BIS Issues Guidance on Due Diligence to Prevent Unauthorized Transshipment and Reexport of Export Controlled Items to Russia.
By Doug Jacobson and Michael Burton, Jacobson Burton PLLC
Today the Bureau of Industry and Security (BIS) published guidance to exporters on the type of due diligence that should be undertaken by companies to prevent the unauthorized transshipment and reexport of export controlled items to Russia that are subject to the Export Administration Regulations (EAR).
As a preamble to its guidance, BIS noted that it:
remains concerned about efforts by front companies and other intermediaries, who are not the true final end users, to transship or reexport U.S.-origin items to the Russian Federation in violation of these measures and other export controls. Even prior to the imposition of restrictions based on the situation in Crimea, front companies and other intermediaries obtained U.S.-origin items that may require a license to Russia through intermediate countries subject to a more favorable licensing policy under the Export Administration Regulations (EAR). A salient example is Wassenaar Arrangement dual-use items controlled under the EAR for National Security (NS) reasons.The following is an annotated summary of the BIS Russia guidance. Note that much of the guidance is not Russia specific, but is applicable to exports and reexport transactions involving sanctioned or restricted countries:
- As described in Supplement No. 3 to Part 732 of the EAR [which includes BIS's "know your customer" and red flags guidance], whenever a person who is clearly not going to be using the item for its intended end use (e.g., a freight forwarder) is listed as an export item’s final destination, the exporter has an affirmative duty to inquire about the end use, end user, and ultimate destination of the item to ensure the transaction complies with the EAR.
- Exporters should pay attention to any information that may indicate an unlawful diversion is planned. This may include discrepancies in the destination country and the country from which an order is placed or payment is made.
- When inquiring into the ultimate destination of the item, an exporter should consider e-mail address and telephone number country codes and languages used in communications from customers or on a customer’s website. The exporter should also research the intermediate and ultimate consignees and purchaser, as well as their addresses, using business registers, company profiles, websites, and other resources.
- Exporters should always screen their customers against the U.S. Government’s restricted party lists. [BIS suggests using the consolidated export screening list available at export.gov/ecr/eg_main_023148.aspexport.gov/ecr/eg_main_023148.asp or at http://internationaltradeadministration.github.io/explorer/#/consolidated-screening-list-entries, however, companies screening numerous transactions may want to consider commercial software screening providers that utilize screening algorithms and include audit trails].
- Exporters should pay attention to the countries a freight forwarder serves, as well as the industry sectors a distributor or other non-end user customer supplies. The exporter should then determine whether a license is required based on the likely country of ultimate destination and end use and end user.
- Exporters should consider not only the list-based license requirements specified in Supplement No. 1 to Part 738 of the EAR (the Commerce Country Chart) in conjunction with item’s classification specified in Supplement No. 1 to Part 774 of the EAR (the Commerce Control List), but also the end use and end user controls in Part 744 and the embargoes and special controls in Part 746.
- If the exporter continues to have any doubts or concerns surrounding the end use, end user, or country of ultimate destination after exercising due diligence, the exporter should present all relevant information to BIS in the form of a license application or refrain from the transaction.