How to tackle the flow of money that can aid the development of weapons of mass destruction

Indian Express

24-06-2025

Written by Ridhima Sinha
The proliferation of Weapons of Mass Destruction (WMD) represents one of the most severe threats to global security. The ongoing Israel-Iran conflict, reportedly sparked by Israel's concerns over Iran's nuclear ambitions, underscores the urgency of addressing this issue.
WMD proliferation relies on intricate financial networks, procurement chains, and covert enablers. Disrupting these financial lifelines is a critical defence against the catastrophic risks posed by WMDs, necessitating robust regulations to counter proliferation financing (PF). However, financial and compliance professionals often grapple with the complexity of techniques employed by proliferators to move funds covertly.
A timely report released by the Financial Action Task Force (FATF) on June 20, titled Complex Proliferation Financing and Sanctions Evasion Schemes, elucidates the sophisticated methods proliferators use to bypass counter-proliferation financing (CPF) measures and clandestinely fund WMD programs. The report serves as a sobering reminder that state-driven proliferation efforts are not only persistent but also highly adaptive, exploiting modern financial systems with alarming ingenuity. It addresses the challenges in understanding the sophisticated methods used by proliferators to covertly move funds by stating the typologies of PF based on the cases of various jurisdictions.
A sophisticated global web
The FATF report highlights the increasing use of front companies, mislabelling of goods, digital currency, and cyber theft in proliferation financing (PF).
One of the report's findings is the way the Democratic People's Republic of Korea (DPRK, also known as North Korea), subject to United Nations (UN) sanctions, has shifted strategies to continue proliferation financing. No longer reliant solely on traditional smuggling routes, the regime now deploys a mix of state-sponsored cyberattacks, maritime trade manipulation, and digital deception. It observes that 'the DPRK generated billions of dollars through cyberattacks on virtual asset-related companies, such as the theft of $1.5 billion from ByBit in February 2025.'
State-supported actors from DPRK have also been found to raise revenue from the export of wigs in violation of UN sanctions, and remote IT work. The report notes that countries engaged in direct transactions with the DPRK face increased exposure to proliferation financing risks.
Iran: Evasion through proxy
Although UN sanctions related to its nuclear program expired in October 2023 under UNSCR 2231, Iran remains a high-risk jurisdiction in the eyes of many FATF members. The report explains how Iran uses a web of front companies, trusted proxies, and foreign exchange houses to move funds and procure dual-use items.
The report warns that despite the expiration of global sanctions, unilateral and regional sanctions still apply to Iran and are being actively circumvented. Proceeds of oil smuggling from Iran also fuel PF risks and have been actively aided by well-connected businesspersons overseas.
Pakistan: An emerging PF concern
In a critical case study, the FATF report highlights Pakistan's role in the procurement of dual-use goods by falsely declaring them as industrial dryers. The case study notes that the 'Bill of Lading of the seized cargo provided evidence of the link between the importer and the National Development Complex (NDC).'
The NDC is a Pakistani state-owned defence and aerospace contractor, founded in 1990 by the Pakistan Atomic Energy Commission. The NDC was sanctioned by the United States in December 2024 under Executive Order 13382 along with three other Pakistani entities. The order targets proliferators of WMD and their means of delivery. The sanctions followed a finding that the NDC had procured missile-related components from global suppliers through a network of front companies and Karachi-based intermediaries.
PF risks also arise from Pakistan's geographic location, porous border, and ineffective border checks. According to multiple sources, approximately 2.8 billion litres of oil are smuggled annually from Iran into Pakistan. A leaked intelligence report cited by Voice of America (August 2024) estimates that smuggled Iranian fuel accounts for about 14 per cent of Pakistan's annual fuel consumption, with illicit trade valued at over US $1 billion per year.
The smuggling involves about 1800-2000 vehicles and 1200-1300 boats transporting oil daily, seemingly an organised operation pointing towards systemic facilitation. The financial transactions underpinning the smuggling are predominantly done through the hawala route, thus making it easier to divert them for financing proliferation efforts in Iran. Owing to the quantum of illicit trade and hawala transactions with a persistent threat vector, Pakistan represents a PF threat by extension.
Crypto, cybercrime, and the new frontier of PF
The report highlights the concerning digital evolution of proliferation financing, wherein cybercriminals increasingly exploit cryptocurrencies to obscure transactions and evade detection. As reported by various jurisdictions, the DPRK's Lazarus Group, a state-sponsored cybercrime organisation, has increasingly shifted toward cryptocurrency heists, leveraging anonymity-enhancing technologies such as mixers, decentralised finance (DeFi) platforms, and cross-chain bridges.
The report also highlights the use of cryptocurrency exchanges with lax or nonexistent Know Your Customer (KYC) protocols, enabling proliferators to launder illicit proceeds and obscure the origins of their funds.
Key takeaways for the private sector on PF
The FATF report provides practical enhanced due diligence (EDD) guidance for the private sector through a set of risk indicators grouped under three categories namely, customer information/behaviour indicators (using EDD during onboarding or from KYC), transaction indicators (monitored during routine and escalated reviews) and trade activity indicators (relevant to trade finance, customs intermediaries, and maritime sectors). These act as a structured tool for financial institutions, DNFBPs (Designated Non-Financial Businesses and Professions), and VASPs (Virtual Asset Service Providers) to improve detection and response to PF and sanctions evasion risks.
While the FATF report clarifies that many case studies featured in the report pertain to national and regional sanctions rather than global sanctions (which are part of FATF/UN standards), this is a rich source for academicians and professionals for developing a sound understanding of challenges in countering PF. For academicians, the public sector, the private sector, the financial sector, the maritime sector, and compliance practitioners alike, it provides critical insights into the practical and policy challenges involved in countering proliferation financing.
The writer serves as the Legal Expert, International (Counter-terrorism) Law, supervising the Foreign Investigation Request Unit, at National Investigation Agency, MHA, GoI. Views are personal