C A P I T A L M A R K E T S R E S E A R C H

R e s e a rc h for Living Sustainably on Earth

INVESTING IN
N O N P R O L I F E R AT I O N

A $100 BILLION REVOLVING CREDIT FACILITY

FOR FINANCING TIMELY
NUCLEAR NONPROLIFERATION PROJECTS
DRAFT FOR DISCUSSION ONLY

PROPOSAL CONTACT: LYLE BRECHT

PHONE:

EMAIL: LBRECHT@GMAIL.COM
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TRANSMITTAL LETTER PROPOSAL SUBMITTED:

RE: INAF

VIA FAX:

Dear

Attached is a proposal to develop an international nuclear assurance facility (INAF), a revolving

credit facility for financing nuclear nonproliferation projects using funds provided from the pri-
vate capital markets.

This may be an auspicious time to build such a facility:

given the present depressed state of the economy, the capital markets are presently seek-
ing safe havens for long-term investments of capital;

today’s global economic situation will make it easier for nuclear weapons, plutonium, and
HEU to fall into the wrong hands if additional nonproliferation funds are not injected rapidly
into these failing economies; and

the continued threat of nuclear terrorism hangs like a Sword of Damocles over the capital
markets and puts at grave risk economic recovery measures being taken today by the U.S.
and other national governments.

An INAF funding mechanism may assure that nonproliferation measures were being taken, for
example, in other parts of the world not readily accessible to present government-run pro-
grams or could be undertaken more rapidly through private sector negotiations rather than of-
ten lengthly government-to-government negotiations.

INAF could help to make the global economy more stable by reducing the threat from nuclear
terrorism and heighten the private sector’s awareness of nonproliferation. INAF might prove
highly attractive to the private capital markets at this time.

Sincerely yours,

D R A F T 3 . 1 F r i d a y, O c t o b e r 9 , 2 0 0 9

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I N V E S T I N G I N N O N P R O L I F E R AT I O N :

INAF ABSTRACT
The purpose of an International Nuclear Assurance Facility (INAF) is to improve the scale,
speed, and management of present nonproliferation efforts and for rapidly establishing new,
highly desirable initiatives.

For example, some nonproliferation programs such as the IAEA International Fuel Bank and the
MOX fuel fabrication program may lend themselves as natural candidates for the infusion of
private capital that could shorten the technology adoption cycles for such new nonproliferation
programs.

Any impetus to involve the private sector and its capital markets in achieving nonproliferation
objectives will require a new level of private/public cooperation involving present U.S. and in-
ternational governmental institutions, the nongovernmental organization (NGO) community, as
well as new participants from the private sector.

A world without nuclear weapons is profoundly in America’s interest and the world’s interest. It is our respon-
sibility to make the commitment, and to do the hard work to make this vision a reality…. The biggest nuclear
security risk is not from a rogue state lashing out with ballistic missiles, but a terrorist smuggling a crude nu-
clear device across our borders.

We spend more than $10 billion a year on missile defense, but far too little on securing nuclear materials
around the world and improving security (including detection) at our ports and borders…. I will not authorize
the development of new nuclear weapons. And I will make the goal of eliminating nuclear weapons an element
of U.S. nuclear policy.

- President-elect Barack Obama, September 10, 2008, Arms Control Today 2008 Presidential Q&A,
available at http://www.armscontrol.org/print/3360 (accessed 2/27/09).

D R A F T 3 . 1 F r i d a y, O c t o b e r 9 , 2 0 0 9

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WHY INAF IS IMPORTANT NO W

The present collapse of the normal functioning of global markets and international finance re-
flect an inflection (tipping) point. 1 The present economic crisis may be a symptom, not just of
macroeconomic policies and the instability of international finance engendered by the second
globalization, 2 but also of fundamental and structural inefficiencies in the markets that makeup
the global economic system.

