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US Shares Export Control Evasion Trends Identified by Banks, Investigating Leads

Suspicious activity reports recently filed with the U.S. government show nearly $1 billion worth of transactions over the last year may have had ties to Russia-related export control evasion, the Financial Crimes Enforcement Network said in a new report analyzing SAR trend data. The report -- issued as part of a joint effort between FinCen and the Bureau of Industry and Security to collect more leads for export enforcement agents -- highlights several evasion trends being reported by banks and other financial institutions, including what types of goods are most commonly being sought by sanctions evaders and which foreign countries those transactions most frequently involve.

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The report comes after FinCEN and BIS in recent months issued two joint alerts, ​​including one that was designed to put companies and entities “on notice” about the types of red flags they should be monitoring for potential Russian sanctions and export control evasion tactics (see 2210060043). The alert also created a new code for financial institutions to include in their Bank Secrecy Act reports, filed with FinCEN, to signal the activity may be connected to efforts to evade Russian sanctions and export controls (see 2212160027 and 2207130014).

BIS has already used some of those reports to initiate investigations of export control violators and add parties to the Commerce Department’s Entity List, said Matthew Axelrod, the top export enforcement agent at BIS. FinCEN and BIS said they received 333 BSA reports that referenced the new code between June 28, 2022, and July 12, 2023, adding that some showed U.S.-origin goods being directly delivered to military-related end-users in Russia.

In some cases, the U.S.-based companies directly transacted with entities in Russia, and in other cases the American companies transacted with entities based in other countries that were “potentially acting as intermediaries on behalf of Russian end-users,” the FinCEN report said, particularly entities in China, Hong Kong and Turkey. Most of the U.S. companies appeared to be doing business in industries that could support Russia’s defense industrial base, such as the electronics and the industrial machinery industries.

Many of those American businesses manufacture or sell electronics equipment, such as microelectronic components, imaging technology, electronic filters and electromechanical instrumentation, FinCEN said. In one case, a U.S. manufacturer of radio frequency products received wire transfers from companies in Azerbaijan and China between March 2022 and January 2023, and the report filer said the U.S. firm may have been selling products within the airline, electronic warfare, government, military and wireless industries to counterparties in Azerbaijan and China “in order to circumvent global sanctions against Russia.”

Companies in the industrial machinery industry also may be potentially supplying Russia with equipment, FinCEN said, including firms working with fluid transfer system components, gas compressors, wood materials, plumbing equipment, precision tungsten rods and welding equipment. These companies were reported to be located in China, Hong Kong, Singapore, the U.S. and elsewhere.

In one case, a U.S. manufacturer of “fluid transfer system components” received wire transfers from entities in Russia for “potential purchases” between December 2021 and October 2022, and later began receiving wires for purchases from a Central Asia-based company, “potentially to evade Russia-related export controls,” FinCEN said. Other BSA report data showed a U.S. underwater technology company returned funds to a Russian ecological center between April and June 2022, and FinCEN said the funds originated from a Hong Kong ocean mapping instrument company, a subsidiary of a Chinese entity that was designated on the Entity List.

FinCEN pointed to several major countries with companies that are buying U.S. goods on behalf of Russian end-users, including Belgium, Germany, Singapore, the United Arab Emirates and the U.K. Data from one BSA report showed a network of UAE companies, some of which were banking in Hong Kong, moved electronics and computer components from China, South Korea and the U.S. to Russia through third countries. In other cases, Central Asian companies, most often subsidiaries of Russian companies, procured electronic components or aircraft parts from suppliers that previously transacted with those Russian entities.

The agency noted that in several reports, filers said suspicious transactions sometimes arose from transactions between Russia-linked entities and other companies “conducting disparate lines of business, and the filer could not determine the purpose of the payments.” In one case, a filer said a UAE electronic products retailer that may have been buying goods on behalf of Russian entities was entering into transactions with certain companies located in Azerbaijan, the British Virgin Islands, Estonia, Kazakhstan, Kyrgyzstan, Russia and Serbia “that were involved in disparate lines of business.”

FinCEN said companies in China, Hong Kong, Turkey and the UAE are “particularly” likely to be supplying sensitive goods to Russia. China was named 130 times in export control evasion-related reports, while Hong Kong was named 126 times, Turkey was named 49 times and the UAE was named 43 times. The top two countries named in reports were the U.S. at 976 and Russia at 322.

The report lists several leads the U.S. has received about potential export control evasion networks, including a network of China- and Hong Kong-based entities that may be supporting Russia’s military.. FinCEN said the majority of the network’s payments were conducted through payment intermediaries in China.

Another filer identified a “global financial network” linked to the potential trade in dual-use goods subject to U.S. export restrictions “intended for military end-users in Russia and procurement of non-lethal military related equipment.” Those transactions took place between October 2022 and February 2023 and involved at least four Turkish entities and companies located in China, Hong Kong and Russia.