The Arms Fixers

Chapter 9

Weak National Laws of Western States

Governments commonly use ‘licensing’ and ‘registration’ to regulate business in the interests of public safety and open trade. For example, most states regulate standards and operations of motor vehicles and restrict the production and trade of pharmaceuticals and chemicals. They ensure the integrity of the legal, medical and other professions. Similarly, many states routinely adopt policies and regulations that require the restrictive licensing of arms manufacturers and dealers – although some do not, and in many cases these laws and policies are not strict enough.¹ But, as is evident from the preliminary survey below, as well as the illustrative cases above, few states have laws and regulations specifically designed to cover the activities of arms brokers and shipping agents, especially when the activities go through third countries. This is a glaring and often tragic omission.

One study concluded that, from the available literature, only five states – Germany, Sweden, the Netherlands, Luxembourg and the USA – have measures that deal
explicitly with arms brokering.² As discussed below, even these measures vary widely in the extent of their coverage. The USA is the only government that comes close to requiring that anyone domiciled within its own boundaries, and any of its citizens
residing elsewhere who engage in the brokering and shipping of arms: (a) be on a bona fide public register, (b) seek prior licence authority for a transaction involving their commissioned role as an intermediary; and (c) subject any transaction to post-delivery verification. All the same, the United States appears to lack sufficient transparency in this area, including the publication of names on the authorized register and a list of brokerage licences that have been approved. Such transparency would help significantly to ensure against diversion and misuse.

Increasingly, however, governments are becoming aware of the growing scale of the negative humanitarian, political and economic impact of unregulated arms brokers and shipping agents. A few governments – such as those of Canada, South Africa and the United Kingdom - are considering changes to bring such activities more clearly within the scope of their law. Any proposed measures should be examined carefully: they must be framed so as to be preventive in nature, realistic in scope and easy to harmonize with like-minded states.

To the extent that brokering and shipping agents become specialists in identifying desperate customers who lack legitimacy according to the norms of international
conduct – but do not lack the funds or other resources to risk a purchase on the fringes of, or beyond, the boundaries of the law – the prime prerequisite of their business is to be able to outwit state regulators and law enforcers. They become experts in knowing the weaknesses of different national control systems, the location of cheap sources of supply and the use of secretive shipping and banking arrangements. Experienced arms brokers who agree to supply recipients in areas of violent conflict and gross human rights abuse will usually try not to contravene national laws directly – at least, not where they know law enforcement agencies have the capacity to enforce those laws. As seen from the examples in the previous chapters, the arms that they trade will often never pass through domestic territory where they live, and the money will be
laundered through tax-haven accounts.

The increasing reality of global markets, new technologies and weak systems of
governance and law enforcement in many countries makes the absence of proper
registration and licensing of arms brokers and shipping agents a fertile ground for
unscrupulous individuals to arrange the supply of arms to illegitimate customers. They make it their business to exploit weak licensing procedures for arms export and
import, out-of-date legal definitions, poor transport regulation and the failure to verify end-users and provide for adequate corporate and financial transparency. This makes it all the more important to examine each national system of law and regulations in an integrated and holistic way. All aspects of the arms brokering and shipping agency business should be considered. The following is an attempt to contribute to that task, but it is not comprehensive.

Austria

Austrian export legislation requires an arms exporter to apply and obtain an export
licence issued by the government before transferring arms abroad. A valid end-user and transit certificate is required, at least in theory. However, there are no specific provisions in the law to regulate those acting as brokers of arms sales from Austria, or those acting as brokers for arms that pass through Austria in transit, or those domiciled in Austria who broker arms deals in third countries. This latter omission is significant because Austria is in close proximity to several major small-arms producing countries, including Bulgaria; and the Bulgarian state arms-marketing company, Kintex, has
operated an office in Vienna for some years.

As we have seen, the control-mechanisms are not well coordinated between various branches of government, even though there is a formal link. There appear to be very few officials in the police (no more than 15) who work in the field of arms control, and too few customs officers.

