New guidance to help financial institutions report efforts to evade US export controls beyond those connected to Russia has been issued. The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Department of Commerce’s Bureau of Industry and Security (BIS) moved Monday to build on two prior alerts in which circumstances retaling to Russia were the focus.

The agencies continue to urge financial institutions to be vigilant against efforts by individuals or entities to evade Russia-related export controls administered by BIS, but they stress that financial institutions should look beyond the Russia-related circumstances that were the focus of those prior two alerts.

They should be vigilant, for example, for transactions involving advanced technologies that can be used in new or novel ways to enhance adversaries’ military capabilities or support mass surveillance programs that enable human rights abuses.

Export Administration Regulations

The guidance, which applies to export control evasion occurring in support of other nation-state adversaries and illicit actors globally, provides US financial institutions with red flags to assist them in identifying transactions potentially tied to the illicit acquisition of items subject to the Export Administration Regulations (EAR), including certain types of exports, reexports, and transfers, over which the US Departments of State and Commerce, plus FinCEN, have regulatory jurisdiction.

US export controls are intended to prevent the proliferation of weapons of mass destruction and destabilizing accumulations of conventional weapons and related material. BIS, in particular, administers and enforces export controls on dual-use and less sensitive munitions items. Dual-use items are commodities, software, or technology that have both commercial and military or proliferation applications.

Technology and commodity descriptions are available through the Department of Justice’s and BIS’s joint Disruptive Technology Strike Force – a group established in February that operates in 12 US cities – and include advanced semi-conductors, supercomputer hardware and quantum technologies.

Financial institutions directly involved in providing trade financing for exporters also may have access to information relevant to identifying potentially suspicious activity.

BIS asserts control over items based on their technical performance parameters and identifies them on a Commerce Control List (CCL), specifying the reason for control (for example national security, nuclear nonproliferation, anti-terrorism) and linking to a country chart specifying the countries to which such exports require a license. The agency also offers training programs to assist parties to an export transaction to classify their item against the CCL and determine whether a license is required and if a license exception is available

The regulators note that financial services firms – particularly banks, credit card operators, and foreign exchange dealers – may be involved in providing financing, processing payments, or performing other services associated with international trade.

Financial institutions directly involved in providing trade financing for exporters also may have access to information relevant to identifying potentially suspicious activity, such as customers’ end-use certificates, export documents, contracts, or other documentation, including those associated with letters of credit-based trade financing.

They also might have customers in export/import industries, including the maritime industry. For all of these reasons, businesses should continue relying on their internal risk assessments to employ appropriate risk-mitigation measures consistent with their underlying Bank Secrecy Act obligations, the regulators said.

Red flags of evasion

FinCEN and Commerce provided a list of red flags to assist financial institutions in identifying transactions potentially tied to evasion of US export controls to be considered along with those set out in the prior FinCEN-BIS alerts pertaining to Russia-related export control evasion. They include (among others):

• Purchases under a letter of credit that are consigned to the issuing bank, not to the actual end-user. In addition, supporting documents, such as a commercial invoice, that do not list the actual end-user.
• Transactions involving entities with little to no web presence, such as a website or a domainbased email account.
• A customer lacking or refusing to provide details to banks, shippers, or third parties, including details about end-users, intended end-use(s), or company ownership.
• Transactions involving customers with phone numbers with country codes that do not match the destination country.
• The item (commodity, software or technology) does not fit the purchaser’s line of business.
• The customer is significantly overpaying for an item based on known market prices.
• Transactions involve payments being made from entities located at potential transshipment points or involve atypical shipping routes to reach a destination.

The new guidance document instructs firms on the key terms to use and narratives needed to indicate a connection between the suspicious activity being reported and the activities highlighted in the new alert.

The agencies also remind businesses about the importance and details needed in SARs, including all available transportation and trade financing documentation, accounts and locations involved, the identities and descriptions of any entities associated with beneficial owners, and any information about related persons or entities involved in the activity.