TARGETED FINANCIAL SANCTIONS (TFS) RELATED TO

PROLIFERATION FINANCING (PF)

(August 19, 2021, 1:00 p.m. – 4:00 p.m.)

I. RA 10697 Strategic Trade Management Act of 2015 – Speaker: DTI-STMO

Alethea Bravo

An act preventing the proliferation of weapons of mass destructions by managing the trade in
strategic goods and the provision of related service

- All states shall implement measures aimed at preventing non-state actors from acquiring
WMD (weapons of mass destruction)

Proliferation Threat

Khaki and Yi case (2012)

They legally obtained but illegally exported to Iran the origin materials for uranium enrichment

Proliferation Procurement v. Traditional Smuggling

Traditional Smuggling Proliferation Procurement

Cartel suppliers Commercial suppliers
Illicit substance or contraband Legitimate “dual-use” commercial goods
Concealed when shipped Often shipped openly
Recurring transactions Atypical transactions
Sell into mass market Diversion from commercial market to
clandestine end user
Money launderers, organized crime Brokers, front companies

National Strategic Goods List (NSGL)

1. Military Goods – items, software, technology that are specifically designed, developed,
configured, adapted or modified for MILITARY END USE
2. Dual-use Goods - items, software, technology which can be used for BOTH CIVIL and
MILITARY END USE or in connection with the development, productions, operation,
storage, or dissemination of WMD or their means of delivery. E.g. digital computers,
machine tools
3. Nationally Controlled Goods – goods placed under unilateral controls for reasons of
national security, foreign policy, anti-terrorism, crime control and public safety.
An authorization for unlisted goods is necessary in the following instances:

1. Goods/services are or may be used partially or entirely in acquisition/development of

WMD
2. Country of destination is subject to an international sanction or an arms embargo and
goods can be used for military end use
3. Goods may be used as parts of components of military items in the NSGL that have been
exported without a license.
4. Exporter knows or suspects that unlisted goods may be used for the above purposes.

Non-compliance Risks

Administrative Penalties Criminal Penalties

Warning/Orders for Corrective Action Imprisonment for a period of 6 yrs and 1 day to
12 yrs and fine of P1M to P5M
Limitation/revocation/annulment of Imprisonment for a period of 6 months and 1
authorization/registration day to 6 yrs and fine of P100K to P1M
Fines
Cancellation/suspension of authority to operate
with SEC/DTI

Proliferation Financing

UNSCR 1540, Sec. 3(d)

Definition: The act of providing funds or financial services which are used, in whole or in part
for the manufacture, acquisition, possession, development, export, trans-shipment, brokering,
transport, transfer, stockpiling, or use of nuclear, chemical, or biological weapons and their
means of delivery and related materials (including both technologies and dual-use goods for non-
legitimate purpose) in contravention of national laws, or where applicable, international
obligations

Common Misconceptions about PF

A. PF is not synonymous with money laundering.

Not all PF activities involve money laundering

Money Laundering = Illegal activity > Money laundering > Clean Money

PF = Clean money/laundered money > Illegal procurement/legitimate trade > Illicit proliferation
activity
 B. PF is not synonymous with terrorism financing.
Having a good system to implement TFS without delay for terrorist financing will help
combat PF but not a substitute for CPF.
- Informal money transfers
- Movement of people rather than goods
- Often for non-state actors versus state actors

PF = State actor > Trade through established channels > Illicit proliferation activity

Terrorism Financing = Non-state actor > Nontraditional banking > terrorist activity

C. UN TFS do not capture all PF

D. PF risks are present in many different type of private industry
Several financial institutions and non-financial businesses, beyond banks, have PF risks
and need to be part of CPF efforts
Including:
 Manufacturers
 Insurance
 Freight forwarders
 Commodities broker

NSGL Annex III

Annex 3.1 – Export, Transit and Transshipment of Goods to DPRK

Annex 3.2 - Import, Transit and Transshipment of Goods from DPRK

Annex 3.3 – Export, Transit and Transshipment of Goods to Iran

Annex 3.4 - Import, Transit and Transshipment of Goods from Iran

DTI Memo Circular No. 20-13

- The UNSC Consolidated List of Individuals and Entities have been adopted as the
STMO’s own list of Prohibited Users
- Prohibits any persons from engaging trade with those included in the List of Prohibited
Users
- Enjoins all to download and check the list of Prohibited Users before engaging in any
cross-border transactions
 II. Delisting and Other Remedies – Speaker: Atty. Arnold Frane AMLC Task Force
on TF/PF

Legal basis of TFS in relation to Proliferation of WMD – Sec. 7(15), AMLA, as amended by RA
11521, effective January 30, 2021

TFS definition (AMLA as amended by under Ra 11521)

Purpose of Sanctions

- The international community can use sanctions to change the behavior of a country or
regime, in cases where that country or regime is violating human rights, waging war, or
endangering international peace and security

How to Look for Potential, Target, or Name Matches

- Check the web: UNSC Consolidated Lists (amlc.gov.ph)

How do I get off the list?

