Beyond the reach of state monopoly controls: A comparative overview of Russian controls on arms brokering

Duncan Hiscock

Introduction Arms control plays a fundamental role in the maintenance of international peace and security. Unless national, regional and international arms control regimes are effective in preventing lethal weaponry from falling into the wrong hands, uncontrolled weapons will continue to catalyse and fuel conflicts, organised crime and around the globe. Although the threat of a attack by terrorist organisations or ‘rogue states’ using chemical, biological, radiological or nuclear (CBRN) weapons inevitably remains the greatest security concern for many states around the world (and their publics), it is increasingly recognised by governments, international organisations, and security analysts that the control of conventional weapons is just as important. In recent times, considerable efforts have been made to strengthen both national arms control legislation and regional and multilateral regimes, since it is recognised that the global nature of and the ease with which weapons can be transported mean that illegal arms proliferation can only be prevented through international cooperation.

Efforts to strengthen international co-operation to tackle arms proliferation have had some success, but they have also demonstrated how complicated it is to regulate arms and how many ‘grey’ areas and legal loopholes remain. One of the largest ‘grey’ areas concerns arms brokering. Arms brokering covers a wide range of activities that facilitate the transfer of weapons from seller to buyer (see below for a more precise definition), in many cases without the broker ever seeing the weapons in question. By 2005, approximately 40 states had some national controls on arms brokering.1 Nonetheless, by exploiting weaknesses in national legislation and differences between legal jurisdiction in different countries, arms brokers can organise the transfer of weapons to destinations of concern (including countries under international embargo) without being liable for prosecution under any national laws.

There is therefore a need for increased global cooperation on the issue of arms brokering, in order to ensure that it is no longer possible for irresponsible and unscrupulous actors to play the system by manipulating the differences between various national control regimes. To do so will involve greater harmonisation of national legislation at the regional and international levels, increased information exchange and cooperation between states, and the strengthening of national controls to remove loopholes and ‘grey’ areas.

Such measures must be backed up with policy-oriented research analysing existing controls over arms brokering at both the international and national level, drawing attention to problems and highlighting examples of best practice. At the moment, many of the issues surrounding arms

1 Dead on Time – Arms Transportation, Brokering, and the Threat to Human Rights, London: Amnesty International, 2006, p.4

1 brokering are approached differently by different states, in everything from threat perceptions and definitions of brokering through to proposals for how to strengthen international controls. This short paper therefore aims to contribute to this dialogue. It presents current international thinking on controls over arms brokering to a Russian audience, comparing and contrasting the way in which brokering is controlled in with similar efforts in other countries. In so doing, it seeks to promote debate within Russia and internationally about how Russia can work with other states to strengthen controls over arms brokering.

The paper is divided into two sections. Section A puts the topic of arms brokering control in an appropriate context. It starts by defining the key terms relating to arms brokering, explaining how they are understood internationally and why they are important. It then describes the major regional and international initiatives on brokering controls that are relevant to Russia. Lastly, it briefly outlines the aspects of arms brokering that require national and international control, presenting current thinking on best practice with regard to each issue. Section B focuses specifically on Russia. It begins by sketching the background to Russia’s current system and the way in which arms brokering controls have developed since the end of the . It then provides a comparative analysis of current Russian legislation and practice against the examples of best practice outlined in Section A, identifying the strengths and weaknesses of Russia’s existing control system. A case study is also provided of one of the most notorious international arms brokers, Viktor Bout, who is a Russian citizen and is believed to be living in Russia. Lastly, the conclusion summarises the findings of this comparative analysis, and where appropriate makes recommendations about measures the Russian government could undertake to further strengthen controls over arms brokers.

It is expected that this paper will be of particular interest to government officials, industry representatives, academics and independent researchers within Russia, and to international organisations and non-governmental representatives who are seeking to promote stronger international brokering controls and wish to learn more about Russia’s current legislation and practice.

Section A: International perspectives on control over arms brokering

Arms brokering and arms brokers: Definitions There are no internationally agreed definitions of the terms ‘arms brokering’ or ‘arms broker’. Nonetheless, there is an element of consensus at the international level as to how these terms should be understood, as the result of studies both by independent researchers and by governmental experts working on national and regional measures to strengthen brokering controls.2 These studies have considered both the legal and illegal arms trade in all forms of conventional weapons, and distinguish between ‘core’ and ‘associated’ brokering activities. This paper follows this broad approach, since more limited definitions allow many of the problematic ‘grey’ areas of brokering controls to slip through the net.3

2 The section on international initiatives below gives more details about some of the regional and international measures that relate to arms brokering. Two of the most significant independent research papers of recent years are Anders H and Cattaneo S, Regulating Arms Brokering: Taking Stock and Moving Forward the Process, Brussels: GRIP, 2005, and Dead on Time – Arms Transportation, Brokering, and the Threat to Human Rights, London: Amnesty International, 2006. 3 The definitions for ‘arms brokering’ and ‘arms broker’ draw heavily on Anders & Cattaneo (ibid.) and the OSCE Best Practice Guide on National Control of Brokering Activities.

2 Arms brokering is defined in this paper as any activity intended to facilitate a deal between buyer and seller to supply any conventional weapons. This is principally a matter of mediation and does not require the actual acquisition of weapons by the broker, though such activity is also considered as arms brokering. Arms brokering is usually undertaken in return for some form of compensation, though this need not be financial (for example, brokering may be undertaken to satisfy political or personal goals).

Arms brokers are individuals or entities that facilitate such deals. They are thus ‘middlemen who organise arms transfers between two or more parties. Essentially, they bring together buyers, sellers, transporters, financiers and insurers to make a deal’.4

A distinction is often made by analysts and in national legislation between ‘core’ brokering activities and ‘associated’ activities. Essentially, core brokering activities are those that are directly related to the conclusion of an arms deal, whereas associated activities involve the organisation of supporting services to ensure the smooth transfer of the weapons.

Core brokering activities include: • Mediation between sellers and buyers of weapons to facilitate the transfer of these weapons from one country to another; • Acquisition of weapons in one country for the purpose of transfer to another country; • Identification of potential buyers or sellers, the indication to them of opportunities to undertake an arms transfer, and the provision of relevant technical advice; • Acquirement of the necessary documentation, such as end-user certificates and import and export authorisations.

Associated brokering activities include the organisation of: • Transportation, freight forwarding and charter services; • Technical services (e.g. assistance relating to the maintenance and usage of specific weapons, including instruction and consultation services); • Financial services; • Insurance services.

According to the OSCE Best Practice Guide on National Control of Brokering Activities, only the organisation of these services can be considered as brokering, whereas the actual provision of such services falls outside this definition.5 In part, this distinction is made to clarify the difference between a broker facilitating an arms deal with deliberate intent and an agent that provides associated services without necessarily being fully aware of the nature of the deal to which these services relate. It also reflects the difficulty of separating out such services as they relate to arms deals from the same services provided for any other legitimate commercial reason, and acknowledges the potential complexity of regulating such services.

Nonetheless, some countries do include some such services under their national brokering control regime (for example, Estonia’s Strategic Goods Act includes ‘the provision of…funds’ within its definition of brokering6). In practice, the distinction between the organisation and provision of services that are associated with brokering activities may be very unclear, and this provides a grey

4 Wood B and Peleman J, ‘Making the Deal and Moving the Goods: The Role of Brokers and Shippers’ in Lumpe L (ed.), Running Guns: The Global Black Market in Small Arms, London: Zed Books, 2000, p. 129. 5 OSCE Best Practice Guide on National Control of Brokering Activities, Vienna 2003, pp. 4-5. 6 Estonia, Strategic Goods Act, passed 17 December 2003, Art. 3.2. Available online at: http://www.vm.ee/eng/kat_153/894.html

3 area in which brokers and related middlemen can facilitate arms deals without obviously violating national legislation.

Illicit brokering is an equally difficult term to define, given the lack of a coherent international legal framework for regulating arms transfers and the differences between states’ national legislation on arms exports and brokering. At its simplest, it may be argued that brokering is illicit when it violates national and/or international law, including UN arms embargoes. A more precise definition would depend on the specific national, regional and international measures to which a given state adheres.

The forms of international arms brokering that are most difficult to regulate – and therefore cause the most concern – are third-country and extra-territorial brokering. These are overlapping but distinct forms of brokering that exploit the complexities of regulating the arrangement of arms deals where there may be no physical relationship between the nationality and/or the location of both the broker and the transferred weapons.

