This Guidance Paper is the first of two to be produced by RUSI on countering proliferation finance. It is aimed at financial institutions that have carried out little or no concerted thinking on proliferation finance as distinct from other forms of financial crime. The paper seeks to raise awareness of the risk of proliferation financing and create a baseline policy for mitigating the institution against it.
Financial institutions have a role to play in preventing proliferators from accessing the formal financial system and providing financial services in support of proliferation sensitive trade.
Still, financial institutions suffer from a lack in their capability to detect and disrupt proliferation finance activities, due to varying government initiatives and mixed messages passed down from governments and regulators to the financial sector.
It is important that financial institutions take time to better understand and mitigate proliferation financing risk. Proliferators have become increasingly skilled in circumventing the sanctions put against them, and gain access to the financial system through extensive networks of corporate entities (including front companies), middlemen and circuitous payment patterns. In most cases, there will be no obvious paper connection to jurisdictions of proliferation concern.
For financial institutions that have carried out little or no concerted thinking on this subject as distinct from other forms of financial crime, there is however a number of approaches which can easily be adopted to better mitigate the institution against proliferation financing risk.
The first step is education about the risk at hand. This includes conducting an internal risk assessment to better understand potential exposure to proliferation financing and the areas of concern which would require mitigation. Financial institutions should also undertake efforts to move beyond focusing merely on the entities and individuals listed on sanctions lists, and instead familiarise themselves with the wider networks of proliferating actors.
While no approach to countering proliferation finance is foolproof, a few simple adjustments to internal policies can go a long way to ensuring that a financial institution has a baseline policy for dealing with proliferation financing risk, and can help mitigate the risk of inadvertently being caught up in proliferation financing activity.
Adopting these measures will secure the financial institution against unnecessary risk, as well as contributing towards an important international security objective of preventing the further spread of WMD capabilities, and obstructing the efforts of proliferators to obtaining the technologies and tools needed to develop such capabilities.
Associate Fellow; Former CFCS Senior Research Fellow, RUSI
Centre for Financial Crime and Security Studies