SAR key term for U.S. trade controls evasion

The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Department of Commerce’s Bureau of Industry and Security (BIS) have issued a joint notice concerning a new Suspicious Activity Report (SAR) key term. It emphasizes that financial institutions are expected to “be vigilant against efforts by individuals or entities to evade U.S. sanctions and export controls,” including the Export Administration Regulations (EAR).

Under this joint notice, financial institutions are advised to use the new term (FIN-2023-GLOBALEXPORT) to report potential efforts to evade U.S. export controls unrelated to Russia. This new term is a continuation of similar efforts to require SARs for transactions that appear to evade export controls related to Russia. It supplements and seeks to build on the success of two previous alerts—one on 28 June 2022 and one on 19 May 2023. Under those prior alerts, for Russian-related control evasions, financial institutions should continue to use the previously released key term (FIN-2022-RUSSIABIS). Financial institutions can use both key terms in their SAR if they are uncertain of which to use.

U.S. trade controls evasion red flags

Further, the joint notice highlights thirteen specific red flags that financial institutions should watch for as they identify transactions that seek to evade U.S. export controls. These red flags are:

• Purchases under a letter of credit that are consigned to the issuing bank, not to the actual end-user. In addition, supporting documents, such as commercial invoices, do not list the actual end-user.
• Transactions involving entities with little to no web presence, such as a website or a domain-based email account.
• A customer lacks or refuses to provide details to banks, shippers, or third parties, including details about end-users, intended end-use(s), or company ownership.
• Transactions involving customers with phone numbers with country codes that do not match the destination country.
• Parties to transactions listed as ultimate consignees or listed in the “consign to” field appear to be mail centers, trading companies, or logistical companies.
• The item (commodity, software, or technology) does not fit the purchaser’s line of business.
• The customer name or its address is similar to one of the parties on a proscribed parties list, such as the BIS Lists of Parties of Concern (e.g., Entity List, Unverified List, Denied Persons List), Treasury’s List of Specially Designated Nationals and Blocked Persons (SDN List), or the Department of State’s Statutorily Debarred Parties List. Special attention should be paid to the basis for listing on the Entity List or SDN List, as linkages to weapons of mass destruction programs or military-intelligence end-users or end-uses implicate broader controls regardless of whether an item is subject to the EAR.
• Transactions involve a purported civil end-user, but basic research indicates the address is a military facility or co-located with military facilities in a country of concern.
• Transactions involving companies that are physically co-located, or have shared ownership, with an entity on the Entity List or the SDN List.
• Transactions that use open accounts/open lines of credit when the payment services are conducted in conjunction with known transshipment jurisdictions and/or the products listed in payment memos align with those identified by BIS as a disruptive technology or included on the Commerce Control List.
• The customer is significantly overpaying for an item based on known market prices.
• Transactions involve a last-minute change in payment routing that was previously scheduled from a country of concern but now routed through a different country or company.
• Transactions involve payments being made from entities located at potential transshipment points or involve atypical shipping routes to reach a destination.

Any individual red flag may not indicate suspicious activities. Financial institutions should look at the transaction’s facts and circumstances to determine potential export control evasion.

BIS has been expanding its use of enforcement tools on a global basis and via inter-agency coordination. BIS also has been actively educating financial institutions regarding export control laws and regulations, which are complex and target specific technologies and items. In its press release related to this recent joint notice, BIS emphasized these issues and its mandate, stating:

“BIS leverages SARs to investigate violations of U.S. export control regulations. Investigations involving advanced technologies (e.g., advanced semiconductors, quantum, hypersonics) sought by nation state adversaries to support military modernization efforts designed to overcome U.S. military superiority, or mass surveillance programs that enable human rights abuses are being prioritized and worked through the interagency Disruptive Technology Strike Force, co-led by BIS and the Department of Justice.

The joint notice is part of the ongoing efforts by BIS and the U.S. Department of the Treasury to strengthen export controls and prevent global evasion of U.S. export controls. By working together and leveraging their respective expertise, BIS and FinCEN aim to disrupt illicit acquisition activities and enhance the overall security and integrity of the international trade and financial systems.”

Next steps

Companies should ensure coordination with all relevant functions, such as the finance and treasury departments, as questions from banks may indicate a concern about export compliance or evasion. In addition, financial institutions should be sure that their compliance programs are incorporating required elements of the EAR as well as the International Traffic in Arms Regulations in addition to sanctions and anti-money laundering compliance.

Companies should continue to review their business activities and compliance procedures regularly to ensure they reflect a risk-based approach to transactions and comply with applicable new restrictions.