Belgium

No law in Belgium covers arms brokering activity via third countries, and no law
applies to shipping/forwarding agents other than normal transport and commercial law. The transfer or sale of military items within the Benelux countries requires no
official authorization, and this fact sometimes creates opportunities for exploitation by brokers or shippers. Checks on generalized export and import licences covering large volumes over a long time period have been inadequate.

A particular problem in Belgium is the discrepancy that exists between the law on the export, stockpiling and transfer of certain weapons categories (covered under the law of 1991) and the law on the sale, transit and possession of certain weapons categories on Belgian territory (covered under the law of January 1993). Some categories of weapons can be freely moved, stored or sold on Belgian territory according to the law of 1993 (basically a law on fire arms possession and sale), whereas the transfer of the same categories of weaponry through Belgium is permitted only when accompanied by a transit document under the 1991 law.

An Inter-Departmental Unit was established in 1998 to try to overcome administrative fragmentation of the arms control system in Belgium. This should improve the monitoring and enforcement of export, import and transhipment licences, but only if
customs and police capacity in the ports and elsewhere can also be improved. A new positive development in Belgium is the enactment of an enabling law on the implementation and enforcement of UN Security Council arms embargoes, passed on 11 May 1995. This new law is extra-territorial in application, which should restrict
brokers and shipping agents engaged in third-country or offshore activities.

Bulgaria

Bulgaria is one of several East European countries in the process of moving closer to Western market integration. Some of the case-studies in preceding chapters have shown that countries with significant small-arms industries that are in structural transition, such as Bulgaria, have been significant sources of unregulated arms supplies. In December 1998, the Bulgarian cabinet accepted that the country’s arms-export control law needed reform and proposed a set of draft amendments. The proposals seek to align Bulgaria’s legal framework more closely with its international arms trade
obligations. If passed by the National Assembly, the proposed changes would, amongst other things, require each arms trading company seeking an arms export
permit to identify the names of intermediaries authorized to represent the parties
involved in the proposed transaction. The new law would explicitly define arms
brokering activities for this purpose.

In addition, the changes would strengthen criminal penalties for violations of export controls, raising prison sentences as well as fines, and would increase the minimum capital requirement for trading and transport companies engaged in arms transactions. Against the backdrop of privatization of Bulgaria’s arms industry, the amendments would also permit foreign-owned companies registered in Bulgaria to participate in arms-trading activities.³

Canada

There is no law in Canada specifically identifying and regulating the activities of arms brokering and shipping agency activities, but there are some provisions that may be used in practice. According to Section 15 of the Export and Imports Permit Act: ‘no person shall knowingly do anything in Canada to cause or assist any shipment, transshipment or diversion of any prohibited weapon…or any component part…that is included in an Export Control List, from Canada or any other place, to any country that is not included in an Automatic Firearms Country Control List’. This would appear to apply only to brokering and shipping agency activities ‘in Canada’, rather than to
activities carried out by Canadian residents or registered companies outside Canada.⁴

Canada’s law incorporating UN mandatory arms embargoes does prohibit anyone in Canada, as well as any Canadian outside of Canada, from participating in, assisting or promoting any transaction involving arms and related technology to the embargoed destination.

France

French regulations, based upon the 1939 Act, currently requires that all French
citizens who wish to become involved in the production or trading of arms in France register with the government. Only French nationals can be granted permission to
engage in such activities. The government intelligence services carry out checks to
ensure that individuals and companies who wish to engage in producing or trading arms do not have criminal convictions. The law provides for licensing of individual transfers from French territory, but the French government appears to have no power to regulate the brokering and shipping activities of French citizens if the acts occur outside French territory.

Germany

Germany has laws requiring arms brokers to seek licence approval for any transaction conducted on German territory, but it is known that arms brokers domiciled in Germany simply cross the border to conduct deals. The War Weapons Act covers lethal military items, including complete weapons systems (rifles, tanks), major/critical components (fuses), and ammunition (mortars). A licence is required for any company or individual seeking to import such equipment into Germany, or to export such equipment from Germany or otherwise handle or deal with such equipment anywhere. The Foreign Trade and Payment Act covers non-lethal defence equipment (radar, communications equipment). A licence is required for the export of such equipment from Germany (but not import into Germany). Where buying and selling involves the supply of arms which, during the process, become the property of German personnel, a licence is required for equipment which falls under both the Weapons of War Act and the Foreign Trade and Payment Act, even if it does not touch German soil.

