There are four emerging risks that the SRA has identified in the Sectoral Risk Assessment which was published in July 2023. One of these emerging risks is proliferation financing. Here, we explain the SRA’s update on proliferation financing, the associated risks and advice on what actions you should take.
What is proliferation financing?
Proliferation financing is the act of providing financial support to individuals or entities involved in the development or acquisition of weapons of mass destruction. Essentially, this means nuclear, chemical, biological or radiological weapons.
How does proliferation financing affect law firms?
When considering proliferation financing, you can’t just assume this doesn’t affect you as you don’t do any military work. You have to think about whether the business is actually a sham, which is financing such weapons.
In addition, many of the ingredients of nuclear, chemical, biological and radiological weapons are common, everyday products, such as fertiliser, chemicals and computer chips. Businesses that appear to sell these products for everyday use, may in fact be supplying them for the production of such weapons.
What does the SRA say about proliferation financing?
The SRA does recognise that the risk of proliferation financing in the legal sector is low. However, they make a valid point in that low frequency doesn’t necessarily mean low risk. So, you do have to consider the areas of work that may be exposed to this and, if you have them, you need to identify the risks.
What actions should you take for proliferation financing?
Firstly, you need to consider the work types that might be exposed to proliferation financing. Work types that might be exposed include trade finance, commercial contracts, manufacturing commodities, shipping/maritime and military defence.
Next you should consider jurisdictions. Are any of the countries involved subject to UN sanctions? Additionally, are any of the countries involved suspected of using, or seeking, weapons of mass destruction? Also are any of the countries involved thought to have a weak border? This relates to countries that could involve people sending ingredients of weapons of mass destruction to neighbouring countries, and bringing them back over the border.
Once you’ve carried out your investigation, you need to ensure that you record your assessment.
Just like with sanctions, even if you don’t think there’s a risk of proliferation financing for your practice, you must demonstrate to the SRA that you’ve thought about it. If this is the case, we suggest adding a line in your AML Practice Wide Risk Assessment to say you’ve considered proliferation financing, you don’t work in these areas or jurisdictions, and therefore you consider the risks to be low.
Like with everything, making sure you record everything is essential!
Get in touch
At Teal Compliance, we’re here to support your journey towards regulatory and AML compliance.
If you’re looking to ensure that you, your firm and your clients are safe, simply contact our experts today.