BIS Issues Guidance on Due Diligence to Prevent Unauthorized Transshipment to Russia

Since the Bureau of Industry and Security (“BIS”) – as well as the Office of Foreign Assets Control (“OFAC”) – began imposing restrictions on Russia in response to the situation in Crimea, U.S. exporters have wrestled with what those restrictions mean for their businesses and how to comply with them.  In March 2014, BIS announced that it was placing an indefinite hold on the processing of license applications to Russia.  Following this, BIS imposed additional restrictions on exports to certain industry sectors in Russia, as well as additional end use and end user restrictions.  For instance, BIS imposed restrictions on the export of certain items destined for Russian deep water, Arctic offshore, or shale energy exploration or production in August 2014.  In September 2014, BIS imposed restrictions on exporting specified items if they will be used by a military end user or for a military end use. Then in December 2014, BIS added certain microprocessors to the military end user and end use restrictions.

The restrictions on exports to Russia do not only affect U.S. businesses that have dealings with Russia.  They also increase the risk that other parties to an export transaction may seek to illegally divert goods to Russia.

BIS recently published guidance on its website to help exporters conduct due diligence to prevent such unauthorized diversions or transshipments to Russia.  Exporters with sophisticated compliance programs will likely notice that the guidance itself is familiar: it largely references existing BIS guidance on red flags and knowing one’s customer (see also EAR Part 732, Supp. 3).  For instance, BIS reiterates its admonition concerning the “red flag” that an exported item will not be used for its intended purpose or by its intended recipient.  It advises researching all parties to a transaction with a watchful eye for indications of planned diversion.  This includes researching freight forwarders and distributors to understand which countries and industries they service.  The new guidance also points readers to the consolidated export screening list as well as the list-based and end-user and end-use based controls that may apply to Russia.

The familiar substance of this “new” guidance does not so much suggest that BIS believed additional guidance was necessary.  Rather, it suggests that BIS believes exporters could be doing more to prevent unlawful diversion of items – explicitly including those items controlled for national security (NS) reasons – to Russia.  While it provides information that should aid exporters in compliance, it also suggests an increased likelihood of enforcement action against companies who neglect to conduct appropriate due diligence and whose exports wind up in Russia. Finally, it serves as a reminder that even (and, perhaps, particularly) exporters who believe they do not conduct business in Russia should carefully examine their end user and end use due diligence processes to ensure that their shipments arrive at the intended destination.

Jason Silverman

About Jason Silverman

Jason Silverman is a member of Dentons' Federal Regulatory and Compliance practice. He helps clients navigate risks and achieve their objectives while confronting issues, with a particular focus on government investigations, export controls, trade and economic sanctions, white collar criminal defense and litigation under the False Claims Act.

Full bio