Seventy five years after the first use of an atomic bomb, the proliferation of weapons of mass destruction (WMD) continues to be a threat to international peace and security. Each year, governments invest major resources in combating the quickening spread of WMD, which include nuclear weapons. Examples are the disrupting of the procurement networks, prosecuting the individuals and companies involved, and disrupting the money flow.

The UN Security Council (UNSC) has approved some resolutions to combat the financing of proliferation (FoP).

In 2004, UNSC Resolution 1540 required governments to implement controls on the financing of export and so-called transhipment –shipment to an intermediate destination – of goods and services related to WMD and their means of delivery.

UNSC sanctions resolutions on North Korea’s WMD programs require governments to implement a range of financial controls, and although UNSC sanctions as such on Iran’s proliferation-sensitive programs have been terminated, a range of financial restrictions related to these programs are still in place under UNSC Resolution 2231 (2015).

Nevertheless, identifying the money flows to the proliferation of WMD remains difficult. Despite much information regarding procurement of proliferation-sensitive materials and their means of transfer being publically available, much less information exists regarding methods and means to finance such procurement. A better understanding of FoP typologies would greatly assist to efficiently tackle this worldwide threat.

The most recent comprehensive review of FoP typologies, called the Typologies Report on Proliferation Financing, was published in 2008 by the Financial Action Task Force (FATF), a global money laundering watchdog.

As of 2016, the FATF consists of thirty-five member countries, including the UK, China, France, Germany, Russia, and the US.  Since that time, more information has become available on the money flows that fund proliferation, particularly relating to Iran and North Korea’s programs.

information on the financing of proliferation (FoP) has been published by the UN Sanctions Panel on Iran, based on material supplied as a result of requests to governments and the private sector.

This exercise demonstrated that relatively few national authorities held specific data regarding FoP, and where they did, the data were usually related to circumvention of financial sanctions relating to WMD programs. Similarly, transaction monitoring and other compliance procedures carried out by banks and financial institutions were usually targeted at sanctions compliance rather than identifying FoP.

Following are examples of FoP provided by UN Sanctions Panel on Iran:

1.       A financial transaction involving a purchase order, the payment for which was initiated by a front company in Iran through another designated entity, which transferred funds through an Iranian company in the food business to a non-UN sanctioned Iranian bank.

2.       A trading company set up in the Middle East that opened a series of accounts that were denominated in local currency and in euros, USD, and other foreign currencies. The local currency funds, which were suspected to be coming from Iran, were channelled through the trading company and then quickly switched into foreign currencies and transferred overseas.

3.       A company in the Middle East, in partnership with a foreign national as a minority shareholder, opened an international bank account and made multiple large payments to several European companies. This was identified as possible money-laundering, and further investigation revealed that the company manager also managed a company that did business with Iran.

4.       A payment, which was originally thought to be made to a company located in a neighbouring State to Iran, turned out to actually have been made to an Iranian company in a State neighbouring Iran.

5.       An import Letter of Credit (LC), covering goods which were originally thought to have been shipped by a neighbouring State to Iran, was found to have actually shipped those goods through an Iranian company. The beneficiary of the LC in the neighbouring State acted as front company to the Iranian company.