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The Financial Crimes Enforcement Network (FinCEN) and the Commerce Department’s Bureau of Industry and Security (BIS) have warned financial institutions (FIs) to be aware of entities attempting to avoid US export controls related to the ongoing conflict between Russia and Ukraine. The alert targets efforts by Russia, Belarus, and their proxies to evade export sanctions and calls on those subject to the Bank Secrecy Act (BSA) to be on high alert for such actions.
Published on June 28, 2022, the alert provides FIs with an overview of current BIS export restrictions, lists commodities of concern for export control evasion, and outlines transactional and behavioral red flags that could indicate attempts to avoid sanctions.
On the same day, BIS placed 36 entities on the Entity List for engaging in activities threatening US national security and foreign policy interests. These entities face harsh licensing requirements, where BIS will review export license applications for these entities “under a policy of denial apart from food and medicine.”
Current export restrictions
Export restrictions were put in place following Russia’s occupation of Crimea in 2014. BIS has expanded the scope of some restrictions through its recent actions. Current controls primarily target Russia’s defense, aerospace, and maritime sectors to restrict Russia’s access to specific technologies that it needs to sustain its military activity in Ukraine.
On June 27, the G7 announced it would further intensify its coordinated sanctions program in response to Russia’s war against Ukraine. Since then, new export restrictions have been implemented, including a ban on importing Russian gold (Executive Order 14068) and export restrictions on state-owned defense conglomerates, such as Rostec (Executive Order 14024).
Commodities of concern
The alert lists 16 commodities of concern related to a range of industries, including cameras, airplane parts, underwater communications, oil field equipment, and GPS systems. BIS identified these commodities because of their potential use in Russian and Belarusian military activities.
Compliance staff should note that all items listed require a BIS license before THE export or re-export of goods to Russia or Belarus can take place. The alert urges firms to be extra vigilant to avoid providing financing, payment processing, letters of credit, or otherwise facilitating international trade that violates the BIS’s export controls against the two jurisdictions.
A risk-based approach to trade finance
FinCEN and BIS advise FIs to adopt a risk-based approach to trade finance to increase their vigilance in identifying suspicious transactions. The alert encourages FIs with customers in maritime or export/import industries to rely on their internal risk assessments to deploy appropriate risk mitigation measures based on each customer’s level of risk exposure.
In addition to the internal risk assessment, FIs should ensure communication channels remain open so customer risk information can be shared between departments to inform and align their assessments of customer and trade finance transactional risk.
The alert also guides FIs on the information that may be visible to them regarding export-related financial activity. This information includes their customers’ end-use certificates, export documents, or other more extensive documentation associated with letters of credit-based trade financing.
Transactional and behavioral red flags
FinCEN and BIS include a list of potential “transactional and behavioral red flags” to assist FIs in determining whether an activity may be connected to export control evasion. FIs should view the list in conjunction with appropriate risk-based customer and transactional due diligence.
The red flags include:
- A customer in the maritime industry transports commodities of concern and uses trade corridors known to serve as possible transshipment for exports to Russia and Belarus
- The nature of a customer’s underlying business (specifically military or government-related work), type of service(s) or product(s) offered, and geographical presence pose additional risks of unintentional involvement in the evasion of export controls for Russia and Belarus
- Transactions involving entities with little to no web presence
- Last-minute changes to transactions associated with an originator or beneficiary located in Russia or Belarus
- Rapid shifts to new purchasers of transactions involving restricted luxury goods
- Transactions related to atypical shipping routes for a product and destination
- Transactions identified through correspondent banking activities connected to Russian petroleum-related firms or firms that resell electronics and other similar items to Russian firms
Compliance teams should review the practical guidance provided by FinCEN and BIS, including instructions for completing suspicious activity reports (SARs) in light of the commodities for concern and listed red flags. Among other requirements, FinCEN requests FIs to:
- Reference the alert by including the key phrase “FIN-2022-RUSSIABIS” in SAR field 2
- Indicate the connection between the reported suspicious activity and the activities highlighted in this alert in the SAR narrative field
To remain on top of the guidance provided, FIs should consider providing training for their front-line staff and their compliance teams to ensure no red flag or commodity for concern is missed.
More widely the notice, alongside statements from G7 leaders, indicates that Western countries are preparing for an extended conflict in Ukraine. As a result, the enforcement and expansion of export measures are more critical than ever.
Originally published July 8, 2022, updated July 8, 2022
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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