The international financial system is under mounting threat from sophisticated actors who exploit gaps in regulation to finance the proliferation of weapons of mass destruction (WMD). These actors refer to state-sponsored entities, criminal networks, or individuals who engage in illicit financial activity to support weapons proliferation or evade international sanctions. The Financial Action Task Force's (FATF) June 2025 report on Complex Proliferation Financing and Sanctions Evasion Schemes is a stark reminder that this threat is not theoretical - it is real, growing and increasingly difficult to detect.

Malta must act swiftly and decisively to make sure our institutions are not inadvertently exposed to these global risks. We cannot afford to be a passive observer. The methods described in the FATF report - ranging from cyber-enabled theft to the use of front companies, shell structures and digital assets - are already being deployed by sanctioned regimes and non-state actors. The implications for our jurisdiction can be serious and wide-ranging.

The report singles out the Democratic People's Republic of Korea (DPRK) as the most advanced operator of such schemes. In February 2025, DPRK-affiliated hackers stole $1.5 billion from a virtual asset platform - a single event that highlights the nexus between cybercrime, sanctions evasion and WMD financing. But this threat is not isolated to the Korean Peninsula. Countries across the FATF's Global Network report complex evasion strategies also linked to Iran, Russia and transnational criminal groups.

These actors exploit legal loopholes, blurred beneficial ownership structures, weak financial supervision and inconsistent implementation of sanctions. They move funds through multiple jurisdictions and increasingly rely on virtual assets and peer-to-peer transfers. In many instances, the goods or funds are routed through intermediary companies or layered banking arrangements to hide the true end-user.

Malta cannot be immune. If we are not vigilant, our financial services sector could be misused - unwittingly or otherwise - as a node in these illicit networks.

The FATF's data shows that only 13% of countries assessed are fully compliant with Recommendation 7, which obliges jurisdictions to implement targeted financial sanctions relating to proliferation financing. Alarmingly, nearly half of all jurisdictions are rated as partially compliant or worse. This means we are facing a collective global vulnerability and Malta has a duty - both moral and regulatory - to close our own gaps.

While Malta has made important strides in AML/CFT compliance, especially since the 2022 greylisting episode, we must not assume that all is well. The FATF report warns that jurisdictions with developed financial services, port infrastructure and open economies are particularly attractive to proliferation networks. Malta fits that profile.

Additionally, we must carefully monitor our exposure through sectors such as virtual assets, shipping and company formation services - all highlighted in the report as high-risk areas. Beneficial ownership transparency remains an Achilles' heel, not only in Malta but globally. That must change.

The FATF calls for an updated understanding of proliferation threats, improved data-sharing across sectors and tighter domestic and international coordination. These recommendations are both reasonable and achievable.

For the first time, Malta's 2023 National Risk Assessment expressly captures risks associated with proliferation financing and targeted financial sanctions, assigning them a Medium residual risk rating. It acknowledges that Malta's position as an international financial centre, with significant transnational activity, calls for sustained vigilance. The report highlights challenges in identifying proliferation financing due to the lack of typologies, the dual-use nature of many goods and the relatively low number of investigations or typified cases, both locally and globally.

To mitigate these risks, the NRA places particular emphasis on the implementation of targeted financial sanctions related to the financing of weapons of mass destruction. While Malta has systems in place for screening and freezing assets in line with UN and EU sanctions, the assessment identifies areas for improvement - notably, the need for greater awareness and technical understanding among private sector operators, especially within the non-financial and trade sectors. Strengthening compliance with targeted financial sanctions obligations and improving coordination between competent authorities and reporting entities are essential steps to ensure Malta remains resilient to the global threat of proliferation financing.

Greater cooperation between local regulators and the private sector is essential in this area. Sharing best practices will help ensure that private entities are better equipped to address the risks associated with proliferation financing and targeted financial sanctions.

It is also crucial to strengthen collaboration between domestic stakeholders and international partners. Cross-border coordination is key to monitoring rapidly evolving typologies and emerging cyber-enabled threats. Moreover, continued support for initiatives at the FATF level remains important, particularly in formally defining WMD proliferation financing. This would help align global standards and reduce jurisdictional ambiguity.

It is not only about national security - it is about financial integrity, rule of law and Malta's international credibility. It is about protecting legitimate businesses from unknowingly becoming conduits for illicit flows. And it is about defending the values of peace and international cooperation in an era when those principles are under threat.

We must approach this challenge with seriousness, not just for compliance's sake, but because it reflects who we are as a nation. Malta can and should be a leader among small jurisdictions in meeting 21st-century financial challenges with resilience, transparency and global responsibility.

The FATF's report is a warning. Let us continue responding with action.

Jerome Caruana Cilia is a PN MP and the Shadow Minister for the Economy and Enterprise