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What is proliferation financing?

Proliferation financing refers to 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 (CBRN) weapons. This includes 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.

The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 have introduced a new obligation for regulated entities to identify, assess, and mitigate the risk of proliferation financing. The regulations came into force in September 2022 and require firms to implement policies, controls, and procedures to mitigate the risks identified.

What are the risks?

Non-compliance with sanctions relating to proliferation financing could result in reputational damage should a breach occur. It is also a criminal offence under the sanctions regulations. To comply with the new requirements, firms must either create a new risk assessment specific to proliferation financing or incorporate proliferation financing into the existing AML/CTF risk assessments.

What are the key points?

HM Treasury is responsible for undertaking risk assessments to identify, assess, understand, and mitigate the risks of proliferation financing affecting the United Kingdom. Firms are expected to cooperate with the Treasury's risk assessment process and take appropriate steps to mitigate the risks identified.

When conducting their risk assessments, firms should consider several factors that can increase the risk of proliferation financing.

Some examples of jurisdictions that may pose a higher risk for proliferation financing include those with a history of involvement in the development or acquisition of nuclear, chemical, or biological weapons. Customer types that may be more vulnerable to proliferation financing include those involved in the technology, engineering, or scientific sectors.

Firms should also consider products and services that may be used in proliferation financing, such as dual-use goods, which have both a civilian and military application or those which are cash-intensive businesses or which accept wire transfers and virtual currencies.

However, it's important to note that proliferation financing can occur in any jurisdiction, any type of customer base, and in a wide range of industries. Firms should, therefore, assess the risks on a case-by-case basis.

Conclusion

Firms need to ensure that their systems and procedures for detecting and reporting potential proliferation financing are appropriate and proportionate to the scale, size, and nature of their business activities. By identifying and mitigating the risks of proliferation financing, firms can demonstrate their commitment to preventing financial crime and contribute to the global effort to combat the proliferation of weapons of mass destruction.

How can we help you?

Thistle Initiatives has supported firms for over 10 years as a trusted regulatory compliance solutions provider. In addition to assisting, you as and when, our team of specialists can serve as your right hand in meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your Money Laundering and Terrorist Financing Regulation arrangements, or more general regulatory compliance solutions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.

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