A practical guide for law firms
Proliferation Financing (PF) is an international crime which facilitates the movement and development of illegal goods in order to provide weapons of mass destruction for rogue states like Iran and North Korea. It has become an increasing cause of global concern over the last decade, and its potential consequences can be severe – from global instability to a catastrophic loss of life.
The UK’s position in the global economy and international financial system makes it a prime location to raise funds to develop chemical, biological, radiological, and nuclear programmes that threaten international peace and security. UK law firms are vulnerable to being used for PF due to their involvement in transactions such as mergers and acquisitions, capital raising and other business activities as well as providing legal advice and assistance to clients in high-risk jurisdictions. The emergence of new regulations and tools designed to disrupt PF means that law firms need to be aware of the dangers of PF and adopt appropriate policies and procedures to identify and manage the risks.
What exactly is proliferation financing?
As defined by the Financial Action Task Force (FATF), PF is the provision of funds or financial services used for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials (including dual-use technology – meaning it could be used for either civil or military purposes) and dual-use goods in connection with such weapons. A key focus here is on the threats posed by rogue states, and the strict implementation of a sanctions regime on North Korea and Iran to prevent bringing certain restricted goods or funds to these states. Sanctions laws apply to all businesses. Any firm that breaches the UK sanctions regime could be fined or subject to criminal prosecution. Breaching sanctions was recently made a strict liability offence, which means a firm only has to breach the law to be liable; there is no requirement for intent.
What’s new?
From April 1, 2023, the Money Laundering and Terrorist Financing Regulations 2022 introduced changes that affect firms. These involve a requirement to carry out PF risk assessments, which means that firms must carry out PF risk assessments either as part of the existing practice-wide risk assessment or as a standalone document. Practice areas that have been identified as higher risk include trade finance, commercial contracts and shipping. It also involves changes to the duty to report discrepancies to company registries. This only applies to certain types of businesses or if the discrepancy is “material” and/or could be considered to be linked to money laundering or terrorist financing, or conceal details of the customer’s business.
Want to learn more about how your firm can mitigate the very serious risks of Proliferation Financing?