A second type of brokering is recognized in German law, called mediation. This
includes any form of contact (phone, fax etc.) by German-based personnel between the suppliers and recipients of arms that do not enter German soil. If the arms in question are set out in the Weapons of War Act list of munitions, then the individual will
require a licence for each transaction in which s/he is involved. This licence should be subject to the same level of scrutiny as an arms export licence, and there is a close alignment between export policy and policy regarding brokering supplies through third countries. If the arms in question fall under the Foreign Trade and Payment Act, however, a permit is not required: this loophole has been used to transfer military equipment to zones of violent conflict and human rights abuse.

There are no extra-territorial provisions included within German laws on arms broker-
ing. Thus these laws are liable to circumvention by individuals who simply step out of the country in order to conduct the transaction.

Italy

In Italy there is no official information published on brokerage activities relating to the arms trade, and information on arms exports authorized under Law 185/90 has been limited. Any documentation presented by the arms exporting company to the authorities with regard to intermediary activities is considered strictly confidential. Such
activities are considered subject only to the formal control of military attachés in the country of the intermediary agent (or, where there is no diplomatic representation, in the nearest country). Moreover, the concept of control used by Italian diplomats refers only to the congruity of the fees paid by the Italian company, and not to the ‘legitimacy’ of the activities of the intermediary agent in the arms deal.

Officials in Rome have said that the Italian intelligence services have discovered
during investigations that most of the brokering companies working in Italy are
registered in foreign tax havens, maintaining only small offices in Italy. They explained that one reason why there has not been effective control of arms brokering agents in Italy is that the aim of Law 185/90 was to prevent foreign payments for arms trade intermediaries being returned to private or public entities in Italy – for example, to political parties.

Netherlands

The Netherlands has ambiguous legislation on arms brokerage. Dutch officials claim that brokerage is more or less legally covered by the arrangement. The October 1994 amendment to the law on financial relations abroad (Dutch Royal Decision, 1994)
enables the Dutch authorities to request a full licensing procedure for anyone
‘financially involved’ in transactions of military goods outside of the EU.

The 1994 Dutch Royal Decision is known as the ‘arrangement for financial movement strategic goods’. It makes no special reference to brokerage of military or dual-use goods, but is an ‘arrangement’, or interpretation, of the 1994 Decision by the Dutch Ministry of Economic Affairs, Department Export Controls and Sanctions Policy. It harmonizes an earlier cabinet decision of 1981 with the European Council decree of 19 December 1994 on the transfer of dual-use exports in the EU.

Article One of the procedure prohibits any financial transaction with reference to ‘transit- or triangular trade’ of military goods outside of the EU without a licence from the Ministry of Economic Affairs. It also prohibits any financial transaction of military goods inside the EU, other than financial transactions for those government goods
legally stored or transported without such an export licence. The ‘arrangement’ is
applied by Dutch ministerial departments to cover financial involvement in dual-use exports and exports of military goods to non-EU countries by any Dutch resident or company registered in the Netherlands.

Any broker has to apply for the necessary licensing documents, even if it is only the suppliers or the recipients that are based or registered in the Netherlands. Although the Dutch authorities have refused several arms licences to brokers on the basis of this
‘arrangement’, there is apparently insufficient jurisprudence on the arrangement to
interpret the exact coverage of the law. Thus, it is unclear whether the ‘arrangement’ applies if the arms brokering by a Dutch national does not involve a proven financial transaction within Dutch jurisdiction, such as an offshore tax haven that is drawn upon from other countries where the broker travels, or if it applies to the arms-brokering
activities of Dutch nationals living outside the Netherlands.

