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Washington, DC (July 1, 2022) – On June 28, 2022, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) and the US Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint alert advising financial institutions to be aware of individuals or entities attempting to circumvent US export controls. related to the ongoing conflict between Russia and Ukraine.
In addition, on the same day, BIS placed 36 entities on the “Entity List” for engaging in activities contrary to the national security or foreign policy interests of the United States. These entities are from: (i) the People’s Republic of China (China), (ii) Lithuania, (iii) Pakistan, (iv) the Russian Federation (Russia), (v) Singapore, (vi) the United Arab Emirates ( UAE), (vii) the United Kingdom, (viii) Uzbekistan, and (ix) Vietnam. BIS placed six of those entities, five from China, and one from Uzbekistan, on the Entity List for “previously supplied items to Russian entities of concern… And continuation.[ing] to contract to supply Russian entity listed and sanctioned parties after Russia’s further invasion of Ukraine. “
Placement on the BIS ‘Entity List imposes strict licensing requirements. For example, here, BIS will review export license applications for these entities “under a policy of denial apart from food and medicine” and will provide “[n]o license exceptions. . . for exports, reexports, or transfers (in-country) to these entities. “
Together, these actions urge US businesses and financial institutions to act with increased caution when conducting foreign export transactions and to remain vigilant for potential export control evaders.
The FinCEN & BIS Joint Alert
The joint alert centers on efforts to evade export controls related to the Russia-Ukraine conflict and urges financial institutions and other entities subject to the Bank Secrecy Act (BSA) to remain on high alert for such actions when entering into transactions. Under the BSA, a covered entity is required to file a Suspicious Activity Report (SAR) if it “knows, suspects, or has reason to suspect” that a transaction (i) is designed to evade export controls or other regulations — in this case , sanctions imposed by BIS or the Office of Foreign Assets Control (see, egLewis Brisbois’ alert of May 12, 2022), (ii) lacks a business or apparent lawful purpose, or (iii) involves the use of financial institution to facilitate criminal activity.
Transactions of particular focus might include the processing of payments for exported goods, issuance of lines of credit for exporters, the processing of factoring payments, provision of general credit or working capital loans, and issuance or payment of insurance on the shipping and delivery of goods. to protect the exporter from nonpayment by the buyer.
The joint alert lists 22 examples of “transactional and behavioral red flags.” Red flags include:
- Transactions involving entities with little to no web presence;
- Transactions involving payments being made from entities located in third-party countries not otherwise involved with the transactions and known to be a potential transshipment point for exports to Russia and Belarus;
- Rapid shifts to new purchasers of transactions involving restricted luxury goods; and
- Use of business checking or foreign exchange accounts by US-based merchants involved in the import and export of electronic equipment where transactions are conducted with third country-based electronics and aerospace firms that also have offices in Russia or Belarus.
By listing these “red flags,” FinCEN and BIS are placing “covered entities” on notice about potentially suspicious transactions. FinCEN and BIS noted that the listed red flags are not exhaustive and should be considered in tandem with all surrounding facts and circumstances when filing a SAR. At the very least, “covered entities” will need to conduct a fact intensive analysis on these potential “red flag” indicators to ensure compliance with US law.
The joint alert also lists 16 “commodities of concern,” which are important to a wide range of industries, including airplane parts, oil field equipment, cameras, and GPS systems. BIS identified these commodities because of their potential diversion to and use in Russian and Belarusian military activities. Consequently, BIS encourages financial institutions to apply a risk-based approach to trade finance, consistent with BSA reporting obligations.
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