Challenges in investigations of brokers and posttransfer diversion

 When states and their armed forces run international military assistance programmes to train and equip security forces in other states (e.g., Iraq and Afghanistan), this often involves large-scale procurement efforts. Brokers have played proactive roles in these efforts. For example, CAR investigators identified largequantities of SALW produced largely in East European states and supplied between 2014 and 2017 under US Government contracts to security forces in Iraq – or to NSAGs operating in Syria – by brokers based, registered and domiciled in the United States. Subsequently,large quantities of these SALW were divertedto the Islamic State in Iraq and the Levant(“Da’esh”) operating in Iraq and Syria. In Afghanistan, a similar dynamic was documented by CAR. In 2019, for example, CAR investigators documented a Hungarian-manufactured 7.62 × 39-mm AMD-65 assault rifle seized during counter-terrorism operations against the Taliban in Herat Province. The Government of Hungary promptly responded to a formal CAR trace request. The rifle had been provided to Afghanistan’s Ministry of Interior Affairs for the exclusive end use of the Afghan National Police in one of four shipments (totalling 35,173 rifles), under a contract authorized by the US Security Assistance Program. These shipments were brokered in 2007 by Sweet Analysis Services Inc., a company registered and domiciled in the United States, which filed for bankruptcy in 2013. Subsequently, CAR was unable to contact the broker regarding this transfer. This example is representative of the myriad entities – often small and relatively short-lived – involved in brokering as part of large-scale procurement efforts as part of military assistance. In such cases, there is often no evidence of wrongdoing by the brokers or the states involved in the transfer. Diversion documented by CAR following such programmes typically occurs years after the actual, physical transfer took place – in the above example, even after the company itself had gone out of business. CAR investigators usually determine diversion in such cases to be the result of stockpile leakages and battlefield losses by the national forces themselves. However, in such environments, it is typical to see brokers respond to surges in demand and urgency. An attendant lack of accountability and follow-through can be a by-product of companies and businesses with short shelf-lives which disappear when demand has faded. Instances where a brokering company ceases to exist shortly after its involvement in a major arms deal hinders post-diversion investigations by presenting “black holes” in the Arms transfer chain. It is therefore still important that brokers themselves practice transparency and accountability through effective maintenance of detailed records that are retrievable even after the brokering company itself no longer exists. This should be undertaken in addition to complying with states’ legal and regulatory frameworks and brokering control measures (as explained in Section 3). As this section shows, most brokering activities that lead to the diversion of arms, ammunition and related materiel to unauthorized (end-)users happen before or during the arms transfer itself. As such, there is a range of important practical steps that ATT states parties can take to prevent, detect, mitigate and counter broker-led diversion. These have been elaborated in detail in the research consortium’s ATT Issue Briefs. Box 6 presents a non-exhaustive list of potential red flags and risk indicators, linked to the cases described in this Issue Brief, that may help licensing and law enforcement authorities and officials to detect and intervene in cases where brokers are attempting to divert arms transfers.

Red flags and risk indicators related to brokers and brokering activities

Pre-transfer 

ໜ Evidence of opaque ownership structures (e.g. registration in jurisdictions that do not support information-sharing with due diligence efforts) 

ໜ Key personnel (e.g. beneficial owners, shareholders) or proximate companies (e.g. previous ownership) that have been previously sanctioned or otherwise involved in cases of diversion ໜ Inconsistencies or irregularities in transfer documentation, including end use or end user documentation, export licences, customs declaration, or bills-of-lading (e.g. photocopies, absence of key unique identifiers, missing fields) 

ໜ Payment from unclear, unrelated or unexplained third parties, or through methods with weak identity checks

 ໜ Payment schedule that is irregular in size or frequency, or other anti-money laundering behavioural flags.

In-transfer 

ໜ Transfer route proposed via sensitive or convoluted routes (e.g. unexplained third countries, high-risk jurisdictions or jurisdictions in which multilateral sanctions are not actively enforced) 

ໜ Ownership of aircraft, vehicles or vessels with links to sanctioned entities or with previous involvement in cases of diversion 

ໜ History of repeated changes of aircraft or vessel registration details (e.g. tail numbers, ship identification numbers, ownership or management). 

ໜ Commodity descriptions that are vague or do not match between documentation types 

ໜ Registration of aircraft or vessels travelling under flags of convenience 

ໜ Unusual patterns of movement, including disabling of transponders, travelling by night, changes to reported destination mid-voyage, or unscheduled stopovers or port calls.

 Post-transfer 

ໜ Dissolution or bankruptcy of entity soon after transfer