FinCEN Publishes Analysis on Trends Related to Suspected Evasion of Russia-Related Export Controls

The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recently published a Financial Trend Analysis (FTA) on September 8, 2023. This FTA sheds light on trends associated with suspected evasion of Russia-related export controls, as observed in reports filed by financial institutions under the Bank Secrecy Act (BSA). These reports, including suspicious activity reports, provide valuable insights into compliance efforts while highlighting the proactive approach of enforcement agencies in identifying and investigating potential violations.

The FTA delves into data collected by FinCEN between June 2022 and July 2023. This data was in response to joint alerts issued by FinCEN and the US Department of Commerce’s Bureau of Industry and Security (BIS) regarding export control evasion efforts since Russia’s invasion of Ukraine in February 2022. Here, we outline key takeaways from this analysis:

Three Major Trends Identified:

1. Involvement of US-Based Companies: US-based companies have been engaged in transactions where US-origin goods have reached Russian end users, either directly or indirectly via third parties in transshipment points outside the US. These transactions span regions like East and Central Asia, the Middle East, Europe, and Central and South America. Notably, the companies involved often operate in sensitive industries that could support Russia’s defense industrial base and military and intelligence services.
2. Third-Country Companies Acting as Intermediaries: Companies in third countries, including subsidiaries of Russia-based parent companies, have been purchasing US-origin goods on behalf of Russian end users. These intermediaries have formed networks involving non-US entities and individual entities across various countries, such as China, Hong Kong, Turkey, the UAE, the UK, Canada, Cyprus, and Singapore. The goods supplied range from microelectronics components to industrial machine industry items.
3. Procurement and Supply of Sensitive US Items: The FTA reveals that entities in the electronics and industrial machine industries are prevalent in these transactions. Examples of supplied electronics items include microelectronics components, imaging technology, and electromechanical instrumentation. Industrial machine industry items include fluid transfer system components, gas compressors, and precision tungsten rods, among others.

Data Sources and Regulatory Actions:

The data analyzed in the FTA was sourced from various channels, including customer due diligence, transaction analysis, and independent research on transaction parties. The information reported to FinCEN is utilized by BIS for both enforcement investigations and regulatory actions. These actions may involve designating non-US parties to the BIS Entity List, which imposes strict license requirements for transactions subject to US export controls.

Sanctions Implications:

While the primary focus of the FTA is on suspected evasion of US export controls, it also references potential violations of US sanctions against Russia, administered by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC). For instance, transactions involving sensitive items that include USD payments flowing through US banks’ correspondent accounts could lead to sanctions-related violations. Additionally, US persons providing professional and export-related services to Russia, even without exporting controlled items, may also risk sanctions violations.

In conclusion, the FinCEN FTA underscores the importance of vigilance in monitoring transaction and financial data to detect and prevent potential evasion attempts. Companies are encouraged to review the FTA for insights into compliance and risk mitigation strategies, as well as to remain informed about evolving export controls and sanctions regulations.