Export Enforcement is Earning High Level Attention

September 24, 2024 by Leave a comment

The G7 is taking an interest in export enforcement, and this could affect everyone in aviation.

The G7 has announced new cooperation and new guidance for the world’s exporting community. The G7 is comprised of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union also participates in the Group.

The G7 Sub-Working Group on Export Control Enforcement met today (September 24) and published new guidance on the prevention of diversion of high priority goods to Russia. Russia is a particular focus of this group partly because of the Ukrainian invasion, but also partly because of the significant efforts that Russia has made to circumvent sanctions.

The identified high priority goods included aircraft parts (Tariff Code 8807.30), avionics (Tariff Code 9014.20) and other navigational instruments and appliance (Tariff Code 9014.80). Thus, this reaffirms that aviation is a high priority target for diversion and it is also a high priority target for government enforcement.

The newest G7 guidance includes a list of red flags that should cause additional scrutiny if they arise in your transactions:

  • Sudden changes in business activity after 24 February 2022, or after subsequent changes in export controls/sanctions
  • False, inaccurate, or missing documentation
  • Concealing the end user (remember, there is a U.S. legal obligation to show end use compliance when exporting aircraft parts intended for installation on foreign aircraft (15 C.F.R. § 744.7))
  • Inconsistencies in the transaction
  • Vague details and/or incomplete information
  • Dividing an invoice value into smaller amounts to remain under value limits of sanctioned goods or export controls
  • Suspicious customer information
  • Customer has connections of concern
  • Concerning business practices
  • Last-minute changes to parties involved with the transaction from an entity in Russia or Belarus to an entity in another country
  • Payments from entities located in third countries that are not otherwise involved with the transactions, particularly through a sanctioned country
  • Customer unwilling to provide certification that it will not sell items to Russia or sanctioned parties in third countries

There are examples in the G7 document for each of these bullets so be sure to click through and look at the full list of red flags and examples. Many of the latest red flag examples represent fact patterns that we’ve seen arise in the aviation community.

There is also a recommended due diligence outline in the G7 document, but this is a very short outline that might be inadequate for most aircraft parts transactions subject to U.S. law.

The Aviation Suppliers Association will be covering export compliance analysis and due diligence topics during its popular Export Week! seminars on October 7-11, 2024. These are short (30 minutes of content followed by a 15 minute question period) lunch-time (11:30 am eastern time) session designed to educate the community about export compliance without overwhelming the audience with jargon and a mountain of regulations. The seminars are free for ASA members! I hope to see you all, there!

Filed under Uncategorized Tagged with , , , , ,

US Government Identifies Red Flags for Detecting Sanctions Evaders

March 27, 2023 by Leave a comment

The Departments of Commerce, State and Treasury have issued a joint memo warning the community about sanctions evasion and identifying “red flags” that should result in additional scrutiny.

The Compliance Note is specifically published to identify common red flags that can indicate a third-party intermediary may be engaged in efforts to evade U.S. sanctions or U.S. export controls. Red flags are fact patterns that suggest a transaction may violate the U.S. export regulations. When red flags are encountered, it is important to perform additional inquiry in order to identify whether the red flag indicates a reasonable suspicion of a violation, or whether the apparent issue can be cleared because inquiry shows that the fact pattern does not – in fact – reflect a violation..

The following export transaction red flags are identified in the text and republished verbatim:

Common red flags can indicate that a third-party intermediary may be engaged in efforts to evade sanctions or export controls, including the following:

  • Use of corporate vehicles (i.e., legal entities, such as shell companies, and legal arrangements) to obscure (i) ownership, (ii) source of funds, or (iii) countries involved, particularly sanctioned jurisdictions;
  • A customer’s reluctance to share information about the end use of a product, including reluctance to complete an end-user form;
  • Use of shell companies to conduct international wire transfers, often involving financial institutions in jurisdictions distinct from company registration;
  • Declining customary installation, training, or maintenance of the purchased item(s);
  • IP addresses that do not correspond to a customer’s reported location data;
  • Last-minute changes to shipping instructions that appear contrary to customer history or business practices;
  • Payment coming from a third-party country or business not listed on the End-User Statement3 or other applicable end-user form;
  • Use of personal email accounts instead of company email addresses
  • Operation of complex and/or international businesses using residential addresses or addresses common to multiple closely-held corporate entities;
  • Changes to standard letters of engagement that obscure the ultimate customer;
  • Transactions involving a change in shipments or payments that were previously scheduled for Russia or Belarus;
  • Transactions involving entities with little or no web presence; or
  • Routing purchases through certain transshipment points commonly used to illegally redirect restricted items to Russia or Belarus. Such locations may include China (including Hong Kong and Macau) and jurisdictions close to Russia, including Armenia, Turkey, and Uzbekistan.

Remember that these are general transactional red flags published by the US government, so their applicability to aviation may vary. Further, this is not an exhaustive list and any fact pattern that suggests a reasonable possibility of export regulation violation should be treated as a red flag (even if it is not on this list).

The Compliance Note also suggests using the consolidated screening list and the Treasury Department SDN list as compliance tools., “as well as conducting risk-based due diligence on customers, intermediaries, and counter-parties.”

https://www.aviationsuppliers.org/asa-afra-conferenceWe have seen increased reliance on end use and end user information to clarify where the parts are intended to be installed, as a means of protecting from unwanted diversion. I continue to work with companies on developing compliance systems to help ensure that the appropriate scrutiny is applied to export transactions. We will be leading export training classes during the ASA/AFRA Annual Conference as well as a discussion of tips and tools for export inquiries during the ASA Quality Committee meeting. I hope to see everyone at ASA’s 30th anniversary Annual Conference on June 4-6 in Orlando, FL!

Filed under Uncategorized Tagged with , , ,