BIS Urges Heightened Due Diligence for Certain Exports to Prevent Diversion to Russia
The United States, as a member of the Export Enforcement Five ("E5") group, has been working to strengthen its sanctions and export controls program as it relates to Russia's war in Ukraine. This week, the Bureau of Industry and Security ("BIS"), in conjunction with the other E5 countries (Australia, Canada, New Zealand, and the United Kingdom), issued guidance urging additional due diligence for exporters of certain restricted products to countries outside of the Global Export Control Coalition ("GECC"). The GECC includes 39 countries (the E5, the 27 member states of the European Union, Iceland, Liechtenstein, Norway, Switzerland, Korea, Taiwan, and Japan) that have implemented similar export controls on Russia.
This guidance does not create additional restrictions or licensing requirements for exports to Russia. It instead focuses on encouraging heightened due diligence on the part of exporters of certain critical items that could be diverted to Russia or Russian interests. To eliminate the risk of diversion, the E5 guidance encourages companies to conduct additional due diligence for listed HS codes when exported to a non-GECC country. The relevant HS codes — divided into a four-tier list and subject to updates "when required" — are targeted as being critical to Russia's weapons systems. The first two tiers are categorized as "particularly sensitive:"
- Tier 1: Integrated circuits (also referred to
- HS codes:31, 8542.32, 8542.33, 8542.39
- Tier 2: Electronics items related to wireless
communication, satellite-based radio navigation, and passive
- HS codes: 8517.62, 8526.91, 8532.21, 8532.24, 8548.00
- Tier 3: This tier is divided into electronic
items (such as coaxial connectors) and non-electronic items
(including ball bearings) to provide greater clarity to the
different industries that may work with these items.
- HS codes: 8471.50, 8504.40, 8517.69, 8525.89, 8529.10, 8529.90, 8536.69, 8536.90, 8541.10, 8541.21, 8541.29, 8541.30, 8541.49, 8541.51, 8541.59, 8541.60, 8482.10, 8482.20, 8482.30, 8482.50, 8807.30, 9013.10, 9013.80, 9014.20, 9014.80
- Tier 4: Manufacturing, production and quality
testing equipment of electric components and circuits.
- HS codes: 8471.80, 8486.10, 8486.20, 8486.40, 8534.00, 8543.20, 9027.50, 9030.20, 9030.32, 9030.39, 9030.82
The E5 guidance encourages additional due diligence to ensure end-user legitimacy and to mitigate evasion attempts. As part of this guidance, the E5 has highlighted three specific diversion patterns for importers of certain restricted products in non-GECC countries:
- Companies that have not received exports prior to February 24, 2022;
- Companies that did not receive exports of the tier one and tier two listed HS codes prior to February 24, 2022; and
- Companies that did receive exports of the tier one and tier two listed HS codes prior to February 24, 2022, but saw a significant spike in exports thereafter.
When opening new customer accounts, exporters are urged to evaluate the customer's date of incorporation, the end-user and end-use of the item, and whether the customer's physical location and public-facing website raise any red flags. For existing customers, exporters are urged to evaluate whether the customer is requesting any anomalous increase in volume or value of orders for these products.
The guidance includes a non-exhaustive list of red flags that exporters should be aware of, including:
- An existing customer who did not receive exports associated with the tier one or two HS codes prior to February 24, 2022, and is now exporting or re-exporting such items to known transshipment points.
- A customer who lacks or refuses to provide details on banks, shippers, or third parties, including about end-users, intended end-use, or company ownership.
- Transactions involving smaller-volume payments, all from the same end-user's foreign bank account, to multiple, similar suppliers of dual-use products.
- Parties to transactions listed as ultimate consignees who do not typically engage in business consistent with consuming or otherwise using the subject commodities.
- A customer that significantly overpays for a commodity, as determined by known market prices.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.