ENGLAND AND WALES: HIGH COURT SETS OUT RULES FOR GRANTING UNEXPLAINED WEALTH ORDERS AND INTERIM FREEZING ORDERS

On 2 March, STEP reported that the England and Wales High Court has stated a series of general principles setting out when it will grant unexplained wealth orders (UWO) and interim freezing orders (IFO), both of which can be applied to foreign individuals as well as UK residents.  The set of principles enunciated by the Court appear in NCA v Hussain (2020 EWHC 432 Admin), it says, a case which deals with UK organised crime, but they also apply to foreign targets of UWO.

https://www.step.org/news/england-and-wales-court-sets-out-rules-granting-uwos

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UK: FASTER ACCESS TO CANNABIS-BASED MEDICINES AS IMPORT RESTRICTIONS ARE CHANGED

A news release from the Home Office on 2 March advised that import restrictions have been changed to help ensure people with prescriptions for cannabis-based products for medicinal use do not have their treatment delayed or interrupted.  Licensed wholesalers will now be able to import larger quantities of cannabis-based products, and hold supplies for future use by patients with prescriptions.  The new measures will be implemented by the Home Office and MHRA from 2 March.  The change follows the law change in October 2018 to allow specialist doctors to prescribe cannabis-based products for medicinal use where clinically appropriate in the UK.

https://www.gov.uk/government/news/faster-access-to-cannabis-based-medicines-as-import-restrictions-are-changed

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AMENDED OFAC SANCTIONS – CYBERCRIME DESIGNATIONS, NORTH KOREA DESIGNATIONS AND REMOVALS

On 2 March, OFAC announced a number of changes to its sanctions lists.  2 Chinese individuals linked to the Lazarus Group have been added to the sanctions lists, while 7 Russian companies have been removed from the North Korea sanctions lists.  The Chinese nationals are said to have been involved in laundering stolen cryptocurrency from a 2018 cyber intrusion against a cryptocurrency exchange – and are designated for having materially assisted, sponsored or provided financial, material, or technological support for, or goods or services to or in support of, Lazarus Group, part of the North Korean cybercrime operations.

https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20200302.aspx

https://home.treasury.gov/news/press-releases/sm924

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EU, HM TREASURY AND ISLE OF MAN UPDATE 2 ENTRIES ON ISIL/AL-QAIDA SANCTIONS LISTS

On 2 March, HM Treasury issued a Notice advising that entries for Islamic State In The Greater Sahara and Islamic State West Africa Province have been amended following the publication of EU Regulation 2020/288/EU. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/869709/Notice_ISIL_2020_288.pdf If you’d like to help me buy that (badly needed) new laptop or, even, better a new desktop to replace […]

On 2 March, HM Treasury issued a Notice advising that entries for Islamic State In The Greater Sahara and Islamic State West Africa Province have been amended following the publication of EU Regulation 2020/288/EU.  The Isle of Man followed suit.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/869709/Notice_ISIL_2020_288.pdf

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2020.061.01.0001.01.ENG&toc=OJ:L:2020:061:TOC

https://www.gov.im/news/2020/mar/02/financial-sanctions-isil-daesh-and-al-qaida/

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CHINESE TANKER SEIZED BY CAMBODIA, SUSPECT IN DPRK SANCTIONS VIOLATION

The Maritime Bulletin on 2 March reported that the small Chinese tanker named the Courageous has been seized by Cambodia Navy Police in Cambodian waters, after arriving from Taiwan.   It is suspected of illegal oil ship-to-ship transfers to North Korean tankers.

http://www.maritimebulletin.net/2020/03/02/chinese-tanker-siezed-by-cambodia-suspect-in-dprk-sanctions-violation/

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SWISS TRADER USED MALTA PETROLEUM TANKS TO TAKE LIBYAN OIL FROM SHIPS

On 2 March, Malta Today reported on an investigation which claims to have found that a Swiss company was accepting smuggled fuel from Libya inside tanks leased from government-owned Enemed in Malta between 2014 and 2015, to resell the oil at sea and the European market.  The network was run by a Libyan smuggler and 2 Maltese nationals until broken up by Italian police.  The oil was cleared by the Malta Customs with fraudulent certification, despite numerous protests of Libyan leaders about fuel being smuggled into Malta.  The oil was later blended out at sea so that it could be resold onto the European market.

https://www.maltatoday.com.mt/news/national/100700/enemed_tanks_stored_smuggled_libyan_oil_brought_by_debonos_ships_investigation#.Xl0S1G5Fz4g

https://www.libyaherald.com/2020/03/02/libyas-fuel-smuggling-a-new-swiss-connection-is-revealed/

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A BRIEF REMINDER OF THE IMPORTANCE OF COUNTER PROLIFERATION FINANCING (CPF)

PROLIFERATION

A BRIEF REMINDER OF THE IMPORTANCE OF COUNTER PROLIFERATION FINANCING (CPF)

 

There follows a brief note indicating why I believe that CPF is a vital element in preventing the proliferation of WMD to state and non-state actors.

