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State of Financial Crime 2023 Report

AUSTRAC Publishes Australia’s First National Proliferation Financing Risk Assessment

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On December 14, 2022, the Australian Transaction Reports and Analysis Centre (AUSTRAC) published the country’s inaugural national proliferation financing risk assessment

Aimed at strengthening national and global efforts to combat this criminal activity, the risk assessment combines knowledge from multiple government agencies and a wide range of private sector stakeholders. According to AUSTRAC, the assessment provides a “contemporary and consolidated picture” of proliferation financing risk, how it is countered, and where efforts can be enhanced.

In its press release, AUSTRAC Acting CEO Peter Soros said, “Businesses must understand the proliferation financing risks they face, refine their transaction monitoring processes and ensure they are aware of their obligations.”

Threat Environments and National Vulnerabilities

Australia’s counter-proliferation financing regime comprises its sanctions regime, AML/CTF framework, inter-agency coordination, international cooperation, and information-sharing mechanisms. According to the risk assessment, the most significant proliferation financing threats currently facing Australia include:

  • Australian financial services and infrastructure being used to procure dual-use goods and evade sanctions
  • Australian citizens being exploited to source and export sensitive technologies and knowledge for actors of proliferation concern
  • Designated non-financial businesses and professions (DNFBPs) facilitating proliferation financing and sanctions evasion 

Using shell companies, transhipment hubs, and exporting goods just under reporting thresholds were also identified as common methods used by procurement networks to help obscure their illicit activities and evade sanctions.

AUSTRAC also highlighted several national proliferation financing vulnerabilities, including: :

  • Australia’s extensive economic relations and trade with Asian markets, several of which have proven popular destinations for the transhipment of sanctioned goods
  • The country’s lack of reporting requirements for key types of DNFBPs, such as lawyers, accountants, and company service providers
  • Limited awareness of proliferation financing risk exposure and indicators in some financial service sectors
  • A large financial services sector, including digital currency exchanges that are exposed to cyberattacks or misuse by proliferators

Breaching North Korean Sanctions

Australia’s first prosecution for breaching UN and Australian North Korean sanctions occurred in June 2021, when a man from Sydney pled guilty to providing brokering services for selling arms and related materiel from North Korea. 

On his arrest in 2017, Mr. Chan Han Choi was accused of brokering five transactions for missiles, petrol, and coal on behalf of North Korea to entities in Indonesia. Although none of the transactions were finalized, the Court ruled that the cessation of negotiations was not due to any voluntary act by Mr. Choi. As a result, the offender was sentenced to a total of three years and six months imprisonment. 

FATF Guidance on Proliferation Financing

In October 2020, the Financial Action Task Force (FATF) amended Recommendation 1 and its Interpretive Note to require countries and private sector entities to identify, assess,

understand, and mitigate their proliferation financing risks. In June 2021, the FATF issued updated guidance on conducting proliferation financing risk assessments and implementing mitigation measures. This guidance includes:

  • Establish a comprehensive national policy and strategy to combat proliferation financing, including a risk assessment and an action plan
  • Enhance national coordination and cooperation mechanisms to implement counter-proliferation financing measures effectively
  • Enhance customer due diligence measures to ensure all financial institutions and DNFBPs are subject to effective customer due diligence (CDD)
  • Increase information sharing with other countries to facilitate the exchange of information related to proliferation financing
  • Enhance international cooperation by participating in global efforts to combat proliferation financing

Firms should review this guide when updating their business-wide risk assessments to understand the scale of proliferation financing risks as required by the FATF standards.

AUSTRAC also reminds compliance staff of their obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 that suspicious matter reports must be submitted to AUSTRAC if suspicion is formed relating to sanctions or proliferation financing.

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Originally published 14 December 2022, updated 16 December 2022

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