- File a request for De-listing with the Focal Point (UNSCR 1730)
- File a Petition before the CA (Section 10(b), AMLA (as amended)

What if my assets/funds were frozen by mistake?

- Apply for lifting of the freeze by submitting to AMLC relevant identification documents
such as national ID, passport, birth cert., COR, and the like (Ch.7, Sec. 26 ARI No. 2, s.
2021 and Ch. 7, 2021 Sanctions Guidelines)

Exemptions to the Asset Freeze (filed with the Security Council committee)

- Basic expenses
- Extraordinary expenses

*Authorization to make payments under Prior Contracts are filed with the AMLC

III. Effective Counter Proliferation Financing (CPF) Framework – Speaker: RUSI

Tom Keatinge

Balance between the Government and Private Sectors

- Governments can establish the foundation for an effective PF response

- But the response will be uneven without effective private sector implementation
 - At the time of the Philippines FATF (Financial Action Task Force) Mutual
Evaluation, it was assessed that “There appears to be awareness amongst
FIs/DNFBP’s of the relevant UNSCR’s Mutual Evaluation Report.
- FATF recommended: “Conduct awareness raising and capacity building activities for
government agencies, covered persons and the general public to inform them of their
obligation relating to TFS against PF

Private Sector Awareness:

1st Step: Sanctions Screening

- Sanctions screening is the comparison of sanction lists with customer and transaction
data, for potential matches
- Most banks use automated screening software, but some business lines like trade
finance or other sectors may rely on mutual screening of lists.
- There are no exceptions to sanctions screening
- Sanctions apply to all clients and all transactions
- There is no minimum financial limit or other threshold for when sanctions apply
- Sanctions are about more than list-based screening…: Those listed by the UN should
have assents frozen, but actions must also cover those:
 Acting on behalf of or at the discretion of (directly/indirectly) of designated
persons/entities
 Owned/controlled by them
 Assisting them in evading sanctions or violating resolution provisions

REMINDER: Proliferators know if their name is on a sanction list.

- …and is complicated by obfuscation tactics:

 Front companies, shell companies, joint ventures with legitimate businesses
 Complex and opaque ownership structure
 Indirect routing of transactions
 Mixing of licit/illicit business
 Use on non-DPRK nationals as financial facilitators
 Use of ledger system to track value transfer – no physical connection to
DPRK.
 Disassociating logistics from financial trail

CPF and Compliance Programmes

- Integrating CPF into compliance programmes

 Exposure:
 Understand PF typologies
  Determine geographic and activity exposure and revenue raising
 KYC:
 Past behavior vs. PF typologies
 Trading in high risk sectors or countries
 Client compliance programme

*Business sector in w/c the client operates

*Assess client’s geographic activity

*Do clients participate in WMD technology/dual-use supply chain?

 Individual transactions:
 Go beyond list based screening
 Consider routes and intermediaries
 Screen for goods and activities

*Clarity on end use and end user

*Is freight-forwarder final destination; is order received from 3rd country?

*Ensure trade finance is integrated into compliance procedures

*Identify suspicious transactions:

- consider geographical location of beneficiary

- assess deviation from “business as usual””

 Engage with authorities and peers:

 Information sharing partnerships
 Public-private corporation

RISK ASSESSMENT IS KEY!

- PF should be incorporated into firm’s overall risk assessment framework:

 Including identifying and assessing market segments, customers, locations,
business units, policies, and procedures, internal records, systems, training,
intermediaries and products
 Taking enhanced measures to manage and mitigate products, services,
customers, and locations that may be prone to PF abuse
 Ensuring key stakeholders including senior management, front line business
and internal audit are aware of the CPF risk being reviewed
 Follow up on results to ensure risks are mitigated
Implementing TFS: What and who are the targets:

TFS – both asset freezing and prohibitions to prevent funds or other assets from being made
available directly or indirectly for the benefit of designated persons and entities

In the Philippines, who are designated persons?

"Designated persons" - refers to:

(a) Any person or entity designated as a terrorist, one who finances terrorism, or a terrorist
organization or group under the applicable United Nations Security Council Resolution or by
another jurisdiction or supra-national jurisdiction;

(b) Any organization, association, or group of designated under par. 3, Section 25 of the Anti-
Terrorism Act of 2020 (ATA); or

(c) Any person or entity designated under UNSC Reso Nos. 1718 (2006) and 2231 (2015)

Action needed by covered persons: Freeze Assets!

How do I know which assets to freeze?

- All assets of designated persons and entities must be frozen

- Consolidated lists of UN designations can be found on the UN website
…or on the AMLC website
- You must monitor these lists
- All matches must be frozen and investigated
 If you know or have probable cause that you are in possession or control of or are
otherwise dealing with, the funds and economic resources of designated person, you
must:
- Freeze them
- Not deal with them or make them available to or for the benefit of the designated
person unless:
 The transaction is an authorized dealing or
 The transaction is exempted as a duly authorize expense
- File a return with AMLC

Sanctions de-listing

- One reason for sanctions is “change in behavior”- if this occurs, sanctions should
be reversed
- The validity of sanctions can also be challenged in court
- Obliged entities should therefore monitor for changes in designation lists