Latest news with #ComplexProliferationFinancingandSanctionsEvasionSchemes
Indian Express
24-06-2025
- Business
- Indian Express
How to tackle the flow of money that can aid the development of weapons of mass destruction
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
Hindustan Times
22-06-2025
- Business
- Hindustan Times
FATF flags Pak case to sound global weapons funding alarm
A new report by the global financial crimes watchdog has cited India's seizure of equipment with military use bound for Pakistan in 2020 as evidence of widespread failures in preventing weapons proliferation financing, a problem that poses significant threats to world security and the integrity of the international financial system. FATF flags Pak case to sound global weapons funding alarm The Financial Action Task Force (FATF) report, published late on Friday, found that 84% of assessed countries demonstrated inadequate controls despite what FATF described as the 'grave threat' posed by such activities. The report featured a case study detailing how Indian customs authorities in 2020 intercepted dual-use items that were mis-declared as medical equipment but were actually destined for Pakistan's ballistic missile programme. 'Indian custom authorities seized an Asian-flagged ship bound for Pakistan. During an investigation, Indian authorities confirmed that documents mis-declared the shipment's dual-use items,' the FATF report titled Complex Proliferation Financing and Sanctions Evasion Schemes stated. The items were listed as autoclaves, which are 'used for sensitive high energy materials and for insulation and chemical coating of missile motors.' A senior Indian government official described the study as 'the most comprehensive and updated survey of risks related to proliferation financing,' noting that it identifies Pakistan alongside North Korea and Iran as countries where proliferation financing risks 'are inherent.' The FATF categorised the incident as 'non-declaration of dual use goods under the prescribed export laws of the exporting country.' Though the report did not name the exporting country, the ship was intercepted in Indian waters while travelling from China's Jiangyin port to Pakistan's Karachi port, as reported by Indian media, including HT, at the time. What was not reported till now, and referenced in the FATF report, is the link of the shipment to Pakistan's National Development Complex, a defence and aerospace agency under the Pakistan government. 'The Bill of Lading of the seized cargo provided evidence of the link between the importer and the National Development Complex, which is involved in the development of long-range ballistic missiles,' the report stated. Officials said the timing strengthens India's position as it prepares to oppose the World Bank's $20 billion lending commitment to Pakistan over 10 years. India will oppose development funding to Pakistan at the World Bank's upcoming meetings, one of these people said, asking not to be named. 'India is not against multilateral agencies such as the IMF and World Bank extending financial support for the development of the people of Pakistan. However, there is ample evidence that these development funds are diverted by Islamabad from development projects to arm purchase and terror funding,' said one of these officials, asking not to be named. In May, finance minister Nirmala Sitharaman contacted IMF leadership directly, presenting evidence of Pakistan's alleged misuse of development funds for military purchases. Despite India's intervention, the IMF executive board approved a $1.4 billion loan for Pakistan under climate resilience funding, though it later imposed 11 strict conditions following New Delhi's objections. 'Pakistan is unlikely to meet those conditions and thus it would not be able to avail the IMF funding,' the official added. Citing data available with multilateral agencies, this official explained: 'Pakistan spends on average around 18% of its general budget on 'defence affairs and services', while even the conflict-affected countries spend on average far less (10-14% of their general budget expenditure). Further, Pakistan's arms imports increased dramatically from 1980 to 2023 by over 20% on average in the years when it received IMF disbursements in comparison to years when it did not receive the same'. A second official said the latest report very nearly 'clubs Pakistan with rogue countries like North Korea.' 'This report will help India in pushing it for placing Pakistan in the grey list again.' The report also comes days after FATF condemned the April 22 Pahalgam terror attack, saying it could not have occurred without means to move funds between terrorist supporters, which Indian officials described as a positive step in New Delhi's renewed attempts to put Pakistan back on the grey list. The FATF report highlighted significant vulnerabilities across the global financial system in countering the financing of weapons of mass destruction. It revealed that only 16% of countries worldwide have demonstrated effective implementation of UN sanctions designed to prevent weapons of mass destruction financing. The report cited North Korea as 'the most significant actor' in proliferation financing — having 'generated billions of dollars through cyberattacks targeting virtual asset-related companies, such as the theft of USD 1.5 billion from ByBit in February 2025,' according to the FBI. The report identified four primary methods used to evade sanctions: employing intermediaries, concealing beneficial ownership, exploiting virtual assets and manipulating shipping sectors. In the 2020 incident, the merchant vessel Da Cui Yun, sailing under Hong Kong flag, was stopped by India's customs department at Kandla port in Gujarat on February 3 for wrongly declaring an autoclave as an 'industrial dryer.' An autoclave -- a device that uses high-pressure steam and heat to sterilise materials -- is used in hospitals for sterilising medical equipment, but also helps in the manufacture of specialised materials for missile components under controlled high-pressure and temperature conditions. The interception was following an intelligence tip-off, and experts from the Defence Research and Development Organisation, including nuclear scientists, examined the 18x4-metre autoclave and determined it was dual-use equipment that could serve civilian or military purposes. The vessel was allowed to leave after the autoclave was seized. Reports suggested the Da Cui Yun had made multiple voyages from China to Karachi via Indian ports carrying machinery. The report underscores that 'unless both the public and private sectors urgently bolster technical compliance and effectiveness, those seeking to finance WMD proliferation will continue to exploit weaknesses in existing controls.'
Time of India
21-06-2025
- Business
- Time of India
FATF flags Pakistan bid to ship in missile gear from China on sly
(AI image created using ChatGPT) NEW DELHI: A new report by Financial Action Task Force has flagged Pakistan's attempts to procure equipment for its missile programme by mislabeling shipment, drawing attention to the country's failure in implementing measures to combat financing of proliferation of weapons of mass destruction, which is one of the recommendations of the global watchdog. The report not only reveals that critical components for ballistic missiles originating from China were mislabeled in documents but also links the importer to Pakistan's National Development Complex which handles missile production. India is likely to use the revelations in its dossier to make another push for Pakistan's return to the FATF 'grey list' which identifies countries with weaknesses in their anti-money laundering and terror financing systems. These countries are subjected to closer monitoring and must demonstrate progress on corrective action plans. Pakistan has been on the list three times with the most recent sanction of 2018 lifted in 2022. In Feb 2020, a Chinese vessel named 'Da Cui Yun', which was en route to Port Qasim in Karachi, was intercepted at Gujarat's Kandla port. While the equipment was seized, the ship and its crew were allowed to leave after investigation. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like 5 Books Warren Buffett Wants You to Read In 2025 Blinkist: Warren Buffett's Reading List Undo In its latest report titled 'Complex Proliferation Financing and Sanctions Evasion Schemes', FATF refers to the investigation by Indian Customs. "Indian authorities confirmed that documents mis-declared the shipment's dual-use items. Indian investigators certified the items for shipment to be 'autoclaves', which are used for sensitive high energy materials and for insulation and chemical coating of missile motors," it read. "The sensitive items are included in dual-use export control lists of the Missile Technology Control Regime, India, and other jurisdictions. The Bill of Loading of the seized cargo provided evidence of the link between the importer and National Development Complex," it added. FATF may release the report next month amid hopes in India that it would expose Pakistan's inadequacies in combating terror financing - something which could potentially result in the country being placed under enhanced monitoring, and being returned to 'grey list'. This move would subject Pakistan to increased financial scrutiny, impacting foreign investment and capital inflows. India has been pushing for Pakistan's return to the list, citing its brazen support for terrorism and failure to comply with FATF norms.
