The Financial Crimes Enforcement Network ("FinCEN"), joined at times by other federal government agencies, has issued a series of advisories and guidance of importance to financial institutions.1 In this Debevoise In Depth, we review recent FinCEN issuances concerning developments in customer due diligence ("CDD"), emerging fraudulent schemes impacting consumers, and attempts to evade sanctions or export controls.
FinCEN and Federal Banking Agencies Issue Statement on Customer Due Diligence
On July 6, 2022, FinCEN and the federal banking agencies issued a joint statement reinforcing their position that no customer type presents a single level of uniform risk or a particular risk profile related to money laundering, terrorist financing or other illicit financial activity.2 The agencies noted that, although the Federal Financial Institutions Examination Council's Bank Secrecy Act/Anti-Money Laundering Examination Manual contains sections on certain customer types (e.g., independent automated teller machine owners or operators, charities and nonprofit organizations, and nonbank financial institutions), the inclusion of these sections is meant to provide background information and is not meant to signal that certain customer types should be considered "uniformly higher risk." The joint statement does not establish new supervisory expectations or alter existing anti-money laundering ("AML") requirements.
FinCEN and BIS Urge Financial Institutions to Be Vigilant for Potential Russian and Belarusian Export Control Evasion Attempts
On June 28, 2022, FinCEN and the Commerce Department's Bureau of Industry and Security ("BIS") issued a joint alert urging financial institutions to remain vigilant against efforts by individuals or entities to evade BIS export controls implemented in connection with Russia's invasion of Ukraine.3 Since February 24, 2022, BIS has implemented a series of export controls targeting Russia's defense, aerospace, maritime and energy production sectors in an attempt to sequester Russia from the technologies and other items required to sustain its military activity in Ukraine, as well as export controls targeting luxury goods used by Russian elites. The United States has also placed restrictions on Belarus in response to its enabling of Russia's war effort.
BIS requires a license prior to export to Russia or Belarus of certain commodities due to their potential end use to further military and defense activities. Examples of such commodities include aircraft parts/equipment, antennas, breathing systems, cameras, GPS systems, inertial measurement units, integrated circuits, oil field equipment, sonar systems, spectrophotometers, test equipment, thrusters, underwater communications, vacuum pumps, water fabrication equipment and wafer substrates.
Financial institutions may have visibility into various aspects of export-related financial activities. Banks, credit card operators and foreign exchange dealers often are involved in providing financing, processing payments or performing other services associated with international trade. FinCEN advises any financial institutions with customers in maritime or export/import industries to rely on their internal risk assessments in employing risk mitigation measures, including CDD. Further, FinCEN cautions financial institutions directly involved in providing trade finance for exporters that they may have access to information relevant to identifying potentially suspicious activity, including customers' end-use certificates, export documents or other more extensive documentation associated with letters of credit-based trade financing. FinCEN suggests that such financial institutions may also have information about other parties involved in their clients' transactions through payment transmittal orders or SWIFT messages. If financial institutions identify suspicious activity, they have an obligation to file suspicious activity reports ("SARs") and should take care to include the information FinCEN identified above.
To encourage vigilance in monitoring possible export control evasion and the filing of SARs, FinCEN and BIS provided a list of transactional and behavioral red flag indicators of export control evasion that may be helpful in determining whether an identified activity may be connected to export control evasion (in addition to other appropriate risk-based customer and transactional due diligence). We recommend that clients review the list of red flags carefully to determine if any of them have been identified in their day-to-day business. The alert concluded with a reminder of relevant Bank Secrecy Act ("BSA") reporting obligations for U.S. financial institutions in connection with suspicious activity.
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Footnotes
1. We thank Tara Holzer for her help in drafting this Debevoise In Depth.
2. FinCEN, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration and Office of the Comptroller of the Currency, Joint Statement on the Risk-Based Approach to Assessing Customer Relationships and Conducting Customer Due Diligence (July 6, 2022), available here.
3. FinCEN and BIS, FinCEN and the U.S. Department of Commerce's Bureau of Industry and Security Urge Increased Vigilance for Potential Russian and Belarusian Export Control Evasion Attempts, FIN-2022-Alert003 (June 28, 2022), available here.
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