In the case of third-country brokering, the goods have no physical connection with the location of the broker, i.e. a broker in country A organises a shipment from country B to country C via a route that does not touch country A. In extra-territorial brokering, neither the location of the broker (in country A) nor the route of the goods (from country A or B to country C) have any connection with the broker’s country of nationality (country D).

This is a subtle distinction, and can best be demonstrated by three hypothetical examples. Firstly, if a Russian broker were to be based in Russia (country A), and organised a shipment from (country B) to (country C), this would be third-party brokering, since the goods have no relation to Russian territory, but it would not be extra-territorial brokering, since the broker is operating from his country of nationality.

Secondly, if a Russian broker (from country D) were to be based in (country A) and organised a shipment from Bulgaria (country A) to (country C), this would be extra- territorial brokering (from a Russian perspective) since the Russian broker is operating outside the country, but it is not third-country brokering since the shipment originated from the same location as the broker.

Thirdly, if a Russian broker (from country D) were to be based in Bulgaria (country A) and organised a shipment from Ukraine (country B) to Syria (country C), this would be extra- territorial brokering (from a Russian perspective) since the Russian broker is operating outside the country, and it would also be third-country brokering, since it would involve the transfer of weapons from county B to country C without transit through country A.

The complexities of these different types of brokering demonstrate why such deals are so hard to control. Not only can they be very difficult to follow (especially if a string of middlemen are added into the equation), the fact that they involve at least three or four states opens ample opportunities for legal loopholes and confused jurisdictions. Many states have strict regulations for weapons transfer from, into or across their territory, but do not have adequate legislation and/or capacity to implement and enforce controls on third-country and extra-territorial brokering. This is sometimes resisted by states either because they fear that it would place a major burden on their law-enforcement agencies, or because there may be legal obstacles to extending jurisdiction outside their territory. Yet it is precisely these kinds of brokering deals that are in greatest need of stricter control, and states that fail to introduce such measures – but also the absence of global cooperation on the issue of arms brokering – are effectively allowing this

4 trade to continue unfettered. It is no coincidence that the OSCE Best Practice Guide on National Control of Brokering Activities deals almost exclusively with third-country brokering, since it argues that brokered deals involving the import, export or transit of weapons through an OSCE state’s territory are usually already covered effectively by national export control systems.7

International initiatives to strengthen control over arms brokering8 Over the past few years, a number of international and regional initiatives relating to arms brokering have been developed; some focus directly on brokering, others consider brokering in the wider context of arms transfer controls and the fight against arms proliferation. Russia is a member of three organisations that are seeking to strengthen brokering controls: the UN, the Wassenaar Arrangement, and the OSCE. The following paragraphs outline the main measures relating to brokering proposed by these organisations.

The United Nations process on small arms and light weapons At the UN level, brokering has mostly been considered only within the context of illicit small arms and light weapons (SALW) proliferation, with conventional weaponry and licit and ‘grey’9 brokering activities left largely untouched. Nonetheless, the UN Programme of Action to Prevent, Combat and Eradicate the Illicit Trade in Small Arms and Light Weapons in All Its Aspects (PoA), agreed in 200110, is important because it represents the first comprehensive attempt at the international level to control the spread of SALW. The PoA, which is politically binding, contains the following provisions relating to brokering: • ‘To develop adequate national legislation or administrative procedures regulating the activities of those who engage in small arms and light weapons brokering. This legislation or procedures should include measures such as registration of brokers, licensing or authorization of brokering transactions as well as the appropriate penalties for all illicit brokering activities performed within the State's jurisdiction and control.’ (Section II article 14). • ‘To develop common understandings of the basic issues and the scope of the problems related to illicit brokering in small arms and light weapons with a view to preventing, combating and eradicating the activities of those engaged in such brokering.’ (Section II article 39)

The latter article was made concrete in 2005 through the establishment of a Group of Governmental Experts (GGE), which is mandated to ‘consider further steps to enhance international cooperation in preventing, combating and eradicating illicit brokering in small arms and light weapons’. 11 This is the first time that the issue of arms brokering has been specifically considered in detail by a UN body.12 The Group is expected to present its report to the General Assembly later in 2007.13

7 OSCE Best Practice Guide on National Control of Brokering Activities, Vienna 2003, p. 3. 8 This section provides only a brief overview of existing regional and international initiatives and their provisions. For a more detailed analysis of the strengths and weaknesses of these agreements, see Anders H and Cattaneo S, Regulating Arms Brokering: Taking Stock and Moving Forward the United Nations Process, Brussels: GRIP, 2005, pp. 22-27. 9 ‘Grey’ transfers refer to transfers which exploit loopholes in the existing national regulations to intentionally circumvent national and/or international law. ‘Grey’ transfers often originate as licit transfers but ultimately undermine national and international law and policies on arms transfers. They are thus particularly problematic since their perpetrators are difficult to regulate and prosecute. 10 Available online at: http://disarmament2.un.org/cab/poa.html 11 Established by UN General Assembly Resolution 60/81 12 Although this is the first dedicated UN study on arms brokering, the issue was considered in some detail by a previous GGE in 1999-2001 as part of a wider study on small arms: UN Document A/CONF.192/2

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The Wassenaar Arrangement The Wassenaar Arrangement (WA) on Export Controls for Conventional Arms and Dual-Use Goods and Technologies brings together 40 states, including most of the world’s main arms exporters, to develop common standards of export control. The Wassenaar Arrangement’s focus is different from the UN PoA, concentrating on all conventional arms rather than only SALW. In December 2002, the WA adopted a short Statement of Understanding on Arms Brokerage (2002)14 recognising the importance of regulating arms brokering. This was further elaborated in 2003 by the Elements for Effective Legislation on Arms Brokering,15 in which states made a political commitment to ensure that national legislation included the following controls: • For activities of negotiating or arranging contracts, selling, trading or arranging the transfer of arms and related military equipment controlled by Wassenaar Participating States from one third country to another third country, a licence or written approval should be obtained from the competent authorities of the Participating State where these activities take place whether the broker is a citizen, resident or otherwise subject to the jurisdiction of the Participating State; • Adequate penalties and administrative measures (criminal sanctions) to enforce arms brokering controls effectively; • Options to limit the number of brokers in a Participating State and to establish a register of brokers; • Information exchanges between Participating States on arms brokering activities.

The Organisation for Security and Cooperation in Europe (OSCE) The OSCE Document on Small Arms and Light Weapons, agreed in 2000, was one of the first multilateral initiatives to deal with SALW control. Section III (D) ‘Control over international arms-brokering’ of the OSCE Document contains a non-binding commitment that ‘Participating States will consider the establishment of national systems for regulating the activities of those who engage in such brokering’, including requirements to: • register brokers operating within their territory; • license or authorise brokering; or • disclose import and export licences or authorisations, and/or accompanying documents, and the names and locations of brokers involved in the transaction.

As part of the OSCE’s measures to ensure the full implementation of the OSCE Document and the further strengthening of SALW controls, in 2003 the OSCE developed a Handbook of Best Practices on Small Arms and Light Weapons, which contained eight Best Practice Guides written by OSCE member states on various issues relating to SALW control. One of these was the Best Practice Guide on National Control of Brokering Activities, prepared by the governments of

‘Report of the Group of Governmental Experts established pursuant to General Assembly resolution 54/54V of 15 December 1999, entitled “Small arms”’. Available online: http://daccessdds.un.org/doc/UNDOC/GEN/N01/368/74/PDF/N0136874.pdf?OpenElement 13 Although the UN GGE is an important step forward in the development of an international response to the challenges caused by arms brokering, its scope is limited. Since the GGE was set up as part of the UN process to combat the proliferation of illicit SALW, its mandate is restricted to illegal arms brokering of small arms. The type of ‘arms brokering’ explored by the UN GGE is therefore much narrower than it is understood in this paper, because a) it deals only with illicit arms, excluding the legal trade and largely ignoring the complexities of the ‘grey’ arms market; and b) only SALW are considered, as opposed to all conventional weaponry. 14 Available online at: http://www.wassenaar.org/docs/sou_arms_brokerage.htm 15 Available online at: http://www.wassenaar.org/2003Plenary/Brokering_2003.htm

6 Germany and Canada.16 The Guide was a background document and since it did not require the approval of all participating states, it was able to genuinely reflect best practices. It provides very detailed recommendations in a number of areas, including: definitions of brokering; activities subject to licensing; area of application of brokering controls; goods covered; licensing criteria; registration and licensing procedures; methods of enforcement; and forms of international co- operation. These guidelines are too detailed to document in this section, but have been integrated into the section below on current proposals for best practice.

