The most comprehensive study of FoP to date was published by the Financial Action Task Force (FATF) in 2008. This includes a list of 20 “indicators of possible proliferation financing,” including, for example, transactions connected with designated individuals or entities or with countries of proliferation concern. Since then, more information has become available, particularly related to the proliferation programs of DPRK and Iran.
Project Alpha has carried out an analysis of data relating to DPRK, Iran, Syria, Pakistan and India provided by governments and financial institutions, contained in records of judicial proceedings, UN Panel reports, and media reports. The analyses are summarized in the form of 60 case studies. They enable identification of common elements between networks set up to finance proliferation or to circumvent financial sanctions, and of ways networks may mutate in response to sanctions.
Based on the 60 cases, the indicators in the FATF 2008 Report have been modified and categorised as “potentially highly indicative,” “potentially moderately indicative” or “potentially poorly indicative” of FoP. The study identified additional possible indicators, including transactions involving individuals connected with countries of proliferation concern, the use of cash, the involvement of small trading or intermediary companies, and others. By illustrating different types of FoP, the case studies are intended to support the work of governments and financial institutions worldwide in identifying FoP. They are intended to facilitate FoP risk assessments, to support regulators in providing guidance to financial institutions and to support financial institutions in complying with sanctions or other WMD controls.
Above all, combating proliferation of WMD by identifying and disrupting the financing is most likely to be successful when governments and the private sector cooperate and coordinate in sharing information. It is hoped that the FoP case studies included in this report will help this process.
Workshop Summary Report- Trade Finance and Proliferation Finance – Mitigating the Risks
Financing the proliferation of WMD is poorly understood and difficult to identify. Procurement networks hide their financial tracks to circumvent sanctions or other controls. Sources of funds,
which may be countries under sanctions, are concealed behind front companies or individuals acting on their behalf. Goods and materials procured by proliferation networks are generally industrial in nature and usually obtained from established overseas, often via brokers. Financial transactions are typically processed through the international banking system and usually appear to be related to legitimate trade. They may take place on “open account” terms” or
supported by trade finance operations.
In this context, on June 20, 2017, the workshop “Trade Finance and Proliferation Finance – Mitigating the Risks,” took place at King’s College London, UK. The objective of this workshop was to examine what is known about how current mechanisms for financing global trade might be exploited for the purposes of financing of proliferation (FoP) of Weapons of Mass Destruction. The workshop took place in the context of a study carried out by Project Alpha,
funded by United States Department of State, of current typologies of FoP. Participants included representatives from the commercial sector, amongst these banks, consultancy firms, insurance
companies, and others, and the government sector, including the UK and US governments, and crown dependencies.
The discussion took place under the Chatham House rule and was structured roughly into: challenges, regulatory expectations, possible solutions. The workshop aimed to
1) Review current mechanisms for trade finance and identify how these may be exploited for financing proliferation;
2) Identify possible measures governments and financial
sector could take to mitigate risks; and
3) Consider mechanisms for information sharing to support risk mitigation.
The attached report is a summary of main points and is not intended to be a comprehensive record. It is structured as follows: First, the main issues discussed during the workshop highlighted as the main challenges for the financial sector are described. Second, the specific
options for mitigating risks are delineated. Finally, a list of recommendations and follow up action items have been compiled by the workshop organisers and based on the workshop discussions are noted.
