Washington, D.C. (March 7, 2023) – The U.S. government recently released the first-ever joint compliance note from the U.S. Departments of Commerce, Treasury, and Justice concerning "cracking down" on third-party intermediaries used to evade both U.S. Russia-related sanctions and export controls (the Note). Top officials at the U.S. Department of Justice (DOJ) have already stated that compliance with U.S. sanctions and export control laws and regulations is the "New FCPA [Foreign Corrupt Practices Act]" and the Note cements this rhetoric.
By including the DOJ in this joint advisory, the U.S. government is further signaling the placement of vast resources to prosecute entities and individuals who evade, or help evade, U.S. sanctions and export control laws. On March 2, 2023, at the American Bar Association National Institute on White Collar Crime, U.S. Deputy Attorney General Lisa Monaco stated that the DOJ is committed to address "the increasing intersection of corporate crime and national security" and announced that the DOJ will "add more than 25 new prosecutors who will investigate and prosecute sanctions evasion, export control violations and similar economic crimes."
What Businesses Need to Know
Given this heightened attention, businesses need to elevate their compliance programs to ensure that they fully consider the red flags noted by the government in the Note. By listing potential red flags, the U.S. government is telegraphing to the business world an affirmative obligation to monitor their transactions and detect and report potential evasion efforts by third parties. Entities that choose to ignore such red flags will do so at their own significant peril.
As detailed in the Note, an effective compliance program employs a risk-based approach to identify potentially problematic transactions, ensure timely voluntary disclosures, and minimize the risk of aiding sanction evasion efforts. The Note stresses that compliance programs should not be assumed necessary only for large financial institutions or companies, but are a must for a vast array of companies, including "manufacturers, distributors, resellers, and freight forwarders."
Common red flags listed in the Note include:
- The use of shell companies to conduct international wire transfers, often involving financial institutions in jurisdictions distinct from company registration;
- A customer's reluctance to share information about the end use of a product; and
- Transactions involving entities with little or no web presence.
The Note also stresses that entities review the civil actions brought by the Treasury Department's Office of Foreign Assets Control (OFAC) and the Commerce Department's Bureau of Industry and Security (BIS) as well as criminal cases prosecuted by the DOJ, including the October 2022 indictment of six Russian nationals and one Spanish national, who are alleged to have utilized shell companies to illegally export dual-use items to Russia and embargoed Venezuelan oil to Russian and Chinese end users.
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