Combating Proliferation of Weapons of Mass Destruction

could be used as carrots or sticks as part of an overall strategy to combat proliferation.Given the increasing tendency to turn to economic sanctions rather than military action inresponse to proliferation activity, it is essential that we begin to treat this “economicwarfare” with the same level of sophistication and planning we devote to military options.For example, just as good intelligence is essential to successful military action, so too isgood intelligence on key points of leverage in the government of a proliferating countryessential for tailoring economic tools to achieve maximum influence.In addition, we should ensure that we have in place the legal mechanisms required toexercise this leverage. For example, the Commission is concerned that known proliferatorsmay be raising funds in U.S. capital markets. The Cox Committee’s recently releasedreport found that “the [People’s Republic of China] is using capital markets both as asource of central government funding for military and commercial development and as ameans of cloaking U.S. technology acquisition efforts by its front companies with a patinaof regularity and respectability.” 16 Because there is currently no national security-basedreview of entities seeking to gain access to our capital markets, investors are unlikely toknow that they may be assisting in the proliferation of weapons of mass destruction byproviding funds to known proliferators. Aside from the moral implications, there arepotential financial consequences of proliferation activity—such as the possible impositionof trade and financial sanctions—which could negatively impact investors.Recommendation 5.25: The Secretary of the Treasury, in consultation with theNational Director for Combating Proliferation, should lead an interagency review ofcurrent mechanisms for exercising financial or economic leverage to combatproliferation, and develop recommendations for improving our use of suchleverage, including any legal changes that might be required. This review shouldfocus on positive as well as negative incentives.As part of this assessment, the National Director should, in consultation with theappropriate agencies and experts from the private sector, assess options for denyingproliferators access to U.S. capital markets. Options considered should include ways toenhance transparency, such as requiring more detailed reporting on the individuals orcompanies seeking access or disclosure of proliferation-related activity, as well asmechanisms to bar entry of such entities into the U.S. capital markets. Along with thepossible costs and benefits of various options, this review should consider the potentialeffectiveness of unilateral actions and the impact of those options on the health andviability of the global capital market in general and U.S. capital markets in particular.16Report of the Committee on U.S. National Security and Military/Commercial Concerns with thePeople’s Republic of China, Volume 1, Chapter 1, page 57.78