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Financial Institutions at the Crossroads of National Security and Compliance

This article is the second in a series examining how export controls and financial crime compliance frameworks are converging because of an evolving regulatory landscape. Throughout the series, the authors will provide practical insights for financial institutions now facing additional obligations as a result of overlapping compliance domains.

The export control compliance landscape is shifting for financial institutions. While it was once viewed as primarily the responsibility of the exporter to identify and prevent diversions and the unauthorized rerouting of controlled goods or services, alerts from the Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) underscore the increasing expectations of financial institutions to detect and prevent export-related fraud and money laundering.

These increasing expectations highlight a broader convergence between financial crime compliance and national security objectives. The changing geopolitical landscape has created a shift in focus from law enforcement to protecting national security. With this comes the expectation that financial institutions will develop better due diligence and monitoring capabilities to identify potential export controls and sanctions and tariff evasion and diversion concerns.

As the U.S. government looks to close opportunities for foreign adversaries to obtain both physical goods and know-how in critical areas, it is increasingly calling for support from non-traditional gatekeepers and expanding the tools available to them to do so. For example, the U.S. Department of the Treasury’s Outbound Investment Rule, which went into effect in January 2025, and was codified at the end of 2025 through the COINS Act. The Outbound Investment Rule prohibits investment, or requires notification of investments in certain companies that manufacture “sensitive or advanced technology” critical to the military or intelligence capabilities of “countries of concern” that may exploit them.¹ Certain debt financing could trigger obligations under the COINS Act and financial institutions are expected to implement “reasonable and diligent transactional due diligence and compliance process[es]” to comply.² As FinCEN and BIS continue collaborating, the financial services industry will be required to focus more on national security priorities in their anti-financial crimes and AML frameworks.

National Security Compliance Challenges

Recognizing the increased national security focus from regulators, financial institutions should implement a corresponding strategic and proportionate response. FinCEN’s Suspicious Activity Report (“SAR”) filing requirements can generate valuable national security intelligence by detecting suspicious behaviors and patterns, potentially unveiling hidden networks, evasion attempts, and cross-border risks that otherwise may slip under the radar.

Several practical challenges, however, can make it difficult for financial institutions to achieve compliance. For example, money managers overseeing large index funds may lack full insight into the composition of each fund, including potential holdings of prohibited companies, making it challenging to monitor for violations. Financial institutions should assess their risk in this area and address identified gaps. Money managers may have to enhance their screening capabilities and take steps to invest in funds which have controls to comply with the Rule.

The convergence of sanctions, export controls, and anti-money laundering as tools in the national security toolkit is particularly relevant to trade finance. Financial institutions’ trade finance offices facilitate trade financing while navigating complex sanctions compliance. These offices now face heightened export control risks as sophisticated diversion networks increasing exploit traditional trade finance products, such as letters of credit, to facilitate illicit transactions. Trade finance compliance teams often rely on manual review processes, lack complete end-use and end-user data, and lack expertise in dual-use goods to identify problematic transactions. New U.S. sanctions programs that designate certain Mexican drug cartels as Foreign Terrorist Organizations (“FTOs”) raise the stakes and complexity for financial institutions that engage in cross-border financing between the United States and Mexico. Complying with cartel FTO programs will require trade finance teams to collaborate closely with sanctions and AML teams to integrate sanctions/export controls screening lists, ownership intelligence, letters of credit acceptance criteria, transaction monitoring, and trade-based money laundering scenarios to adapt to cartel-related business risks.

As financial institutions face elevated national security scrutiny, companies seeking trade finance should expect increased due diligence from their lenders. Companies that have complex global supply chains and engage in cross-border transactions in high-risk regions should be prepared to provide transaction data that lenders require to ensure they are not directly or indirectly facilitating export controls violations.

As imperative as increased scrutiny under a national security lens may be, enhanced reviews from financial partners may delay transactions, increase documentation requirements, or result in relationship termination if suspicious activity is discovered, making it more challenging to navigate banking relationships. Additionally, legitimate international businesses may be interrupted by delays and increased costs as the result of financial institutions implementing stringent controls into existing agreements.

The result is that companies must now satisfy both direct export control requirements and the heightened national security related due diligence expectations of their banking partners.

What’s Next

In addition to being a focus of regulatory bodies, national security considerations go beyond compliance to a matter of corporate citizenship and responsibility. With risk factors and compliance challenges expanding across the industry, financial institutions should expect further regulatory alignment and coordination as the connection between international trade, financial systems, and national security interests become increasingly interconnected.

To stay ahead of increasing regulatory demands, financial institutions should start building an integrated compliance framework now that holistically includes sanctions, export controls, and national security related concerns. This topic will be explored in more detail in part three of the series.

Footnotes:

1: U.S. Department of the Treasury, “Outbound Investment Security Program,” (accessed February 20, 2026).

2: U.S. Department of the Treasury, “Additional Information on Final Regulations Implementing Outbound Investment Executive Order (E.O. 14105),” (accessed February 20, 2026).