For further (and no doubt better) information, I would recommend the FATF Guidance on Counter Proliferation Financing[1] and the FATF Proliferation Financing Report[2], Countering Proliferation Finance: An Introductory Guide for Financial Institutions, published by the Royal United Services Institute (RUSI) in the UK[3], and material produced by Project Alpha, which is based at the Centre for Science and Security Studies at King’s College London[4].  Another useful source of information is the report recently published by the Institute of Science and International Security, Illicit Trade Networks – Connecting the Dots, Volume 1[5].

Setting modesty aside, the Isle of Man Treasury (specifically its Customs and Excise Division), has a set of notices[6] concerned with proliferation, including one which provides some guidance to businesses on risk assessments, enhanced due diligence, checks on the goods involved in the transaction, “red flag” indicators, and typologies of proliferation.  I was involved in drafting these in 2018, and they are, or should be, a reasonable starting point for anyone looking at proliferation and proliferation financing[7].

WHAT IS PROLIFERATION?

Proliferation can be defined as –

  • the manufacture, acquisition, possession, development, export, transhipment, brokering, transport, transfer, stockpiling or use of
  • Chemical, Biological, Radiological or Nuclear (CBRN) weapons (weapons of mass destruction or WMD) and their means of delivery and related materials (including technologies and dual-use goods),
  • in contravention of domestic law and/or international obligations.

Proliferation also encompasses the acquisition, supply and use of technology, goods, software, services or expertise.

There has been an increase in the number of countries that make and supply strategic and dual-use goods outside the more obvious major states (such as the US, UK, Russia, China, etc) – for example, in the greater Middle East several states have relatively large and sophisticated industries producing or developing missile systems capable of use in the delivery of WMD.  This creates a greater availability of sensitive commodities worldwide as –

  • potential adversaries seek to obtain the ability to create, update or augment their nuclear, missile, and military programmes, for self-defence, power projection or nationalistic purposes;
  • non-state actors (i.e. terrorists and terrorist organisations) seek to obtain the ability to create, or at least threaten use of, WMD to further their aims; or
  • criminal organisations seek to obtain access to materials, goods and technology which can be offered to either of the above.

Proliferation can therefore take many forms, and may involve sophisticated technology, such as in long-range missiles; or it may involve a relatively simple, or even crude, device to produce, for example a radiological dispersal device (RDD), a so-called “dirty bomb” which combines radioactive material with conventional explosives.

It is important to note that proliferation may be a two-way.  The country or organisation that would appear to be a recipient can also be a supplier.  For example, North Korea obtained much of its expertise for use in its nuclear programme covertly from Pakistan, and later North Korea used the expertise it had acquired and developed to supply other states with missiles and technology – the most obvious example being to Iran, which then further developed both the designs and technology obtained from North Korea, as well as developing its own systems.

WHO IS VULNERABLE TO PROLIFERATION?

Many countries are vulnerable to –

  • attempts to obtain sensitive and controlled equipment (or technology, software or expertise) from companies, organisations and even individuals in their territory;
  • the use of their territory in other ways, such as for transshipment of goods; and/or
  • proliferation financing through their financial sector.

This may be facilitated by –

  • unwitting supply or cooperation by companies, organisations or individuals;
  • deliberate supply or cooperation by unscrupulous members of the legal, commercial or financial sectors
  • criminal organisations using their facilities;
  • terrorist organisations and their supporters; and/or
  • state actors using front companies, fraudulent documentation, diverted goods.

Obviously, those involved in seeking to obtain controlled or dual-use items for illicit purposes are not going to make this plain.  A recent report[8] identified 3 basic activities that illicit procurement networks undertake –

  • ordering and purchasing the item;
  • financing the purchase; and
  • shipping the item.

