The Seventh Turtle Bay Security Roundtable: Public-Private Cooperation at the Nexus of Global Trade and Security

27 March 2015

On March 27, 2015, the Permanent Missions of Japan, Turkey, and Poland to the United Nations hosted the seventh meeting of the Turtle Bay Security Roundtable series. The event was organized in cooperation with the Stimson Center, an independent think tank dedicated to global security. Under the theme Public-Private Cooperation at the Nexus of Global Trade, the meeting convened UN Member States, members of UN Security Council Panels of Experts and other subsidiary organs, and experts from think tanks, industry, and academia to discuss the complex web of security risks rooted in global trade flows. The event featured a keynote address by Mr. Irwin Nack (Bank of Tokyo-Mitsubishi UFJ) and a panel discussion with Mr. Jeff Merrell (Rolls-Royce North America), Ms. Kathleen Palma (General Electric), and Dr. Kazuto Suzuki (Hokkaido University).

Opening Remarks:

Ambassador Motohide Yoshikawa started the event by introducing the Turtle Bay Security Roundtable series that originated in 2011 with an understanding of the value of diverse perspectives and insights, including those outside the ordinary context of New York-based experts and UN officials.  Focusing on the important role played by the private sector, Ambassador Yoshikawa suggested that those in government organize themselves in a similar manner to those in industry, for there is much to learn from an industry that often considers issues in a cross-cutting manner.  Ambassador Yoshikawa stressed that when UN mandates are operationalized, it is of little importance whether it is a “1540” (non-proliferation) mandate, a “1373” (counter-terrorism) mandate, or an Arms Trade Treaty (ATT) obligation, but rather how the mandate is translated into actions such as border control, legislation, or law enforcement.

Ambassador Bogusław Winid of Poland began by noting the importance of the topics under discussion while also hinting at the vast difficulty comprehensive solutions pose due to the ever-changing environment of conflict that has emerged on an unprecedented scale.  The UN is taking positive steps to address growing instability through initiatives such as the ATT, which currently has more than 100 signatory countries and over 60 ratifications. Ambassador Winid ended with two hopes for the future: that the ATT becomes universally implemented, and that the eroding security architectures in Europe return to a time when no one would resort to the use of force to change borders or political systems of other countries. In both of these cases, cooperation is crucial for success.

Ambassador Levent Eler, Chargé d'affaires of Turkey noted that since 2011, Turtle Bay Roundtable participants have discussed controversial issues related to arms control.  Ambassador Levent Eler also stated that currently, global trade has become increasingly important to all countries, especially for exporting countries, where continuous and uninterrupted trade is vital. International trade has flourished but involves tremendous risks - not just commercial and legal risks, but also security risks. Ambassador Levent Eler insisted that private-public cooperation and sharing best practices are the only way these processes can be carried out efficiently and effectively.

 Keynote Speech:  

Keynote speaker Irwin Nack had previously been featured as a panelist at the third Turtle Bay Security Roundtable event in May 2012, when his comments focused on illicit financial flows. For the keynote address of this seventh Roundtable meeting, he was asked to expand upon those ideas and share his perspective on the value and importance of cooperation between the private and public sectors.   

Mr. Nack formerly served as an Assistant District Attorney in the New York County District Attorney's Office where he investigated and prosecuted complex financial crimes. Subsequently, he was Investigative Counsel for the New York State Banking Department where he conducted and supervised bank-related financial investigations and presently he is General Manager and Chief Compliance Officer for the Americas operations of the Bank of Tokyo-Mitsubishi UFJ. Mr. Nack started his speech comparing the “whack-a-mole” game to how the massive proliferation of arms is currently dealt with. He provided many examples of ways government and banks can work together through information sharing in order to optimize their resources and effectively combat proliferation threats.

Banks have spent billions of dollars on compliance programs, especially since September 2001, to monitor and analyze transactions and report suspicious activity to the government. Good banks know their customers and do their best to distinguish legitimate activity from illegal activity, such as money laundering. Since networks involved in narcotics trafficking, human trafficking, and arms trafficking are becoming more complex and criminals are more adept in their concealment methods, government information is needed to help banks better identify illicit activity. Mr. Nack insisted that law enforcement and intelligence agencies could balance confidentiality with sharing useful information so the private sector could identify the very criminal activity the government is trying to stop. Collaboration and allocating resources efficiently would be more productive than continuing to play the endless game of “whack-a-mole.”

 Panel Discussion

Moderating the panel discussion was Nate Olson, who leads industry outreach on global trade issues at the Stimson Center. Mr. Olson began the session with a brief introduction of each panelist and then asked Jeff Merrell to compare regulatory developments in import and export regimes.

