High risk of violating US law for banks and others that fail to exit Xinjiang supply chains, ventures and investments

Financial institutions, businesses and individuals that do not exit supply chains, ventures and investments connected to the Chinese province of Xinjiang could run a high risk of violating US law according to an updated business advisory published by several US government departments.

Banks come under much more pressure in this updated version compared with the original advisory. The advisories respond to what the US describes as the use of forced labour in the Chinese province as well as the Chinese government’s role in genocide and crimes against humanity in Xinjiang.

Goods linked to violations

Raw and refined materials, commodities, intermediate goods, by-products, and recycled materials may all have connections to forced labour and human rights violations in Xinjiang, regardless of the final product and region of origin or export according to the new advisory.

The department of labour maintains a full list of goods and their source countries which it has reason to believe are produced by child labour or forced labour in violation of international standards

Non-US entities liable

The latest advisory contains a section that specifically contemplates due diligence related to banking, financial institutions and other investors. This section applies not just to US entities but all entities with ties to the US financial system.

All such entities are required to comply with a range of anti-money laundering, countering financing of terrorism, and countering proliferation financing related requirements under the Bank Secrecy Act (BSA).

Financial institution penalties

In complying with these requirements, financial institutions are expected to take a risk-based approach to identify, assess, and mitigate the money laundering and terrorist financing risks to which they are exposed and take measures commensurate with those risks in order to mitigate them effectively.

Financial institutions may face civil enforcement penalties as well as potential criminal penalties if they wilfully fail to comply with their BSA obligations, including reporting of suspicious activity.

Financial institutions are also subject to criminal, sanctions, customs, and other laws and may be subject to criminal prosecution and civil, criminal or both types of enforcement actions depending on the specific facts and circumstances.

The Xinjiang Supply Chain Business Advisory issued by several US government departments can be found here.


Categories: Trade Based Financial crimes News

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