Treasury, Commerce Alert Will Force Banks to Increase Russia Diligence, Experts Say

A June joint alert by the Treasury and Commerce departments could signal new government expectations for banking industry sanctions compliance, experts with FTI Consulting said. The alert, which put companies and entities “on notice” about the types of red flags they should be monitoring for potential Russia sanctions and export control evasion tactics (see 2206280056, and 2207130014), may also force some financial institutions to reinforce their compliance and due-diligence processes, they said.

Because of the alert, “financial institutions at a minimum are going to need to increase their due-diligence for transactions relative to Belarus and Russia,” Thomas Andrukonis, a managing director with FTI Consulting, said during an Oct. 6 webinar hosted by the Association of Certified Sanctions Specialists.

Andrukonis said increased compliance expectations could specifically “present some unique challenges” for non-U.S. financial institutions or banks that have customers who deal with export-controlled items. “First, determining if something is subject to the Export Administration Regulations itself is not something that is just easily identifiable,” he said, adding that the information is often in bills of lading or other trade documents that aren't always in the bank’s possession.

He also said non-U.S. banks must also monitor export control regulations outside the U.S., especially because so many other countries have imposed similar sanctions against Russia. Andrukonis said banks should pay close attention to any transactions involving the 16 “commodities of concern” listed in the joint alert, which include sonar systems, GPS devices and integrated circuits. “These 16 items clearly aren't the entire gambit of items," Andrukonis said, but they are items that "you really ought to be screening. So I think it's something to be wary of.”

Eric Rudolph, also with FTI Consulting, said the alert will also have a “large impact" on customers of banks, including exporters. He said exporters can expect an “increased” amount of "questions and concerns" from banks, even if a transaction doesn't involve Russia.

“The relationships with a bank are among the most critical -- if not the most critical -- relationships a company can have,” Rudolph said. “And so you may not even know about an issue or think it's important, but if your bank becomes concerned about it and comes to you and tells you they’re concerned about it, you're now concerned about it, and you will do what you need to do to give the bank that comfort it needs.”

Banks should make sure they’re conducting a “risk assessment” to determine if any of their customers are involved with the technologies referenced in the alert, said Gabriel Hidalgo of FTI Consulting. But he also stressed that there is no exact compliance blueprint to follow. “I think the No. 1 thing everyone needs to remember: There is no perfect solution,” he said. The Treasury and Commerce departments want to see “reasonable attempts” to “take into account the guidance and to be able to implement that within your current processes.”