CSSF Thematic Review on Counter-Proliferation Financing

Proliferation financing is the raising, moving, or making available of funds, other assets or economic resources, or financing, in whole or in part, to persons or entities for the purposes of weapons of mass destruction (WMD) proliferation, including the proliferation of their means of delivery and related materials.

One of the measures to combat proliferation financing is the issuance of international financial sanctions (“Sanctions”) by the United Nations and the European Union. The CSSF notes that the failure to comply with such Sanctions would, under Luxembourg law, constitute a predicate offence to money laundering, thereby criminalising the proceeds of any failure to comply with such Sanctions.

The CSSF selected a sample of five Luxembourg IFMs and considered the proliferation financing risk with respect to North Korea, Iran and non-country specific Sanctions regimes. The CSSF found that the proliferation financing risk for the Luxembourg funds industry is low, and that measures implemented by IFMs to combat proliferation financing risk were still maturing.

The Thematic Review includes a number of recommendations in relation to proliferation financing risk, including:

• that anti-money laundering/counter terrorist financing (“AML/CFT”) policies of IFMs include a specific section on proliferation financing;
• that IFM’s country risk assessments include an analysis of geographic proliferation financing indicators;
• the performance of Sanctions screening and adverse media screening regarding parties involved in transactions;
• that due diligence should be conducted in relation to investments in vessels, as well as the identification of destination and shipping routes; and
• various measures that should be taken in respect of assets that have ‘dual-use goods’ exposure (dual-use goods are those that have both military and civilian uses), including keeping a register of such assets and verifying that the client base of such assets does not include countries or clients that are subject to Sanctions.

The area of proliferating financing risk and the measures that should be taken to mitigate such risk has not received the same attention as AML/CFT and Sanctions in the past. Thus, the Thematic Review is welcome for the spotlight it places on proliferation financing risk, and the useful recommended best practices it includes. Luxembourg IFMs and compliance professionals should consider the Thematic Review and whether any updates to AML/CFT policies should be implemented to address the CSSF’s recommendations.

Please do not hesitate to contact [email protected] or [email protected] at Maples and Calder (Luxembourg) for help in updating your AML/CFT or broader anti-financial crime policies and procedures.