On October 9, 2024, the Department of Commerce, Bureau of Industry and Security (BIS) issued new guidance to Financial Institutions on best practices for compliance with the export administration regulations (EAR).

The guidance offers foundational information regarding the EAR for financial institutions and offers suggested measures that financial institutions can adopt to reduce the risk of inadvertently violating the regulations, especially in consideration of recent regulatory developments aimed at curbing Russia's war against Ukraine. These suggestions encompass best practices for EAR compliance and due-diligence, the importance of conducting continuous reviews of transactions for potential red flags, and clarifications on which real-time transaction screenings are deemed appropriate or inappropriate. The guidance is consistent with prior joint notices issued by BIS and the Department of the Treasury, Financial Crimes Enforcement Network (FinCEN).  Importantly, FinCEN expects financial institutions to submit reports of suspicious activity that may violate the EAR. 

The focus of this guidance is on General Prohibition 10 (GP 10), which forbids financial institutions and other entities from financing or servicing any item subject to the EAR if they are aware that a violation has occurred, will occur imminently, or is intended to occur in the future. BIS acknowledges that exporters, more so than financial institutions, will have the knowledge and awareness of when an item is subject to the EAR. Nevertheless, financial institutions must take immediate action to ensure their policies are in line with this guidance. 

To mitigate the risks of breaching GP 10, the guidance specifies several best practices for financial institutions to consider, including: screening customers upon onboarding and again against the U.S. Consolidated Screening List; advising that customers dealing with EAR-regulated items affirm their compliance under specific conditions; and implementing risk-based protocols to identify and investigate red flags after transactions, taking necessary steps to avert EAR violations before engaging in future transactions with the same customers or counterparties.

Further, the guidance emphasizes that financial institutions should thoroughly examine their clients (and, when relevant, their clients' clients) against lists of entities that have sent items to Russia since 2023, while assessing for any additional red flags.

This guidance enhances BIS's ongoing initiatives to inform the industry and bolster the overall security and integrity of the global trade landscape. BIS, in collaboration with the Departments of the Treasury, Justice, and others, has previously issued various joint alerts, advisories, and notices addressing issues from Russian evasion strategies to voluntary self-disclosure procedures in an effort to protect sensitive US technologies from falling into the wrong hands.