Financial Crime World

Financial Institution Identifies Proliferation Financing Risks

Assessing Proliferation Financing (PF) Risks

A leading financial institution has identified PF risks that arise from its products and services. The institution recognizes the importance of assessing these risks to ensure compliance with applicable regulations and mitigate potential breaches.

Compiling a List of Known or Suspected PF Threats

The institution conducts a thorough risk assessment to identify PF threats and vulnerabilities. This involves compiling a list of:

  • Major known or suspected PF threats
  • Key sectors, products, and services that have been exploited
  • Types of activities engaged in by designated individuals/entities
  • Primary reasons why these individuals/entities are not identified or deprived of their assets

Considering Contextual Features of a Particular Sector

The institution also considers contextual features of a particular sector that may make it attractive for designated persons and entities to exploit for PF sanction evasion. This includes factors such as:

  • Low levels of PF risk awareness
  • Understanding of TFS requirements
  • Weak culture of compliance within the sector

Identifying Vulnerabilities

Product- or Service-Specific Vulnerabilities

The institution identifies vulnerabilities associated with its products, services, customers, and transactions. These include weaknesses and features that could be exploited for sanctions evasion purposes. Examples of product- or service-specific vulnerabilities may include:

  • Complexity in nature
  • Cross-border reach
  • Ease of accessibility to customers
  • Diverse customer base
  • Being offered by multiple subsidiaries or branches

Customer and Transaction Vulnerabilities

Customer and transaction vulnerabilities are also crucial for risk assessments conducted by the institution. This includes reviewing the number of high-risk customers, particularly those carrying out cross-border transactions involving:

  • Legal persons and arrangements
  • Multiple shell or front companies

PF Risk Assessment Considerations

The institution’s PF risk assessment considers various factors, including:

  • Nature, scale, diversity, and geographical footprint of its business
  • Target market(s) and customer profiles
  • Volume and size of transactions handled by the institution
  • Contextual features of a particular sector that may make it attractive for designated persons and entities to exploit for PF sanction evasion

The institution’s risk assessment also takes into account:

  • Internal audit and regulatory findings
  • Information obtained through public sources

Mitigating PF Risks

To mitigate PF risks, the institution implements measures such as:

Employee Training and Education

  • Conducting regular training programs for employees on PF risks and compliance requirements

Customer Due Diligence Procedures

  • Enhancing customer due diligence procedures to identify high-risk customers

Transaction Monitoring and Screening Processes

  • Implementing robust transaction monitoring and screening processes

Internal Controls and Audit Procedures

  • Strengthening internal controls and audit procedures

By identifying and mitigating PF risks, the institution ensures compliance with applicable regulations and minimizes the risk of breaches.