Countries that do not now posses nuclear weapons, seeing the landscape of strategic and eco-
nomic decision-making now seek to acquire nuclear weapons or, at a minimum, the capacity to
build nuclear weapons in order to secure their position in this precarious world order.3 Today
maybe nine countries have nuclear weapons; potentially 40 countries posses the technology and
capacity to build nuclear weapons if they so choose.

The U.S. and Russia still have the largest stockpiles of of nuclear weapons (about 97% of the to-
tal) and weapons-usable HEU (highly-enriched uranium) in the world. All together about
27,000 weapons still exist in national nuclear weapons stockpiles, down from 75,000 during the
height of the cold war; and HEU for about 240,000 more weapons. But today, the highest prob-
ability of use of these weapons & HEU is by terrorists to disrupt or destroy a nation’s economic
support systems.

Thus, there is an urgency to seek out means and ideas for speeding nonproliferation efforts at
the present time and growing political will to envision a world free from the threat of nuclear
terrorism. Conditions include the depressed state of many national economies that has height-
ened concerns for the stability of governments that possess nuclear weapons, plutonium, HEU,
or the technical know-how to construct nuclear weapons.

1All systems have a tipping point, a set of stresses (an overload beyond a threshold rate of change of in-
puts) beyond which they breakdown (loose complexity and cease to function within normal ranges) and
sometimes collapse (recovery is uncertain) or suffer deep collapse (multiple systems experience synchro-
nous failure when systems are tightly coupled). As failure proceeds, moments of contingency arise.

2 The first globalization was during the 19th and early 20th centuries.

3 See Kurt Campbell, et. al., The Nuclear Tipping Point: Why States Reconsider Their Nuclear Choices (Wash-
ington, D.C.: Brookings Institution Press, 2004).

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I NA F ASSUMPTIONS

Given the economic consequences of a nuclear terrorist attack, the capital markets may
agree that providing additional, permanent funding than what is available through an-
nual budgetary provisions from government sources and current international mecha-
nisms to reduce the probability of nuclear terrorism or eliminate this threat is of high
value;

Terrorists would plausibly attack a nuclear facility and that insiders would plausibly
steal from such a facility; that terrorists could plausibly make a nuclear bomb if they got
the material (or detonate a stolen bomb if they got one of those); and that there is mini-
mal chance of detecting and stopping a terrorist bomb before it was delivered;

Terrorist’s have only three primary means to obtain nuclear weapons, plutonium, or
HEU to produce a nuclear weapon: (1) by active support by a rogue state; (2) by terror-
ists exploiting a state’s weakness or negligence at securing nuclear material; and (3)
through proliferation of technology from nuclear capable states to aspiring nuclear states
in their pursuit of nuclear weapons.4 Each of these avenues are presently open for terror-
ists to exploit.

As defending against a nuclear attack once it has begun is not technically feasible at the
present time and given the state of current technology may not be feasible in the near
future, at any cost securing nuclear existing material and disarmament is high value-
added;5

Present nonproliferation activities are limited in that they may contain too few incen-
tives for nuclear states to not cheat on destroying unneeded weapons, plutonium, and
HEU and for non nuclear states to not seek nuclear weapons. 6

4Michael A. Levi and Michael E. O’Hanlon, The Future of Arms Control (Washington, DC: Brookings Insti-
tution Press, 2005) , 50.

5 Levi and O’Hanlon, 47.

6 Levi and O’Hanlon, 48.

D R A F T 3 . 1 F r i d a y, O c t o b e r 9 , 2 0 0 9

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Securing the existing stockpile of nuclear weapons and weapons-usable fissile materials
to a gold-standard level of security would dramatically reduce, if not eliminate, practicable
threats from nuclear terrorism and/or a nuclear accident;7

Adequate capital has not been readily available to secure all existing nuclear weapons
and weapons-usable fissile materials to current gold-standard security levels;

