Related News

Akin hires ex-OFAC chief counsel

Akin hires ex-US commerce department official

Dollar alternatives not a major illicit finance threat, US says

Know your cargo: US to use sanctions enforcement powers “robustly”

UK banks warned over illicit Russia exports

US authorities have issued an alert urging trade finance providers to deploy “increased vigilance” when watching for possible evasion of export controls by Russian and Belarusian entities.

Since the Russian invasion of Ukraine in February, the US Department of Commerce has rolled out a range of Russia-specific restrictions through its export control agency, the Bureau of Industry and Security (BIS).

The BIS has targeted Russia’s defence, aerospace and maritime sectors – and wider war efforts – by choking access to US-origin goods or those made with US software, technology or tooling.

It has also sought to squeeze energy revenues and hurt those close to the Kremlin by imposing stringent exports requirements on items used in the refinery of oil, as well as “luxury goods” such as diamonds and certain spirits.

BIS has now published a joint advisory alongside the Financial Crimes Enforcement Network (FinCEN), which calls on banks that are financing transactions, processing payments or performing other services related to trade to help detect Russian and Belarussian evasion attempts.

The document offers guidance to trade finance lenders on how to spot suspicious deals, providing them with a list of high-risk items and nearly two dozen red flags to watch for.

At the same time, the alert reminds lenders of their reporting obligations under the Bank Secrecy Act.

David Tannenbaum, a director at consulting firm Blackstone Compliance Services, says the advisory marks the first time the agency has “crossed the banking veil” to offer lenders formal export control compliance advice.

He tells GTR the alert is a sign BIS will deploy financial institutions more actively in enforcement efforts, with the agency likely to adopt a different approach to the US’ Office of Foreign Assets Control (OFAC), which has inflicted sizeable fines on companies and banks in the past.

“There might be a subpoena coming down the pipe every now and again, not to penalise them specifically, but to obtain information for their own law enforcement cases. OFAC can do civil penalties, but BIS actually has law enforcement agents working to catch and indict criminals,” he says.

Russia is expected to deploy nefarious tactics to secure items such as semiconductors for its technology and military industries, amid reports it is being hard hit by western export controls.

Alan Estevez, US undersecretary of commerce for industry and security, said at an event in June that co-ordinated export controls between the US and over 30 nations had resulted in global semiconductor exports to Russia falling by 90% since the invasion.

But there are growing fears Moscow may use illicit smuggling networks to disguise the types of goods being traded, or the end destination of a shipment, as a means of evading export controls.

Banks and corporates will also have to be wary of infringing BIS’ foreign direct product rule, which restricts Russia from acquiring products made in third countries that use US technology or software, or in plants that are direct producers of the specific technology or software – a type of export control measure which has crippled Huawei’s business since 2020.

In the advisory, BIS and FinCEN further identify 16 commodities as presenting “special concern”, including aircraft parts, GPS systems, integrated circuits, sonar systems and oil field equipment.

The BIS alert flags several countries that could serve as possible transhipment points for goods to be exported to Russia and Belarus.

These include China, the United Arab Emirates, Turkey, Taiwan and countries in the Commonwealth of Independent States (CIS) region, such as Kazakhstan, Kyrgyzstan and Tajikistan.

While Tannenbaum says the move is a “good first step” from BIS that offers banks greater clarity about potentially higher risk transactions, he suggests the agency could go further in tackling Russian sanctions evasion.

He says BIS could help financial crime compliance officers by providing more biographical information about entities covered by export controls, such as individuals’ dates of birth and nationalities.

He tells GTR that export control classification numbers (ECCN) can also be confusing for compliance teams, who may lack the expertise to effectively identify whether goods are “dual-use” – that is, can be used for both military and civil purposes.

“Very few financial crime compliance officers are steeped in the export classification regulations used to determine if a product is a dual-use good,” Tannenbaum says.

For example, BIS lists “test equipment” as a key item of concern in the advisory, assigning such products an ECCN of 3B992.

Yet Tannenbaum points out that this ECCN is more specific, referring only to testing equipment for semiconductors.

“It’s this context that compliance officers need, and the agency needs to do better,” he says.

“Instead of providing a list with ECCNs, which sometimes do not match up or are very generic, instead provide banks with a top 20 or 30 list of very specific goods they are concerned about.”