Malaysia’s Export Control Law: A Step Forward, But How Big?

In April 2010, on the eve of the Nuclear Security Summit hosted by U.S. President Barack Obama, the Malaysian government announced that it had enacted the Strategic Trade Act, intended to strengthen Kuala Lumpur's ability to curb the export and transshipment of WMD related materials.[1] This new law appears to mark a positive step by a country that has found itself caught up in numerous cases of WMD-related trafficking.

Critics have consistently accused Malaysia of giving insufficient attention to its nonproliferation-related trade controls. This is a serious problem because proliferating states and non-state actors are known to seek out and take advantage of weak links in the global security chain in order to procure sensitive WMD-related technologies. Inadequate strategic trade controls can provide states and terrorist organizations ample opportunity to acquire components used in chemical, biological and nuclear weapons with little risk of being caught.

Economic prosperity and development have tended to trump concerns about potential illicit trafficking issues in Malaysia, and elsewhere in Southeast Asia. Malaysia first garnered international attention for deficiencies in its export control system in 2003 and 2004 after authorities intercepted a large shipment of gas centrifuge parts en route to Libya via the A.Q. Khan network.[2] Khan's closest aide, B.S.A. Tahir, a Sri Lankan national, operated out of Malaysia. One company in Malaysia provided aluminum rotors for the 200 basic P-1 centrifuges Khan attempted to sell to Libya. In addition, another Malaysian company, SCOPE, produced components for a more advanced Pakistani-type centrifuge, the P-2.[3]

In the last few years, other smuggling cases have highlighted the fact that Malaysia has become a popular transshipment point for illicit traffickers. The popularity of Malaysian ports noticeably increased after the port of Dubai in the UAE—previously the transit point of choice for Iranian and Pakistani based traffickers—increased its transshipment controls under pressure from the United States and other international partners. Iranian entities in particular appeared to be transshipping sensitive goods through Malaysia as a means to route them to Tehran without arousing the suspicion of the original supplier. Since it largely lacked transshipment controls, Malaysia was an ideal choice for these procurement networks.

Slow Movement towards Better Controls

Malaysia has been far from alone in its reluctance to impose stronger nonproliferation-related trade controls. Throughout Southeast Asia, attempts to implement UN Security Council Resolution (UNSCR) 1540 have met resistance or lukewarm interest. UNSCR 1540 mandates that states establish and enforce effective measures against the proliferation of weapons of mass destruction, their means of delivery and related materials, thereby attempting to stem WMD proliferation to state or non-state actors.[4] The resolution also requires states to report on the status of their trade control systems. Malaysia—along with most Southeast Asian states—submitted its national report to the 1540 Committee in 2004. The Malaysian report showed a weak and disjointed system without a significant unifying law, and little understanding of the importance of transshipment and brokering controls. The report also stated that Malaysia lacked a comprehensive WMD export control system and that export control laws and regulations were primarily "based on economic reasons."[5] Despite strong international concern regarding the overall efficiency and effectiveness of its trade control system at the time, Malaysia's 1540 report did not reference any weaknesses within its system. Specifically, Malaysia asserted in its initial report that it "does not require assistance in implementing" UNSCR 1540 but indicated a willingness to consider requests from other states for assistance.[6]

The limited implementation of UNSCR 1540 in Southeast Asia and elsewhere derives from insufficient financial and technical resources.[7] Most countries in Southeast Asia have until recently viewed international export control regimes with suspicion and likewise referred to UNSCR 1540 as an unfunded mandate.[8]

Malaysia long perceived export and transshipment control requirements as largely negative, potentially resulting in lessened economic progress and development. However, in the last few years, Malaysia has shown more interest in cooperating internationally on strategic trade controls. Malaysia and the United States have worked through the State Department administered Export Control and Related Border Security Assistance (EXBS) to help Malaysian officials draft effective regulations and establish a workable licensing system.[9] Malaysia has also been a regular participant in the Japanese government sponsored Asian Export Control Seminar. In 2008, the German Federal Office of Economics and Export Control, which implements the European Commission's assistance projects related to export controls, identified Malaysia as an important partner within its outreach program. Initial EU contributions consisted of support for Malaysian-led legal drafting seminars, with a focus on achieving an understanding of the current legislation in addition to providing the Malaysian partners with support and advice.[10]

Despite this interaction with foreign partners, Malaysia's new export control system was slow to get up to speed. Highlighting the continued problem of lax transshipment controls in the Malaysian system, allegations of illegal Malaysian involvement in exports of sensitive dual-use items to Iran emerged in 2008. In one case, Malaysian national Brian Kaam, along with two Malaysian firms were charged in connection with the illegal export of controlled U.S. strategic goods to Iran. In this case—and in many others like it — falsified end-user information was used to purchase items from U.S. firms which were then transshipped via Malaysia to Iran. Since August 2008, the United States has charged, convicted or sentenced defendants in at least six cases involving transfer of U.S. military technology and equipments through Malaysia.[11]

