FinCEN/BIS alert flags Russia export control evasion indicators

The agencies issued a joint alert Tuesday outlining red flags that could indicate attempts at evading sanctions. The BIS has instituted a number of export controls since Russia invaded Ukraine in February, mostly targeting Russia’s defense, aerospace, and maritime sectors; energy production; and luxury goods used by Russian elites.

Commodities of concern include aircraft parts and equipment, cameras, integrated circuits, oil field equipment, sonar systems, underwater communications, and water fabrication equipment. All these items and others listed in the alert require a BIS license prior to export or reexport to Russia or Belarus, the BIS said.

Export controls also prohibit exporting these items to be used in final products manufactured by third countries, and having those final products end up in either country.

For financial institutions, the risk of unwittingly participating in the export of a prohibited item to Russia or Belarus is heightened. Firms should be vigilant to avoid providing financing, letters of credit, processing payments, or otherwise facilitating international trade that violates the BIS’s export controls against the two countries, the joint alert said.

Financial institutions should use the information available to them—including end-use certificates; export documents; and transmittal orders from an intermediary financial institution, such as the Society for Worldwide Interbank Financial Telecommunications (SWIFT)—to determine whether certain transactions are aiding potential violations of export controls.

In addition, firms might want to devote more due diligence on collecting extensive documentation associated with letters of credit-based trade financing.

Some of the red flags the agencies said could indicate export control evasion include:

• The nature of a customer’s underlying business in military or government-related work;
• A customer acquiring new vessels for no apparent economic reason or business purpose for use in shipping corridors to affected countries;
• Transactions with entities that have little or no web presence;
• Transactions that had been scheduled to go to Russia or Belarus now routed to a different country or company;
• Last-minute changes to transactions associated with Russia or Belarus;
• Luxury goods once scheduled to be sent to Russia or Belarus now being rerouted to a country without export restrictions to the two countries;
• Shipments to companies whose business purpose is listed as “special purpose projects” or have a certificate with Federal Security Service of the Russian Federation, which allows them to work on projects classified as a state secret; and
• Transactions involving individuals or companies with links to Russian state-owned corporations.

Financial institutions are required by the Bank Secrecy Act to report transactions derived from illegal activity, which would include evasion of sanctions or export controls.

Also Tuesday, the Treasury unveiled a host of new economic actions against Russia, including a ban on the import of Russian gold into the United States and sanctions against Rostec, a state-owned enterprise the agency said forms the foundation of Russia’s defense industry.

Sanctions were imposed on 70 entities, with a particular focus on the aerospace, defense technology, and industrial exporter industries and management companies connected to them. Several private military organizations with links to the Russian government or the separatist republics in Ukraine’s Donbas region were also sanctioned.

Further designated were Alexander Kokorev, a former agent for the Russian spy agency FSB; his wife; and another coconspirator for attempting to obtain foreign electronics using shell companies in violation of existing sanctions.

On the gold import ban, the United States was joined by the United Kingdom, Canada, and Japan. Excluded from the gold import ban was gold originally sourced from Russia that is not within the country’s borders today.

The sanctions “strike at the heart of Russia’s ability to develop and deploy weapons and technology used for Vladimir Putin’s brutal war of aggression against Ukraine,” the Treasury said in its press release.