The changes are aimed at ensuring FIs and DNFBPs do not unwittingly support or become part of proliferation financing networks or schemes.
The FATF (Financial Action Task Force) at its 32nd plenary meeting adopted amendments to Recommendations 1 and 2 and their Interpretive Notes to further strengthen the global response to WMD proliferation financing.
The adoption of stronger measures to combat WMD proliferation financing is a response to a June 2019 call from G20 leaders at their meeting in Fukuoka, Japan.
The revised Recommendation 1 and its Interpretive note require countries and private sector entities to identify, assess, manage and mitigate proliferation financing risk – defined as the risk of potential breaches, non-implementation, or evasion of the targeted financial sanctions related to proliferation financing.
The revised Recommendation 2 and its Interpretive Note are aimed at enhancing domestic cooperation, coordination and information exchange among national authorities.
The new obligations are not intended to substitute or undermine the existing requirements under FATF Recommendation 7 for countries to implement targeted financial sanctions to comply with the relevant UNSCRs relating to the prevention, suppression and disruption of WMD proliferation and its financing.
The new obligations seek to ensure financial institutions and DNFBPs are aware of the risks involved in their businesses and professions, and do not unwittingly support or become part of the proliferation financing networks or schemes.
“We have seen North Korea and Iran establish complex and elaborate networks, including front and shell companies incorporated in many FATF member jurisdictions, to evade US and UN financial sanctions and to access and move funds to further their dangerous purposes,” the US Treasury Department said in a statement, welcoming the amendments.
“With these enhancements to the FATF standards, jurisdictions around the world will arm their financial institutions and other covered entities with targeted information on proliferation financing risk that can be used to detect shell companies and other individuals or entities acting on behalf of designated persons.”
The latest amendments will also ensure appropriate allocation of resources by countries and the private sector entities to their counter proliferation financing efforts, commensurate with the level of risks faced, the FATF says.
The FATF encourages countries to implement the new requirements in a manner consistent with financial inclusion objectives and apply measures proportionate to the risk of the relevant institutions.
The FATF will begin the process of revising its methodology for assessing the new obligations, and additionally develop new guidance to assist countries and the private sector in assessing and mitigating proliferation financing risks.
The guidance will provide further clarity to countries and the private sector on implementation of the new requirements, including for small or low-risk entities so as to avoid unintended consequences, such as financial exclusion.
As part of a phased approach, the FATF will begin assessing jurisdictions for implementation of these requirements at the start of the next (fifth) round of mutual evaluations, to allow time to put the necessary domestic measures in place.
The FATF expects all countries and regions to take concrete steps to ensure implementation of these new obligations, and to determine the appropriate sequence and timeframe for implementation at national level.
This includes providing guidance to the private sector and sharing relevant proliferation financing related information, as appropriate, to enhance compliance with the FATF Standards and better safeguard the international financial system from abuse.
See full public statement on the adoption of the revisions is available here.
The updated FATF Recommendations are available here.