FATF Offers Guidance on Proliferation Financing Risks
30 Jun 2021

The Financial Action Task Force (FATF) on Tuesday outlined guidance for national supervisors, banks and other firms on how to identify and mitigate their exposure to the funding of weapons of mass destruction.

The guidance follows the intergovernmental organization’s formal adoption in October of revisions to its Recommendation 1 and a related Interpretative Note calling on member-states and private-sector entities to step up their efforts to fight proliferation financing (PF) linked to sanctions targets. Under the revisions, banks and other financial institutions are not expected to establish standalone PF initiatives, but must have processes in place to identify, assess, monitor, manage and mitigate such risks.

Rooting out the networks trafficking in weapons of mass destruction will require greater private-public sector engagement, according to FATF, which advised governments and businesses alike to begin their risk assessment process by “compiling a list of major known or suspected threats; key sectors, products, or services that have been exploited; types and activities that designated individuals/entities engaged in; and the primary reasons why designated persons and entities are not deprived of their assets or identified.”

But while the perceived vulnerabilities to proliferation financing will vary significantly across sectors and jurisdictions, governments and businesses that might believe themselves to be at low risk of exposure to such transactions should consider the “likelihood” that sophisticated PF networks have successfully evaded their detection in the past, FATF said.

“The absence of cases involving known or suspected breaches, non-implementation or evasion of PF-TFS in a particular country does not necessarily mean that a country or a private sector firm faces low or any proliferation financing risk,” the guidance paper said. “Designated persons and entities have made use of diverse and constantly evolving methods to disguise their illicit activities, and the networks they control deliberately spread their operations across multiple jurisdictions.”

The guidance, which builds on a similar paper published in 2018, cited sanctions evasion schemes linked to maritime shipping, trade finance, precious metals and stones, virtual asset service providers, shell and front companies, and correspondent banking relationships as potential avenues for funding the spread of WMDs.

Read FATF’s “Guidance on Proliferation Financing Risk Assessment and Mitigation” here

RiskScreen: Eliminating Financial Crime with Smart Technology

Count this content towards your CPD minutes, by signing up to our CPD Wallet