Proliferation financing
PFAlso called proliferation finance, financing of proliferation
Proliferation financing is providing money or financial services that help develop, acquire or deliver nuclear, chemical or biological weapons. FATF standards focus on the risk of breaching, failing to implement or evading targeted financial sanctions against proliferators, mainly those linked to North Korea and Iran.
How it works
Proliferation networks rarely look like weapons buyers. They use front companies, brokers and trading firms to buy dual-use goods, then move payments through several jurisdictions. Banks counter this with sanctions screening, trade finance checks on goods and end users, and monitoring for links to high-risk shipping and intermediaries. Since FATF's 2020 changes, firms must assess and mitigate this risk alongside money laundering.
In the UK, firms have had to assess proliferation financing risk since September 2022. The EU AML Regulation folds targeted sanctions risk into the business-wide risk assessment from July 2027. Failures carry sanctions penalties as well as AML findings, and trade finance and correspondent banking teams carry most of the exposure.
The rules
Requires identification, assessment and mitigation of proliferation financing risk, defined as breach or evasion of targeted financial sanctions.
Countries, financial institutions, DNFBPs and VASPsRequires firms to identify and assess their proliferation financing risks, taking into account the Treasury's national assessment.
UK relevant persons under the MLRsRequires obliged entities to assess risks of targeted financial sanctions non-implementation and evasion within their business-wide risk assessment.
EU obliged entitiesRequires states to refrain from supporting non-state actors seeking nuclear, chemical or biological weapons and to adopt laws preventing such proliferation.
All UN member statesCommon questions
How is proliferation financing different from terrorist financing?
Terrorist financing funds violent acts by groups or individuals. Proliferation financing funds weapons of mass destruction programmes, often state-backed, and usually involves buying dual-use goods through trade. Both are tackled through sanctions screening and risk assessment.
Which countries are most associated with proliferation financing risk?
FATF's targeted financial sanctions focus on North Korea and Iran under UN Security Council resolutions. Firms also assess exposure through transit and trans-shipment hubs used to disguise the destination of goods.
What are common red flags?
Typical signs include orders for dual-use goods inconsistent with the customer's business, newly formed trading companies, payments routed through unrelated jurisdictions and shipping documents with vague descriptions or changed end users.