Building upon the UN, OSCE, EU (see below) and Wassenaar Arrangement documents, in 2004 the OSCE adopted its Principles on the Control of Brokering in Small Arms and Light Weapons. Although these fell short of the high standards set in the Best Practice Guide a year earlier, they contain a number of important provisions relating to licensing and record-keeping, registration and authorisation, and information exchange. The OSCE Principles also encourage states ‘to consider controlling the brokering activities outside of their territory carried out by brokers of their nationality resident or brokers who are established in their territory’.17

Other initiatives There are two further initiatives to which Russia is not currently a party, but which nonetheless are particularly relevant for a Russian audience. These are the EU Council Common Position on the Control of Arms Brokering, and the UN Protocol against the Illicit Manufacturing of and Trafficking in , Their Parts and Components and Ammunition, supplementing the United Nations Convention against Transnational Organized Crime (the Firearms Protocol).

The EU Common Position18 contains much that is similar to the OSCE Principles, but has greater strength, as it obliges states to revise legislation in several areas: • Licences are required for brokering deals, and applications for licences are to be considered with reference to the same criteria as export control decisions under the EU Code of Conduct on Arms Exports; • Records of licences must be kept for at least 10 years; • Information exchanges must be established between member states and third states in areas such as legislation, registered brokers, records of brokers and licence denials.

The UN Firearms Protocol19 is a legally-binding instrument that is primarily related to combating organised crime. However, article 15 of the Firearms Protocol concerns ‘Brokers and brokering’ and encourages states to establish national brokering control systems including provisions for registration, licensing and information exchange. The UN Firearms Protocol was adopted by resolution 55/255 on 31 May 2001 and entered into force on 3 July 2005; to date, Russia has neither ratified nor signed the Protocol.20

16 OSCE Best Practice Guide on National Control of Brokering Activities, Vienna 2003. 17 Decision No. 8/04, OSCE Principles on the Control of Brokering in Small Arms and Light Weapons, adopted 24 November 2004. Available online at: http://www.osce.org/documents/fsc/2004/11/3833_en.pdf 18 EU Council Common Position 2003/468/CFSP of 23 June 2003 on the Control of Arms Brokering, available online: http://eur-lex.europa.eu/LexUriServ/site/en/oj/2003/l_156/l_15620030625en00790080.pdf 19 UN Protocol against the Illicit Manufacturing of and Trafficking in Firearms, Their Parts and Components and Ammunition, supplementing the United Nations Convention against Transnational Organized Crime, available online: http://www.unodc.org/pdf/crime/a_res_55/255e.pdf 20 As of March 2007, there were 52 signatories and 62 parties to the protocol. For more information, see: http://www.unodc.org/unodc/crime_cicp_signatures_firearms.html

7 Current proposals for best practice in arms brokering control From the overview of multilateral and international agreements provided above, as well as independent studies on arms brokering, it is possible to identify a set of best practices for the control of arms brokering. It should be noted, however, that although some states do exhibit best practice in one or more areas, no national government can be considered exemplary in all aspects of brokering controls and these best practices are presented simply as a guide and as a yardstick for comparison.

Definitions and scope of brokering controls in national legislation • There should be a comprehensive system for controlling arms brokering under national legislation; • National legislation should include clear definitions of ‘arms brokering’, ‘arms broker’, and other relevant terms; • Controls on brokering deals relating to the transfer or transit of weapons in, out or through a state’s territory should apply equally to national citizens, residents and legal entities operating within the state’s jurisdiction (even if the broker is located beyond the state’s territory); • Brokering controls should cover both core brokering activities (mediation, acquisition of weapons for re-transfer, identification of brokering opportunities, acquirement of documentation) and associated activities (the arrangement of transportation, technical, financial and insurance services, etc.); • Brokering controls should apply to all conventional weapons (not only SALW); • Brokering controls should contain provisions to control the arms brokering activities of citizens or residents of the state engaged in third-country deals that do not involve the transfer of weapons through the state’s territory; • Brokering controls should contain provisions to control the arms brokering activities of citizens or residents of the state who are brokering deals from beyond the state’s territory (extra-territorial brokering); • Brokering controls should include provisions to enforce UN Security Council embargoes and other international or multilateral embargoes to which the state is party; violations of such embargoes should be criminalised.

Registration of brokers and record-keeping • Brokers should be registered before they can undertake brokering activities (either as a separate process or as the first step in a licensing application); • Brokers should be legally required to provide comprehensive, accurate, up-to-date information on: name; business address; professional and commercial activities; previous violations; previous licences issued; current and potential customers; etc. • There should be clear criteria for approving or rejecting an application to register a broker, or rescinding an existing registration; these criteria should be based on the state’s existing obligations under international law, its participation in international or multilateral control regimes, and other national peace and security policies; • A register of brokers should be compiled and made publicly accessible, and also should be shared with all interested parties through international information exchange mechanisms; • Procedures should be in place for regular re-registration of brokers; • Records of registration and licences should be stored for at least 10 years and should be kept well-maintained and accessible to the relevant authorities.

8 Licensing procedures • Legislation should clearly delineate which state agencies are responsible for awarding licences and monitoring their correct implementation; • Licences should be required for each separate transaction unless there are specific reasons to grant a broader licence (e.g. for limited repeat supplies of a specific good to a specific end user by a trusted broker); • Licences should have specific time limits; • There should be clear statutory provisions outlining how and under which conditions brokering licences can be refused or revoked; • Detailed information should be provided for each licence (except where already covered by registration procedures) on the following areas: identity and contact details of the applicant; buyer of the goods, intermediate and final consignees of the goods; information on end use; country of origin of the goods; technical description, quantity and value of the goods; contract documents; end-use documentation (end-user certificates; International Import Certificates); broker’s role in the transaction; other persons/entities involved in the transaction (transportation, technical services); intended itinerary; • Licences should be granted according to set of criteria that are identical to, or no less stringent than, those applying to national arms export controls. At a minimum, these criteria should be as strict as the criteria proposed within existing multilateral regimes, such as the OSCE Principles, the Wassenaar Arrangement and the EU Code of Conduct on Arms Exports, i.e. they should consider issues such as international embargoes, the regional security situation, the risk of diversion, and the risk of weapons being used for violations of international humanitarian law and international human rights law.

Enforcement of brokering controls • Post-shipment controls should be in place to allow verification of the correct implementation of the licensed brokering activity. This would include a mandatory requirement for the broker to supply a Delivery Verification Certificate and other relevant delivery documentation. The licensing authority should have the capacity to carry out on- site verification to ensure the correct end use of weapons transferred, as it would with state-to-state exports. Brokers should be held responsible for knowingly completing deals which, according to available evidence, could be expected to lead to end-use violations; • Adequate penalties and punishment should be in place to prosecute violations of national brokering controls; • There should be a provision in legislation explicitly criminalising violation of international regulations on brokering in arms; this should thus allow for the of citizens or residents who are wanted for questioning by another state with regard to such violations.

International cooperation, information exchange and transparency • States should participate actively and demonstrate genuine commitment to initiatives to strengthen national, regional and international controls over arms brokering by promoting the adoption of best practice and ensuring that all relevant mechanisms from international initiatives are incorporated into national legislation; • All national legislation and control procedures should be publicly accessible (e.g. on the internet, in all national languages, and – where practical – in English and/or other official UN languages); • States should prepare national registers of brokers which are made publicly available; • All licensed brokering deals should be detailed in national reports on arms exports;

9 • Notification of licence denials should quickly be made available to all partner states through international information exchange mechanisms; • Where possible, states should contribute to regional or international assistance mechanisms that aim to strengthen capacity to implement brokering controls in partner states.

There remain disagreements at the international level in particular with regard to extra-territorial controls and the scope of brokering activities (i.e. the extent to which associated activities are regulated by brokering controls).21 Another disputed point is the criteria by which brokering deals should be assessed; though it is generally recognised that they should be in line with national export controls and there is considerable agreement in different regional documents about the types of issues that should be addressed, there is no agreement at the international level22 about the criteria that should inform export control decisions.23 In these three areas, many states – including Russia – have been cautious about extending brokering controls to the extent proposed in these best practice guidelines.

