Neil Bhatiya Monday, July 29, 2019 World Politics Review
Editor’s Note: Guest columnist Neil Bhatiya is filling in for Stewart Patrick this week.
On July 18, in the Trump administration’s first punitive measure since Iran announced earlier this month that it would exceed the levels of enriched uranium permitted under the international nuclear deal, the United States expanded sanctions against Tehran to include a network of international companies it said were linked to procuring materials for Iran’s nuclear program. In announcing the sanctions, U.S. Treasury Secretary Steven Mnuchin said his department was “taking action to shut down an Iranian nuclear procurement network that leverages Chinese- and Belgium-based front companies to acquire critical nuclear materials and benefit the regime’s malign ambitions.”
The move may signal more recognition of how illicit financial actors are coming up with new ways to get around international sanctions. If states want to seriously curtail nuclear proliferation and the spread of weapons of mass destruction, they will need to reckon with how the landscape of international threats is changing, particularly the increasingly central role that China will come to play in licit and illicit supply chains.
The Treasury Department designated a network of firms in Iran, China and Belgium for procuring the kind of aluminum required for use in centrifuges in facilities run by the Atomic Energy Organization of Iran and arranging their shipment directly from China to Iran. Their export to Iran is subject to controls under United Nations Security Council Resolution 2231, which endorsed the end of nuclear sanctions under the terms of the Joint Comprehensive Plan of Action, better known as the Iran nuclear deal. The Treasury Department explicitly stated that the necessary clearance under the resolution was not obtained.
There may be more details to come about the extent of the network’s operations, particularly if there were any payments routed through the U.S. financial system. For now, though, it is still possible to make some preliminary conclusions about how states under international sanctions and scrutiny are adapting their procurement strategies. With more vigilance of illicit financial activity in many of the jurisdictions, such as Southeast Asia, that have traditionally been exploited for the proliferation of weapons of mass destruction, companies and procurement networks may be trying to make more inroads into China, where oversight falls well short of international standards.
Whether it is on Iran or North Korea, efforts to fight illicit finance will depend in large part on decisions made in Beijing as well as Washington.
Consider that, in 2007, authorities in Luxembourg identified similar networks located in Belgium and China that had procured carbon fiber from the United States. China had mainly been a conduit for payments for this carbon fiber, although in other cases of networks operating on behalf of North Korea, China was a key transit node for final shipment to its ultimate destination. The export of carbon fiber is restricted because it is the kind of high-density polymer that is useful in the construction of nuclear reactors.* Indeed, Iran’s Centrifuge Technology Company, or TESA—a key entity in the Treasury Department’s latest sanctions—first faced U.S. sanctions back in 2011. TESA had tried to obtain the aluminum materials from the U.S. before shifting to purchasing them from China.
Observers and other analysts have long suggested that, all things being equal, these kinds of networks—while trying to work around international sanctions—would prefer goods from the U.S. or Western Europe because that is where the high-quality manufacturers are located. The shift to procuring the materials directly from China suggests that these actors may believe that they can more easily obtain the next best thing from countries where their activities may not receive the same scrutiny. It is no secret China that has a far more lax attitude toward financial crimes, seemingly turning a blind eye to the activities of companies like Dandong Hongxiang Industrial Development, which the Department of Justice indicted last week for helping North Korea evade sanctions for years.
These trends should be concerning as China increases the size and scope of its supply chains around the world. In Central Asia, for example, several states have signed on as key players in China’s huge Belt and Road Initiative, which promises potentially billions of dollars in infrastructure investments to connect Europe and Asia. On paper, the new trade and financial linkages will aid economic development in Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. But this new infrastructure also presents an ideal opportunity for proliferation networks to identify new jurisdictions to exploit. In recent years, Central Asia has made great strides in fighting the financing of terrorism by adopting more stringent legislation criminalizing a variety of terrorist-related activity. It will need a similar effort to stop networks that help procure the material needed for nuclear proliferation.
The United States is well-placed to assist in Central Asia and elsewhere, beyond just sanctioning relevant entities. The rotating presidency of the Financial Action Task Force, the global standard-setting body for illicit crime, just passed from the U.S. to China, after a year in which the U.S. prioritized the task force combatting the financing of proliferation of weapons of mass destruction. Washington can still offer, on a bilateral basis, training and technical assistance to nations that find themselves on the front lines of a variety of illicit finance threats.
American messaging to China on this set of issues is less straightforward, since it is complicated by the myriad issues on which Washington and Beijing find themselves in disagreement, from the ongoing trade war to tensions in the South China Sea, to restrictions on Chinese investment in the United States. China has an opportunity, in the presidency of the Financial Action Task Force for the next year, to improve its reputation regarding international financial crimes.
But the geopolitics of such a move are difficult. Asking China to lead on this issue comes at a time when the U.S. is directly sanctioning Chinese firms for their ties to the nuclear programs of both Iran and North Korea, while also challenging major Chinese corporations like Huawei. China’s ultimate interest in preventing nuclear proliferation is being balanced against what seems increasingly like a long-term struggle for global leadership with the United States. The Trump administration’s latest use of sanctions is evidence that, whether it is on Iran or North Korea, efforts to fight illicit finance will depend in large part on decisions made in Beijing as well as Washington.
*Editor’s note: The original version of this article incorrectly stated that carbon fiber is a metal. WPR regrets the error.
Neil Bhatiya is the associate fellow for the Energy, Economics, and Security Program at the Center for a New American Security. Follow him on Twitter @NeilBhatiya.