BIS Recommends New Export Screening Steps

July 10, 2024 by Leave a comment

Today, the Department of Commerce’s Bureau of Industry and Security (BIS) has published new guidance reminding the export community about the dangers of divergence of goods to Russia.  This new BIS guidance outlines additional recommendations for screening transactions.

High Priority List (Including Aircraft Parts)

BIS has identified a list of 50 Common High Priority List (CHPL) items.  These are items that Russia has been procuring to support its weapons programs.  For this reason, these 50 items have been identified as special focus items for scrutiny to avoid divergence of shipments to Russia.  This list includes aircraft parts (particularly those subject to HTSUS 8807.30), bearings (particularly those subject to HTSUS Heading 8482) and certain instruments and appliances subject to HTSUS Heading 9014. Exporters should be sure to look at the full list to get an idea of the full scope of this CHPL list.

The CHPL list is meant to drive a heightened scrutiny of certain transactions, to ensure that they cannot be diverted to Russia.  BIS expects that exporters will ensure compliance for every export, but has asked for extra diligence in the scrutiny applied to transaction in the 50 CHPL articles.

Additional Screening Recommendations

BIS has recommended that for CHPL items, exporters screen the transaction parties against the Trade Integrity Project (TIP) website.

The TIP website includes a list of companies that have exported certain materials into Russia.  TIP was developed by the UK-based Open-Source Centre for monitoring trade with Russia. The TIP website specifically focuses on trade in CHPL items, and displays entities that have shipped CHPL items to Russia since 2023. It is based on publicly available trade data. TIP does not reflect all exports into Russia, and it may not include some companies that have exported aircraft parts into Russia.  The TIP website is meant to support export diligence investigations, but it should not be your only resource.

We have recommended Import Genius as another good resource for identifying companies that have exported goods to Russia; but we have also warned that this is also a starting point for scrutiny; we have heard about U.S. companies who are falsely listed as the source of goods by the actual exporters, so it is important to check out the data you find. Using Import Genius is NOT part of the latest BIS screening recommendation.

If you discover that the partner in question has been selling to Russia, then this may reflect a red flag that needs to be cleared before the transaction can be completed. For example, if you are selling to a distributor who is on the TIP list, but they ask you to drop ship the goods directly to a legal end user in a place like the UK (particularly if you get a signed end-use-statement from the end user validating the compliance elements), then this might be sufficient to clear a red flag that would otherwise casts a shadow over other transactions.

BIS Warning Letters

BIS is issuing two different types of letters to warn companies about their business partners who may be violating US export laws:

  • Red Flag Letters
  • Is Informed Letters

If BIS believes that one of your partners may have violated the export laws (such as by illegally diverting goods to Russia) then BIS may send you a “red flag” letter. A “red flag” letter informs you of the BIS suspicions, and imposes on your company an additional burden to clear the red flag before continuing to do business with the partner. A company that receives a “red flag” letter should conduct additional due diligence to resolve and overcome the red flag identified by BIS before filling an order from the identified partner.

BIS may inform you that a license is required for export, reexport or transfer of items to a specified end-user because BIS has determined that there is an unacceptable risk of diversion (e.g. because of a threat of diversion to a military end user in a restricted country). This is known as an “Is Informed” letter. When you receive this sort of communication, then you are typically required to comply with the restriction (if the communication is oral then it will usually be followed by a written communication within two days). In most cases, this means that you will need a license for the transaction, and it may cancel prior licenses. From an enforcement perspective, non-compliance with an “is informed letter” is treated the same as non-compliance with any other license requirement under the regulations and may be subject to penalties.

If you receive a “red flag” letter or an “is informed” letter than you should coordinate your actions with an export attorney.

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Exporters: New Additions to the “Unverified List”

February 8, 2022 by Leave a comment

If you’ve attended one of my export training classes in the past twenty years, then you’ve probably heard me talk about the “Unverified List.” It is a list of non-U.S. businesses that have special restrictions attached to their export transactions under U.S. law. You may still be able to export to them, but you are going to have to meet some additional requirements to complete the transaction.

The U.S. government added 33 new entries to the BIS Unverified List, today. The changes can be found in the Federal Register. All 33 of the additions to the list are located in China. Some may engage in aerospace business transactions.

The Unverified List is a list of companies that (1) the U.S. government has tried to “verify,” and has been unable to find or (2) the U.S. government has tried to validate the end use of a perviously received item and has been unable to verify that end use. The list may include businesses that are unable to be found because they may be shells with no physical existence (businesses without a physical location that expect to receive goods exported from the United States pose a higher threat of unwanted or illegal diversion) or businesses that pose a higher level threat of diversion because of their inability to answer end use questions.

For the unverified list countries, BIS does not have actual evidence of export non-compliance for these businesses – BIS simply has a higher degree of concern. There may be insufficient basis to add such businesses to the BIS entity list (which would typically prohibit exports to these targets without a license). Instead, they are added to the Unverified List and this reflects a “red flag.” This is meant to reflect a caution that must be cleared by the exporter before the export can be consummated.

You cannot use a license exception to ‘clear’ the red flag inherent in a listing on the Unverified List. 15 C.F.R. § 740.2(a)(17). Instead, you typically need to clear it through the use of a “UVL Statement.” 15 C.F.R. § 744.15(b). This statement will need to meet regulatory requirements and be signed by the unverified business.

Be careful about which version of the Unverified List you are using!! I went to the Unverified List published on the BIS website, today, and it was issued on July 12, 2021, so it does not include the newest additions to the unverified list. I also spot-checked a few of the businesses thorough the International Trade Administration’s consolidated screening list and the were not yet in the list (they are supposed to be there).

The new additions are effective immediately (that is, they are effective today) so they apply to all export transactions starting today!

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