Section B: Russian controls over arms brokering Arms brokering is not an issue that has so far been given much attention within Russia either by government officials or independent analysts. There is a general assumption that arms brokering is not a problem for Russia, on the grounds that there are no private brokers to control. The standard argument is that since there is only one, state-owned broker – Rosoboronexport – and it is under strict state control through national arms export legislation, the Russian system is fundamentally different from Western states which allow independent brokers to proliferate, and thus ‘international’ or ‘Western’ experience is of little relevance.

Despite this, there have been regular allegations in the international media over recent years that Russian citizens are acting as arms brokers, and have been supplying weapons to embargoed destinations and conflict areas (Viktor Bout, the subject of many such articles, is considered in more detail in the case study below).

How can this apparent contradiction be explained? One can often hear the view within Russia that such accusations are unfounded and politically or commercially motivated, with the aim of discrediting Russia and Russian arms exports.24 While it may indeed be the case that such

21 Marsh N, Brokering of Small Arms and Light Weapons, Presentation at the Meeting of the Small Arms Working Group, 13 April 2005. http://www.nisat.org/publications/Brokering/Arms%20Brokering%20statement%20NY%20SALW%20me eting.pdf 22 Nonetheless, there has been been some recent progress in developing international standards. On 6 December 2006, the UN General Assembly voted in favour of taking first steps towards a legally-binding Arms Trade Treaty (ATT) by supporting General Assembly Resolution 61/89 ‘Towards and arms trade treaty: establishing common international standards for the import, export and transfer of conventional arms.’ 153 states voted in favour, 24 (including Russia) abstained and 1 (the USA) voted against. 14 states did not attend. This resolution constitutes a landmark step towards more effective regulation of the international arms trade. 23 Non-governmental organisations have also been involved in this process, particularly through the ‘Compilation of Global Principles for Arms Transfers’, which summarises states’ existing commitments under treaty and customary law and emerging norms. http://www.controlarms.org/documents/06089Globa%20PrinciplesFINAL.pdf 24 In an interview with Ekho Moskvy radio, alleged arms broker Viktor Bout (see case study below) uses this line of argument: ‘You know, with regard to Russians there’s always prejudice and double standards.

10 incidents are instrumentalised in geo-political and economic competition, this paper seeks to demonstrate that there are in fact genuine weaknesses in the Russian system of brokering control that need to be addressed. These appear to stem in large part from divergent understandings of what the term ‘brokering’ encompasses (see below), as well as a lack of clear legal provisions, tradition and understanding of the need for controlling arms brokering extra-territorially. As a result, Russia has no clear controls over brokering in cases where, for example, Russian citizens are acting as brokers outside Russian territory, or in cases when Russian citizens and business entities are organising third-country deals with no relation to Russian territory. Furthermore, there are no clear legal mechanisms to ensure that Russian citizens and companies, acting within and particularly outside Russia, do not violate UN or other multilateral arms embargoes and other relevant international regimes and laws. Regardless of whether accusations of ‘Russian’ arms brokering are fact or fantasy, this paper will argue that there should be a legal system in place to regulate third-country and extra-territorial brokering.

The main purpose of this section is therefore to compare Russian practice in the field of brokering controls with the international best practice outlined in the previous section, in order to highlight the strengths and weaknesses of the Russian system. Before doing so, however, it is helpful to briefly consider the development of the current Russian system in order to put it in the appropriate context.

Arms brokering controls in Russia since the early 1990s In general, the Russian has followed the same dynamics as most of the Russian economy. The collapse of the Soviet Union led to a period of rapid and largely uncontrolled liberalisation. This was soon perceived to have been detrimental to the interests of the state, and efforts were then made to reinforce state control over the arms industry and limit the role of private actors. This process has accelerated in recent years, and the Russian arms export industry is now firmly under the Government’s control.

In the early 1990s, three factors came together which fuelled the proliferation of ex-Soviet weapons around the world. Firstly, the end of the Cold War and the corresponding withdrawal of Soviet forces from meant that vast stockpiles of weapons existed that were now surplus to requirements – at the same time as localised conflicts in many parts of the world created a potential market for these weapons. Secondly, across Eastern Europe there was a significant drop in state capacity, which meant export and brokering controls were poor (where they existed at all) and corruption rife. Thirdly, the liberalisation of Eastern European economies allowed a range of private companies and individuals into the arms trade, including as brokers.

The first attempt to strengthen controls over the arms industry in Russia was Presidential Decree No 507 of 12 May 1992, ‘On Military-Technical Cooperation of the Russian Federation with Foreign Countries’, which outlined the role of the main state agencies in the defence industry. Given the urgency with which this document was developed after Russian independence at the end of 1991, it is not surprising that it was far from comprehensive. Nonetheless, it is notable that the Decree set no limitations on brokering activities, nor did it provide any specific requirements on how to obtain the right to export arms. The scope of this right to conduct arms exports, the types of activities that were permitted and the obligations of exporters were also left undefined. This led to a ‘honeymoon’ period for arms brokers in which they were able to exploit the lack of a clear legal framework.

For example, if a Russian businessman is abroad somewhere, it’s always easy to stick on – ‘Russian’, next word ‘mafia’, next word ‘weapon’, next word, something else again.’ A transcript of the interview is available in Russian at: http://www.echo.msk.ru/guests/4737/

11

Efforts soon began to reverse this trend. This began with the establishment of a state company, Rosvooruzhenie, which imported and exported weapons and military hardware.25 State control was strengthened significantly in October 1995, when a presidential decree restricted the right to export arms to Rosvooruzhenie and companies that design and manufacture weapons – thus prohibiting private arms brokering activities. It appears that this did indeed lead to the end of private brokering companies trading Russian weapons; many of their employees then took their experience to arms-producing companies.26 However, no attempts were made to control the activities of Russian citizens operating outside of the country or of Russian residents organising arms transfers via businesses registered outside Russia, leaving them free to build on the links they had established around the world and facilitate arms deals beyond Russian territory (see for example the case study on Viktor Bout below).

In 1997, the situation changed again as the state established three state brokering companies – Rosvooruzhenie, Promexport, and Rossiyskie tekhnologii – each with their own specialisation.27 This helped the state to strengthen its position in the defence industry, but it was still deemed ineffective, and in 2000 these three companies were subsumed into a sole state exporter, Rosoboroneksport.28 By 2005, Rosooboroneksport controlled over 90 percent of Russian arms exports, and its influence was strengthened further by a presidential decree making it the sole legal exporter of Russian arms from March 2007.29 This means that in practice Rosoboroneksport is now the only ‘broker’ operating on Russian territory, and that all Russian arms exports are firmly under state control. As the next section will show, however, no such controls exist over third-country or extra-territorial brokering of weapons outside of Russian territory – even where Russian citizens and/or Russian-made weapons may be involved.

A comparative analysis of Russian controls on arms brokering against international best practice This section analyses current Russian legislation and practice in the sphere of arms control against the international best practices outlined in Section A above. As noted, the presentation of these best practices aims to be as extensive as possible, and no state in the world upholds all of these standards, although there are precedents of various such standards being applied by a number of states, including in the spheres of extra-territorial and third-country arms brokering. Comparing national legislation against best practice in this comprehensive manner ensures that no aspects of the arms brokering issue are left untouched and the strengths and weaknesses of national legislation can be adequately reviewed and appraised.

Definitions and scope of brokering controls in national legislation There is no definition of the terms ‘arms broker’ or ‘arms brokering’ in Russian legislation. The issue of how to translate these terms into Russian is an open question in itself. The words ‘broker’ and ‘brokerstvo’ (brokering) do exist in Russian, but are not found in legislation in relation to arms trade and other military transfers. The preferred terms are ‘posrednik’ (intermediary) and

25 Established by Presidential Decree of 18 November 1993, ‘On the Establishment of the State Company “Rosvooruzhenie”’. 26 Interview with Viktor Litovkin, RIA Novosti’s military analyst, 8 December 2006. 27 Presidential Decree No. 907 of 20 August 1997, ‘On Measures to Strengthen State Control over Foreign Trade Activity in the Sphere of Military-Technical Cooperation of the Russian Federation with Foreign States’. 28 Presidential Decree No. 1834 of 4 November 2000, ‘On the Creation of the Federal State Unitary Enterprise “Rosoboroneksport”’. 29 Presidential Decree No. 54 of 18 January 2007, ‘On Certain Questions of Military-Technical Cooperation of the Russian Federation with Foreign States’.

