The US government has indicated that it may take enforcement action against financial institutions that fail to comply with the country’s export control regulations, marking a significant shift in its approach to enforcement. For the first time, the US Bureau of Industry and Security (BIS) has provided detailed guidance on how banks can align with these rules, which govern the export of goods with both military and commercial applications.
The BIS has long relied on banks to detect and report potential violations by their clients. However, the new guidance suggests that financial institutions will now be held accountable if they are aware of violations or potential violations and fail to take appropriate action. According to law firm Paul Weiss, this represents the first indication that both US and non-US financial institutions could face direct enforcement actions under the US export control regulations.
The regulations in question aim to prevent the flow of certain goods, including dual-use technologies, to sanctioned entities, particularly following Russia’s 2022 invasion of Ukraine. One key aspect of the regulations, known as “General Prohibition 10,” prohibits financing the export of controlled goods with knowledge that a violation is imminent. While this law has existed for some time, enforcement actions against financial institutions under this provision have not been publicly disclosed, and previous investigations have primarily targeted exporters.
Experts suggest that the BIS’s new guidance signals a broader focus on holding banks accountable in export control enforcement. “It’s sending a signal that [BIS] could take enforcement action based on what banks knew and what actions they took,” said Thomas Andrukonis, a former BIS official.
Penalties for violating the Export Administration Regulations (EARs) can be severe, with fines of up to US$300,000 per violation or twice the value of the transaction. The BIS can also pursue criminal penalties against individuals, including up to 20 years of imprisonment and fines of up to US$1 million.
Importantly, US export controls extend to foreign banks, particularly those involved in transactions related to controlled US-origin goods. This broad scope increases the compliance burden for banks, especially those dealing with countries or entities subject to sanctions. According to legal experts Reid Whitten and Jordan Mallory, this heightened responsibility introduces new risks for many financial institutions.
The BIS guidance also provides recommendations for banks to screen customers and their transactions, especially those related to high-priority dual-use goods, such as microelectronics, intended for Russia, Belarus, or military entities. Although real-time screening of every transaction is not required, the BIS advises banks to check clients against various blacklists.
While banks are accustomed to complying with broader economic sanctions, the technical nature of export control regulations poses challenges. Some experts argue that banks may struggle with understanding the complexities of controlled technologies. As Alberto Almaraz, a trade compliance specialist, pointed out, banks may opt to exit higher-risk markets where compliance could be difficult.
In response to similar challenges, the UK recently updated its own export control laws, including new reporting requirements for financial institutions. Meanwhile, in September, the G7 issued collective guidance on export controls to streamline compliance efforts across its member countries.
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