FinCEN Report Finds Export Control Evasion

The Financial Crimes Enforcement Network (FinCEN) revealed a Financial Trend Analysis (FTA) concerning potential evasion of Russia-related export controls, based on Bank Secrecy Act (BSA) reports amounting to nearly $1 billion in suspicious activity.

After Russia invaded Ukraine, FinCEN and the Bureau of Industry and Security (BIS) issued alerts urging U.S. financial institutions to monitor potential Russian attempts to bypass U.S. export controls. . This collaboration with financial entities has led to significant leads on potential Russia-related export control violations.

BIS utilizes data from BSA reports to instigate new investigations and support ongoing ones. This data assists in identifying parties in Russia and third countries undermining U.S. national security and foreign policy, resulting in their designation on the Entity List and imposition of license requirements according to the Export Administration Regulations, thereby obstructing foreign parties from evading BIS export controls.

The FTA revealed several trends in BSA reporting:

1. Post-invasion transactions indicate intermediary countries possibly procured U.S.-origin goods for Russian end-users.
2. Transactions link trade activity, likely involving sensitive items, between Russian end users and jurisdictions like China, Hong Kong, and Turkey.
3. Predominantly, companies in the dataset are associated with the electronics industry, possibly facilitating Russian export control evasion.
4. Industrial machinery companies may also be supplying equipment to Russia.

Specific instances indicating potential evasion of Russia-related export controls include:

Fluid Transfer System Components Company:

1. • A U.S. company manufacturing fluid transfer system components received wires from Russian entities for potential purchases from December 2021 to October 2022.
   • Between October 2022 and January 2023, the same company began receiving purchase wires from a Central Asia-based company, hinting at a potential attempt to sidestep Russia-related export controls.

2. Underwater Technology Company:

   • A U.S.-based underwater technology entity returned funds to a Russian ecological center between April and June 2022.
   • These funds were originally from a Hong Kong subsidiary of a Chinese entity listed on the BIS Entity List. This Chinese entity was designated for assisting Russia in monitoring submarines. The Hong Kong subsidiary specializes in supplying hydrographic survey and ocean mapping instruments.

3. Intermediary Companies:

   • Companies located in intermediary countries seem to be buying U.S.-origin goods on behalf of Russian end-users.
   • Primarily, these intermediary companies were situated in China and Hong Kong. However, other countries like Belgium, Germany, Singapore, Turkey, UAE, UK, among others, also seemed involved, hinting at possible transshipment activities and origination of goods payments.

4. UAE-Based Companies Network:

   • BSA data pinpointed a group of companies based in the UAE, with some banking in Hong Kong. This network moved items, including electronics and computer components, from countries like China, South Korea, and the U.S. to Russia through third countries. Transactions were detected from Russia to the UAE between January 2020 and April 2023.

5. Central Asia-Based Companies:

   • Companies situated in Central Asia, often affiliated with Russia-based entities or subsidiaries thereof, sourced goods like electronic components or aircraft parts from suppliers that had previously transacted with related Russian companies.

6. Disparate Lines of Business:

   • Some BSA reports indicated potential evasion concerning transactions between Russia-associated entities and entities with varying business lines, where the exact purpose of the payments was ambiguous.
   • One such example includes a UAE-based electronic products retailer, suspected of buying goods for Russian entities. This retailer conducted transactions with companies across multiple countries, such as Azerbaijan, the British Virgin Islands, Estonia, Kazakhstan, Kyrgyzstan, Russia, and Serbia. These companies spanned various unrelated business sectors.

These patterns and specific transactions underscore the intricate and often concealed strategies employed by entities to potentially circumvent Russia-related export controls.

FTA: https://www.fincen.gov/sites/default/files/shared/FTA_Russian_Export_Controls_FINAL_508.pdf