12 ‘posrednichestvo’ (intermediation), which can be found in Presidential Decree No. 1062 of 2005 ‘Questions of Military-Technical Cooperation of the Russian Federation with Foreign States’ defining the main procedures governing arms exports.30 Article 13 of this decree states that ‘during the exercising of foreign trade activity in respect to military products, all forms of intermediation activity by Russian legal entities and physical persons are prohibited, with the exception of intermediary activity conducted by the State intermediary’. There is no definition of ‘intermediation’ within Russian legislation, however. This carries a potential risk that controls on ‘intermediation’ could be applied in a discretionary manner; as a result, such controls may end up being too strict in some cases and too soft in others.

In terms of the scope of control, it may be assumed that controls on intermediation extend to all forms of what is covered by the term ‘military-technical co-operation’. This term is inherited from the Soviet era and has no precise counterpart in Western states. It encompasses a wide range of activities relating to the military sphere, including the arms trade, military-to-military contacts, and the provision of training by Russian troops, - while also emphasising the principle of state monopoly in these spheres. 31 Since the term embraces all aspects of the arms trade, it may be argued that legal limitations on foreign trade activity in the sphere of military-technical co- operation therefore regulate both ‘core’ and ‘associated’ brokering activities, though in the absence of a clear definition for ‘intermediation’ it is hard to draw precise conclusions.

Despite the lack of clarity over terminology, in practice there is no doubt that the Russian state has established strict control over the transfer of weapons from Russian territory, including their brokering. Article 2 of Decree No. 1062 clearly grants the right to ‘engage in foreign trade activity with respect to military products’ only to the ‘state intermediary’ (i.e. Rosoboroneksport), and (prior to March 2007) to authorised weapons manufacturers and designers – thus prohibiting other companies or individuals from engaging in arms brokering activities within Russia (including foreign brokers who can only source weapons from Russia via Rosoboronexport32). Anyone registered as an entrepreneur (predprinimatel) in Russia would not be allowed to trade or broker arms, which would be a criminal offence under Russian legislation on entrepreneurship and the above decree (in particular, Article 13)33. Nonetheless, Rosoboroneksport officials have indicated that a clear and precise definition would be welcomed, though there appear to be no plans to establish such a definition in the near future. 34

This lack of definition also leaves confusion as to whether the restrictions on ‘all forms of intermediation’ in Presidential Decree No. 1062 also apply to third-country and extra-territorial brokering. One can assume that it does, in theory, apply to third-country arms brokering from Russia, although in the absence of such definition and of any clarifying procedures this is problematic. It is also not clear whether, should this be the case, the state has sufficient capacity to implement such a regulation. Hence, it may be possible that Russian citizens or residents

30 Presidential Decree No. 1062 of 10 September 2005, ‘Questions of Military-Technical Cooperation of the Russian Federation with Foreign States’. 31 Naval Collegium under the Government of the Russian Federation, 'Voenno-tekhnicheskoe sotrudnichestvo', Voenno-morskaya deyatelnost, http://www.morskayakollegiya.ru/morsk/voenno- morskaja_/voenno-tehniches/ 32 Foreign brokers can source Russian weapons as part of a brokering deal from abroad, but for doing so they must have the legal right (e.g., an official licence) to purchase and sell military purpose goods from their own government. The brokering deal will then proceed in the same manner as other military purpose goods sales, and both the broker and the producer must present all the necessary documents to obtain an export licence. 33 Presidential Decree No. 1062 of 10 September 2005, Articles 2 and 13. 34 Interview with Rosoboroneksport official, 8 December 2006

13 organise deals between two third countries, whether they are based in Russia or not, without being held legally responsible for this under Russian law.

There is also no definition of extra-territorial brokering. Russian citizens residing outside of Russia can remain beyond Russian jurisdiction, thus restricting opportunities for Russia to control brokering by Russian citizens outside of the country, even for deals that would be illegal under Russian legislation if they were carried out on Russian territory; such deals may have negative effects on both Russian and international security, and can negatively affect Russia’s image. Furthermore, it also appears possible for Russian citizens to legally take part in arms brokering deals even with Rosoboroneksport – provided they operate through a foreign-registered company and provided the company is licensed by the government of that country to engage in international arms trade.

Another position sometimes expressed by Russian officials is that extra-territorial provisions would not be necessary if every state implemented their own laws correctly, and that rather than wasting effort on extending extra-territorial jurisdiction, it would be better to focus on improving the implementation of existing legislation and encouraging other states to strengthen their controls. This argument fails to consider, however, that even a considerable strengthening of all national controls would not solve the problems of third-country and extra-territorial brokering if brokers were still able to exploit differences between national legislations and use loopholes to continue brokering without clearly breaking the law. Ignoring these issues is therefore a way of transferring responsibility to other states – despite the knowledge that other states may be unable or unwilling to take this responsibility – rather than increasing control over one’s own citizens.

One of the main challenges caused by the lack of controls over third-country and extra-territorial arms brokering is that it undermines efforts to enforce embargoes imposed by the UN Security Council (UNSC). Since February 1993, a presidential decree is issued following every individual embargo imposed by the UNSC forbidding the export or delivery of military-purpose goods to countries under embargo.35 However, there are no provisions within Russian law to make the violation of UNSC embargoes a criminal offence. It would seem extremely unlikely that Rosoboroneksport would disobey a presidential decree, meaning that these decrees help to prevent the export of Russian weapons to embargoed destinations. Yet since there are no clear legal procedures controlling third-country or extra-territorial brokering, Russian citizens operating beyond Russian territory can theoretically violate UNSC arms embargoes enforced by Russian presidential decrees without fear of criminal prosecution under Russian law.

Registration of brokers and record-keeping Since there is now only one official broker in Russia (Rosoboroneksport), and this is a state company, it may appear to make little sense to dwell on registration of brokers.36 As discussed

35 Following procedures established by Presidential Decree No 235 of 18 February 1993, ‘On Procedures for the Introduction of an Embargo on the Supply of Weapons and Military Technology, the Provision of Services of a Military-Technical Character, and also the Supply of Raw Materials, Equipment and the Transfer of Military and Dual-Use Technologies to Foreign States, Including Members of the CIS’. 36 Presidential Decree No. 1062 contains a detailed list of instructions for ‘Procedures for the Granting to Russian Organisations of the Right to Undertake Foreign Trade Activity Relating to Military-Purpose Goods’. However, with Rosoboroneksport having been made the sole arms broker in Russia, this decree now appears obsolete in the part concerning such organisations other than the ‘state broker’. The same licensing procedure applies to Rosoboronexport, and it is clear that structures are in place whereby several state institutions, including the Federal Service of Military-Technical Co-operation (FSMTC), the Government and the President, direct and monitor the activities of the ‘state broker’. The advantages and disadvantages of this relationship are considered further in the section on licensing below.

14 above, third-country and extra-territorial brokers can operate outside the national regulatory framework and therefore are not expected to register with the Russian Government (it is therefore unclear just how many Russian citizens and residents may be acting as third-country or extra- territorial brokers).

Russia keeps detailed records of all deals that take place on its territory. According to one expert, the Soviet legacy has ensured that all paperwork for individual deals is kept for decades, unless an active decision is made to destroy it. This means, for example, that in many cases, documents relating to deals from the 1960s are still in storage.37 However, these records are usually not publicly accessible (see section on transparency below).

Licensing procedures The ‘Procedures on Licensing the Import and Export of Military-Purpose Goods in the Russian Federation’, adopted under Presidential Decree No. 1062, state that licensing is the responsibility of the FSMTC, in accordance with procedures established by the President, the Government and the FSMTC itself. These detailed procedures contain various provisions relating to arms brokering.

Licences are granted on a case-by-case basis, and only for the duration of a particular contract. In order to be granted a licence, a number of documents are required, including: an end-user certificate; the foreign company’s registration certificate and authorisation to act on behalf of their own government; and contracts between the Russian state broker and the domestic arms producer, as well as with the foreign arms buyer.

Licences can be revoked in specific circumstances. They can be temporarily suspended or annulled because of false information in the documents used to obtain the licence, if the conditions of the licence are broken. It is unclear, however, how the conditions that might lead to a licence being revoked are monitored by the FSMTC. The research team was also unable to ascertain whether these provisions had ever been put into practice and licences revoked.

