Concerned with diversion of controlled goods and technology to Russia, the Commerce Department’s Bureau of Industry and Security (BIS) recently issued due diligence guidance for exporters. BIS has imposed a number of export restrictions limiting U.S. trade with Russia’s defense and energy sectors in response to the ongoing situation in Crimea, and the new guidance is intended to help prevent attempts by front companies and other intermediaries to circumvent these prohibitions.
Although exporters should always be vigilant for “red flags,” BIS’s guidance provides several helpful reminders and tips. For example, when a freight forwarder or other company that clearly is not going to be using the exported item is identified as the final consignee for an item, the exporter has a duty to probe for information about the item’s actual end-use, end-user, and ultimate destination. This may include reviewing the email address, telephone country codes, language(s) used in communications with the customer, and the customer’s website; and conducting research on the parties to the transaction using business registers, company profiles, websites, and other sources.
In addition to ensuring that no U.S. denied/sanctioned parties are involved in the proposed transaction, exporters should be particularly alert to inconsistencies between the country of destination for the export and the country where the order originated or payment was made. Additionally, exporters should have an awareness and understanding of the countries a freight forwarder typically serves and the industry sectors distributors and other middlemen customers supply.
The most likely transactions to raise Russia diversion concerns are those involving items controlled by the Export Administration Regulations (EAR) for National Security (NS) reasons and items subject to a military end-user/military end-user license requirement. If after conducting thorough due diligence an exporter still has concerns regarding the proposed export, the exporter should apply for a license from BIS or simply refrain from engaging in the transaction.