Additional capital could be productively used to:

secure the global stockpile of nuclear weapons and weapons-usable fissile materials;

provide incentives for existing states to destroy unneeded nuclear weapons, pluto-
nium, and HEU;

provide incentives to nonnuclear states for not seeking to acquire nuclear weapons;
and

invent new programs and policies specifically designed to stop terrorists from ac-
quiring nuclear weapons;8

The capital markets would willingly provide adequate capital to reduce the risk of nu-
clear terrorism and/or nuclear accident if there was an investment vehicle to accomplish
this purpose; 9

7 The use of the term gold standard anticipates the intent of the Nuclear Gold Standard Act of 2008 (H.R.
3814) that Directs the Secretary of Energy, the Secretary of State, and the Secretary of Defense to develop a
framework for a global alliance against nuclear terrorism that would incorporate the "gold standard" de-
veloped under this Act for the security of nuclear materials. In this context, “gold standard” comprises a
formal set of verifiable and enforceable standards to which all U.S. and Russian nuclear materials shall be
secured and against which inspectors can test ("gold standard").

8 Levi and O’Hanlon, 48.

9For example, this would be a much more prudent and productive investment than providing capital to
Bernie Madoff, who ran a $60 billion Ponzi scheme, providing capital to Enron, WorldCom or a host of
companies that have produced negative returns for long term investors over the past ten years.

D R A F T 3 . 1 F r i d a y, O c t o b e r 9 , 2 0 0 9

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INAF PHASES

Phase I: Feasibility study;

Phase II: Establish the institutional relationships, legal structures, insurance provisions,
nonproliferation project selection and management mechanisms, capital protection guaran-
tee provisions, and accountability structures that would assure private sector investors to
employ private capital for nonproliferation projects.

Phase III: Demonstration - $500 million - $2 billion;

Phase IV: Buildout $100 billion facility.

FEASIBILITY METHODOLOGY

Business case for financing scale 10, 11

Business model

Participants

Facility staff

Identify gotchas and institutional barriers

PR OJ EC T RISK S

Protection against defaults

Protection against fraud and abuse

SCHED ULE OF DELIVERABLES

PHASE I B UDGET

10Economic Value Added monetizes the value of the activity to the community or society as a whole or cal-
culates the opportunity costs for not funding the activity to continue at the optimal level. This involves
very different thinking than “how do we maintain current budget levels” which assumes zero economic
consequences if that budget is halved or eliminated due to funding constraints. Also, a purely budgetary
perspective also rarely asks if capital employed to another project could produce greater value.

11Social Value Added measures how activities “generate improvements in the lives of individuals or soci-
ety as a whole.”

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ST RU C T URE

What is needed is a “fast-paced global partnership…to secure the world’s nuclear stockpiles
before terrorists and thieves get to them.”12

RATIONALE

In return for the IMF/World Bank’s (or other identified international entity) help, a nuclear state
agrees to embark on an IMF and International Atomic Energy Agency (IAEA) monitored non-
proliferation program, known as Structural Nuclear Assurance Policies (SNAPs).13 INAF would
have the authority to allocate funds based on nonproliferation proposals from states possessing
nuclear weapons or weapons-useable fissile material. The INAF would also be responsible for
coordinating its activities with those of nuclear states’ nonproliferation programs and projects.

Matthew Bunn and Anthony Wier, Securing the Bomb: An Agenda for Action (Belfer Center, JFK School of
12

Government, Harvard University, May 2004), 101 available at http://bcsia.ksg.harvard.edu/

BCSIA_content/documents/securing_the_bomb.pdf (accessed 07/10/04).

13Such policies might include a nuclear state’s demonstrating its financial ability to shoulder the ongoing
operational and maintenance costs for providing adequate security for buildings containing nuclear
weapons and weapons-usable fissile material once the initial capital costs of providing the building with
modern ‘gold standard’ security (perimeter intrusion detection and assessment system [PIDAS], etc.) and
accounting systems through the INAF funding mechanism is accomplished.

D R A F T 3 . 1 F r i d a y, O c t o b e r 9 , 2 0 0 9

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