Financial Sanctions

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 15 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). Of particular significance for the new competence of the Financial Market Authority (FMA) is the newly added Article 23a FM-GwG. This provision defines the organisational measures and training measures that obliged entities are required to conduct. Within the scope of its supervision, the FMA monitored observances 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.

Article 2 nos. 24 and 25 FM-GwG respectively define the terms “targeted financial sanctions” and “targeted financial sanctions in relation to the financing of proliferation”. The relevant decisions and regulations predominantly relate to the EU’s restrictive measures enforced against the Democratic People’s Republic of Korea (North Korea) and Iran, from which a freezing order as well as the prohibition of direct and indirect proliferation arise. In the interests of effective preventive work, obliged entities 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 issues and objectives for effectively preventing the financing of proliferation, it may be necessary to gather further specific data, information and evidential proof.

Organisational provisions under the FM-GwG

In conjunction with the organisational framework conditions set out in Article 23 FM-GwG, of which obliged entities are already well aware 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. In the event of breaches of these obligations, there is the threat of an administrative penalty being imposed by the FMA.

Practical requirements

For implementing the actions laid out in Article 23a FM-GwG, obliged entities are in particular required to consider the following issues:

  • 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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