Glossary term
Proliferation Financing Risk Assessment
Subject: Financial Crime, AML/CFT Framework and Standards
Also known as: PF Risk Assessment
A proliferation financing risk assessment is a structured exercise to identify how a country or firm could be used to fund weapons proliferation, judge how likely and serious that is, and decide what controls to apply.
Explanation
Since FATF extended its first Recommendation in 2020, countries and regulated firms are expected to assess this risk, much as they already do for money laundering. The assessment is narrower than most people expect. It focuses mainly on the risk of sanctions breaches, meaning the chance that a firm fails to implement or is used to evade targeted financial sanctions tied to weapons programmes. Inputs include customer types, products such as trade finance, geographic links to places of concern, delivery channels and the sectors where dual-use goods are traded. The output is a risk rating, a view of how well existing controls work, and actions to close gaps. Firms often fold it into their business-wide risk assessment or their sanctions risk assessment rather than write a separate paper. A supervisor reviewing sanctions controls will ask to see this assessment, and gaps in screening tend to trace back to it.
Example
Reviewing its large trade finance book for weapons proliferation exposure, a bank finds that a quarter of its trade clients ship machinery through transit hubs and that its screening does not cover vessel names. It rates the risk medium to high, adds vessel and goods screening, and schedules training for trade operations staff.
Not to be confused with
- Sanctions Risk Assessment
- A sanctions assessment covers all sanctions programmes. A PF assessment looks at risk tied to weapons proliferation specifically.