The Financial Action Task Force (FATF), which was established by G7 in 1989, is an intergovernmental policy-making body on anti-money laundering and countering the financing of terrorism (AML/CFT), as well as interdicting proliferation financing. The FATF has promoted countries' effective implementation of measures against money laundering, terrorist financing, and financing of proliferation through the FATF 40 Recommendations, guidance and best-practices papers, and the country-assessment (mutual-evaluation) process. Currently, 192 jurisdictions are members of the FATF or of a FATF-style regional body (FSRB). All have politically endorsed the FATF Recommendations and participate in the mutual-evaluation process.
Following adoption of the series of the UN Security Council resolutions on nonproliferation, namely resolutions 1540 (2004), 1695 (2006), 1718 (2006) and 1737 (2006), the FATF issued its first Guidance on Implementation of Financial Provisions of UNSCRs to Counter the Proliferation of Weapons of Mass Destruction in June 2007. While the guidance focused on country-specific measures under resolutions 1718, 1737, and 1747, it also referred to resolution 1540 and provided suggestions for further work in relation to resolution 1540. A Typology Report on Proliferation Financing, which was completed in June 2008, aimed to develop an understanding of the issues surrounding proliferation financing and to provide information to the FATF to assess the need for policy measures to counter proliferation financing.
The Guidance on the Implementation of Activity-Based Financial Prohibitions of UNSCR 1737 (2006) and Guidance on 1803 (2008) were issued in October 2007 and October 2008, respectively. As a follow-up to the Typology Report, the FATF also developed a Status Report on Policy Development and Consultation, which provided possible policy options that could be considered by countries as measures to combat proliferation financing within the framework of UNSCRs.
Paragraphs 2 and 3(d) of resolution 1540 are particularly relevant, and the FATF’s guidance is intended to assist countries in their implementation of these requirements. Paragraph 2 prohibits the financing of proliferation-related activities by non-state actors, and paragraph 3(d) requires countries to establish, develop, review, and maintain appropriate controls on providing funds and services, such as financing, related to the export and transshipment of items that would contribute to WMD proliferation.
Resolution 1673 (2006) reiterates the requirements of resolution 1540 and emphasizes the importance that all countries fully implement that resolution, including provisions regarding the financing of proliferation of WMD.
The United Nations has taken the two-tiered approach to nonproliferation. One is a global approach which aims at preventing acquisition of WMD by non-state actors through resolution 1540, and another is a targeted approach which aims at the proliferation activities of particular states, such as Iran and North Korea. In these approaches, while effective export control is important to countering proliferation of WMD, financial measures constitute an equally important tool to support investigation of possible proliferation activities. The financial provisions of resolution 1540 have provided countries with this tool, i.e., financial measures, to assist overall counterproliferation efforts. Financial information:
- May uncover proliferation activity, including when it is complemented by information held by other authorities
- May link entities of concern together, for example through the establishment of financial or audit paper trails, which is increasingly important to counter the growing use of front companies
- May demonstrate diversion or infringement of export controls
- Could provide evidence to support ongoing nonproliferation-related investigations or prosecutions
FATF’s approach to countering proliferation financing focuses on assisting countries in their effective implementation of financial provisions. It aims at prevention, detection, investigation and prosecution, and domestic and international cooperation. It involves all relevant parties: policy-makers, financial-services supervisors, financial intelligence units, law enforcement, export and border control agencies, and the private sector.
Among the FATF 40 Recommendations, which were fully revised in February 2012, Recommendation 2 on national cooperation and coordination requires information-sharing and exchange between or among authorities at the domestic level. Recommendation 2 requires countries to have effective mechanisms to cooperate and coordinate domestically to combat the financing of proliferation of WMD. Recommendation 2 was drafted with input from the UN 1540 Committee Experts Group and aims at ensuring better implementation of the existing international obligations, including those of resolution 1540. This goes beyond the traditional anti-money-laundering bodies: Recommendation 2 also covers proliferation-related agencies as one of the relevant competent authorities.
Recommendation 2: National cooperation and coordination
Countries should have national AML/CFT policies, informed by the risks identified, which should be regularly reviewed, and should designate an authority or have a coordination or other mechanism that is responsible for such policies.
Countries should ensure that policy-makers, the financial intelligence unit (FIU), law-enforcement authorities, supervisors and other relevant competent authorities, at the policymaking and operational levels, have effective mechanisms in place which enable them to cooperate, and, where appropriate, coordinate domestically with each other concerning the development and implementation of policies and activities to combat money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction (emphasis added).
The FATF issued Best Practice Paper on Recommendation 2: Sharing among Domestic Competent Authorities Information Related to the Financing of Proliferation in February 2012. The paper identifies key agencies and sets out mechanisms by which relevant agencies cooperate and coordinate to combat proliferation financing. It aims to identify best practices in information-sharing among relevant authorities at the domestic level on proliferation financing, helping countries implement Recommendation 2.
The recently developed Recommendation 7 on Targeted Financial Sanctions Related to Proliferation is to assist countries in their implementation of country-specific UNSCRs, such as resolution 1718 and its successor resolutions on North Korea, and resolution 1737 and its successor resolutions on Iran.
The FATF and the experts of other UN committees have closely collaborated. The work of the FATF, such as Recommendation 2, Recommendation 7, and Guidance on Implementation of Financial Provisions of UNSCRs, is mutually reinforcing with the United Nations’ work on nonproliferation. The Revised FATF’s Guidance on Financial Provisions of UNSCRs to Counter the Proliferation of WMD, issued in June 2013, continues to accent the importance of countries’ implementing the financial provisions of resolution 1540. At the same time, resolutions 1810 and 1977 both take note of “international efforts towards full implementation of resolution 1540 (2004), including on preventing the financing of proliferation-related activities, taking into consideration the guidance of the framework of the Financial Action Task Force (FATF).” The FATF continues to assist countries in their efforts to deny financial means to WMD proliferators.