Mr. Merrell noted the rapid development of regimes promoting import security after the events of September 2001, which led the international community to rethink certain aspects of globalization. Different perspectives had to be considered, including a legal, financial, and even a nonproliferation perspective, which UN Security Council Resolution 1540 and the ATT tie into. International norms for import standards have developed over 30-40 years, through GATT and WTO. No such norms exist for exports.  Each country tracks exports in its own way, but it is difficult to track exported goods in global trade – instead, they are tracked using harmonized codes developed for import purposes.  In the private sector, standardized terminology for exports remains less robust than that used for imports. 

Kathleen Palma was asked what she thought government could do in partnership with industry for better security and compliance. She explained that the export licensing process was very time-consuming for industry, as the scope and complexity of trade controls has grown to great proportions. She also emphasized a need to incentivize company investments in compliance. The benefits of proactive measures to enhance compliance programs extended to both government and industry; for government, such steps could improve security, while for industry, they could enable long-term cost savings.

Mr. Merrell described the strong appeal of “trusted trader” regimes, where government provides faster license approvals and other benefits to companies that are known to have put significant resources into their compliance programs. He noted similar regimes in Japan and Europe, but by and large, there were few operational examples.

Dr. Kazuto Suzuki elaborated on the same topic and said that both Japan and the European Union use licenses and general incentives to export to certain countries. Fundamentally, the mechanism of licensing is important to make sure sensitive materials do not fall in the wrong hands, but at present, it often is too time-consuming.

Dr. Suzuki commented that the hardest challenges he sees under the UN Sanctions regimes are the use of false licensing and false documents.  He provided examples from Japanese best practices; the country joined COCOM and had an international incident in 1987 that was dealt with by enhancing controls and getting exporting companies to follow a system that has developed into CISTEC based on Internal Compliance Program. He stressed that reputational risk was the major driving force for companies to comply with export control rules.

When the floor was opened for questions, one audience member asked the panelists what countries around the world do not have the best compliance or enforcement regimes and if their regulatory regimes differ, as well as how they work with their corporate counterparts there. Mr. Merrell described Rolls Royce’s very strict policy to be compliant with all of the laws of the countries with which they do business. If they go into a country, they follow its law along with US and UK laws, and if they differ, they use the strictest policy.

One diplomat asked how banks and industry could assist exporting countries to make their risk assessment before the authorization of the export of conventional arms. Ms. Palma responded that companies need to know where their products are being used. Companies and banks invest a lot of money to know their customers and the purposes for which equipment will be used. Companies share the information they collect regarding their own trade, and therefore, companies have strong knowledge on the relevant trade issues.

One common thread throughout the discussion was that a globalized world has created more and more challenges since it was possible to run a company without having a physical address, and transactions and distribution could take place online. A recent development reflecting these challenges is the US Treasury Department’s “50% Rule,” which expands U.S. sanctions against Russia. Even large companies have trouble handling that level of investigation, and often seek outside assistance, but small/medium-sized exporters certainly have insufficient capacity. Ms. Palma explained that while no company was perfect in this area, providing the right incentives to invest in appropriate risk management was critical in getting the best results for both industry and government.

Dr. Suzuki noted that UN sanctions were based on the consensus of the five permanent members of the Security Council, and operated under Chapter VII of UN Charter.  The strength of UN sanctions was their universality; the reach of the compliance mandate across all Member States promoted improvements in both security and trade regulation, while expanding Member States’ capacity and know-how in the implementation of sanctions measures. 

Brian Finlay, Vice President of the Stimson Center, asked if the private sector felt excluded from the processes leading to national and international mandates (similar to how some UN Member States that do not serve on the Security Council feel). Ms. Palma touched on how the US government engages industry but suggested other governments were sometimes more inclusive – for example, with regard to the ATT. Mr. Merrell thought it often was a challenge for the corporate world to weigh in. On a related note, one participant said it could be difficult to persuade a company’s management of the importance of engaging officials, as the results could be unpredictable or hard to detect altogether. Dr. Suzuki emphasized that once a specific regulation had been finalized, the commitment of top management was very important for industry’s role in implementation.

As the audience continued to pose questions regarding UN sanctions regimes and other mandates, many people agreed that interpretations could differ by country, giving rise to compliance risks. Mr. Merrell underscored that the consequences of export compliance failures could be much more severe than violations in other areas, such as anti-bribery and corruption.

Ms. Palma and Mr. Merrell observed that their companies’ compliance structures differed in ways that made sense for their respective circumstances. As a concluding comment, Mr. Olson noted that the fact a company’s compliance program could be adapted to different institutional and competitive conditions reflected its potential strategic value, as it could serve as a means to enhance corporate risk management more broadly. Mr. Olson and other event organizers then thanked the panelists, bringing the formal program to a close.




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