In addition to other red flags, we have identified the following specific red flags for proliferation financing (PF).
The client, the person acting on behalf of the client, beneficial owner, or party to a transaction is:
- Connected with a country of proliferation or diversion concern (e.g. through business or
- A designated person or entity.
- National of or based in a geographic area that is subject to PF TFS (Targeted Financial Sanctions).
- National of or based in a geographic area that is a concern due to possible diversion
of funding or resources to a PF TFS country.
- A foreign PEP, high risk PEP, or government entity dealing in a high-risk sector such as arms and ammunitions or trading in other controlled goods and activities (dual-use goods or technology).
- Represented by a third party in a manner that is not aligned to the client profile or does not make business sense, or seems unnecessary. Where there is an unusual or unexplained third party acting on behalf of the client, this may be an indicator of a high-risk transaction.
- The legal structure appears overly complex, in an attempt to hide beneficial owners that are subject to PF TFS.
- Offers products and services that face a heightened risk of being abused for PF. Examples may include import and export businesses (e.g. freight forwarders, airlines, road couriers, warehouses, vessels, shipping companies, maritime companies, clearing agents, import and export insurance companies, and credit and insurance providers, among others), ports of entry, chemical manufacturing companies, precious metal dealers, as well as arms and ammunition manufacturers.
- The nature of the client’s business, including the industry the client operates in, or the
type of products and services the client provides are linked to controlled goods and
activities (dual-use goods).
- Where a client deals in controlled goods or activities and does not have approval from
the relevant regulatory authority to do so, this may be an indicator that the client
poses a heightened PF risk.
- Engages in complex trade deals involving numerous third-party intermediaries in lines of business that do not align with their stated business profile established at onboarding.
- Affiliated with a university or research institution involved in trading dual-use goods or goods subject to export control.
The geographic area in which the client, the person acting on behalf of the client, the beneficial owner, or persons who are party to the transaction are based is:
- Subject to PF TFS.
- An area of concern due to the diversion of funds or resources to a geographic area subject to PF TFS (e.g. where the country is not listed but supports or aids sanctioned countries).
- An area of concern due to weak AML/CTF/CPF laws or export control laws and enforcement.
- Providing controlled goods and activities to geographic areas that do not seem to have the required skill or technology to deal with the controlled goods and activities.
There are certain products that are at higher risk for PF, including the following:
- Trade finance involves financing the import and export of goods and can
include controlled goods or activities.
- Trade finance transactions may be complex and involve the movement of funds to or
from geographic areas that present a high PF risk.
- There are various parties to a trade finance transaction, who may be subject to PF
- Correspondent banking, which is the provision of banking services by one bank to
another bank, and services include international transactions and cash management.
- Foreign exchange, which refers to the conversion of one country’s currency into
another country’s currency. Where foreign exchange payments are made to or
received from countries that pose a heightened PF risk, accountable institutions
should consider the risk of possible evasion of TFS.
- New technologies, including crypto assets, are increasingly being used for PF due to
the anonymous nature of the crypto assets, the ease of domestic and cross-border
transfer, and the fact that crypto transactions are subject to less scrutiny.
- Cash payments, as it enables the anonymous transfer of funds which is easily transferable and
leaves no audit trail.
- False documentation or documentation that seems unusual could indicate an attempt
to evade sanctions.
- Negative information relating to PF on the end use and end user of the controlled
goods and activities.