Given that there is now only one, state-controlled broker with the right to organise the export of Russian weapons, licensing procedures for brokering are essentially synonymous with export control legislation. This paper aims to focus specifically on brokering controls, rather than entering into a broader discussion about the Russian export control system, but a short observation must nonetheless be made about a particularly contentious issue: criteria-based licensing.

In recent years, there has been increasing recognition that a state’s decision on whether to authorise and license a particular export or brokered deal should be based on strict and transparent criteria. This acts as a means to ensure that licences are not given in cases which are known to endanger national interests, to threaten international security, to contradict international law, are likely to facilitate human rights violations, etc. The idea of criteria-based licensing was proposed in the OSCE Document in SALW, but it has been further developed in the EU Code of Conduct on Arms Exports, which provides eight clear criteria which should be taken into account (see ‘International Initiatives’ above).

Russia has so far resisted calls for its own licensing system to be criteria-based. The existing national regulations prescribe state agencies involved in arms transfer licensing and the related inter-agency consultation to ensure that Russia’s national interests and international obligations

37 Interview with Rosoboroneksport official, 8 December 2006

15 are met. Thus, for example, the Addendum to the Presidential Decree No. 1062 mandates the Russian Ministry of Foreign Affairs to provide advice on the international law and requirements to ensure that the UN Security Council’s decisions on ‘upholding and restoring international peace and security’ are implemented.38 However, this approach is far short of a criteria-based system of arms transfer controls. While Russian officials claim to take into account many of the criteria contained in the EU Code of Conduct and other documents, such as the OSCE Document on SALW, they are not legally obliged to, and given the general lack of public transparency on arms transfers it is unclear how such criteria might be applied in practice. The danger remains that commercial incentives to boost arms exports override other concerns.

In particular, the issue of human rights and international humanitarian law has become a major bone of contention. As a member of the UN and signatory to a number of international treaties on international humanitarian law and human rights (for example, the UN Charter and the 1984 Convention against Torture and other Cruel, Inhuman or Degrading Treatment or Punishment), Russia has already made a number of commitments in this field. However, there is no mention of humanitarian law or human rights in Russian arms transfer control regulations. As just noted, Russian officials claim to take into account many of the relevant criteria, including the human rights situation in the arms importing country (this is primarily the responsibility of the MFA). However, with little transparency in these matters, it is not at all clear whether these criteria are fully observed – i.e., how consistently and stringently the human rights or humanitarian situation in the recipient countries is considered when making arms export licensing decisions.

A second general concern about the Russian export system with regards to brokering and licensing is the relationship between Rosoboroneksport and the state. In theory, Rosoboroneksport is subject to control from the state just as any other exporter or broker would be (with the FSMTC overseeing and regulating its work, and the President and the Government also exercising control). On paper, these controls appear to be perfectly in line with best international practice. Nonetheless, concerns have been raised that since Rosoboroneksport is the sole broker and is a state-owned company, there is potential for a conflict of interests, where the FSMTC’s role in ensuring that Rosoboroneksport acts responsibly may be overridden by commercial or other political concerns that seek to maximise arms exports.

In this regard, questions may also be raised as to how many individual arms brokering deals are rejected every year. Such statistics are not published, but a representative of Rosoboroneksport noted that in practice most applications for brokering deals are approved. This is attributed to the high level of prior consultation and cooperation between Rosoboroneksport and state agencies39. The risk, however, is that the FSMTC ends up simply ‘rubber-stamping’ licensing applications.

Enforcement of brokering controls The research team was unable to find much information regarding the enforcement of brokering controls and penalties for their violation. Article 19 of the Procedures on Licensing the Import and Export of Military-Purpose Goods in the Russian Federation (enforced under Presidential Decree 1062) states that the FSMTC ‘can if necessary carry out checks to see whether the goods imported (or exported) by the applicant organisation) correspond with the military-purpose goods

38 Article 2 (d), ‘List of Federal Executive Bodies for the Coorniation and Control in the Area of Military- Technical Cooperation of the Russian Federation with Foreign States and also for Fulfilling Other Tasks of State Regulation in This Area’, Addendum to Presidential Decree No. 1062 of 10 September 2005, ‘Questions of Military-Technical Cooperation of the Russian Federation with Foreign States’. 39 Ibid.

16 listed in the licenses they have received’.40 It is unclear, however, how and how often such checks are carried out in practice, and whether they are done randomly or only when there are concerns about a specific case. Given the lack of controls over third-country brokering, it can be assumed that these post-shipment verifications apply only to direct exports from Russia.

The research team was unable to clarify what legal penalties and sanctions could be imposed on arms brokers for violations of arms brokering controls. It was also unable to discover whether any prosecutions for violations of brokering controls had been brought to the Russian courts. The case of Viktor Bout, who continued to live in despite an red notice requesting his arrest (see case study below), suggests that Russian citizens accused of brokering violations in other states are not likely to be extradited to face trial.

International cooperation, information exchange and transparency In general, it may be argued that Russia has been cooperative on the topic of arms brokering where it has had to be, but has mostly given little attention to international initiatives on arms brokering and at times has even obstructed attempts to develop more stringent measures. In part, this may stem from an erroneous belief that the Russian system, concentrated around one state- controlled broker, is so different from other systems that international brokering control regimes are not relevant. It has sometimes also been argued that many states see little benefit in more stringent controls on arms brokering, since brokers acting in the grey market help to boost the overall arms trade, thus providing greater opportunities for national arms exporters even if they themselves are not engaged in this trade.41

Since brokering controls are usually dealt with in the context of wider arms export regimes, it can be difficult to clarify exactly what any state’s position is with regard to international cooperation specifically on brokering. As noted above, Russia is a member of key international or multi- lateral organisations that have dealt with arms brokering control: the UN, the Wassenaar Arrangement and the OSCE.

Both the Wassenaar Arrangement (WA) and the OSCE have developed specific instruments dealing with arms brokering in recent years: the WA Elements for Effective Legislation on Arms Brokering and the OSCE Principles on the Control of Brokering in SALW. These instruments are far from comprehensive in scope and are not legally binding. Nonetheless, they are an important first step in the development of regional initiatives to control arms brokering and Russia’s participation is significant. Both of these regimes commit states to share information about brokers within the organisations’ internal information exchange mechanisms. It is unclear to what extent Russia participates in these information exchanges. On the one hand, it is known that Russia usually fulfils its information exchange commitments within these organisations. On the other hand, given that Russia has only one state broker internally, and does not pay attention to the issue of third-country brokering, it is unclear what information Russia would be likely to provide to its partner states: for example, does the Russian Government provide partners with information about cases where licences had been denied to the state broker, Rosoboroneksport?

At the UN level, the issue of arms brokering has only been considered as part of the UN SALW process. While Russia has not opposed the idea of arms brokering being included in this process, in recent years its position towards UN-level initiatives on the arms trade has been defensive and

40 Presidential Decree No. 1062 of 10 September 2005 [unofficial ]. 41 This explanation has been offered, amongst others, by Peter Landesman in the article on Viktor Bout (full reference below): ‘The top arms manufacturers -- and the U.S. sells more weapons than the rest of the world combined -- have a vested interest in keeping their product on the move, legally or otherwise.’

17 it has generally resisted any measures that it fears may impose restrictions on Russia’s legal arms trade.42 In this regard, it is regrettable that Russia has not so far supported measures at the UN level to develop a legally-binding International Arms Trade Treaty43, which is expected to establish an international system of arms transfer control covering the import, export, transit, transhipment and brokering of all conventional arms.

In terms of transparency, the situation is mixed. All legislation and other procedures relating to Russia’s export control and brokering policy are publicly available, and can usually be found easily online. The website of the FSMTC contains a very detailed list of Russian normative acts in the field of military-technical cooperation and all international agreements to which Russia is party.44 However, most legislation is only available in Russian. While there is no legal reason why Russia should have to provide information in other languages (particularly as Russian is an official UN language), it would nonetheless be helpful for Russia’s international partners if more information about its export control and brokering regimes were made available in other languages, primarily English.

