Paris-Based Banking Group Tightens Rules Against Financing of Banned Weapon of Mass Destruction-Related Transfers

On February 16, 2012, the Financial Action Task Force (FATF), a 34-member intergovernmental body of financial officials, strengthened international efforts to combat the spread of weapons of mass destruction (WMD) by adopting a new policy to buttress the implementation of UN Security Council anti-proliferation financial sanctions. The FATF, which since 1989 has been at the forefront of global policy to combat money laundering and, since 2001, the financing of terrorism, first turned its attention to proliferation in 2007 with the publication of guidance to implement Security Council financial sanctions against Iran and North Korea.

To date, members of the FATF and associated FATF-style regional bodies have subscribed to 40 anti-money laundering and 9 counter-terrorism financing standards, known collectively as the "40+9 Recommendations." FATF members' compliance with these standards periodically undergoes "mutual evaluations" by the group, and the results are published, publicly identifying member states and territories that are failing to meet these benchmarks. Over the past two years, the FATF has been revising its policies in preparation for the upcoming round of mutual evaluations. The process resulted in a consolidation of the "40+9 Recommendations" into a set of 40 revised recommendations, with an expanded scope that now includes measures to combat proliferation financing. Indeed, the recommendations are now titled, "International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation," highlighting the added importance the group now attaches to this subject.

In addition to the revised recommendations, the FATF has also added Ghana, Indonesia, Pakistan, Tanzania, and Thailand to its list of countries with deficiencies in their implementation of the FATF's anti-money laundering and counter-terrorism financing standards. This list also includes Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Nigeria, São Tomé and Príncipe, Sri Lanka, Syria, and Turkey. A number of the countries on the list have also been used as transshipment points by traffickers seeking to divert exports of dual-use technologies to WMD development programs. Weak financial oversight in these countries may have facilitated some of these transactions.

The FATF's new recommendation (Recommendation 7) on UN targeted financial sanctions related to proliferation represents an important step in crafting a robust strategy to prevent the financing of activities supporting the spread of WMD. The new requirement stipulates that

Countries should implement targeted financial sanctions to comply with United Nations Security Council resolutions relating to the prevention, suppression and disruption of proliferation of weapons of mass destruction and its financing. These resolutions require countries to freeze without delay the funds or other assets of, and to ensure that no funds and other assets are made available, directly or indirectly, to or for the benefit of, any person or entity designated by, or under the authority of, the United Nations Security Council under Chapter VII of the Charter of the United Nations.

Significantly, in the upcoming round of evaluations, the FATF for the first time will assess the compliance of its members and the members of its associated regional bodies with nonproliferation-related UN sanctions. This evaluation will be the first action by a multilateral group to publicly assess the level of national compliance with these Security Council obligations.

Recommendation 7 builds upon the FATF's 2007 informal guidance on implementing targeted financial sanctions. In the interim, the FATF also undertook an intensive study of WMD financing, as part of an effort to assist members and members of FATF-style regional bodies to implement a separate set of Security Council requirements promulgated under UN Security Council Resolution (UNSCR) 1540. That resolution, while not imposing sanctions on any state, requires all UN members to adopt legislation to prevent and criminalize the financing of WMD proliferation. (The FATF's work on UNSCR 1540 resulted in a 2008 FATF study on the tactics employed by proliferation financiers to conduct their illicit activities, and a 2010 FATF report titled "Combating Proliferation Financing: A Status Report on Policy Development and Consultation," which proposed a number of policy options to address the threat of proliferation financing.)

Despite the important new mandate of Recommendation 7, the FATF has not gone as far in its requirements concerning proliferation financing as it has in addressing the threat posed by terrorism financing. In the latter case, the group's recommendations not only call upon states to implement relevant Security Council sanctions but also include a companion recommendation requiring that states criminalize the financing of terrorist acts, individuals, and organizations. The FATF did not adopt such a companion recommendation for proliferation financing, even though UNSCR 1540, which the FATF studied at length, requires the criminalization of such activities. Similarly, unlike money laundering and terrorism financing, proliferation financing is not addressed in other parts of the FATF's revised recommendations, such as those concerning bank due diligence regarding the identity of their customers.