ICC Global Trade & Receivables

How Does Global Trade and Receivables Finance Mitigate against Proliferation Financing?

This paper considers the application of a risk-based approach to assist Financial Institutions (FIs) in identifying high risk customers and transactions in relation to Proliferation Finance (PF) related to Weapons of Mass Destruction (WMD). This also includes the consideration of dual use goods (goods that may have both civilian and military purposes).

Whilst trade finance products allow for stronger risk assessment due to its documentary nature, and as opposed to clean payments, this will only be at an individual transactional level. FIs rarely have oversight of the entire route of goods, as well as the entire transaction chain and network. As a result, the ultimate end-user is often unknown and assessment related to PF is therefore limited. Additionally, FIs seldom have the expertise required to discriminate between legitimate and proliferation-sensitive goods, and identifying true cases of PF as the typology is multifaceted in a similar way to that of trade based money laundering typologies.

This paper therefore concludes that effective identification of this risk by FIs is extremely challenging. More effective results are likely to come from information sharing and cooperation between public and private sectors on proliferation typologies is imperative.