Proliferation Financing Risk

What is Proliferation Financing?

Proliferation financing means the act of providing funds or financial services for use, in whole or in part, in the manufacture, acquisition, development, export, trans-shipment, brokering, transport, transfer, stockpiling of, or otherwise in connection with the possession or use of, chemical, biological, radiological or nuclear weapons, including the provision of funds or financial services in connection with the means of delivery of such weapons and other CBRN-related goods and technology, in contravention of a relevant financial sanctions obligation. HM Treasury publishes a National Risk Assessment of proliferation financing.

The UK has a robust, bespoke regulatory framework in place to combat the threat posed by PF and adherence to this regulatory framework will assist firms in mitigating their PF risk. A key focus is the implementation of UK and UN sanctions regimes on the Democratic People’s Republic of Korea (North Korea/DPRK), Iran and chemical weapons activity. These sanctions measures apply to anyone in the UK’s jurisdiction, action taken by a UK national outside of the UK and to companies incorporated in the UK. Obligations under the measures imposed by the UN are set out in UN Security Council Resolution (UNSCR) 1540 and relevant counter-PF (CPF) measures set out in UK legislation, such as CPF sanctions regimes implemented under Sanctions and Anti-Money Laundering Act 2018 (SAMLA). In addition to UNSCR 1540, a number of other UNSCRs can have some relevance, including UNSCR 1673(2006); and 1810(2008) on non-proliferation in general; and resolutions related to specific countries of proliferation concern, such as UNSCRs 1695(2006); 1718(2006); and 1874(2009) on North Korea; and UNSCRs 1737(2006); 1747(2007); and 1803(2008) on Iran.

Given the significant focus of the UNSCRs, UK legislation and FATF guidance on PF relate directly to Iran and DPRK, the provision of accountancy services to companies connected with either of these jurisdictions poses an extremely high risk. Businesses should only provide such services in rare circumstances after taking appropriate legal advice.

Actors involved in facilitating proliferation financing look to exploit the UK’s and ROI’s position in the global economy and international financial system to raise funds to develop chemical, biological, radiological, and nuclear (CBRN) programmes that threaten international peace and security.

Firms must assess the risks of proliferation financing and introduce policies, procedures, systems, and controls where risk exposure is identified.

Proliferation financing relates to the financing of:

• chemical weapons
• biological weapons
• radiological weapons
• nuclear weapons

Risk Assessing Proliferation Financing

Risk assessments have become a central feature of national responses to the dual threats posed by ML and TF. A sound understanding of PF risk is critical to policy development for the public as well as being vital for effective implementation of counter-PF measures for both public sector and private sector groups.

United Kingdom

The NRA, published by HM Treasury using evidence from government and non-government partners, sets out the key proliferation financing risks and vulnerabilities in the UK.

This assessment – published by HM Treasury, using input from a wide range of government, private sector and academic partners – highlights the key proliferation financing threats facing the UK today, as well as the specific vulnerabilities in the UK economy and financial system which actors may target to gain financing for their proliferation activities.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1020695/National_risk_assessment_of_proliferation_financing.pdf

Financial Action Task Force (FATF) Guidance on Proliferation Financing Risk Assessment and Mitigation

The FATF recently revised its Standards (R.1 and INR.1) to require countries, financial institutions, designated non-financial businesses and professions (DNFBPs) and virtual asset service providers (VASPs) to identify, assess, understand and mitigate their proliferation financing risks.

The FATF Guidance on Proliferation Financing Risk Assessment and Mitigation helps countries, financial institutions, DNFBPs and VASPs effectively implement these new FATF requirements, introduced in October 2020.

The Guidance explains how both public and private sectors should conduct risk assessments in the context of proliferation financing, and how they can mitigate the risks they identify. It provides an updated list of indicators of the potential breach, non-implementation or evasion of proliferation financing targeted financial sanctions.

https://www.fatf-gafi.org/en/publications/Financingofproliferation/Proliferation-financing-risk-assessment-mitigation.html

https://www.fatf-gafi.org/en/publications/Financingofproliferation/Statement-proliferation-financing-2020.html

Key Proliferation Financing Jurisdictions of Risk

• Russia
• Iran
• Syria
• Democratic People’s Republic of North Korea (DPRK)

AIA’s role as a supervisory body

For its supervised population AIA monitor sanctions including Proliferation Financing compliance, as part of our risk-based inspections, desk-based reviews, and other monitoring of our regulated population.

We would expect to see firms considering Proliferation Financing as part of their own risk assessments.

Further Guidance and Information

• Financial Action Task Force (FATF)
• United Nations Security Council (UNSC)
• Office for Financial Sanctions Implementation (OFSI)
• Office for Financial Asset Control (OFAC)
• Royal United Services Institute (RUSI)
• Centre for Advanced Defence Studies (C4ADS)
• Iran Watch
• Pyongyang Papers
• Organised Crime and Corruption Reporting Project (OCCRP)

AIA is not responsible for the content or accuracy of third party information and recommends members seek expert advice if required.