Geoff FordenNonproliferation and Banking Reform

UK Prime Minister Gordon Brown met with President Obama today and is reported to be pushing a “Global New Deal” to stop the economic slide. A key element of that program would be reforming bank regulation to prevent the sort of scams that created the sub-prime mortgage mess by, among other things, providing increased transparency in banking. I hope they succeed.

Increased transparency is, after all, the only way for governments to regulate tax havens, shadow banks, and things like the subprime mortgage mess. It is but a small step from there to the sorts of transparency needed to fight proliferation. After all, international banking and the financial instruments invented for it are used extensively by proliferators because they provide a certain amount of security that any purchaser needs to help ensure he is not being cheated.

For instance, there are letters of credit that specify the items being bought that must be matched against the bills of lading accompanying the shipment. (See my Arms Control Today article on this for a discussion of the different financial instruments and how they might be used in a new nonproliferation environment.) A recent series of important reports from ISIS also make this case (see the Illicit Trade section of ISIS’s publications web page). One regulatory step that might be taken could be to standardize the description of items shipped on bills of lading/letters of credit to eliminate, or at least greatly reduce, their ambiguity. Another would be to use the full weight of any economic recovery plan to enforce some order on “free trade zones” that are, unfortunately, used as transshipment points where merchandize can get relabeled with a new bill of lading and letter of credit that effectively makes them disappear off the various customs agencies’ radar.

I think this is the perfect time to build important nonproliferation goals into the world’s banking system. I hope Messrs. Obama and Brown take advantage of it.


  1. bb (History)

    Of course this applies not to tax heavens on the own British channel Islands…

  2. Gregory Kulacki (History)

    Far and away the most immediately executable effective idea I’ve seen in seven years in this game.

  3. Major Lemon (History)

    If you want to kick start the global economy you need to get government off the backs of business people. Brown is an expert on doing the opposite. Meanwhile the bad guys will get their stuff anyhow as much special export documentation requirements can be easily circumvented, particularly with dual use equipment.

  4. Captain Canuck

    Major Lemon, I don’t think a broad-brush statement about getting “government off the backs of business people” is a constructive response to a thought-provoking suggestion such as this.

    Your response doesn’t advance the type of informed debate that I come to this blog for. If you have a logical reason why this suggestion would fail, or a specific argument for why regulations on dual-use equipment could not be made effective – lets hear it!

    There are any number of web forums better suited for argument than debate. Perhaps I’ll go to one now and observe how well “getting government off the backs of business people” has worked in the context of banking regulation 🙂

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