Proliferation Financing risks: key facts

Proliferation Financing (PF) forms part of the compliance landscape, like anti-money laundering and counter-terrorism financing (AML/CTF). However, only recently have regulators started introducing tighter measures to help businesses identify PF risks.

What is Proliferation Financing?

1. While there is currently no international definition of PF, it can be described as
• Providing products and financial services for the transfer and export of nuclear, chemical or biological weapons.
• Including their means of delivery and any related materials.
2. It can also include.
• Providing other financial or legal support or arrangements that engage in proliferation,
• Along with financing trade in proliferation-sensitive goods [EG Dual-use goods].

Steps FATF has taken.

1. In September 2022, the amended standards drafted by the Financial Action Task Force (FATF) to identify, assess, and mitigate PF risks were formally introduced.
• https://www.fatf-gafi.org/en/topics/proliferation-financing.html
2. Financial institutions and some designated non-financial businesses must now undertake a PF risk assessment and produce a copy of the assessment on request.

How Proliferation Financing differs from AML/CTF

1. Until recently, PF hasn’t been considered a foundational aspect of enterprise-wide risk assessment (EWRA) like AML and CTF.
2. However, in the UK’s first national risk assessment on PF, it’s been elevated as a key component of building a robust compliance program.
• https://www.gov.uk/government/publications/national-risk-assessment-of-proliferation-financing
3. But because PF is less understood than money laundering and counterterrorism, it’s also more difficult for businesses to detect.

So what is PF THREAT Risk?

According to FATF, it involves.

• Threat, vulnerability, consequence, and a business’s obligations to identify, assess, and understand the risks of a potential breach, non-implementation, or evasion of the targeted FINANCIAL SANCTIONS OBLIGATIONS.

Potential Red Flags

1. There are some common factors to look out for when identifying PF activity, including:
• Transaction deals involving dual-use goods or other controlled commodities.
2. Dual-use items are:
• Any goods, software or technology used for civilian and military purposes.
3. These items represent a greater PF risk because proliferation networks are more likely to procure individual goods and component parts.
4. For those in the supply chain, or even people processing payments, these transactions may appear harmless but can be a red flag for PF activity.

Source

https://arctic-intelligence.com/insights/blog/proliferation-financing-risks-businesses-must-know?utm_campaign=2024%20Social%20Media&utm_content=277827676&utm_medium=social&utm_source=linkedin&hss_channel=lis-M8u6boWpaj