On September 11, 2023, the Financial Crimes Enforcement Network (FinCEN) issued a Financial Trend Analysis detailing trends in suspected evasion of export controls on Russia. FinCEN's analysis is informed by reports provided by financial institutions under the Bank Secrecy Act (BSA), such as Suspicious Transaction Reports. The information is helpful for identifying particular industries and countries that present higher risk for circumvention, and to highlight tools that nefarious actors are using to get U.S. export controlled goods into Russia.
FinCEN identified China and Hong Kong as the highest risk countries. Other countries in the top ten were Turkey, the United Arab Emirates (UAE), the United Kingdom, Canada, Singapore, and Cyprus. Many of the examples of suspicious transactions involved entities, often intermediaries or subsidiaries, based in these countries and using complex corporate structures to hide the Russia nexus. In one example, a UAE company purchased goods for entities involved in disparate lines of business and located across at least six countries mostly near Russia. U.S. companies should look for warning signs that indicate potential circumvention, including complex corporate structures, entities in multiple different countries, and entities increasing orders for the high-risk countries.
FinCEN flagged the electronics industry as appearing frequently in the BSA reports. For example, microelectronic components, imaging technology, electronic filters, electromechanical instrumentation, and wireless radio products all appeared in the BSA reports. In addition, certain industrial machinery, including fluid transfer systems components, gas compressors, and tungsten rods were identified as potentially being diverted to Russia. U.S. companies selling these products should conduct additional diligence for circumvention risks.
The U.S. is not the only country urging vigilance against efforts to circumvent of sanctions against Russian aggression. On September 7, 2023, the EU published guidance for industry on how to enhance due diligence against the risk of Russia sanctions circumvention. The guidance lays out core steps for diligence, including a risk assessment, designing and implementing mitigation measures, and regularly updating procedures. Like FinCEN, the EU guidance identifies complex corporate structures and transit through countries that are "circumvention hubs" as red flags. The guidance also identifies high-risk products that are similar to those mentioned by FinCEN, namely microelectronics, wireless communications products, and electronic components. According to the guidance, the illegal re-export of a sanctioned item to Russia resulting from inadequate due diligence that, for example, fails to appropriately account for risk of diversion, may be regarded by Member States as a violation of EU sanctions law.
U.S. and EU companies who are transacting with high-risk countries or in high-risk sectors should ensure their compliance program is designed to identify and prevent circumvention of export controls and sanctions.
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