Given that Malaysia became a favored smuggling hub for WMD-related procurement networks, experts and government officials expressed strong criticism regarding the Malaysian government's slow implementation of comprehensive export controls.[12] In a speech on February 27, 2009, at the Carnegie Endowment for International Peace, the United States Ambassador to Malaysia, James Keith, publicly urged Malaysia to move more swiftly and forcefully in implementing export controls, saying, "Malaysia has more to contribute to international mechanisms to manage the flow of sensitive technology, including nuclear and missile-related equipment. What is required is the political will to give priority to this set of policies."[13]

Malaysia's Strategic Trade Act 2010

Since taking office last year, Malaysian Prime Minister Najib Razak has sought to create warmer relations with the United States and recognized that Malaysia's lax nonproliferation-related trade controls was a serious impediment to bilateral relations. The new legislation, which was drafted with the support of U.S. experts and officials, was one of the numerous "house gifts" that countries brought to Washington during the summit showing their support for President Obama's efforts in this area.

The new Strategic Trade Act outlaws the shipment of weapons of mass destruction (WMD) related materials through Malaysian territory and represents a significant step towards fuller compliance with UNSCR 1540. In the law, WMD is defined as:

    [A]ny weapon designed to kill, harm or infect people, animals or plants through the effect of nuclear explosion or dispersion or the toxic properties of a chemical weapon or the infectious or toxic properties of a biological weapon, and includes a delivery system designed, adapted or intended for the deployment of such weapons.

The law authorizes the appointment of a Strategic Trade Controller to establish and coordinate a more unified licensing system for trade in strategic materials. The law further extends the control of the system over strategic items being transshipped through Malaysian ports, and creates a basis for controlling brokering activities of Malaysian entities. Under the Strategic Trade Act, prison sentences of no less than five years and considerable fines have been set for those designated as violators of the law.[14]

Prospects for Enforcement Mixed

While attending the Nuclear Security Summit, Prime Minister Razak publicly reiterated the commitment of the Malaysian government towards ensuring the full enforcement of the Strategic Trade Act. Razak stated, "Malaysia is committed towards ensuring that nuclear materials and technologies do not fall into the wrong hands."[15] He additionally declared that the relevant law-enforcement agencies would receive the necessary resources to properly enforce the new law.

Although recognized as a generally positive move, Malaysian-based diplomats say that ensuring that Kuala Lumpur prevents future transshipments or exports of sensitive dual-use goods will remain difficult. Given the critical importance of exports of high-tech goods to Malaysia's economy, many within the domestic system will remain reluctant to block shipments without clear proof that the goods in question are destined for a weapons purpose—a very difficult standard to meet.

Sources:

[1] "Malaysia to strictly enforce nuclear trafficking law," AFP, 15 April, 2010, www.channelnewsasia.com; and "Parliament: Strategic trade bill is passed," Bernama, 5 April 2010, via https://thestar.com.
[2] Kenley Butler, "How the Abdul Qadeer Khan Network Circumvented Export Controls," Asian Export Control Observer, April/May 2005, https://cns.miis.edu.
[3] David Albright and Corey Hinderstein, "Uncovering the Nuclear Black Market: Working Toward Closing Gaps in the International Nonproliferation Regime," Institute for Nuclear Materials Management Annual Conference, Orlando, Florida, July 2, 2004, https://isis-online.org.
[4] "UN Security Council Resolution 1540," U.S. Department of State, www.state.gov.
[5] Ibid.
[6] "East Asian Governments Report on Export Control and Nonproliferation Progress: Review of Reports to the 1540 Committee," Asian Export Control Observer, James Martin Center for Nonproliferation Studies, Monterey Institute of International Studies, Issue 6, February/March 2005, pg. 22, https://cns.miis.edu.
[7] Lawrence Scheinman, ed., Implementing Resolution 1540: The Role of Regional organizations (Geneva, Switzerland: United Nations Publications, 2008).
[8] "East Asian and the Pacific — 1540-Related Regional Activities," Nuclear Threat Initiative, April 9, 2010, www.nti.org.
[9] As noted in the GAO report "U.S. Efforts to Combat Nuclear Networks Need Better Data on Proliferation Risks and Program Results," October 2007, www.gao.gov.
[10] "Malaysia: Project Status," Assistance in Export Control of Dual-Use Goods, Germany's Federal Office of Economics and Export Control, April 9, 2010, www.ausfuhrkontrolle.info.
[11] Justin Blum, "Iran Gains U.S. Military Technology through Malaysia Middlemen," Bloomburg News, September 14, 2009, www.bloomberg.com.
[12] David Albright, Peddling Peril: How the Secret Nuclear Trade Arms America's Enemies (New York: Free Press, 2010), 249.
[13] Ambassador James Keith, "Potential and Relevance in Malaysia," speech at the Carnegie Endowment for International Peace, Washington DC, February 27, 2009.
[14] "Malaysia Enacts Strict Penalties in Anti-WMD Law," Global Security Newswire, April 6, 2010, www.globalsecuritynewswire.org.
[15] "Malaysia to enforce nuclear trafficking law: PM," AFP, April 15, 2010.