Strengthening the Role of UNSCR 1540 in Countering Proliferation Financing

Stemming the flow: the UN Security Council holds a meeting on the implementation of Resolution 1540 in 2017. Image: Pacific Press / Alamy

In the global battle against proliferation financing, UN Security Council Resolution 1540’s finance-related provisions can and should play a more prominent role.

This year, the UN Committee tasked with monitoring the implementation of UN Security Council Resolution (UNSCR) 1540, which is aimed at preventing the proliferation of WMD to and by non-state actors, is set to conclude a comprehensive review of the resolution’s implementation. The review will examine successes and challenges in global implementation of UNSCR 1540 and will assess whether adjustments to the resolution’s and Committee’s mandates may be needed. A few of the resolution’s provisions – namely, those focused on preventing the financing of WMD proliferation – deserve to be given particular attention. The review is a great opportunity to take stock of why UNSCR 1540 has struggled to meaningfully inform the development of the international counter-proliferation financing regime, and what can be done to promote the resolution as a critical tool in the counter-proliferation financing toolbox.

In the early 2000s, the 9/11 terrorist attacks, the uncovering of the nuclear proliferation network headed up by scientist Abdul Qadeer Khan, and the suspicion – eventually proven wrong – of a clandestine WMD programme in Iraq all served to focus thinking around terrorist use of WMD. In response to growing fears of WMD terrorism, the UN adopted UNSCR 1540 in 2004. Among its provisions, UNSCR 1540 established the first requirement for member states to prohibit the financing of the proliferation of WMD, WMD-related technology and their means of delivery. Since UNSCR 1540 was introduced, counter-proliferation financing has become a key part of the international infrastructure for countering financial crime led by the Financial Action Task Force (FATF). However, consideration of UNSCR 1540 has been largely excluded from the global regulatory counter-proliferation financing landscape which has flowed from these standards.

In 2012, the FATF included counter-proliferation financing alongside its anti-money laundering and counterterrorist financing recommendations and in its assessments of countries’ financial crime regimes. Countries are expected to assess their exposure to proliferation financing risk, to ensure effective cooperation between national authorities on counter-proliferation financing efforts, and to introduce legislation to counter proliferation financing by implementing ‘without delay’ relevant UN Security Council resolutions on proliferation finance. Yet, none of the FATF’s expectations on proliferation financing cover UNSCR 1540. Instead, the focus is exclusively on compliance with international sanctions on North Korea and Iran – in particular, targeted financial sanctions on specific entities linked to these countries’ proliferation activities. This is despite the fact that, unlike the North Korean and Iranian sanctions regimes, UNSCR 1540 is not specific to a particular proliferation actor and could therefore serve as a catch-all provision to prevent the financing of WMD proliferation by a variety of actors, if effectively implemented into national regulation.

Challenges to Understanding and Countering Proliferation Financing in the UNSCR 1540 Context

There are a number of likely reasons for the deprioritisation of UNSCR 1540’s financing provisions. As Sarah Shirazyan outlines in her review of the institutional limits of UNSCR 1540, from the resolution’s inception, some member states expressed concerns about what they felt to be an overreach in the UN Security Council’s application of its Chapter VII powers in the adoption of UNSCR 1540. Issues were raised with the process through which the resolution was drafted, as well as with what some states perceived as UN Security Council efforts to mandate domestic legislation. These issues of legitimacy have meant that successive resolutions to UNSCR 1540 and the UNSCR 1540 Committee have avoided being too prescriptive in the kinds of controls they expect countries to implement, and have provided little guidance on the types of activities covered by the resolution’s financial provisions or best practices for compliance.

