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Global Perspectives
CDOTs: Strategic Gatekeepers in the Global Fight Against Sanctions Evasion and Proliferation Financing
The veracity of the international financial system stands at an inflexion point. As geopolitical tensions mount and the threat of weapons of mass destruction (WMD) proliferation intensifies, financial centres across the globe are under growing pressure to continue the fight against sanctions evasion and proliferation financing. The recent June 2025 report by the Financial Action Task Force (FATF), Complex Proliferation Financing and Sanctions Evasion Schemes, paints a sobering picture. While sanctions regimes have multiplied in number and complexity, the ingenuity of bad actors in circumventing these measures has grown equally sophisticated.
Yet amid this global challenge, the Crown Dependencies and Overseas Territories (CDOTs)—including Jersey, Guernsey, the Isle of Man, Bermuda, and the Cayman Islands—have quietly emerged as strategic defenders of financial integrity. Their agility, high regulatory standards, and proactive stance on transparency have positioned them as essential partners in the fight against sanctions evasion and the financing of WMDs.
Sanctions Under Siege: A Global Vulnerability
Sanctions are a cornerstone of international diplomacy, designed to exert pressure on malign actors without recourse to armed conflict. However, as the FATF highlights, the effectiveness of sanctions is only as strong as the weakest link in the financial system. Shockingly, only 16% of FATF member countries are highly or substantially effective in implementing UN proliferation-related sanctions. Proliferation financing networks have become more adept, utilising front companies, obscured beneficial ownership, digital assets, and the maritime sector to move funds and goods under the radar. The scale of the challenge is immense: the UN Panel of Experts on North Korea has documented dozens of cases where sanctioned entities have employed complex webs of intermediaries to source dual-use goods and funnel prohibited transactions through the global financial system.
CDOTs: Agile, Transparent, and Effective
In contrast to the fragmented and sometimes sluggish responses of larger economies, the CDOTs have taken decisive steps to fortify their financial systems. Central to their success has been the establishment of robust, verified beneficial ownership (BO) registers. In Jersey and Guernsey, for instance, authorities can access accurate ownership information within hours—an essential capability for responding swiftly to proliferation risks.
The CDOT efforts stand in sharp contrast to larger jurisdictions, where beneficial ownership transparency has only recently been introduced, with full implementation still a work in progress. The ability of CDOTs to act quickly and decisively has made them effective disruptors of sanctions evasion schemes.
Beyond ownership transparency, CDOTs have embedded high standards of anti-money laundering (AML), counter-terrorist financing (CFT), and counter-proliferation financing (CPF) into their domestic laws. Financial supervisors in these jurisdictions conduct intelligence-led inspections, apply meaningful enforcement sanctions, and maintain strong international cooperation channels, including through the UK-CDOT Exchange of Notes. Their willingness to lead rather than follow is evident in their early adoption of comprehensive regulation for Virtual Asset Service Providers (VASPs), with Bermuda setting a global example.
Mind The Gap: Lessons from Larger Jurisdictions
Despite their scale, many larger financial centres lag in critical areas. Beneficial ownership information is often unverified, fragmented, enforcement capacity is stretched, and maritime registries remain vulnerable to abuse. The FATF has repeatedly called out these weaknesses, yet systemic change in these jurisdictions remains slow.
For example, the use of 'flags of convenience' in maritime shipping continues to facilitate sanctions evasion, as vessels conceal ownership and cargo to bypass restrictions. Similarly, virtual asset markets remain a regulatory grey zone in many countries, providing fertile ground for proliferation financing networks.
The Strategic Value of CDOTs in the Financial Ecosystem
The contribution of the CDOTs goes beyond mere compliance. Their small size enables nimble decision-making and the rapid implementation of international standards. They act as policy laboratories—testing and refining regulatory approaches that often later influence larger markets. In doing so, they help raise the global bar for financial crime prevention.
Moreover, their commitment to transparency and cooperation has enhanced international trust. CDOTs are increasingly seen as reliable partners by global standard-setters and enforcement bodies. Their proactive stance on digital asset regulation, coupled with their tight-knit regulatory frameworks, ensures that they are not only compliant but actively working to stay ahead of emerging risks.
Avoiding Complacency: The Road Ahead
While the CDOTs have made significant progress, the evolving nature of sanctions evasion demands constant vigilance. There are several key areas where further action would reinforce their leadership:
- Continue to consider Public Access to Beneficial Ownership through Legitimate Interest: Moving towards greater transparency within the framework of legitimate interest would align with emerging global norms and further bolster reputational standing.
- Maritime Oversight: Enhanced supervision of vessel registries and maritime-related financial services can help close a critical gap exploited by sanctions busters.
- Digital Asset Supervision: As DeFi and privacy-enhancing technologies evolve, CDOT regulators must continuously scale their supervisory capabilities.
- Dedicated Proliferation Finance Expertise: Investing in specialised CPF teams within financial intelligence units and regulatory bodies will help detect the nuanced patterns associated with WMD financing.
- Transparency in Enforcement Outcomes: Publishing anonymised case studies and enforcement statistics can strengthen deterrence and public confidence.
Conclusion: CDOTs as Enduring Guardians of Financial Integrity
In the face of mounting global threats, the Crown Dependencies and Overseas Territories have emerged as crucial defenders of the international financial system. Their agility, innovation, and commitment to transparency allow them to punch well above their weight in the fight against sanctions evasion and proliferation financing.
By continuing to adapt, invest in capabilities, and lead by example, the CDOTs can help close the gaps that malign actors exploit, reinforcing their role as indispensable guardians of financial integrity in an increasingly volatile world.
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Global Perspectives provides regular, on-point commentary on relevant topics in a pithy and accessible way. Our observations and points of view are based on listening hard to clients global needs, priorities and concerns. We draw on insights from every area of our business and collaborate to deliver this global thinking; something that clients tell us is distinctive and sets us apart. If you'd like to find out more, please get in touch.
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About Mourant
Mourant is a law firm-led, professional services business with over 60 years' experience in the financial services sector. We advise on the laws of the British Virgin Islands, the Cayman Islands, Guernsey, Jersey and Luxembourg and provide specialist entity management, governance, regulatory and consulting services.
