Implementing a Risk-Based Approach to Trade Finance: A Joint Alert from FinCEN and BIS

Introduction

In a joint alert, the Financial Crimes Enforcement Network (FinCEN) and the Bureau of Industry and Security (BIS) have emphasized the importance of financial institutions implementing a risk-based approach to trade finance in order to detect and prevent export control evasion.

Red Flag Indicators

The alert highlights several red flag indicators that may indicate illicit or suspicious activity related to export controls, including:

• Transactions involving payments for defense or dual-use products from companies incorporated after February 24, 2022, and based in non-Generalized System of Preferences (GSP) countries
• Customers with unclear or changing business activities
• Lack of transparency regarding end-users and intended end-use
• Unusual payment patterns

Additional Red Flag Indicators from BSA Reporting

The alert also provides a list of potential red flag indicators derived from recent Bank Secrecy Act (BSA) reporting that may be relevant to financial institutions. These indicators should be read in conjunction with those set out in the 2022 Alert and considered in conjunction with conducting appropriate risk-based customer and transactional due diligence.

Proactive Approach Required

“Financial institutions must take a proactive approach to identifying and mitigating risks associated with trade finance,” said FinCEN Director Kenneth A. Blanco. “By implementing a risk-based approach, financial institutions can help prevent export control evasion and protect the integrity of the global financial system.”

Considering All Facts and Circumstances

The alert emphasizes that no single red flag is necessarily indicative of illicit or suspicious activity, and all surrounding facts and circumstances should be considered before determining whether a specific transaction is suspicious or associated with potential export control evasion.

Reviewing Policies and Procedures

Financial institutions are encouraged to review their current policies and procedures for trade finance transactions and consider implementing additional measures to detect and prevent export control evasion.