Banks under more scrutiny in new US advisory on Xinjiang
23 Jul 2021

The US government has signalled extra scrutiny banks over supply chains that include forced labour in the Chinese province of Xinjiang.

An updated business advisory published by several US government departments on July 13 dedicates much greater attention to the role of banks and other financial institutions compared to the first such advisory, published a year ago.

The Biden administration has stepped up pressure on China over its alleged abuses in Xinjiang, where it is accused of subjecting the mainly Muslim Uyghur minority and other ethnic groups to a campaign of genocide. China denies the claims.

Intense scrutiny has been placed on supply chains which pass through Xinjiang or use Uyghur labour, particularly in the textiles, cotton and solar industries.

The updated document reminds banks that they are obliged by the Bank Secrecy Act (BSA) to include in suspicious activity reports (SARs) “all relevant [indications] of human trafficking identified in financial transactions or series of transactions or through other appropriate methods”.

“If financial institutions lack sufficient controls, criminal actors can benefit from ready access to financial services to advance, and profit from, their enterprises,” the advisory warns.

The advisory also says any entities doing business “with or through” a US bank should communicate with their counterparties, partners and subsidiaries to understand how US compliance expectations on Xinjiang could affect them.

There have been scant cases of enforcement efforts in the US against banks over modern slavery or human trafficking in Chinese supply chains, with the spotlight focusing mainly on major brands or importers with supply chains in China.

But there are growing signals from the government that that could change, according to Betsy Popken and Matthew Moses, human rights and white collar attorneys respectively at law firm Orrick.

“There are clear indications from government regulators, agencies and representatives that there will be increased scrutiny and enforcement related to the issue of forced Uyghur labour in Xinjiang, among other forced labour and human trafficking concerns,” the lawyers tell GTR in response to emailed questions.

“Banks and financial institutions should therefore expect increased attention to the application of the BSA to this issue.”

The advisory follows two pieces of guidance from the Financial Crimes Enforcement Network, the US financial crime regulator, in 2014 and 2020, . That guidance looks at risks of forced labour globally, rather than singling out China.

The role of banks

The new advisory, which was issued by the departments of Treasury, State, Commerce, Homeland Security, Labour and the US Trade Representative, says “financial institutions play a critical role in identifying transactions associated with human trafficking at the transactional or teller level”.

The advisory includes a “non-exhaustive” list of industries in which Xinjiang forced labour has been identified. In addition to garments and solar, it includes agriculture, mobile phones, silicon, sugar, processed food, electronics, toys and noodles.

While banks play an important part in unearthing and passing on intelligence – through SARs – about potential misdeeds, “there is a legitimate question to ask if financial institutions are best placed to do this, especially if they are not providing financing”, according to Lakshmi Kumar, policy director at Global Financial Integrity, a Washington DC think tank.

By Jacob Atkins, Global Trade Review, 22 July 2021

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