The arrangement also enables the Ministry of Economic Affairs to request verification procedures or controls on companies or individuals financially involved in a triangular or transit deal, but this arrangement has scant preventive value. The initiative to notify and consequently apply for an export licence rests with the broker (or financially
involved company), and it seems relatively unlikely that a broker or an organizer of an illegal triangular deal will notify the authorities that a financial transaction or transfer in the Netherlands is connected to such a deal. Nevertheless, the arrangement does permit the authorities to control or prosecute brokers involved in the transfer of arms.⁵

Norway

Under the Norwegian arms control law of December 1987 and the regulations of January 1989, it is prohibited for persons domiciled in Norway and Norwegian companies, foundations or associations to engage in trade, negotiations, or by other means assist in the sale of military products included in the arms control list from one foreign country to another, without the consent of the Norwegian Ministry of Foreign Affairs. The list of controlled goods, services and technology includes weapons, ammunition and other military goods, as well as services connected with such products and technology. Where there is a war or threat of war, all goods, assistance and services
require a licence, even if they are non-military items. The law places strict responsibilities on the licensee to report on the delivery of items.⁶

It is not known whether the law would cover Norwegian nationals domiciled abroad who broker or arrange shipping of arms and other security equipment and services. Nor is it known whether the scope of the goods and services controlled would cover new security technologies that are small weapons.

Spain

Companies and individuals in Spain wishing to export arms from Spain have to
register with the authorities, but the law does not include strict legal criteria to determine anyone’s suitability for registration, or mention the activities of third-country brokering and shipping agencies.

National law in Spain regulating the foreign trade of defence and dual-use material does provide for the development of a Special Register of Defence and Dual-Use
Material Exporters.⁷ The Regulation includes a copy of the standard application to be used, which asks for some general data (name, address, shareholders, etc.), a list of the exportable products and technologies, whether the company is involved in research and development projects, and whether it has international experience in the export of engineering projects. A Ministerial Order of the Economics Ministry dated 30 June 1998 deals with the procedure and regulations for companies to be included in this Register; the Spanish Government has 60 days to notify the company whether it is
accepted or not. There is no mention of the duty of arms brokers or shipping agents to register.

Sweden

In Sweden, arms brokers are required to register with the government, in the sense that a permit is required by law in order to engage in brokering activities. There is a
restrictive attitude towards issuing brokerage permits, since the Swedish rationale for international arms activities (regardless of what form they take) is that such activities should directly contribute to securing the needs of Sweden’s own armed forces. In the view of the Swedish government, arms brokering can rarely be said to contribute to that objective.

A licence issued by the Swedish government is required for each transaction. Once a brokerage permit has been issued, the individual transactions are judged according to the same rules as arms exports from Sweden. Controls apply to arms brokering agents domiciled in Sweden, irrespective of nationality or pattern of operations, and despite the fact that most of the business could be conducted from hotel rooms in foreign capitals. Swedish controls apply as long as the agent’s permanent residence is in
Sweden. The concept of ‘domicile’ is the same as that used for taxation purposes. The scope of goods that are controlled for the purposes of arms brokering is the same as for those which are controlled for export (i.e. ‘military equipment’).⁸

South Africa

The new African National Congress government has taken two legislative initiatives, one completed and another still in draft form, which will change the legal framework affecting arms brokers. These are important initiatives that should be studied by other states. Soon after coming to power, the government did amend the law and regulations governing arms exports, but these changes did not cover the activities of arms brokers and transport agents outside South Africa. However, in response to growing concern about the role in Africa and elsewhere of private military companies and mercenaries based in South Africa, the government enacted a new law which (a) prohibits mercenary activities and (b) rules that any citizen or permanent resident of South Africa, or any company registered or incorporated in South Africa, that wishes to provide
foreign military assistance, must first obtain permission to offer such services and also obtain authorization to actually provide such services in each particular instance from the National Conventional Arms Control Committee.⁹

Since the definition of foreign military assistance includes training, advice,
intelligence, medical support or any other action that would provide a military benefit, this law would cover arms brokering and shipping activities outside South Africa. It remains to be seen how this law is applied in practice, since the law provides the Minister of Defence with wide discretionary powers to exempt those s/he sees fit to provide such services even though they may not meet the humanitarian, human rights and other criteria.

