Proliferation Networks Capitalize on Limited Oversight of Service-Based Economies

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 Despite all of the benefits of an increasingly globalized economy, certain authoritarian governments have shunned the system. While these states attempt to limit their societies’ exposure to an increasingly interconnected world, they still use the global economic system for their own benefits.  Increasingly, globalization and technological advancement have created a security risk for the United States. High-strength aluminum alloys used in aerospace components also have applications in the production of uranium enrichment equipment. Non-destructive testing machines designed to identify anomalies in automobile parts can be used in the production of solid rocket motors for ballistic missiles. Despite the enactment of sanctions against regimes involved in the proliferation of weapons of mass destruction (WMD), states have exploited a fundamental characteristic of the global trade system to access dual-use equipment and materials used in the fabrication of WMD.

In a global economy where the customers, manufacturers and suppliers of a product span multiple continents, delivery times and shipping costs are a priority for commercial enterprises. As a result, financial and transit hubs, such as Hong Kong, Dubai and Singapore, rely on the speed of customs clearance, minimal financial regulations and favorable business policies for consistent GDP growth. However, these services also create a proliferation security challenge. For instance, in Hong Kong, the ease and minimal oversight involved in establishing a business provides a favorable environment for proliferation networks. In 2011, the South China Morning Post reported, “the sheer volume of goods passing through Hong Kong…attracts businesses looking to slip through the cracks.” The U.S.-China Economic Security Review Commission, which provides annual congressional reports on security issues related to trade with China, has identified a single address in Hong Kong out of which 30 Chinese front companies operate. This example illustrates the lack of oversight in Hong Kong and is a symptom of the imbalance between trade facilitation and security in service-based economies.

Dubai maintains several free trade zones that minimize the Customs Authority’s ability to oversee most transactions, including re-exports, which can be exploited by those seeking to conceal the ultimate end-user of the transaction. Further, the Dubai Customs Authority website lists numerous export control regulations pertaining to the adherence of Islamic principles, but none relating to dual-use items, suggesting an imbalance in priorities. Singapore, a financial hub, maintains an economic system that has limited government oversight of financial transactions. Money laundering convictions have risen from 179 in 2007 to 360 in 2010, according to the Financial Action Task Force. In March, the U.S. Department of State reported that “stringent bank secrecy laws and the lack of routine currency reporting requirements make Singapore a potentially attractive destination for…terrorist organizations.” The priority for service-based economies has been streamlining trade and minimizing logistical barriers to conducting business, which has led to a comparative lack of interest in security concerns

Sanctioned regimes are able to procure items used in proliferation programs by exploiting the cracks in the system. Iran has established a large network of front companies in service-based states that procure dual-use items by disguising the ultimate customer and end-use of the product to suppliers. In October, the US Department of Justice indicted companies in Singapore for illegally shipping 6,000 American-made radio frequency modules to Iran. These modules were subsequently found in unexploded IEDs in Iraq. While this example demonstrates a security threat to US soldiers, it speaks to a far reaching strategic threat to American security. With the United Arab Emirates planning to build several nuclear reactors in the coming decade, its limited export control regime is particularly concerning given Iran’s nuclear ambitions and extensive proliferation network.

Global trade and technological advancement have had a largely positive impact on society, but have also resulted in serious threats to U.S. security, as more commercial products contain components used in the production of WMD. With the increase in dual-use items on the global commercial market, it is essential that export control regulations – both globally and domestically – are bolstered to minimize the potential of legitimate firms inadvertently supplying America’s adversaries. Given the gravity of the problem, export control initiatives and agencies in the defense and diplomatic communities should be insulated from any fiscal austerity measures; another Joint Strike Fighter cannot deal with hidden risks of globalization.

Beckett Jackson is a Master’s Candidate at Georgetown University’s Security Studies Program and works as a Security and Military Intelligence Analyst within IHS Jane’s A&D Consulting Practice.

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36 Comments

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    great post and about economies structure and service based economies and good example of Hong Kong, Dubai and Singapore that how they are hubs of economy growth

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