On 20 February 2024, the financial intelligence agencies of Canada (FINTRAC), Germany (FIU DE) and the Netherlands (FIU-NL) released a joint advisory regarding illegal procurement of dual-use goods by Russian end-users (Joint Advisory). Although primarily addressed to entities reporting under each country’s respective anti-money laundering (AML) regime, the Joint Advisory also is a useful resource for other companies seeking to comply with sanctions and export controls more generally, as it seeks to provide additional guidance on reporting suspicious transactions as well as conducting client risk assessments, based on prior reports received regarding the suspected illegal export of dual-use goods. The collaboration was born after these financial intelligence units identified similar tactics being deployed in order to evade sanctions and export control restrictions in each of their respective jurisdictions.
In light of Russia’s ongoing war in Ukraine, the issuing countries and their allies have sought to deprive Russia of access to military equipment and the required funds to finance military purchases. To this end, legislators have enacted extensive sanctions, which include comprehensive restrictions on exports to and imports from Russia.
These sanctions also extend to dual-use goods, which are goods that have both military and civilian functionalities. As Canada, Germany and the Netherlands are all signatories to the Wassenaar Arrangement, the export of certain dual-use goods is generally prohibited without a permit. In addition to the controls typically applied to dual-use goods, extensive additional measures have been implemented in relation to Russia. For example, the EU has generally prohibited EU operators to sell, supply, transfer or export, and to provide certain assistance and services related to, dual-use goods to any party in Russia or for use in Russia, subject to limited exceptions. Under Canada’s export controls regime, Canada has either cancelled existing permits, or stopped issuing new permits for dual-use goods being exported to Russia and prohibits the export of certain restricted goods under its sanctions targeting Russia.
As national sanctions, export controls, and customs authorities enhance efforts to enforce product controls and export prohibitions, in practice, companies that are exporting, or financing exports of these goods, serve as the front-line on complying with these prohibitions. The Joint Advisory seeks to assist these companies with ensuring compliance by enabling them to identify indicators relevant to the illegal trade flows and, relatedly, complying with any reporting obligations under each jurisdiction’s AML legislation, as such companies may be implicated in financing (suspected) illegal transactions or laundering proceeds of these illegal trade flows.
At the same time, companies often face compliance challenges, including identifying dual-use goods, identifying transactions involving property or entities beneficially owned by designated persons, and identifying red flags which indicate that certain financial transactions are proceeds of crime. To this end, the Joint Advisory also relies on the guidance issued by the “Five Eyes” countries regarding high-risk products (which Baker McKenzie has summarized here). Each intelligence unit cites a case study from their respective jurisdictions to help illustrate how the guidance in the Joint Advisory can be implemented in practice.