Overall, however, Russia currently provides little information to the public about its arms transfers. It does not publish national reports listing all its exports and all deals that have been brokered. Similarly, although it is known that Russia has very good record-keeping mechanisms and all licences are meticulously recorded (see above), this information is usually kept secret even years after the deals have taken place. Parliament also has little or no role in overseeing arms export and licensing decisions, which further reduces the level of oversight and transparency. According to a 2003 study of the Russian SALW industry, ‘all of the main powers controlling Russian arms export lie with the president, who can exercise them without any consultation with Parliament’.45

Exploiting the loopholes: A case study of Viktor Bout46 Private arms brokers often operate on the edge of legality. In essence, brokers avoid control in three ways. Firstly, as much as possible they operate and organise shipments out of jurisdictions with lax transfer control regimes. Secondly, the overall brokering activity can be broken down into numerous parts. This makes it easier to create a complicated paper-chain that the authorities find hard to follow. It also allows brokers to boost their apparent legitimacy by focusing on those activities that are seen as legitimate (e.g. the provision of associated services) and concealing

42 Russia is not alone in taking this position, and a number of other major states, notably the USA and China, have also regularly taken an aggressive stance against parts of the SALW control agenda. Nevertheless, although all of these countries have legitimate concerns, it is hard to escape the conclusion that their defensive positions have restricted progress on strengthening arms transfer controls in all areas – including arms brokering. 43 See note 23, above. 44 See: http://www.fsvts.gov.ru/db/kvts-portal/default.html 45 Pyadushkin M, with Haug M and Matveeva A, Beyond the Kalashnikov: Small Arms Production, Exports, and Stockpiles in the Russian Federation, Occasional Paper No. 10, Small Arms Survey, Geneva: 2003. 46 There are many accounts of Bout’s life and activities, but given the controversy surrounding Bout and his own reluctance to talk, it can be hard to discern fact from rumour. Two main sources have been used in this section. The first are UNSC reports that name Bout in connection with various illicit activities. The second is an interview by Peter Landesmann with Viktor Bout and business partner Richard Chichakli entitled ‘Arms and the Man’ published in the Times. Since the Landesmann article is a direct interview with Bout, there is a greater chance that this information is reliable – though as Landesmann notes, such interviews are intended by the interviewee to portray them in a certain light. Full references for these sources are given as appropriate below.

18 activities that are illegitimate (e.g. some core brokering activities). Thirdly, even when an activity is considered illegal, there is often no mechanism to actually prosecute those who have committed the violation. Brokers know this, and can therefore evade prosecution even in cases where they are openly accused of having broken the law.

The case of Viktor Anatolyevich Bout illustrates all of these points. Viktor Bout has repeatedly been at the centre of accusations of ‘Russian’ arms brokering and was described as the ‘Merchant of Death’ by Peter Hain, a former UK Foreign Office Minister.47 This case study goes some way to explaining the question asked by many foreign observers: if Russian controls over arms brokering are so strong, why has Viktor Bout never been prosecuted? It should not be taken merely as a case study about the Russian system, however: the complexities and loopholes described below are common to the vast majority of states.

Viktor Bout was in his twenties when he realised the opportunities to use the vast stock of transport aircraft and skilled pilots that had been left under-employed by the collapse of the Soviet Union. According to Bout, this began with the purchase of three Antonov cargo planes which began flying from Moscow in 1992. In 1993, he moved his centre of operations to the (UAE), and business expanded rapidly. By the late 1990s, Bout had air- freight operations based out of Sharjah in the UAE, Pietersburg in South , Ostend in and Odessa in Ukraine. In a few years, he had built an integrated transport and logistics structure with global reach, including contacts in some of the most dangerous parts of the world.

Some of this trade was unquestionably above board; according to Bout, it involved goods such as flowers and frozen chickens. Bout does not entirely deny, however, that he has also been engaged in the delivery of weapons. In a rare interview with Peter Landesman in 2003, he argues on the one hand that it is not the transport company’s business to know what goods they are carrying, even for other suspected arms brokers (‘It's not my business to know what's on board. It's not the captain's job to open the crates and know what's inside’) and on the other hand that there is nothing technically wrong with supplying weapons, even to rebel groups (‘Illegal weapons? …What does that mean? If rebels control an airport and a city, and they give you clearance to land, what's illegal about that?’).48

Landesman points out, however, that many of the destinations to which Bout may have delivered weapons were under UN . Indeed, Bout has been identified more than once in UNSC reports on sanctions and security in conflict-affected areas, particularly in a 2000 report on sanctions in ,49 and two reports, in 2002 and 2005, on the illegal exploitation of natural resources50 and the enforcement of arms embargoes in the Democratic Republic of the Congo.51 The first provides a profile of Bout and his operations with regard to sanctions-busting in Angola; the latter implicates companies run by Bout in the trade in conflict diamonds, demonstrating that arms brokering can crossover with any number of other trading activities both legal and illegal.

47 Quoted in Bowcott O and Norton Taylor R, ‘Africa’s Merchant of Death’, The Guardian, 23 December 2000, http://www.guardian.co.uk/international/story/0,3604,415125,00.html 48 Landesman P, ‘Arms and the Man’, New York Times, 17 August 2003. http://www.nytimes.com/2003/08/17/magazine/17BOUT.html 49 United Nations Security Council, S/2000/1225, ‘Final Report of the Monitoring Mechanism on Angola Sanctions’, 21 December 2000. 50 United Nations Security Council, S/2002/1146, ‘Final report of the Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth of the Democratic Republic of the Congo’, 16 October 2002. 51 United Nations Security Council, S/2005/30, ‘Report of the Group of Experts on the Democratic Republic of the Congo’, 25 January 2005.

19

Despite these clear accusations, Bout has never been brought to justice. In February 2002, Belgium issued an arrest warrant against Bout, not in connection with arms brokering activities but for (though a previous investigation about arms brokering by the Belgian police had encouraged Bout to stop operating from Ostend). Alongside this, a red notice was issued through Interpol – a request to foreign governments to seek the arrest of a wanted person with a view to extradition. At the time that this story became public, Bout’s whereabouts were well known: he was in Moscow, giving a radio interview on Ekho Moskvy. Nonetheless, the Russian authorities did not arrest him. According to one article, unnamed sources in Russian law enforcement told ITAR-TASS that no action had been taken against Bout because ‘Russian law prohibits the arrest of a Russian citizen for extradition to a foreign nation’.52 Since then, Russian officials have continued to reject calls for Bout to be arrested, arguing that there is no evidence that he has broken any laws.

Other international actors have also blown hot and cold about Bout. According to Landesman, Bout’s operations were subject to major scrutiny in the Clinton era, but the Bush Administration initially showed little interest. This changed after the terrorist attacks of 11 September 2001, after which Bout came under pressure because of his alleged links to the Taleban and al-Qaeda (which he denies).53 Despite this, insufficient attention was paid to restricting Bout’s networks, to the extent that stories began to surface demonstrating that the US and its coalition partners were directly or indirectly (through sub-contracted agencies) using Bout-owned planes to supply their operations in and .54 In November 2006, the Bush Administration renewed its rhetoric against Bout by freezing his assets alongside a number of other people accused of illicit activities in the Democratic Republic of Congo.55 So far, it is unclear whether this has had any effect.

This short case study demonstrates three key aspects of the brokering control issue. Firstly, Bout’s case is an excellent example of the blurred line between core brokering activities and the provision of associated services. The argument in Bout’s defence – that he is merely responsible for transporting freight, his pilots are generally not aware of what they are carrying, and nor should they be – places Bout as merely a provider of services rather than as a broker. In this manner, the more legitimate side of the brokering business can be used to deflect attention from the accusations of actual brokering (i.e. the facilitation of arms deals, including the organisation of services to facilitate the transfer itself).

Secondly, it appears that Bout has indeed violated no national laws; as there is no definition of extra-territorial or third-country brokering in Russian legislation, his international brokering activities are not subject to state control. This is the case even when he is accused by UNSC reports of violating the UN sanctions regime in Angola. Although there should be a presidential decree enforcing UN sanctions within Russia, there does not appear to have been any investigation into whether Bout had indeed violated these sanctions, nor any mechanism for bringing him to justice if this were proved. Furthermore, there appear to be no extradition

52 Kupchinsky R, ‘Fiasco or Cover-Up in Moscow?’ Radio Free Europe/Radio Liberty, 7 March 2002. http://www.rferl.org/reports/corruptionwatch/2002/03/9-070302.asp 53 Landesman P, ‘Arms and the Man’, New York Times, 17 August 2003 54 Farah D and Braun S, ‘The Merchant of Death’ in Foreign Policy, Washington: November/December 2006. Available online at: http://www.douglasfarah.com/pdfs/bout.pdf 55 US Presidential Executive Order, ‘Executive Order: Blocking Property of Certain Persons Contributing to the Conflict in the Democratic Republic of the Congo’, 27 October 2006. http://www.whitehouse.gov/news/releases/2006/10/print/20061031-2.html

20 procedures in cases where Russian citizens are wanted abroad in relation to serious crimes (though it should be noted that the Belgian arrest warrant and the accompanying Interpol notice related not to arms brokering, as is commonly supposed, but money laundering).

