What countries are high risk for proliferation financing?

How to assess geographic risks of proliferation financing

Regulated entities are required by law to carry out proliferation financing (PF) risk assessments. But this relatively new compliance requirement can be hard to fully integrate into your risk assessment process. At first glance, proliferation financing risks are mainly concerned with activities carried out in North Korea and Iran. If your business doesn’t have a connection with either of these countries, then it might seem there is little more to do in a proliferation financing risk assessment.

But in reality, proliferation financing risks are connected to more countries than just North Korea and Iran, and firms should factor this into their risk assessment processes. However PF risks are constantly evolving. As global concerns on the proliferation of weapons of mass destruction (WMD) evolve, it is vital to broaden the risk assessment process to ensure your firm is not caught out.

What are the highest risk countries for proliferation financing?

According to the 2024 US National Proliferation Financing Risk Assessment prepared by the US Treasury, Russia and North Korea are the highest risk threat actors for proliferation financing. This is significant due to the scale of Western sanctions on Russia. The risk of doing business with Russia or sanctioned entities connected to Russia can now come with PF risks. This is particularly concerning as Russia continues to utilise complex transaction structures in Türkiye, the United Arab Emirates and China.

Russia and proliferation financing risks

Russia has the largest nuclear stockpile on earth, alongside a sizeable military force currently engaged in the invasion of Ukraine. Given the breadth of international sanctions on the country, Russia has engaged its allies and partners to replenish its conventional weapons, as well as increasing its reliance on nuclear, cyber and space capabilities, as well as threatening nuclear action in Ukraine.

Russia has also reduced or suspended cooperation with nuclear non-proliferation treaties. Russia as also revoked ratification of the Comprehensive Nuclear-Test Ban Treaty. Meanwhile, Russia is increasing investment in chemical weapons and has given material support to the use of chemical weapons by the Assad regime in Syria.

Russia is prioritising the illegal procurement of goods and technologies, both in breach of international sanctions, and to support and maintain the proliferation of weapons of mass destruction (WMD). Russian PF networks leverage front and shell companies to place orders for needed components. These networks often then obfuscate the end-user and destination for the goods, routing shipments through third countries before they are ultimately delivered to customers in Russia.

Russia is also working closely with North Korea and Iran, two other states of PF concern. Russia is procuring military equipment from North Korea, in violation of UN Security Council resolutions. Russia has also been procuring Unmanned Aerial Vehicles (UAVs) from Iran to support its invasion of Ukraine.