Proliferation Financing and Dual Use Goods

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Indicators: 

• Financial statements provided by the Settlor revealed significant funds received from the sale of chemicals that could be attributable to dual-use goods.
• The Settlor held dual nationality, which included a European passport (likely obtained on a citizenship and residency by investment programme¹), which was not known at the time of on-boarding the relationship.
• The UAE has a business-friendly environment, which can allow for the rapid incorporation of companies. This has been seen to be abused by different threat actors creating front companies for illicit purposes.
• The UAE company’s primary geographic market was China. This unexpectedly changed to Singapore at the same time that the US authorities began a concerted effort to address Middle East companies being used to circumvent the sanctions process and ultimately facilitate the sale of Iranian chemicals to China.
• Client A held dual nationality and may have had access to financial services across multiple countries, making it easier to move funds across borders and evade detection. Client A may have also used his European nationality to help to bypass sanctions.

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Suspicious Activity:

• The Settlor disengaged from the Jersey TCSP when further information was requested, including documentary evidence licences required to sell these chemicals.
• There is a significant layer of complexity for financial institutions to undertake, particularly through Customer Due Diligence (CDD) or EDD of dual nationals, as, in this case, they have significant business interests and hold assets across multiple countries.

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FIU Actions:

• The FIU reviews all submissions and grades and prioritises them as appropriate.
• All FIU staff understand and are trained in Proliferation and Proliferation Financing (PF).
• The FIU undertook further detailed research, assessment, and analysis to corroborate the suspicion and determine any further lines of enquiry.
• The FIU engages domestically and internationally with other FIUs and intelligence / law enforcement agencies, specialising in PF cases. Intelligence was shared with jurisdictions with a nexus to the case.
• Proceeds of Crime (PoC) notices were sent to the Jersey TCSP to review the on-boarding procedures, and what CDD /EDD was held.
• A search of the Jersey Financial Services Commission (JFSC) beneficial ownership register was conducted to determine if Client A held any other relationships in Jersey.
• Open-source checks revealed that both the UAE and Iranian companies manufacture chemicals which can
  be used as a precursor in creating weapons of mass destruction (mustard gas). 
• The FIU internally escalated the scenario to its strategic analysis team to consider the creation of typology for industry education purposes and risks relating to sectors and products.
• A typology report was developed for relevant stakeholders to better understand the threat and support discussions on mitigations and risk appetites.

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Outcomes:

• A consent to exit was received from the Jersey TCSP outlining their concerns. The FIU did not provide the consent to exit.
• Enquiries would continue with partner agencies in the UAE through the Egmont Group.
• The submitter initially did not identify the risk as high risk. If this had occurred, it should have triggered a CDD or even EDD review.
• Suspicions were further developed that the UAE carpet business was potentially being used as a front to circumvent sanctions measures placed on the family’s Iranian company. This is being further explored.

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FIU Comment:

• PF is less common as a threat type than Money Laundering (ML), bribery corruption or Terrorist Financing (TF). As such, knowledge and awareness levels are lower, and it is perceived to be more challenging for businesses to detect.
• Ongoing training, awareness and discussions should be undertaken across businesses to better understand the direct and indirect risks of certain business relationships.
• Sanctions screening is not enough to identify PF risk.
• Proliferation uses tactics that may evade traditional detection methods, such as employing seemingly legitimate actors, including friends and family members, to undertake the activity.
• Effective PF risk management requires thorough customer knowledge. At on-boarding the relationship, the Jersey TCSP should have implemented appropriate Know Your Client (KYC) procedures and developed these into CDD and, ultimately, EDD. This would have prompted further reviews of transactional activity, likely to have flagged unusual activity earlier. 
• As a recognised high-risk jurisdiction, the company’s links to Iran should have triggered a higher risk requirement, which may have revealed the familial link to the sanctioned Iranian company sooner.
• TCSPs are at significant risk of being exploited for PF due to their role in setting up and managing legal entities. These services are often used to create complex corporate structures, shell companies and Trusts that obscure the identities of those involved, enabling bad actors to facilitate illicit financial flows and evade international sanctions.
• The close geographic proximity between the UAE and Iran has facilitated easier and quicker movement of goods, people, and money, which can be exploited for illicit activities. The involvement of General Trading Companies in Free Trade Zone areas remains an ongoing and recognised risk.
• All major trade and transshipment hubs offer opportunities for proliferation financing to disguise trade activity that may be used for weapons proliferation.

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¹ https://www.fatf-gafi.org/en/publications/Methodsandtrends/misuse-CBI-RBI-programmes.html