On September 8, 2023, the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published a Financial Trend Analysis (“FTA”) highlighting trends related to suspected evasion of Russia-related export controls observed in reports required to be filed by financial institutions with FinCEN under the Bank Secrecy Act (“BSA”), such as through suspicious activity reports. The FTA highlights certain evasion red flags useful for purposes of companies’ own compliance efforts, while also serving as a reminder of the many ways in which enforcement agencies are proactively scouring available third party data to identify and investigate potential violations.
The FTA analyzed data received by FinCEN between June 2022 and July 2023 and coded by the filers as being in response to joint alerts on export control evasion efforts previously issued by FinCEN and the US Department of Commerce’s Bureau of Industry and Security (“BIS”) since Russia’s February 2022 invasion of Ukraine. Our previous blogs on these alerts can be found here, here, and here.
From that data, FinCEN has identified nearly $1 billion in suspicious activities dating as far back as 2016 and highlights three trends:
- US-based companies have continued to be involved in transactions in which US-origin goods have been provided to Russian end users both directly and indirectly via third parties in transshipment points outside the United States, including countries in East and Central Asia, the Middle East, Europe, and Central and South America.
- The FTA notes that these US-based companies appear to be in sensitive industries which could support Russia’s defense industrial base and military and intelligence services.
- The FTA also found that companies in third countries—including subsidiaries of Russia-based parent companies—appear to be buying US-origin goods on behalf of Russian end users.
- Networks of non-US entities and individual entities in countries such as China, Hong Kong, Turkey, the UAE, the UK, Canada, Cyprus and Singapore appear to have procured and supplied sensitive US items to Russia, including items supporting military end users and end uses and items that can be used in industrial production.
- Most of the reported companies have links to the electronics industry, while others are in the industrial machine industry.
- Examples of electronics supplied include microelectronics components, imaging technology, electronic filters, and electromechanical instrumentation
- Examples of items supporting the industrial machine industry include fluid transfer system components, gas compressors, wood materials, plumbing equipment, precision tungsten rods, and welding equipment.
The BSA filers that reported the data to FinCEN gathered their data from sources such as: customer due diligence; analysis of transaction information, bills of lading, invoices, etc.; and independent research on the parties involved in transactions.
According to the FTA, BIS uses the information reported to FinCEN both to investigate new and preexisting matters for potential enforcement and to take regulatory actions, such as designating non-US parties to the BIS Entity List, which imposes strict license requirements for transactions subject to US export controls.
Although primarily focused on suspected evasion of US export controls, the FTA also makes multiple references to potential violations of US sanctions against Russia administered by the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). For example, the FTA notes that some of the transactions involving sensitive items involved USD payments that flowed through US banks’ correspondent accounts, which could result in the non-US parties involved in such transactions having “caused” the US banks to violate sanctions. The FTA also notes that the involvement of US persons in the provision of professional and export-related services to Russia (even in the absence of any provision of items subject to US export controls) could also result in violations of US sanctions against Russia.
Companies are encouraged to review the FTA for important lessons in exercising vigilance over their own transaction and financial data to identify and detect potential evasion attempts before they come to the attention of third parties and enforcement agencies.