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Export Due Diligence Measures Highlighted in BIS Guidance

Monday, September 09, 2019
Sandler, Travis & Rosenberg Trade Report

A new guidance document from the Bureau of Industry and Security designed to counter schemes to ship controlled items to nuclear- or missile-related activities in Pakistan highlights the due diligence measures that should be taken for all exports of goods subject to the Export Administration Regulations, particularly those destined for higher-risk destinations.

For more information on export compliance issues, please contact attorney Kristine Pirnia.

Both U.S. and non-U.S. persons, including individuals, entities, and corporations, engaged in exports, reexports, and transfers (in-country) subject to the EAR must determine whether a license is required prior to proceeding with such transactions. In addition to Commerce Control List-based licensing requirements determined by the export control classification number of the product and its destination, exporters should review parts 744 (Control Policy: End-User and End-Use Based) and 746 (Embargoes and Other Special Controls) of the EAR.

The supplemental licensing requirements found in Part 744 may apply to items designated as EAR99 (i.e., subject to the EAR but not listed on the CCL) as well as CCL items not otherwise subject to a license requirement based on the country of destination. Exporters must also follow the “Know Your Customer” guidance in Supplement No. 3 to Part 732.

To ensure compliance with these provisions of the EAR, BIS encourages exporters, reexporters, and transferors (in-country) of items subject to the EAR to conduct the following due diligence measures to identify and resolve red flags.

- Thoroughly research any new or unfamiliar customers, with additional scrutiny prompted by the following fact patterns: (a) a new customer places an unexpected and/or high-value order for sophisticated equipment, (b) the customer is a reseller or distributor, (c) the customer has no website or social media and is not listed in online business directories, (d) the customer’s address is similar to that of an entity on the Consolidated Screening List or indicates that the customer is located close to end-users of concern, and (e) the customer places an order ex works and makes all shipping arrangements through a freight forwarding service.

- Thoroughly assess the product’s potential dual-use applications when there are red flags indicating a potential concern about a customer or the customer’s legitimacy and reliability cannot be confirmed. For example, items that are EAR99 or are controlled only for anti-terrorism reasons that have been sought by nuclear- or missile (including UAV)-related entities include certain connectors, electromechanical relays, gas measurement equipment, GPS systems, power supplies, and vacuum pumps.

- Thoroughly screen all exports against the CSL, including the Entity List, with the understanding that automated screening may not be sufficient and manual review may be necessary.

- File true, accurate, and complete electronic export information, noting that for exports made under the terms of a letter of credit the parties may be inadvertently misrepresented on EEI filings due to differences between commercial document requirements and EEI requirements.

BIS states that if an exporter is unable to resolve any red flags identified in a prospective export, reexport, or transfer (in-country) it should refrain from participating in the transaction, submit a license application, or request an advisory opinion from BIS.

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