In mid-1999, the South African government was preparing further legislation to
control firearms within South Africa. In connection with this, it has proposed to strictly regulate arms brokering by citizens, foreign nationals and residents. The
definition of firearms broadly follows that in the 1997 Inter-American Convention Against the Illicit Manufacturing of and Trafficking in, Firearms, Ammunition, Explosives and Other Related Materials. According to the draft proposal, a comprehensive and restrictive register will be established for arms brokers, and each transaction will require prior authorization through a strict licensing procedure.¹⁰

United Kingdom

UK law does not require arms brokers or their shipping agents to seek authorization for arms transfers in cases where the arms do not pass through UK territory, nor does it require the registration of such agents for dealing in arms outside UK territory.¹¹ The UK Government’s 1999 review of ‘strategic export controls’ recommends that arms brokering and trafficking activities by persons in the UK or UK citizens abroad, including cases where the goods are provided exclusively through third countries, should be prevented in a wider range of circumstances. These circumstances would
include not only mandatory UN arms embargo as at present, but also non-binding embargoes decided upon in the UN, the EU, the OSCE or by the UK government itself.

However, the official UK White Paper states:

...the Government does not propose to use this power to introduce controls on trafficking and brokering of all goods that are subject to export controls. It is right in principle that UK controls on trafficking and brokering should be more limited than on actual exports from the UK as those involved in such activities will also be required to comply with the export control laws of the exporting country. Secondly, enforcement of controls on trafficking and brokering is less straight forward than the enforcement of controls on exports from the UK and it is therefore right that resources for enforcement of such measures should be targeted on the most critical areas.¹²

The UK government’s assertion that controls on trafficking and brokering ‘should be more limited’ because there will be controls in other countries is clearly unrealistic. The whole point about the necessity of strict home government control of arms
brokering and trafficking via third countries is that middlemen based in the UK and elsewhere often arrange arms supplies from countries with poor export controls to countries with poor import controls. They deliberately use countries suffering from weak governance, corruption and abuse. Moreover, the United Kingdom has been an attractive base because it is easy to hide financial transactions, especially using the offshore tax havens.¹³

Another problem in the UK law affecting the control of arms brokers and traffickers has been the ambiguous wording and protracted delay in implementing UN Security Council mandatory arms embargoes. The UK government has stated that it does not wish to introduce extra-territorial jurisdiction on this issue. But it has not explained why it cannot legally require brokers and shipping agents to present for inspection to the UK authorities, in advance of any delivery, the written foreign authorizations and end-use certificates for the arms in question. Although the arms may not pass through UK territory, the material proceeds from the deal will enter the UK, and the UK government has a duty to ensure that its citizens and residents only accrue such benefits internationally as are within the rule of law.

USA

All governments should look closely at the US government’s new regulations to
control international arms brokering, the background to which has been described in the preceding chapter. Under the International Traffic in Arms Regulations (which implement the Arms Export Control Act):

Broker means any person who acts as an agent for others in negotiating or
arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission or other consideration … [and] brokering activities include the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import of a defense article or defense service, irrespective of its origin … this includes, but is not limited to, activities by US persons who are located outside the United States or foreign person subject to US jurisdiction involving defense articles or defense services of US or foreign origin which are located inside or outside the United States. But this does not include activities by US persons that are limited exclusively to US domestic sales or transfers.¹⁴

In addition, any US citizen, wherever located, and any foreign person located in the USA or subject to US jurisdiction, who engages in such brokering activities involving the international transfer of military goods or services, must first register with the US Department of State. Each transaction must then be given prior written approval by the State Department.

There may remain a loophole in respect of some crime control equipment on the US Commerce Control List as opposed to the Munitions List. All the same, the framing
of this new regulation would appear to be a major advance on what exists in other states.¹⁵

__________________

__________________

Preface / Acknowledgments / Introduction / Chapter 1 / Chapter 2 / Chapter 3 / Chapter 4 / Chapter 5 / Chapter 6 / Chapter 7 / Chapter 8 / Chapter 9 / Chapter 10 / Chapter 11

Next...

END OF DOCUMENT
25/11/1999 - NISAT