A global survey of sanctions professionals reveals a lack of industry awareness of proliferation finance risks, and a lack of focus on this area in compliance programmes.
RUSI (Royal United Services Institute) and ACAMS (Association of Certified Anti-Money Laundering Specialists) have released the results of a new survey on proliferation finance, indicating significant gaps in private sector knowledge and capacity to address North Korea and Iran sanctions.
The report is based on 366 survey responses received from sanctions and compliance professionals at banks, insurance companies, law firms and other professions.
The survey sought to gain insights into the attitudes and understanding of proliferation finance, the financing of weapons of mass destruction and circumvention of sanctions by proliferators, including North Korea and Iran.
Based on responses, international banks appear most likely to have a compliance function that incorporates proliferation finance (76%) compared to national banks (63%) and non-banking institutions (46%).
In Asia, 71% of respondents said they have a compliance function that incorporates proliferation finance, compared to just 43% in the US and 61% in Europe.
The majority of respondents indicated they do not conduct standalone proliferation finance risk assessments (66%). This was despite only 40% of respondents saying that existing money laundering controls will detect most proliferation finance transactions.
The survey also found that just 40% of respondents are familiar with proliferation finance, indicating a lack of industry awareness in this area. Respondents from international banks are most likely to be familiar with proliferation finance risk (57%), compared with non-banks (35%), regional banks (34%) and national banks (32%).
Respondents working in international banks are also more likely to consult red flags, typologies and other resources, such as the biannual UN Panel of Expert reports on North Korea, which are only consulted by 25% of respondent international banks and just 3% of national banks.
Those familiar with proliferation finance are almost twice as likely to have a proliferation finance function as part of a wider compliance team, and are also more likely to consult various proliferation finance sources, the research shows.
Asia-based respondents indicated a greater awareness of proliferation finance red flags and typologies (60%), compared to the US (51%) and Europe (58%).
Asia respondents are also more likely to read FATF (Financial Action Task Force) guidance and North Korea sanctions updates, though they are less likely to read the latest advisories and guidance related to Iran and Syria.
From a list of proliferation finance risks, respondents indicated they are most concerned about detecting payments related to goods that can be used in a weapons of mass destruction programme or are subject to export controls.
This is followed by concerns about detecting indirect relationships with and sanctions evasion by designated individuals and entities, then by concerns about detecting financial transactions related to proliferation finance.
Only a quarter (24%) of respondents believe the industry is doing a good job identifying the financing of dual-use and sensitive goods, compared to 31% who believe it is doing a bad job.
63% of respondents agreed it is challenging to incorporate lists of dual-use goods into transaction monitoring programmes, although nearly half (45%) said screening of goods will rarely result in the identification of proliferation finance.
According to 52% of respondents, the industry should prioritise strict end-user checks rather than focusing on identifying such dual-use goods.
The survey found that US institutions are considered the most exposed to proliferation finance risks from Iran, while China was said to be the most exposed to such risks from North Korea.
Most respondents agreed that industry efforts to combat proliferation finance risks are hindered by a lack of ability to share data with other private sector actors (78%) and with government (64%).
Further, only 20% of respondents said they receive sufficient guidance from government to support their understanding and identification of proliferation finance risk.
Asked about the tools governments can provide, 75% said training workshops/courses would be most useful, while 66% said information on trends and typologies would be most useful.
The full report is available here.
The authors of the report are Emil Dall, Research Fellow, RUSI and Justine Walker, Head of Global Sanctions and Risk, ACAMS.