Unlike the committees responsible for monitoring implementation of North Korea and – until 2016 – Iran sanctions, the UNSCR 1540 Committee has no mandate to investigate potential breaches of the resolution’s provisions, to identify proliferation financing typologies, or to put forward specific entities for sanctioning. The Committee collects information on member states’ measures to meet the resolution’s various provisions, but does not have the power to evaluate the adequacy or effectiveness of these measures, or to challenge countries’ self-reporting. In fact, UNSCR 1540 does not even offer a definition of proliferation financing or any details on the kinds of legislation the resolution expects countries to implement, leaving it up to individual member states to determine how to interpret these provisions.

The lack of international legal instruments and bodies to complement and enforce the financial provisions of UNSCR 1540 may be another reason for the deprioritisation of the resolution’s finance-related provisions. The existence of other non-proliferation instruments and bodies – including the Treaty on the Non-Proliferation of Nuclear Weapons and the International Atomic Energy Agency (IAEA), the Chemical Weapons Convention and the Organisation for the Prohibition of Chemical Weapons, as well as the Biological Weapons Convention – may have helped in incentivising and offering frameworks for countries to implement the provisions of UNSCR 1540 focused on the physical transfer of WMD materials. For instance, the IAEA has produced an extensive handbook on nuclear law, providing member states with detailed guidance on legislating for nuclear-related activity, including the transfer of nuclear-related materials and technology – although the handbook provides no guidance on implementing legal provisions related to proliferation financing.

Whereas failing to comply with sanctions on North Korea and Iran will earn a country a poor FATF evaluation, there is no comparable incentive or associated guidance for compliance with UNSCR 1540’s provisions

No comparable legal instrument or organisation is dedicated to countering the financing of proliferation. The FATF – the international organisation perhaps best-suited to supporting the implementation of UNSCR 1540’s financial provisions – has not integrated UNSCR 1540 into its standards and country assessments of counter-proliferation financing efforts. While UNSCR 1540 appears to have featured quite extensively in the FATF’s earlier thinking on counter-proliferation financing – being referred to repeatedly in the organisation’s February 2010 report on the status of its consultations and policy development on proliferation financing – the resolution did not ultimately make it into the watchdog’s standards for assessing national counter-proliferation financing efforts. These assessments and standards focus strictly on compliance with UN targeted financial sanctions on North Korea and Iran. As such, whereas failing to comply with UN Security Council sanctions on North Korea and Iran will earn a country a poor FATF evaluation – which comes with significant reputational risks and the requirement to take remedial action – there is no comparable incentive or associated guidance for compliance with UNSCR 1540’s provisions.

Sharpening UNSCR 1540 as a Counter-Proliferation Financing Tool

The ongoing Comprehensive Review should consider how to overcome these challenges to more meaningful integration of UNSCR 1540 into international counter-proliferation financing efforts.

A definition of proliferation financing should be put forward in a follow-on resolution to UNSCR 1540. The working definition articulated in the FATF’s February 2010 report on proliferation financing can serve as a helpful foundation, and has already been adopted by many countries seeking to define proliferation in their national legislation beyond UN Security Council targeted financial sanctions and specific activity-based prohibitions on North Korea and Iran. The definition reads as follows:

‘Proliferation financing’ refers to:

the act of providing funds or financial services which are used, in whole or in part, for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials (including both technologies and dual use goods used for non-legitimate purposes), in contravention of national laws or, where applicable, international obligations.

However, to ensure the definition is comprehensive and in line with existing UN Security Council measures adopted in relation to North Korean and Iranian proliferation activity, it should ideally be expanded. The definition should include references to ‘assets’ (instead of just ‘funds or financial services’); take into account the provision of auxiliary non-financial services (such as legal, accounting and corporate services normally provided by designated non-financial businesses and professions); and explicitly apply to both entities carrying out the listed activities, as well as those acting at their direction or on their behalf. Member states could be called on to adopt and implement effective legislation that covers the extent of the activities included in the definition, thus providing more specific direction around what is meant by effective proliferation financing controls in the UNSCR 1540 context.

