On May 18, 2015, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) issued additional guidance on due diligence measures that U.S. exporters should take to prevent unauthorized exports to Russia of items (i.e., goods, software, technology) subject to the Export Administration Regulations, 15 C.F.R. Part 730 et seq. (“EAR”). This Russia-focused guidance supplements existing “Know Your Customer” guidance found in the EAR. In connection with the crisis in the Ukraine that began in 2014, BIS imposed additional licensing requirements on exports and reexports to Russia’s energy and defense sectors and to Crimea. In particular, BIS imposed export and reexport licensing requirements on (1) certain transactions involving Russian deep water, Arctic offshore, and shale energy exploration or production projects when they involve specified items (EAR §746.5) or Entity List parties (EAR §744.10); (2) certain items intended for military end-uses or end-users in Russia (EAR §744.21); and (3) any item destined to Crimea except for EAR99 food or medicine (EAR §746.6). In its guidance, BIS expressed concerns about efforts to circumvent these licensing requirements through the involvement of front companies and other intermediaries, particularly with respect to items controlled for National Security (NS) reasons or listed in Supplement No. 2 to EAR Part 744 (which lists items that are subject to the military end-use/end-user license requirement). Building on the “Know Your Customer” guidance currently found in Supplement No. 3 to EAR Part 732, BIS has provided the following guidance on due diligence measures that exporters should take to address these compliance risks: 1. Exporters have an affirmative duty to inquire as to the actual end-use, end-user, and destination of an item when the export’s final destination is a party who is not the end-user (e.g., a freight forwarder); 2. Exporters should engage in the following due diligence measures, including addressing “red flags” and other potentially relevant information identified by BIS:
- Pay attention to any information indicating that an unlawful diversion is planned, including discrepancies between the destination country and the country of order or payment;
- Inquire as to an item’s ultimate destination, including considering a customer’s e-mail address, telephone number country code, or languages used;
- Research information on the intermediate consignees, ultimate consignees, and purchasers from business registers, company profiles, websites, or other resources;
- Screen customers against the U.S. Government’s consolidated export screening lists, which may be done through an interactive online tool;
- Pay attention to countries served by freight forwarders and industries served by distributors or other customers; and
- Consider whether a license is required for a transaction’s likely destination and its likely end-use/end-user.
3. If an exporter has doubts or concerns surrounding the intended end-use, end-user, or destination after exercising due diligence, BIS advises that the exporter should refrain from engaging in the transaction or submit a license application to BIS with all relevant information. In seeking to comply with the EAR’s Russia-specific restrictions, which focus primarily on the end-use and end-user of particular items, some exporters have encountered difficulties in confirming the intended end-use and end-user and determining the appropriate level of due diligence they should perform. In addition, U.S. exporters have had shipments to Russia delayed or held by U.S. Customs and Border Protection, pending resolution of concerns about restricted end-uses or end-users. The new guidance describes due diligence measures that BIS expects exporters to perform to prevent unauthorized exports to Russia. Although it is focused on potential unauthorized exports to Russia, these due diligence expectations would presumably be applicable in addressing end-use or end-user concerns more generally in the context of exports or reexports subject to the EAR.