Pulling the Wool Over Our Eyes: How North Korea uses Arab Bank to avoid the world's sanctions

October 8th, 2011

With some notable exceptions, most scholars and politicians believe the world should limit the proliferation of nuclear weapons. For the overwhelming majority of countries, this is not a problem. Most countries do not have the resources—or more importantly the aspirations—to gain nuclear capabilities. But the problem with nuclear weapons is that even one of these weapons in the wrong hands could inflict overwhelming injury to thousands. Which is why the world doesn’t just need a majority consensus; it needs a complete consensus.

The international community has a few tools to limit nuclear proliferation. The most notable of these is the Nuclear Non-Proliferation Treaty (NPT), which came into force on March 5th, 1970 and currently has 189 signatories. Five of those signatories, the United States, Russia, the United Kingdom, China, and France are recognized nuclear states—which is just another way of saying that the international community has agreed to trust these nations with nuclear capabilities. Not that the world would have any choice anyway.

The first problem is that compliance with the treaty is mostly based on the good faith, although countries are expected to submit to inspection by the International Atomic Energy Agency (IAEA) when requested. This has proved to be a problem in particular with countries like Iran, who is party to the NPT, but the IAEA has found to be non-compliant. Iran continues to argue it is developing peaceful nuclear capabilities for energy production—which is allowed under Article IV of the NPT. U.S. Intelligence has stated that if Iran pursues nuclear capabilities, it will likely attain them by 2013 or 2015.

On top of these problems, the treaty is completely voluntary. Three countries never signed the treaty—India, Pakistan, Israel—and North Korea signed in 1985, only to withdraw in 2003, further proving the inadequacy of a voluntary treaty for such a task. North Korea has declared itself that it has nuclear weapons—an opinion shared with former IAEA Director Mohamed ElBaradei. In May of 2009, North Korea conducted a nuclear test that triggered an 4.5 magnitude earthquake in the country’s north-east.

So, beyond the NPT, what can the international community do to prevent the spread of nuclear weapons? The first answer to that question—although there are others—is sanctions. Sanctions are penalties imposed by a single country—or a group of countries—on a state which has taken a troublesome economic or political action.  They can be economic, for example bans on exports, or they can be financial, which often bar banks from maintaining accounts in the offending country. Sanctions can be punishment—economic deterrence against a perceived abhorrent activity—or restrictive.

In most circumstances, countries levy nuclear sanctions on specific commodities—and so prevent a rogue state from purchasing sensitive materials that can advance its nuclear program. These materials include high-strength maraging steel, specialty vacuum pumps, and Kevlar and carbon fiber, which are used in machinery that produces enriched uranium. Citing the non-compliance issues I referenced above, the international community has levied these types of sanctions on Iran.

Unfortunately they have proven quite ineffectual. China, for one, remains a “major gap” in the international framework. As David Albright, a nuclear physicist who has inspected Iran’s facilities has noted: “China does not implement and enforce its trade controls or its sanctions laws adequately… Over and over, Iran goes there to buy things.” This problem is largely due to the country’s inability adequately oversee front companies—which Iran uses to purchase these sensitive materials. We have also recently discovered that North Korea has likely been channeling funds through a Jordan-based bank to receive money from Syria and Iran in exchange for long-range missiles and a nuclear reactor. U.S. officials believe North Korea is “aggressively establishing a network of front companies through which to secretly sell its weapons and evade sanctions.” Arab Bank has replied that “Based on a review of its customer account and transaction records, Arab Bank does not believe that it has conducted business with the government of North Korea.” But the U.S. has fined the Bank before for lacking adequate safeguards to stop money laundering and terrorist financing and it faces several lawsuits in New York for allegedly knowingly helping fund Palestinian terrorist attacks.

The truth is, it doesn’t matter whether the bank is knowingly enabling this activity or not. If money from terrorists in Palestine, or a nuclear agency in North Korea, or a counterpart in Iran is passing through its doors undetected—the Bank has a problem and, more importantly, the world has a problem. And the only way to solve this problem is with financial transparency in international banking.

Written by Ann Hollingshead

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