Countries that place particular importance on strengthening international counter-proliferation financing efforts will have to show independent initiative

Following the adoption of a definition of proliferation financing, the UNSCR 1540 Committee could integrate the activities listed in such a definition into the matrices that the Committee uses to gather information on member states’ implementation of the resolution, and against which some member states choose to report their national efforts to the Committee. Ideally, an assessment of member states’ compliance with UNSCR 1540’s financing provisions would also be included in the FATF’s evaluations of jurisdictions’ financial crime regimes, as this would greatly increase the incentive for compliance. Defining more clearly the types of activities the resolution intends to capture in its financing-related provisions may make it easier to integrate these provisions into the FATF standards and assess against them.

Finally, expanding the mandate of the UNSCR 1540 Committee to allow for the investigation and publication of potential resolution violations – similar to the work of the North Korea and Iran sanctions committees – or of failures to institute appropriate regulatory measures would go a long way towards raising awareness of proliferation financing in the UNSCR 1540 context and incentivising compliance. Alternatively, the Committee may limit itself to the publication of proliferation financing typologies – identifying economic sectors, geographic regions or particular modes of operation observed in analysed cases – without reference to specific countries or entities, and to the study of challenges and best practices in countering proliferation financing.

The Heart of the Problem

However, any significant amendments to the resolution – and especially the expansion of the mandate of the Committee and its Group of Experts in the way suggested above – are largely aspirational and are unlikely to be implemented. They run up against the previously mentioned concerns over the potential for Committee overreach and, ultimately, fail to address the fundamental challenge hampering the effectiveness of the international counter-proliferation financing regime and the work of the UN Security Council generally – the politicisation of global non-proliferation efforts and the increasing difficulty of finding common ground on key international security issues. The recent veto by Russia and China of a UN Security Council resolution that would have imposed new sanctions on North Korea in response to its continued launches of intercontinental ballistic missiles is just one example of the challenges at play. Any expansion of the Committee’s mandate that is perceived to be too prescriptive in terms of how member states interpret and comply with UNSCR 1540 is sure to be opposed by parts of the Committee membership.

As such, countries that place particular importance on strengthening international counter-proliferation financing efforts will have to show independent initiative. The Committee already has mechanisms in place for the exchange of best practices, encourages countries to engage in peer reviews of UNSCR 1540 implementation, and helps match states for the provision of mutual assistance on UNSCR 1540 compliance. However, based on the author’s review of the information published on the UNSCR 1540 Committee webpage in relation to these mechanisms, they currently appear to be under-utilised in the counter-proliferation financing context. A follow-on resolution to UNSCR 1540 may wish to encourage member states with the desire and resources to do so to make greater use of these mechanisms to support understanding of, and compliance with, UNSCR 1540’s financial provisions. This may include the submission of model counter-proliferation financing legislation or proliferation financing typologies and case studies, outreach to other states for peer reviews of counter-proliferation financing efforts in the UNSCR 1540 context, or further offers of assistance on the subject of counter-proliferation financing to states that seek it.

Having first brought attention to the role of financing in enabling WMD proliferation, UNSCR 1540 can and should play an important role in strengthening global counter-proliferation financing efforts. The resolution’s finance-related provisions, if strengthened and integrated into national regulations, can help establish catch-all provisions against the financing of proliferation and future-proof counter-proliferation financing efforts by accounting for proliferation threats beyond those posed by North Korea and Iran. Yet, as the product of the UN Security Council, UNSCR 1540 has also become the victim of the challenges the Council – and the UN as a whole – face in an increasingly polarised international environment. While multilateral progress to strengthen the resolution as a counter-proliferation financing tool should be sought where possible, member states should continue to make use of the existing UNSCR 1540 framework to promote the resolution’s finance-related provisions where such consensus cannot be reached.

The views expressed in this Newsbrief are the author’s, and do not represent those of RUSI or any other institution.

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Darya Dolzikova​

Research Fellow

Proliferation and Nuclear Policy

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