The Financing of Nuclear and other Weapons of Mass Destruction Proliferation

Executive Summary

The financiers of proliferation of nuclear and other weapons of mass destruction (WMD) traditionally have been states seeking to expand their military capabilities, often in defiance of international controls or treaties such as the Nuclear Nonproliferation Treaty. The threats to international peace and stability represented by the Democratic People’s Republic of Korea’s (DPRK) nuclear program, and even by the relatively mature programs of India and Pakistan, are testament to the success of their financiers. Nevertheless, although experts in the international community understand how financing of WMD proliferation takes place, the international framework to counter it, based on sanctions and export control laws, is relatively weak.

Countering the financing of proliferation (FoP) should be an important foundation of U.S. counter-proliferation efforts. The United States is uniquely placed to make this a global priority. First, thanks to the global dominance of the U.S. dollar as a reserve currency and as a tool of international trade, U.S. regulators are the preeminent global financial rule-makers. Second, U.S. intelligence and financial investigation abilities are among the best in the world. Third, the United States already plays a key role in global counter-proliferation efforts. It is leading the response to the most pressing proliferation crisis today by coordinating international efforts, at the United Nations (U.N.) Security Council as well as bilaterally, to counter North Korea’s WMD program. It is also trying to build a stricter sanctions regime to prevent Iran from obtaining a nuclear weapon. 

The financial elements of a WMD program can be divided into three stages. During the first (program fund-raising), the proliferating state raises funds for the program through its domestic budget, perhaps supplemented with funds raised by networks overseas or by criminal activity (conducted by or on behalf of state actors). During the second stage (disguising the funds), the proliferating state transfers these funds into the international financial system. If the state is not sanctioned, this is straightforward. For states subject to comprehensive sanctions like North Korea and Iran (prior to implementation of the Joint Comprehensive Plan of Action, or JCPOA), it is a major challenge. During the third stage (procurement of materials and technology), the proliferating state uses these funds in the international financial system to pay for goods, materials, technology, and logistics needed for its WMD program. Throughout this third stage, international financial institutions (FIs) will be involved in processing the related transactions.