Best Practices and Guidelines on the Fight against Proliferation Financing - Strengthening Authorities for Action

Remarks by the FATF Executive Secretary David Lewis at the Proliferation Security Initiative (PSI) High Level Political Meeting 2018

Paris, 16 May 2018

Best Practices and Guidelines on the Fight against Proliferation Financing

Mr. Chairmen, honoured delegates,

Thank you for inviting me to speak with you today, in my capacity as the Executive Secretary of the Financial Action Task Force (FATF). Today, I will focus on how the FATF has been providing the necessary financial tools to support countries in the fight against proliferation.

What is the FATF and what do we do?

The FATF is the international standard-setting body for combating money laundering, terrorist financing, and the financing of WMD proliferation. It was established in 1989 to combat money laundering associated with drug trafficking, but has expanded its role since then. In 2001, we developed effective tools to fight terrorist financing. 

The FATF took up the task of combating proliferation financing in 2008. Since then, the FATF has been assessing how the relevant United Nations Security Council Resolutions (UNSCRs) could be leveraged to give our 37 members and a total of 204 jurisdictions in our global network, as well as their financial institutions the necessary tools to identify and disrupt proliferation networks. 

The FATF Standards

Financing is an essential part of proliferation activity. Criminals often exploit weaknesses in legal and operational systems across different jurisdictions to allow them raise and move funds, and carry out financial transactions. Proliferation actors use the same means.   

Financial measures are one of the most effective tools to counter proliferation:

• Preventive measures make it difficult for criminals to raise and move funds, reducing the capacity of proliferation networks;
• Financial intelligence provides advance warning of attempts to illegally transfer sensitive goods and materials. Shipments can be discovered and interdicted on the basis of suspicious transaction reports by financial institutions.
• Every movement of goods has an associated financial transaction: financial investigation can follow the money trails to look behind declarations, analyse proliferation networks, and identify facilitators.

The FATF Standards set specific requirements to give effect to UN Security Council Resolutions, including targeted financial sanctions to counter proliferation. The FATF Standards on countering proliferation financing seek to operationalise the financial provisions of UNSCRs by setting specific requirements for jurisdictions to implement. They require jurisdictions to establish the necessary legal authority and identify competent authorities responsible for implementing and enforcing targeted financial sanctions in a timely manner.   

It is important to underline that the role of the FATF in countering proliferation goes beyond targeted financial sanctions:

• We have built the infrastructure needed to combat the financing of proliferation: with criminal laws and investigative powers; due diligence and suspicious transaction reporting by financial institutions; and transparency requirements regarding the control of corporate vehicles and legal arrangements.
• We apply measures which weaken the ability of proliferators to maintain facilitation networks, to raise or spend money, or to conceal their true identity.
• And the FATF provides guidance on co-operation and co-ordination both domestically and internationally.

Overall, the FATF standards provide a comprehensive basis for national measures to combat the financing of proliferation by both state and non-state actors.

The Standards are implemented through rigorous peer-review and follow-up procedures, whereby each jurisdiction submits to an in-depth review of its technical compliance and effectiveness by a team of experts from other member jurisdictions. 

As this mutual evaluation process has evolved, having the right laws, regulations, and mechanisms on paper is not sufficient. The focus of the mutual evaluation process has moved towards measuring how effective that framework is in combating various forms of illicit finance. The mutual evaluation results highlight the strengths and deficiencies of a jurisdiction’s countering proliferation financing system, and make recommended actions for the jurisdiction’s improvements during the follow-up procedures. This has the effect of allowing our member jurisdictions to align with the most up-to-date international standards and requirements on countering proliferation financing.

What are the lessons learnt from the FATF Mutual Evaluation Process?

We have reviewed the findings of mutual evaluations on proliferation financing and found two common weaknesses. The first is lack of inter-agency cooperation and coordination. Some jurisdictions have not involved all the relevant ministries, agencies, or supervisors in their legal and institutional framework. Others have not identified a single agency or established any committee to co-ordinate or to be in charge of supervision, enforcement or outreach related to proliferation financing. And often, jurisdictions duplicate, rather than complement, export control or other existing WMD counter-proliferation controls. 