Lastly, this case study demonstrates that international cooperation on the topic of arms brokering control is not systematic and is particularly sensitive to political factors. On the one hand, Russia has not done much in response to the controversy over Bout. Not only has it allowed Bout to live freely in Moscow; there has been little action to tighten controls over third-country or extra- territorial brokering to create a framework that would control such actors more strictly in future. On the other hand, other international actors, most notably the US and the UK, have loudly accused Bout on some occasions while remaining passive on others, giving the impression that the attention placed on this issue depends on the prevailing political climate. This undermines what is really needed: coordinated international action to strengthen controls over arms brokers such as Bout both at the national and the international levels.

Conclusions and recommendations The Russian experience of controlling arms brokering contains a sharp contrast between the strict controls on domestic brokering and the near-total lack of control over third-country and extra- territorial brokering if the weapons neither originate nor transit through Russian territory. The right to broker arms export and import deals on Russian territory is restricted to one entity, the state broker Rosoboroneksport. The Russian system thus diverges considerably from the more liberal approaches to private brokering found in many countries, and has the virtue of simplicity: it is obviously much easier to exercise control over one state broker than a web of private brokers. However, this has engendered a certain complacency among Russian officials and experts. The fact that there is only one state broker has fuelled a belief that Russian controls are watertight, that Russia has no problems with brokering, and that the Russian system has nothing to learn from its foreign counterparts. Indeed, since arms sales are generally seen in a positive light and the focus is on increasing Russia’s arms exports, any potential problems associated with brokering fall by the wayside and are not widely discussed or even recognised by officials, journalists or the general public.56

The comparative analysis above has demonstrated that if a comprehensive definition of arms brokering is established and the Russian system is mapped against international best practice, a number of ‘grey’ or unregulated areas emerge. Firstly, confusion is caused by the lack of a clear definition of ‘brokering’ or ‘intermediation’ and related terms within Russian legislation. Secondly, the whole issue of third-country brokering (i.e. the facilitation of a deal whereby weapons are transferred from one third country to another without going through the territory where the broker is operating) is off the radar. Beyond state monopoly controls on Russian territory there is an apparent legal vacuum which can be exploited by Russian and other citizens operating from Russia. Thirdly, although there are procedures to enforce all UNSC arms embargoes, loopholes exist meaning that violating an embargo is not properly criminalised and those Russian citizens that violate embargoes by means of third-country or extra-territorial brokering can easily escape prosecution.

This paper has also noted that in a situation where there is only one, state-controlled broker, the inter-relationship between brokering controls and national arms export controls is very close. On the one hand, this is positive, since it is considered best practice that brokering controls should be integrated into a country’s national export control system and that brokering controls should be

56 Interview with Rosoboroneksport official, 8 December 2006; interview with Viktor Litovkin, RIA Novosti’s military analyst, 8 December 2006.

21 no less stringent than controls on direct exports. On the other hand, it means that any discussion of brokering controls inevitably raises questions about the national export control system. This paper has refrained from analysing Russian arms export controls in detail, but three key issues nonetheless arise. Firstly, although the one-broker system has many strengths, it also raises questions about conflicts of interest and the extent to which Rosoboroneksport is subjected to proper oversight: Rosoboroneksport’s close relationship with the highest levels of government might reduce the rigour of licensing decisions. Related to this, a second concern is that Russian licensing decisions are not made according to a clear criteria-based system, and that no attention is paid to the human rights and humanitarian situation in recipient countries, despite Russia’s existing obligations under international law (including international treaties) and commitments to a variety of international, multilateral and regional initiatives. Thirdly, although Russia is exemplary in terms of its record-keeping procedures, there is little public transparency in this sphere and little information is available about what licences have been issued for brokered deals.

Lastly, Russia has not always taken a constructive line in international initiatives to strengthen controls over arms brokering. On a number of occasions, it has resisted attempts to include more progressive wording into regional initiatives on brokering, and has treated attempts to develop an international, legally-binding instrument on brokering with caution. This may in part be due to a genuine, if erroneous, belief that the Russian system of brokering control has nothing in common with that of other countries and therefore that international experience is not applicable. However, it may also imply that the Russian Government does not appreciate the seriousness of the challenges caused by uncontrolled third-country and extra-territorial brokering, and is happy to ignore the problem because it does not affect the prime goal of strengthening the Russian defence industry and promoting Russian arms exports.

Recommendations This paper has argued that the Russian system of brokering controls is very strong in some areas, but that loopholes remain. In order to work towards closing these loopholes, recommendations are made in the following areas:

• Define key terms in legislation. The key terms relating to arms brokering (at a minimum: ‘broker/intermediary’, ‘arms brokering/intermediation’, ‘third-country brokering’ and ‘extra-territorial brokering’) should be clearly defined in legislation, with previous legislation amended as necessary to accord with these definitions. • Develop a legal framework for control over third-country brokering. Develop a legal framework to control the activities of persons who may be operating on Russian territory as arms brokers between states beyond Russian territory. • Establish a legal framework for control over extra-territorial brokering. Establish extra-territorial jurisdiction over Russian citizens, wherever they are resident, to ensure that Russian citizens anywhere in the world are not engaged in brokering activities that would be illegal under Russian arms export legislation and/or Russia’s international obligations. This would include a state-register of extra-territorial brokers. • Develop mechanisms to strengthen control over ‘associated’ brokering activities. Investigate means for establishing oversight and control over the actions of Russian citizens and companies who are engaged in ‘associated’ brokering activities, particularly those who provide transportation, financial and insurance services to facilitate the transfer of military-purpose goods between third states. • Codify legal penalties for the violation of brokering control regulations. • Criminalise the violation of a UNSC arms embargo. Amend legislation to ensure that the violation of a UNSC arms embargo and the associated presidential decree is a

22 criminal offence with strict legal penalties. This should apply equally to exports from Russia and to the activities of Russian citizens or companies violating embargoes by means of third-country or extra-territorial brokering deals and associated activities. • Address concerns about the system of oversight over Rosoboroneksport. Make more information publicly accessible on existing controls over licensing decisions, and the relevant procedures, with respect to deals brokered by Rosoboroneksport, including information on specific licence applications, both approved and denied. • Establish a criteria-based system for export and brokering licensing. Decisions on whether to grant export and brokering licences should be assessed against clear criteria that ensure that weapons and munitions transferred do not end up in the hands of irresponsible end-users. In particular, Russia should ensure that weapons will not be transferred to destinations where weapons are likely to be used in the violation of human rights and humanitarian law, where they will contribute to the deterioration of regional security, or where there is a significant risk of diversion (re-export). • Engage proactively in international initiatives to strengthen controls over arms brokering. Russia should actively participate in international efforts to elaborate options for regulating key aspects of arms brokering and related activities around which significant debate continues to exist. In particular, it is hoped that Russia will support the UN GGE on brokering in formulating common understandings on basic issues such as definitions of brokers, brokering and brokering related activities, options for extraterritorial controls, minimum standards for effective controls, and international assistance and cooperation. There should also be greater dialogue with the EU to explore how Russia and the EU could find greater harmonisation regarding the control of arms brokering (see above). • Improve transparency and strengthen public oversight over brokering and export controls. Russia should publish regular reports on arms exports and brokered deals, detailing types, quantities and destinations of weapons transferred. These reports should be publicly available. Procedures should be amended to allow greater parliamentary engagement (through the relevant committees) in the development and review of licensing procedures for arms transfer controls, including controls on brokering, and parliament should be able to investigate any accusations of improper conduct. • Raise the profile of issues relating to arms brokering in Russia. Critically reassess the perception that Russian controls over arms brokering are watertight and that the international dialogue on brokering is not relevant. Civil society and the media should participate in the debate on arms brokering and brokering controls, for example by analysing and reporting on Russia’s legislation and any national reports published by the government (see above).

This report has been produced with the assistance of the European Union. It was compiled within the framework of the EU-Russia Cooperation Programme (formerly TACIS)-supported project ‘Building civil society capacity to engage with government to tackle small arms in Russia’. The contents of this publication are the sole responsibility of the author and can in no way be taken to reflect the views of the European Union.

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