The Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint alert on June 28, 2022, warning of evasion attempts by individuals or entities to circumvent BIS export controls implemented in response to the Russian Federation’s renewed invasion of Ukraine.
Both agencies urged financial institutions to remain vigilant against bad actors’ attempts to evade BIS export controls. The alert provided an overview of current BIS export restrictions, listed particular commodities of concern for export control evasion, and outlined transactional and behavioral red flags that could indicate attempts to avoid sanctions.
This is FinCEN’s third alert in relation to sanctions imposed on Russian in response to the war in Ukraine. As we previously blogged, on March 7, 2022, FinCEN urged vigilance by financial institutions against potential Russian Federation attempts to evade sanctions. On March 16, 2022, FinCEN reiterated the need for increased vigilance by financial institutions in detecting suspicious transactions involving real estate, luxury goods, and other high-value assets.
The joint alert comes on the heels of the June 27, 2022 announcement by the United States and the other G7 nations to intensify their coordinated sanction measures in response to Russia’s war of aggression. A day later, on June 28, 2022, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued determinations pursuant to prior Executive Orders implementing the new measures. These include prohibiting the importation of Russian gold (EO 14068), as well as new sanctions and export restrictions on entities like Rostec, a key Russian state owned conglomerate, which forms the foundation of Russia’s defense industry (EO 14024).
Concurrent with the OFAC determinations, FinCEN and BIS urged financial institutions to monitor for efforts by Russia, Belarus and their proxies to evade export sanctions, finding that financial institutions are at an increased risk of unknowingly participating in the export of prohibited goods. FinCEN primarily provided guidance to banks, but also noted the potential role of other financial institutions such as credit card operators and foreign exchange dealers, who may provide services such as financing or payment processing. FinCEN advised the adoption of the typical “risk based” approach to identifying suspicious transactions and collecting related documentation, and directed financial institutions to rely on their internal risk assessments consistent with their traditional Bank Secrecy Act (BSA) obligations.
For the purposes of Suspicious Activity Reports (SARs) filed regarding transactions involving the potential evasion of export controls, the joint alert noted that certain transactions are at increased risk of violating export controls and should be of particular focus. These transactions include the processing of payments for exported goods, the issuance of lines of credit for exporters, the processing of factor payments, and the provisioning of general credit or working capital loans.
FinCEN and BIS provided non-exclusive red flag indicators for export control evasion for potential SAR filings. Some of the red flags noted by the agencies include:
The customer’s underlying business is military or government-related work;
A customer’s acquisition of a new vessel for no apparent economic or business purpose, to be used in shipping corridors of the affected countries;
Transactions involving entities with little or no web presence;
Transactions involving a change in shipments or payments that were previously scheduled to go to Russia or Belarus;
Parties to transactions with addresses that do not appear consistent with the business;
Transactions involving luxury goods that previously would have been destined for Russia or Belarus, but are now being redirected;
Transactions associated with atypical shipping routes;
Transactions involving entities whose website or business registration notes “special purpose projects,” a Russian designation which typically means for military use;
Companies or individuals with links to Russian state-owned corporations; and
Transactions identified through correspondent banking activities connected to Russian petroleum-based forms or firms that resell electronics
The joint alert identified commodities of “special concern,” such as aircraft parts and equipment, antennas, breathing systems, cameras, GPS systems, oil field equipment, sonar systems, underwater communications, and water fabrication equipment. BIS identified these commodities for their potential diversion to, and use by, Russia or Belarus to enhance their military and defensive capabilities. Export of these products require a BIS license prior to export to Russia or Belarus. Additionally, these items have the potential for misuse by intermediary third countries to create products for export to Russia or Belarus.
With the assistance of financial institutions in identifying and reporting suspicious activity related to the export of these goods, FinCEN and BIS hope to assist international efforts to further degrade Russia’s military capabilities and apply increased economic pressure.
Finally, FinCEN provided particular instructions for filing related SARs. Specifically, FinCEN requests financial institutions to reference the joint alert by including the key term “FIN-2022-RUSSIABIS” in SAR field 2, and to indicate in the SAR narrative field the connection between the suspicious activity being reported and the activities highlighted in the joint alert. FinCEN further requests financial institutions to check box 38(z) (Other Suspicious Activity) and note “Russia Export Restrictions Evasion,” and to indicate in SAR field 45(z) (Other Product Types) the appropriate North American Industry Code(s) (NAICs) for the involved product, if known, and the appropriate financial instrument or payment mechanism in SAR field 46.
July 5, 2022 Published by The Money Laundering News.