The second common deficiency is that many jurisdictions focus only on sanctions’ implementation, but not preventive measures to guard against sanctions’ evasion. They do not seek to understand the latest typologies of sanctions’ evasion. In addition, they do not seek to encourage financial institutions to understand the underlying proliferation risks. Most supervisors are content with entities’ automatic screening of sanctioned individuals or entities names - which is not enough.

What types of guidance has the FATF been providing to its Members?

To this end, the FATF encourages jurisdictions to leverage their anti-money laundering and counter terrorist financing (AML/CFT) controls in carrying out their obligations related to proliferation financing. These include criminal laws and investigative powers; due diligence and suspicious transaction reporting by financial institutions; transparency requirements regarding the control of corporate vehicles and legal arrangements; and the use of financial intelligence and information sharing across sectors and borders. 

Under the current Argentine presidency of FATF, proliferation financing has been a focal point, and there have been a number of initiatives to ensure that the FATF keeps pace with the latest requirements of the United Nations Security Council. 

In June last year, the FATF updated its Standards on the implementation of targeted financial sanctions related to proliferation (Recommendation 7), taking into account the recent UNSCRs on the DPRK and Iran that have been adopted since the FATF Standards were last updated in 2012. This adds clarity to the FATF Standards and allows jurisdictions to better understand their latest obligations related to counter proliferation financing.

In February this year, the FATF published an updated guidance on counter proliferation financing. The document includes four main components:

• First, the guidance elaborates and explains the relevant UN requirements and their interaction with the FATF Standards. It also gives examples of key contextual factors and circumstances, including types of customers and transactions, to allow jurisdictions develop an understanding of means of evading sanctions. These materials are especially useful for jurisdictions which have a lower level of technical compliance with the FATF Standards.
• Second, the guidance includes specific material to assist jurisdictions with domestic co-operation and co-ordination. It includes a checklist of key agencies involved in the counter proliferation financing regime, a list of common features of a well-coordinated inter-agency cooperation system, as well as the roles of the lead agency. Other tools include guidance on how to make use of information-sharing mechanisms within the jurisdiction for the purposes of countering proliferation financing. Case examples and specific discussion issues at inter-agency coordination meetings are also provided for jurisdictions’ reference. 
• Third, the guidance highlights features of an effective supervisory model for the financial sector and relevant professions concerning proliferation financing, including control and monitoring processes, remedial actions and sanctions, general supervision, and promoting understanding of obligations. These will help strengthen both technical and effectiveness compliance with the FATF Standards.
• Finally, the guidance also assists countries in implementing the other proliferation-related measures included in UN Resolutions - such as vigilance measures and non-targeted financial sanctions. 

Going forward, the FATF’s TREIN institute in Busan, Korea will hold a first training workshop later this month to facilitate jurisdictions’ understanding of proliferation financing and the Standards involved. The workshop will give an opportunity for member jurisdictions to share their operational challenges and solutions. The workshop will also provide them take-home tools, say on supervision, to develop and enhance the counter-proliferation financing regime. 

Nevertheless, we need to ensure that the FATF standards continue to evolve to address the latest proliferation financing threat environment, and the challenges we still face.

• Many countries also do not adequately understand the unique proliferation financing risks they face and do not fully exploit financial intelligence to help inform their counter-PF strategies. More work is needed to connect the relevant authorities in each country and to promote their understanding of the benefits and uses of financial intelligence. These links need to be forged both within jurisdictions, across agency lines, and internationally with authorities in partner countries who may hold essential pieces to a complex proliferation financing puzzle.
• Sanctions’ evasion remains a serious issue. As long as there are controls in place to ensure that criminals, terrorists, and proliferators cannot access the global financial system, these nefarious actors will continue to try and develop new ways to evade these controls. At FATF, we must do more to ensure countries have strong AML/CFT and counter-proliferation financing frameworks in place. We also must ensure that national authorities are well informed of the latest methods that proliferation networks utilise, so that we can effectively counter them.

The financial measures which the FATF promotes are an important tool against proliferation and we stand ready to co-ordinate and support the work of the PSI on this front. 

Thank you for inviting me today.