Banks May Need More Infrastructure for New Export Compliance Role, Law Firm Says

Banks should consider investing in additional processes and technology to adhere to the Bureau of Industry and Security’s new export compliance guidance for financial institutions, Sheppard Mullin said in a blog post last week.

While financial institutions don't physically export products, the BIS guidance places them “at a pivotal point in the enforcement of export controls” on the grounds that every export has a related financial transaction, the law firm said. Financial firms “must now ensure they have the necessary systems in place to conduct both ongoing and real-time screening of transactions, a task that may require substantial investment in compliance infrastructure," the law firm’s Reid Whitten and Jordan Mallory said.

The guidance, released earlier this month, outlines the due diligence steps BIS expects financial institutions to take to avoid violating U.S. export control regulations (see 2410090027). Financial institutions should screen customers against restricted-party lists maintained by BIS and other U.S. agencies, and should monitor transactions for probable signs of export control evasion.

The expanded responsibilities outlined in the new guidance “create a new risk vector for many banks,” the post says. “Penalties for export violation can stack up where each item exported is considered a separate violation, and the knowledge standard of the [Export Administration Regulations] means that penalties can accrue before they are a blip on your radar -- only because they should have blipped on your radar."