Global Financial Vulnerabilities in Tackling Proliferation Financing: Key Risks, Gaps & FATF Recommendations

Relevance: GS III Banking Sector

Why in News

In order to combat Proliferation Financing (PF), the research identifies significant weaknesses in the global banking system.

Key Findings from the FATF Report

The world financial system and global security are seriously threatened by PF, which is raising, transferring, or making accessible money, other assets, or resources to individuals or organizations for the goal of WMD.

• State and non-state actors using procurement networks to source and/or acquire dual-use products, technology, and information characterizes the current risk environment.
• Just sixteen percent of nations successfully impose specific UN restrictions to prevent the spread of WMDs.

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Techniques Used by Illicit Actors to Evade Sanctions

To conceal end users, networks employ third-country conduits, financial intermediaries, and front/shell businesses. Falsifying beneficial ownership makes it harder to identify the real parties, especially when done digitally.

• Sanctioned actors move money directly or through non-compliant nations by taking use of virtual currencies and emerging technology.
• The “dark fleet,” a part of the convoluted shipping sector, is used to hide ships and circumvent regulations.

For example, Indian investigations verified that a ship headed for Pakistan had misreported dual-use equipment.

Recommendations to Strengthen PF Defenses Globally

Update threat assessments frequently to stay abreast of changing PF strategies. Increase information exchange to improve the capacity of the public and private sectors to identify instances of PF and/or sanctions evasion.

• To enhance international coordination, include a WMD PF definition in the FAT Glossary within five years. Within three years, examine PF risk assessments worldwide to find best practices and improve responses.

Mains:

Question: Proliferation Financing poses a dual threat to global financial integrity and international security. Critically examine the challenges in detecting and disrupting PF in the current digital and geopolitical landscape. (Answer in 250 words)

Mains PYQs

Question: Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. (UPSC 2021)

MCQs 

Question: Consider the following techniques used by illicit actors to evade sanctions:

1. Using third-country routes and shell companies
2. Concealing beneficial ownership digitally
3. Employing the “dark fleet” to disguise maritime shipments
4. Use of agricultural subsidies to fund PF activities

Which of the above are correctly identified in the FATF report?

1. A) 1, 2 and 3 only
2. B) 2 and 4 only
3. C) 1 and 4 only
4. D) All of the above

Answer: A

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