The report stressed that at each stage activities are often conducted with the intention of obscuring to the supplier and its government regulator or licensing authority (unless there is complicity) that the actual end-user and end destination of the item is a state (or non-state actor, such as a criminal or terrorist organisation) that is not authorised to obtain the item.  This might be done by means of counterfeit documentation, including fake or incorrect end-user certificates (where these are required by licensing bodies), diversion of the goods by or through intermediaries or facilitators in third countries.  The items may be given a false description, or one that is incomplete or misleading, to lessen the chance of the shipment being noticed or selected for checks.

Of course, where states are involved, they can facilitate the illicit transactions where the shipping company or airline, or other body or organisation (such as a free trade zone or freeport, perhaps) involved is from, or owned by, that state.

WHAT TYPES OF GOODS AND TECHNOLOGY MIGHT BE INVOLVED?

The technology, goods, software, services or expertise may be obviously connected to, or for use in, sensitive sectors – such as the nuclear industry or the defence (i.e. weaponry, delivery systems etc) sector.

Alternatively, it may have a legitimate use as well as being capable of being used in proliferation (hence the term “dual-use” is used).  In EU legislation, the term “dual-use items” is used, to indicate that not only physical goods, but also technology, software etc (or intangible items), are covered by the legislation.

It is therefore important to bear this dual-use aspect in mind when conducting any review or risk assessment, and bear in mind that goods, technology etc. may have a potential use for both a legitimate purpose or in proliferation.  This means that any goods involved may not be included on any international or national control list.

An informal agreement between a number of countries[9], the Wassanaar Arrangement[10] is/was intended to promote transparency and greater responsibility in transfers of conventional arms and dual-use goods and technologies, to prevent situations developing that may threaten international peace, and to prevent the acquisition of these items by terrorists.  The participating states impose export controls on a list of dual-use goods and technologies and munitions.  This list is reflected in, for example, US export control law and an annex to the relevant EU Regulation.

WHAT IS PROLIFERATION FINANCING?

In 2010, FATF produced a definition of “proliferation financing” as the act of providing funds or financial services that are used, in whole or in part, for the manufacture, acquisition, possession, development, export, transshipment, 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.

To this definition may be added, to make it explicit, terrorism financing intended to provide financial support to terrorist organisations that seek to acquire and/or use an WMD.

The funds, or those involved in providing the financial services or other facilities, may come from state or non-state actors; and may involve financing from a state, or a state-controlled or state-sponsored entity, with the aim of providing that state with a WMD or delivery system, or to enable it to enhance, improve or replace an existing WMD or delivery system.

Procurement networks may carry out multiple cross-border transactions to conceal the origin of the funds involved.  However, paying for the goods still requires access to the international financial system, albeit with the source of the funds obscured.  Where items are acquired from legitimate suppliers these would expect to conduct business, and be paid, in a normal, legitimate manner – and the same applies to any other legitimate business involved in the supply, such as shipping companies and forwarders.  Anything otherwise could arouse suspicion.

THE IMPORTANCE OF COUNTERING PROLIFERATION FINANCING

Not only is it important that proliferation financing be targeted from a moral or ethical standpoint, as well as to be law-abiding, there are practical reasons why it is an important means of seeking to control proliferation itself.

The practicalities of detecting and intercepting an item en route from supplier to end-user is highly difficult (if not virtually impossible, unless there is good intelligence, or luck, involved).  In any event, it is far more difficult than detection at the procurement stage.   Interdicting shipments underway comes up against problems caused by the volume of parcel and cargo traffic moving by sea, land, and air, and the desire to have swift, hassle-free (and cost-effective) supply chains and customs controls.

 

Ray Todd

Panama City

1st March 2020

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[1]  http://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-Countering-Proliferation-Financing.pdf

[2]  http://www.fatf-gafi.org/media/fatf/documents/reports/Typologies%20Report%20on%20Proliferation%20Financing.pdf

[3]  https://rusi.org/sites/default/files/201704_rusi_cpf_guidance_paper.1_0.pdf

[4]  https://www.kcl.ac.uk/alpha

[5]  https://www.isis-online.org/books/detail/illicit-trade-networks-connecting-the-dots-volume-1

[6]  See https://www.gov.im/media/1362742/financial-sanctions-relating-to-proliferation-guidance-final-sept-18-v2.pdf

[7]  https://www.gov.im/media/1362742/financial-sanctions-relating-to-proliferation-guidance-final-sept-18-v2.pdf

[8]  https://www.isis-online.org/books/detail/illicit-trade-networks-connecting-the-dots-volume-1

[9]  Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, India, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, South Korea, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine, UK and US.

[10]  https://www.wassenaar.org/