The US commerce department’s Bureau of Industry and Security (BIS) has issued new guidance to financial institutions (FIs) on best practices to ensure compliance with the Export Administration Regulations (EAR).

The new guidance, which the BIS says is prompted by Washington’s concerns over the military strength of both Russia and China, suggests that the consequences for FI’s that do not follow the new guidance could be severe, potentially leading to civil or criminal actions, financial penalties and even imprisonment.

Russia and China

While EAR compliance has traditionally been of greatest concern to exporters, FIs’ responsibilities under the EAR have increased significantly following Russia’s military action in Ukraine since 2022.

FI’s obligations have also been increased by Washington’s enhanced national security and foreign policy imperative to restrict China’s military modernisation efforts and alleged human rights violations.

Civil and criminal penalties

The consequences for an FI found to be violating the EARs could be severe. FIs face significant civil fines while multiple violations could lead to substantial cumulative fines.

In more serious cases, wilful violations of EAR could result in criminal charges. Criminal penalties can include fines up to US$1 million per violation for organisations and imprisonment for individuals involved, with sentences up to 20 years.

Loss of export privileges:

An FI violating the regulations could be denied export privileges, which would severely restrict or prohibit the institution from engaging in any export-related activities, including financing or processing export-related transactions.

Violations of export regulations, particularly in cases involving international trade and national security concerns, could also lead to significant reputational harm for an FI.

Increased scrutiny

FIs in violation of the regulations may also face increased scrutiny from US government agencies, such as the BIS. This could lead to more frequent audits, higher compliance costs, and stricter oversight of export-related activities.

To avoid these consequences, the BIS says FIs should maintain robust export control compliance programmes, including due diligence on clients and transactions, staff training on export laws, and adherence to reporting and record-keeping requirements.

The BIS’s New Guidance to Financial Institutions on Best Practices for Compliance with the Export Administration Regulations can be found here.