U.S., EU and other sanctions and export control regimes continue to target the Russian defense and energy sectors, restricting access to both military and dual use items. This creates demand pressure on the Russia side and as a result potential added compliance risk for exporters. Companies often ask “what are we expected to do try and prevent our exports from going inadvertently to prohibited end users and end uses?”

On May 18, 2015, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) released guidance on due diligence practices for exporters to prevent unauthorized exports to Russia, amidst express concerns of front companies and intermediaries making transshipments to Russia in violation of the Export Administration Regulations (“EAR”).  In particular, the guidance focuses on exports of (a) National Security or “NS”-controlled items and (b) military end-use or end-user controlled items–which both require a license for Russia–to countries with less restrictive licensing requirements.

Duty to Inquire on End-Use

The guidance reiterates EAR Part 732’s requirements regarding exporters and red flags. Absent red flags, exporters generally can rely on the end-use representations of the customer; but when there are red flags, such as where “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,” exporters have an “affirmative duty” to inquire about the end use, end user, and ultimate destination of the item to ensure the transaction is EAR-compliant.

Due Diligence Factors to Consider

BIS recommends the following actions to consider when inquiring into the ultimate destination of the item:

  • Consider e-mail address and telephone number country codes and languages used in communications from customers or on a customer’s website;
  • Research the intermediate and ultimate consignees and purchaser, as well as their addresses, using business registers, company profiles, websites, and other resources;
  • Pay attention to the countries a freight forwarder advertises that it serves, as well as the industry sectors a distributor or other non-end user customer supplies (e.g. is Russia a focus?);
  • Determine whether a license is required based on the likely country of ultimate destination and end use and end user, considering the Country Chart, end use and end user controls, and embargoes and special controls.

Note that Russian-bound transshipments could be diverted through almost any country.  Further, these same lessons apply for other high-risk countries and regions. Exporters are reminded to take steps to know their customer, wherever they ship.