FATF ¦ R.7 Tar­get­ed Fi­nan­cial Sanc­tions re­lat­ed to Pro­lif­er­a­tion

Recommendation 7: Targeted Financial Sanctions to Counter WMD Proliferation

Recommendation 7 requires countries to implement targeted financial sanctions to comply with United Nations Security Council resolutions (UNSCRs) mandating the freezing — without delay — of funds or other assets of persons and entities designated in relation to the financing of proliferation of weapons of mass destruction (WMD). It also requires countries to ensure that no funds or other assets are made available to, or for the benefit of, such designated parties. These measures are preventive. They do not replace criminal, civil, or administrative processes related to investigations or prosecutions under other international instruments (such as the Nuclear Non-Proliferation Treaty, UNSCR 1540, and related conventions). The unique focus here is on stopping the flow and use of resources that enable proliferators to finance the development, acquisition, or delivery of WMD.

Who Makes Designations and How Countries Should Engage

Designations are made directly by the Security Council (via resolution annexes) or by its sanctions committees established under those resolutions. While countries are not compelled to propose listings, the committees rely heavily on member state submissions.

Countries should consider establishing clear domestic authority and procedures to propose designations to the relevant committees (notably the 1718 Committee for DPRK designations, and the 1737 Committee for Iran-related designations under legacy resolutions). This includes:

• Identifying competent authorities (executive or judicial) empowered to propose listings when evidentiary thresholds are met.
• Mechanisms to identify targets based on the UN designation criteria and assess whether reasonable grounds exist under national legal standards, with due regard for human rights and the rule of law.
• Legal powers to gather and solicit information from relevant sources to substantiate proposed listings.
• Processes to provide detailed identifiers and supporting facts for proposed designees.
• Capability to act ex parte, where necessary, to avoid tipping off subjects.

Bastian Schwind-Wagner_Follow

"Recommendation 7 strengthens the global framework to stop the flow of funds to entities involved in WMD proliferation. Its success relies on rapid freezing, precise communication, and consistent enforcement across financial sectors.

Compliance teams should align controls with UN criteria, enhance beneficial ownership analytics, and maintain clear procedures for exemptions and false positives. Strong governance and timely reporting are essential to deter evasion and uphold international security obligations."

Immediate Freezing and Prohibitions: What Must Be Done

Countries must be able to implement sanctions without delay against persons and entities designated under the relevant DPRK and Iran resolutions and any future successor resolutions. The obligations include:

• Freezing, without prior notice, all funds or other assets owned or controlled by designated persons or entities. This covers assets wholly or jointly owned or controlled, directly or indirectly; assets derived from such property; and assets of persons or entities acting on behalf of or at the direction of designated parties.
• Preventing funds or other assets from being made available, directly or indirectly, to or for the benefit of designated parties unless permitted by licensing or authorization in line with the UN resolutions.
• Rapid communication of designations to financial institutions and designated non-financial businesses and professions (DNFBPs), together with clear guidance on freezing obligations and how to handle targeted assets.
• Requiring financial institutions and DNFBPs to report frozen assets, attempted transactions, and actions taken to enforce prohibitions, and ensuring competent authorities use these reports effectively.
• Protecting bona fide third parties acting in good faith when freezes are implemented.
• Monitoring and enforcing compliance by financial institutions and DNFBPs, with meaningful civil, administrative, or criminal sanctions for breaches.

De-Listing, Unfreezing, and Access to Funds

Countries should maintain publicly known procedures to request de-listing from the Security Council when persons or entities no longer meet designation criteria. Once de-listed, the obligation to freeze ceases. Countries should enable listed parties to petition the UN Focal Point under resolution 1730 (2006) for de-listing, and inform designees of that path.

For false positives — persons or entities inadvertently affected due to similar names — countries must have prompt unfreezing procedures upon verification. Countries must allow access to funds in line with exemption conditions set out in the resolutions (including resolution 2231 (2015) in the Iran context), and permit the addition of interest or earnings to frozen accounts, provided such additions remain frozen.

Under resolution 1737 (2006), payments due under contracts entered into prior to listing may proceed if:

• The contract is not related to prohibited items, activities, or services.
• The payment is not directly or indirectly received by a listed person or entity.
• Prior notification is submitted to the 1737 Committee ten working days before authorizing payment or unfreezing assets for this purpose.

As with listings, countries must swiftly communicate de-listings and unfreezing actions to the financial sector and DNFBPs and give clear instructions on respecting those decisions.

The UN Criteria That Drive Designations

Designation criteria are set out in the relevant resolutions and are central to implementation:

On DPRK (resolutions 1718 (2006), 2087 (2013), 2094 (2013), 2270 (2016), and successors):

• Persons or entities engaged in DPRK’s nuclear, other WMD-related, and ballistic missile-related programs.
• Persons or entities providing support to those programs, including through illicit means.
• Persons or entities acting on behalf of or at the direction of designated parties.
• Legal persons or entities owned or controlled, directly or indirectly, by designated parties.
• Persons or entities that assisted in evading sanctions or violating the resolutions.
• Persons or entities contributing to prohibited programs, activities, or evasion.
• Entities of the DPRK government or the Worker’s Party of Korea, and those acting on their behalf or at their direction, or entities they own or control, that countries determine are associated with prohibited programs or activities.

On Iran (resolutions 1737 (2006), 1747 (2007), 1803 (2008), 1929 (2010)):

• Persons or entities engaged in, directly associated with, or providing support for proliferation-sensitive nuclear activities or the development of nuclear weapon delivery systems.
• Persons or entities acting on behalf of or at the direction of such parties, or entities they own or control.
• Individuals and entities of the Islamic Revolutionary Guard Corps (IRGC) designated under S/RES/1929 (2010), parties acting on their behalf, or entities they own or control.
• Entities of the Islamic Republic of Iran Shipping Lines (IRISL) designated under S/RES/1929 (2010), parties acting on their behalf, or entities they own or control, including ownership or control obtained through illicit means.
• Persons or entities determined by the Security Council or committee to have assisted designated parties in evading sanctions or violating the resolutions.

Operational Takeaways for Compliance Teams

• Build immediate screening and freezing capability across all asset classes and custodial settings, with coverage for direct and indirect ownership and control, and “acting on behalf of” relationships.
• Update sanctions lists in real time, and cascade guidance to frontline teams in banking, securities, insurance, trade finance, payments, crypto, and DNFBP sectors.
• Implement robust beneficial ownership analytics and relationship mapping to capture indirect control and proxy behavior.
• Establish reporting pipelines for freezes and attempted transactions, and ensure those reports inform investigations and risk models.
• Maintain documented procedures for licensing, humanitarian exemptions, contract-payment notifications, and handling interest/earnings accruals.
• Create clear customer remediation paths for false positives, including identity verification and prompt unfreezing when appropriate.
• Train staff on UN designation criteria for DPRK and Iran to strengthen alert triage and reduce misses tied to evasion tactics.
• Enforce through audit and sanctions for non-compliance, protecting bona fide third parties while preserving the integrity of freezes.

Why Recommendation 7 Matters

Targeted financial sanctions under Recommendation 7 are a cornerstone of the global effort to disrupt WMD proliferation financing. They work by cutting proliferators off from resources, channels, and intermediaries that enable procurement and development. Effective implementation depends on speed, precision, and legal robustness — freezing assets without delay, communicating clearly, protecting legitimate parties, and honoring UN processes for listing and de-listing. For compliance and financial crime teams, this is not just about list screening; it is about building an end-to-end control environment that can withstand sophisticated evasion and uphold international security mandates.

Dive deeper

• FATF ¦ The FATF Recommendations ¦ Link