Proliferation Financing - Mining Precious Metals - Dual Use Goods

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Indicators: 

• The structure was overly complex.
• The country where the mining was being undertaken was on the JFSC Appendix Countries D2 list⁵ and was also noted as a FATF grey listed country. It was included in other high risk jurisdiction lists, including, as a country, having financial and trade sanctions imposed by Jersey, UK, and the US.
• A Co-investor was identified in the project and the upstream ownership was reported as East Asian state owned and one of the companies under the corporate umbrella was identified in adverse open-source media to have been sanctioned on allegations of assisting with missile proliferation and providing arms to states of concern. 
• The new onboarding TCSP identified two PEPs that had not been previously identified. 
• Open-source research identified connections to Russia and the DPRK through the upstream company.
• The business activity mining is assessed as high risk and has been highlighted in the JFSC Sound business practice policy⁵.
• Mining projects in Africa have attracted significant investment from foreign investors. However, investment in Africa comes with risks: geopolitical, State interference, Proliferation Financing (PF) / Terrorist Financing (TF) risks, and countries with severe deficiencies in Anti Money Laundering (AML) / Counter Financing of Terrorism (CFT) / Counter Proliferation Financing (CPF) controls in place.

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Suspicious Activity:

• Company A was a dormant company seeking reinstatement after being struck off.
• The country where the mining took place, falls under high-risk jurisdictions as identified by JFSC Appendix D2 Countries list and jurisdictions that are under increased monitoring⁷.  
• The lack of enhanced CDD and client engagement at onboarding, as well as after being struck off⁸ added to the suspicion.
• Mining is often considered a high-risk commodity⁹ for corruption, Money Laundering (ML), TF and PF, including further association with illegal immigration and illicit trafficking.
• Company A could receive funds through the joint venture, which had defined PF links. 
• A review of the relationship triggered the need to request further CDD information, which highlighted an overly complex structure, and other unknown involved parties including three layers of ownership, which had not been previously identified.

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FIU Actions:

• The FIU reviews all submissions, grades, and priorities as appropriate. This case presented a higher risk for PF and was therefore prioritised.
• All FIU staff have specific training in Proliferation and PF, with a proportion of them having deeper expertise.
• To clarify gaps, Proceeds of Crime notices (PoC)¹⁰ were sent to various Jersey financial institutions to obtain the onboarding procedures, including CDD, Source of Funds/Source of Wealth (SoF/SoW) and details of the beneficial owner and underlying shareholders.
• The FIU undertook a range of additional research across different sources and then conducted an assessment and analysis of the collated data to corroborate or negate the suspicion and determine if the source of funds could be linked to PF.
• The FIU engages both domestically and internationally with other units, specialising in cases involving PF. Intelligence was shared with jurisdictions with a nexus to the case.
• The FIU will assess the risks associated with PF, identifying intelligence gaps, potential breaches, non-implementation, or evasion of targeted financial sanctions¹¹ and share intelligence accordingly with the Financial Sanctions Implementation Unit (FSIU), Office of Financial Sanctions Implementation (OFSI) and Office of Foreign Assets Control (OFAC) based on suspected breaches of sanction measures.

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Outcomes:

• The TCSP declined to reinstate the company due to its risk appetite and clearly identified that the company engaged in high-risk activity in a high-risk jurisdiction.
• This action likely prevented the inflow of illicit funds into the jurisdiction. 
• In cases where overly opaque structures and higher risks present themselves, CDD should be undertaken and escalated to Enhanced Due Diligence (EDD), where appropriate to provide further confidence or understanding of the threat.
• The FIU continued to share intelligence with relevant jurisdictions.

 FIU Comment:

• PF is perhaps a less common risk or threat consideration than ML and TF, making it potentially more challenging for businesses to detect. PF Risk, according to the FATF¹², involves threats, vulnerabilities, and consequences. Jersey’s PF National Risk Assessment (NRA)¹³ aims to identify, assess, understand, prevent, and mitigate the risks associated with PF as it impacts Jersey, highlighting both the measures in place and those required to mitigate these risks effectively.        
• Although sanctions screening plays a key role in identifying PF risk, it should not be used in a stand-alone manner. Proliferators employ a range of evasive tactics, including using actors who will not appear on any sanctions list. 
• TCSPs are at risk of exploitation by proliferation networks due to their role in setting up Trusts and companies, being involved in a legal arrangement, and managing the legal entities. These services can be exploited to create complex corporate structures, including companies and trusts, that obscure the real identities of those involved, enabling bad actors to facilitate illicit financial flows and evade international sanctions¹⁴.
• TCSPs should have a good foundation of the identification process of relevant PF risks, including known or suspected threats, services, or products open to abuse and exploitation, activities linked to higher risk jurisdictions and identifying key indicators and red flags¹⁵. 
• The issue of proliferation finance should be distinct from other forms of financial crime, such as TF or ML, as the risk of not doing so would enable the financial systems and Jersey as an IFC to be misused, damaging Jersey’s reputation as an IFC of good standing.
• Assessment and mitigation of PF risks requires
  co-operation between the public and private sectors. FIU maintains ongoing public-private engagements with partner agencies, which are key during risk assessments and information sharing. 
• The FIU participated in the preparation of Jersey’s first PF National Risk assessment¹⁶.

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¹ https://www.transparency.org/en/cpi/2024

² https://www.fatf-gafi.org/content/fatf-gafi/en/publications/Fatfrecommendations/Peps-r12-r22.html

³ https://www.gov.uk/government/publications/uk-strategic-export-control-lists-the-consolidated-list-of-strategic-military-and-dual-use-items-that-require-export-authorisation

⁴ https://www.gov.je/SiteCollectionDocuments/Industry%20and%20finance/PF%20NRA%20Monday%2028%20April.pdf

⁵ https://www.jerseyfsc.org/industry/financial-crime/amlcftcpf-handbooks/appendix-d2-countries-and-territories-identified-as-presenting-higher-risks/

⁶ https://www.jerseyfsc.org/media/6927/pol-sound-business-practice-policy.pdf

⁷ https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/increased-monitoring-february-2025.html

⁸ https://www.jerseyfsc.org/media/3389/legal-part-1-section-7-enhanced-and-simplified-cdd-measures.pdf

⁹ https://unicri.org/sites/default/files/2019-11/Strengthening%20the%20Security%20and%20Integrity%20of%20the%20Precious%20Metals%20Supply%20Chain.pdf

¹⁰ https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/Guidance-Proliferation-Financing-Risk-Assessment-Mitigation.pdf

¹¹ https://www.jerseyfsc.org/industry/guidance-and-policy/guidance-on-proliferation-and-proliferation-financing/

¹² https://www.fatf-gafi.org/en/publications/Financingofproliferation/Proliferation-financing-risk-assessment-mitigation.html

¹³ https://www.gov.uk/government/publications/uk-strategic-export-control-lists-the-consolidated-list-of-strategic-military-and-dual-use-items-that-require-export-authorisation

¹⁴ https://www.jerseyfsc.org/industry/guidance-and-policy/guidance-on-proliferation-and-proliferation-financing/

¹⁵ https://www.fatf-gafi.org/en/publications/Financingofproliferation/Proliferation-financing-risk-assessment-mitigation.html

¹⁶ https://www.gov.je/SiteCollectionDocuments/Industry%20and%20finance/PF%20NRA%20Monday%2028%20April.pdf