Banking & finance

How does global trade and receivables finance mitigate against proliferation financing?

  • 12 July 2023

How does global trade and receivables finance mitigate against proliferation financing?

ICC addresses the challenges of dual-use goods in the financial services industry, providing guidance on implementing controls and risk-based approaches for identifying and managing associated risks in trade finance.

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Dual-use goods are items that have both commercial and military or proliferation applications, making them subject to various export restrictions and controls imposed by national and international agencies. These controls can range from sanctions to licensing requirements for corporations.

ICC is aware of the existence of dual-use goods and their implications in the financial services industry and committed to providing valuable insights and guidance to financial institutions engaged in trade finance. Our comprehensive analysis and recommendations will help you navigate the complexities of dual-use goods and related risks effectively.

Understanding dual-use goods and financial crime compliance in the financial services sector

The concept of dual-use goods intersects with multiple areas of financial crime compliance in the financial services industry, including proliferation financing, export controls and trade sanctions. Financial institutions must be aware of these convergences, as regulatory expectations may differ and extend beyond trade finance and trade services. For instance, the definition of “financial services” and “financial assistance” under UK and EU sanctions legislation encompasses the movement of dual-use goods, necessitating a comprehensive assessment of risks and controls.

Financial institutions understand the importance of implementing appropriate risk-based controls to identify transactions involving dual-use goods. Regulators consistently highlight the need for financial institutions to have effective controls and identification methods in place, identify and assess financial crime risk factors, including dual-use goods.

Challenges and approaches to identifying dual-use goods and more in trade finance transactions

This ICC paper aims to provide an updated discussion on the challenges associated with implementing controls for identifying dual-use goods in trade finance transactions, complementing ICC’s comprehensive analysis and recommendations on price checking in trade transactions. It explores the prevalent industry-wide approach to dual-use goods and assesses the feasibility of potential controls for their effective identification.

Furthermore, the paper seeks to summarise best practices and recommendations for financial institutions engaged in trade finance, acknowledging the validity of various approaches based on the individual circumstances of institutions. It also recognises that a one-size-fits-all solution or approach may not be suitable for all financial institutions and emphasises the limited effectiveness of blunt goods name screening approaches in isolation.

Lastly, while the primary focus is on dual-use goods, this paper draws parallels to wider proliferation financing risks and emphasises the challenges, roles, and responsibilities of financial institutions, exporters, customs and other relevant stakeholders.

The chair of the ICC Financial Crimes and Risks policy taskforce James Yates, HSBC emphasis that  

”The launch of the Dual use goods paper provides updated guidance to the banking industry specifically on items having commercial and military or proliferation applications. ICC’s leadership in providing harmonized practices to identify and control the challenges in the area is crucial and was made possible by the spirit of collaboration shared by banking commission members for the benefit of the banks, corporates, regulators and the markets and societies that we all serve.”