Combating Proliferation Financing

The FMA’s competence in the area of combating of financing of proliferation

The scope of the Financial Markets Anti-Money Laundering Act (FM-GwG; Finanzmarkt-Geldwäschegesetz) was extended on 14 December 2024. The new rules relate to the prevention of non-implementation and evasion of targeted financial sanctions in conjunction with the financing of proliferation and correspond to the recommendations issued by the Financial Action Task Force (FATF). The new Article 23a FM-GwG is particularly significant regarding the Austrian Financial Market Authority’s (FMA) competence. Under Article 23a FM-GwG obliged entities are required to targeted financial sanctions pursuant to Article 2 no. 24 FM-GwG and to establish policies, controls and procedures to mitigate and control the risk of non-implementation and evasion of targeted financial sanctions. Within the scope of its supervision, the FMA monitors observance of these rules.

What is (the financing of) proliferation?

Proliferation not only covers the (direct) broader distribution of weapons of mass destruction and accompanying delivery systems, but also the distribution of systems, technologies and components for their manufacture, including the required know-how to do so. In this regard dual-use goods, i.e. goods or products that have dual usage purposes that may be deployed for both civilian and military purposes are also relevant.

The term “targeted financial sanctions” (Article 2 nos. 24 and 25 FM-GwG) is an umbrella term for measures that are defined in decisions and regulations, and which generally relate to restricted measured imposed by the EU. They include a freezing order as well as direct and indirect prohibitions of making funds available.

In the interests of effective preventive work, obliged entities under the FM-GwG are in any case required to observe with regard to the financing of proliferation that further jurisdictions may also be associated with a generally increased risk and in particular it is necessary to take into consideration the risk of potential transactions and constructions for circumventing measures. “Know Your Customer” (KYC) and “Know Your Customer’s Customer” (KYCC) information that obliged entities are already required to gather for the purpose of prevention of money laundering and terrorist financing may also form a suitable starting point for analyses and inspection measures in this regard. Due to the different issued and objectives, to effectively prevent the financing of proliferation further specific data, information and evidential proof may also need to be gathered.

Organisational provisions under the FM-GwG

In conjunction with the organisation framework conditions set out in Article 23 FM-GwG, which obliged entities under the FM-GwG are already well aware of in relation to the prevention of money laundering and terrorist financing, the measures in (the new) Article 23a FM-GwG also cover special requirements in relation to the risk of non-implementation and evasion of targeted financial sanctions in connection with the financing of proliferation. The obligation arises from this provision to determine strategies, checks and procedures (and as applicable also at group level), that in particular cover the risk assessment at company level, measures for identifying risk factors, potential indications for the non-implementation or evasion or potentially risk-prone constellations, risk management systems as well as notification and reporting obligations. To monitor the observance of these rules, in addition a specific officer function (as necessary also at group level) is to be established, appropriate training measures conducted, and ensured that independent reviews are conducted by the internal audit function.

Practical requirements

Obliged entities are in particular required to consider the following issues for implementing the measures set out in Article 23a FM-GwG:

  • How do you assess the risk of your entity being misused for the financing
    of proliferation, and what leads you to this conclusion? Is the outcome stated separately within the risk assessment at company level pursuant to Article 4 FM-GwG?
  • What risk criteria were defined in relation to the financing of proliferation during the risk assessment conducted on an individual customer level? (for example specific sectors with an increased level of risk or trade financing products etc.)
  • How is the prevention of the financing of proliferation treated separately in manuals, operating procedures or similar documents as well as in training measures? (e.g. definition, delineation with money laundering and terrorist financing, indications for anomalies and measures etc.)
  • What do you consider as specific anomalies in relation to the financing of proliferation?
  • What measures did you use to ensure the observance of targeted financial sanctions against Iran and North Korea in relation to the financing of proliferation (e.g. comparing lists, restrictions on payments etc.)?
  • What measures are you taking to detect and subsequently minimise the evasion of targeted financial sanctions in relation to the financing of proliferation? (e.g. application of enhanced customer due diligence, conducting manually checking activities etc.)
  • Does your entity use special indicators for the ongoing monitoring by automated means with regard to the financing of proliferation? (e.g. regarding countries known for evasion purposes, specific payment purposes etc.)

 

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