FATF Report highlights major gaps in global response to Proliferation Financing and Sanctions Evasion
The FATF report from June 2025 exposes a global enforcement gap in countering the financing of weapons of mass destruction (WMD). With only 16% of countries rated effective in applying UN sanctions, financial institutions face growing risks of unknowingly facilitating proliferation financing (PF) and sanctions evasion schemes.
For banks, insurers, investment managers, payment providers, and leasing/factoring firms, the risks are real—and rising.
Key Risks Identified in the FATF Report
1. Proliferation Networks and Front Companies
- Use of intermediaries and shell companies to move funds.
- False declarations and document fraud in cross-border payments.
- Transactions routed through high-risk jurisdictions or opaque structures.
2. Cyber-Enabled Sanctions Evasion
- DPRK’s cyberattacks (e.g., USD 1.5 billion stolen from ByBit) show how virtual assets are abused.
- Use of unregulated Virtual Asset Service Providers (VASPs) and mixing services to obscure funds.
3. Obscured Beneficial Ownership (BOI)
- Sanctioned actors rely on networks of front men, foreign passports, and non-transparent company registries.
- Lack of BOI transparency creates blind spots in KYC/AML frameworks.
4. Maritime and Trade-Based Tactics
- Use of falsified shipping documentation and vessel spoofing.
- High relevance for trade finance, cargo insurers, and supply chain due diligence teams.
What Financial Institutions Should Do
Strengthen Internal Controls
- Risk-based due diligence on dual-use goods, trade flows, and virtual assets.
- Integrate PF-specific red flags into transaction monitoring and onboarding systems.
Leverage Public-Private Partnerships
- Participate in information-sharing networks and public-private cooperation initiatives.
- Issue internal alerts on typologies, e.g. payments inconsistent with customer profile or geography.
Focus on High-Risk Sectors
- Monitor sectors with exposure to IT, electronics, shipping, and virtual asset markets.
- Identify anomalous payment flows, especially involving multiple jurisdictions or crypto-fiat conversions.
Train Staff and Upgrade Screening Systems
- Include proliferation financing typologies in AML/CFT training programs.
- Upgrade systems to screen against UN and FATF-designated actors, including cyber identifiers and IP locations.
Risk Indicators to Watch For
- Transactions involving shell companies or front entities.
- Clients with IP addresses not matching stated jurisdictions.
- Use of crypto wallets or mixers linked to high-risk entities.
- Unusual routing of payments through non-transparent or sanctioned jurisdictions.
Strategic Relevance for Regulated Entities
Institutions under the scope of BaFin, EBA, ESMA, or the FATF Global Network must update compliance frameworks in light of the 2025 findings. Failure to act exposes firms to:
- Reputational damage
- Regulatory sanctions
- Criminal liability for breach of sanctions law
Don’t Wait for the Next Fine
The evolving tactics of state and non-state actors—especially North Korea, Iran, and Russian proxies—require an immediate and risk-based response. For financial institutions, this is not just about compliance—it’s about operational resilience, regulatory alignment, and protection against abuse of the global financial system.