But risk may not be mitigated:
⢠National authorities cant always get it right
â Limited capacity
â 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. Section 3
Concept:
Anti-proliferation in the Supply Chain
Engaging the Private Sector: Ian J. Stewart
25. Private Sector: The Implementer
Companies possess:
⢠Greatest understanding of:
â Supply chains and market
â 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. Anti-proliferation in the Private Sector
⢠Implement proliferation-resistant compliance:
â 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. Illicit trade
Proliferant 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. 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. Engaging the Private Sector
⢠Not Defence, Nuclear, Aerospace (DNA) firms
that pose the proliferation risk, but their
supply chains
⢠But⌠DNA key leveraging point
â Hold influence over their supply chain
â Are committed to compliance excellence
â Can disseminate export compliance
Engaging the Private Sector: Ian J. Stewart
30. Technology-based Approach
Focus on highest risk technologies (chokepoints)
Carbon Fibre
High-strength alloys
Corrosion-resistant metals
Metal powders
Main markets:
Materials resistant to UF6
Defence,
Vacuum equipment
Nuclear,
Glove boxes
Aerospace
Precursor chemicals
Casting / machine tools
Invertorâs
Control systems*
Engaging the Private Sector: Ian J. Stewart
31. Mitigating Supply-chain Risk
⢠Suppliers and distributors present a
compliance risk:
â Reliance on suppliers to classify goods?
â Possess your sensitive parts, components,
technical information
â Not just export compliance issue: IPR etc.
Firms bear their proliferation risk; do they have
confidence in suppliers and distributors export
compliance system?
Engaging the Private Sector: Ian J. Stewart
32. Why Should Companies Care?
⢠Proliferation is a risk.
â Legal implications (controlled goods or know /
suspect)
â Reputational / market costs â even inadvertent
involvement in proliferation-related procurement
can seriously affect companyâs market position
⢠Corporate responsibility
Engaging the Private Sector: Ian J. Stewart
33. Dissemination of Anti-proliferation
Persuading Private Sector: Strategies:
Normative: - relevant businesses are receptive
Preventive: - make it less desirable to have no compliance
Cognitive: - demonstrate costs / benefits
Punitive: - make it easier to focus on wrongdoers
⢠Code of Conduct / supply chain
â DNA / government set standards
⢠Market forces
â Insurance & investment
⢠Incentivisation?
⢠Licensing structure
Engaging the Private Sector: Ian J. Stewart
34. BEST PRACTICE GUIDELINES ON CORPORATE STANDRDS SUPPORTING THE
EFFORTS OF THE INTERNATIONAL COMMUNITY TO COUNTER-
PROLIFERATION OF WMD
1. 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. Certification Schemes
Entities can present three types of risk:
Risk Mitigation Assessor
Diversion risk Export Compliance Certification Private sector, national authority
Noncompliance risk Export Compliance Certification Private sector, national authority
Undesirable end Certified end user program Private sector, national authority
use
Emergence: companies naturally seek out others which embed antiprolieration.
Engaging the Private Sector: Ian J. Stewart
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. 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 distributorâs 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. 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. 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 â promote
compliance in their supply chains
Overall - 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. Resources
(www.antiproliferation.com)
⢠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
Editor's Notes
One of two presentations this year.This presentation focuses on implementing and improving (Kingâs College project & gov funding)Second focuses on analyzing effectiveness (phd)Both are intrinsically related.
Three sections â intro, challenges, vision.Highlights:Challenges realResponces help but do not solveSupply chains can add valueNeed change in approach.
ECâs based on npt commitment, but go beyond (dual use list, missiles etc)Also used for ânational securityâThree elements of a system:ListsProcess Enforcement (discourage cheating)
âcheatingâ 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 donât 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 â 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 â 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 âIt is a risk which has to be mitigated â and companies benefit from mitigating it proper