Proliferation Financing (PF)

Weapons programmes need materials, machinery and technology that are bought abroad, often through disguised intermediaries. Someone has to pay for them, and that payment is where banks and other firms can be drawn in. The sums can be modest and the activity may look like ordinary trade. UN Security Council resolutions require countries to freeze the assets of named persons and entities tied to weapons programmes, such as those linked to North Korea. FATF's Recommendation 7 turns this into a financial duty, and its risk assessment requirement was widened to cover proliferation financing. Typical red flags include dual-use goods, front companies, transhipment through third countries and vague end users. The difference from money laundering is that the funds may be legitimate in origin, since the harm lies in the use. Banks that miss it risk sanctions penalties and, at worst, help a weapons programme move forward.

A trading company with an account at a mid-sized bank begins ordering specialised valves and pumps for delivery to a free trade zone, paying through a newly formed intermediary. The end user is unclear. The bank's trade finance team recognises the goods as possible dual-use items, asks for the end-user certificate, and escalates to the sanctions team before releasing payment.