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BIS Issues Guidance to Financial Institutions on Best Practices for Compliance with the Export Administration Regulations

The Department of Commerce’s Bureau of Industry and Security (BIS) recently published guidance for financial institutions containing several recommendations for complying with the Export Administration Regulations (EAR).

The guidance provides recommendations on steps financial institutions can take to minimize the likelihood of EAR violations. The recommendations focus on three key areas: due diligence best practices, reviewing transactions for red flags, and real-time screening.

Due Diligence Best Practices

The guidance recommends that financial institutions incorporate EAR related due diligence into their compliance and risk management and compliance processes. Due diligence should be conducted both before onboarding a new customer and as part of regular due diligence thereafter.

Specifically, BIS recommends that financial institutions:

  • Review customers against lists of persons subject to BIS’s end-user restrictions
  • Review customers – and, where appropriate, customers’ customers – against lists of entities that have shipped Common High Priority List (CHPL) items to Russia since 2023
  • Ask a customer to certify that it has controls in place to comply with the EAR if the customer is engaged in the export, reexport or transfer of items subject to the EAR and is on a restricted-party list
Review Transactions for Red Flags

The guidance recommends that financial institutions review transactions on an ongoing basis for red flags:

  • Purchases under a letter of credit that are consigned to the issuing bank, not to the actual end user.
  • Transactions involving entities with little to no web presence, such as a website or a domain based email account.
  • A customer lacks or refuses to […]
By |2024-10-11T15:11:38-04:00October 11, 2024|Export, U.S. Bureau of Industry and Security (BIS), U.S. Department of Commerce (DOC)|0 Comments
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ICYMI: G7 Issues Guidance on Preventing Evasion of Export Controls and Sanctions Imposed on Russia

The United States, Canada, France, Germany, Italy, Japan, the United Kingdom, and the European Union (the G7) published joint guidance for industry on preventing evasion of the export controls and sanctions imposed on Russia.

The goal of the guidance is to protect common high priority list items from misappropriation, prevent reputational harm, and mitigate liability risk. The guidance aims to assist industry with complying with multilateral export controls and sanctions and with identifying evolving Russian evasion practices.

The guidance outlines three priority areas: Items that pose a heightened risk of being diverted to Russia, red flag indicators of potential evasion, and best practices to address red flags.

1. The Common High Priority List (CHPL)

The European Union, Japan, the United Kingdom, and the United States developed the CHPL to identify items that pose a heightened risk of illicit diversion to Russia. Items include:

  • Integrated circuits
  • Navigational instruments
  • Digital cameras
  • Transistors
  • Signal generators
  • Milling machines

See the full CHPL here.

2. Red Flag Indicators

The G7 identified the following red flags indicators of potential export control and sanctions evasion:

  • Sudden changes in business activity after February 24, 2022
  • Fales, inaccurate, or misleading documentation
  • Concealing the end user
  • Inconsistencies in the transaction
  • Vague details and/or incomplete information
  • Dividing invoices
  • Suspicious customer information

3. Best Practices

The G7 calls on responsible traders to improve export compliance systems and exercise enhanced due diligence. Specifically, following these steps when encountering any red flags:

  • Run transaction parties against applicable public sanctions lists
  • Conduct additional due diligence
  • Analyze the risk of export control and/or […]
By |2024-10-11T11:02:26-04:00October 11, 2024|Countries, Export, Russia|0 Comments
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BIS Issues Final Rule on VSD Policies and Penalty Guidelines

BIS recently issued a final rule to amend the Export Administration Regulations (EAR), making several changes to their Voluntary Self Disclosure (VSD) policies, as well as updates to guidance on penalty determinations.

The rule codifies previously announced policy changes through several Policy Memoranda including an April 2023 memorandum on voluntary-self disclosures, and a June 2022 memorandum on strengthening administrative enforcement.

Revisions to Voluntary Self-Disclosures

The rule makes both substantive and procedural changes to the VSD policies:

  1. Addition of non-disclosure as an aggravating factor – the new rule makes clear that BIS will consider a deliberate decision to not disclose a violation as an aggravated factor when determining what administrative sanctions will be imposed.
  2. New dual track for processing VSDs – one track for minor or technical violations, the other for significant violations.
  3. Authorizes any person (not just the party submitting a VSD) to notify the Director of BIS’s Office of Export Enforcement (OEE) that a violation has occurred and to request permission to engage in corrective activities.

Revisions to Penalty Guidelines

This rule makes several changes to the BIS Penalty Guidelines, including:

  1. Changes the base penalty caps:
    1. Non-egregious VSD cases: was $125,000, now one-half of the transaction value.
    2. Non-egregious cases that are not initiated by a VSD: was $250,000, now the full transaction value.
  2. Permits BIS to use  non-monetary penalties to resolve cases that are not egregious and have not resulted in national security harm, but rise above the level of cases warranting a warning letter.
  3. Removes from the BIS […]
By |2024-09-26T16:04:14-04:00September 26, 2024|EAR, Export, U.S. Bureau of Industry and Security (BIS)|0 Comments
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BIS Issues New Guidelines for Preparing Export License Applications Involving Foreign Persons (Deemed Exports/Reexports) 

The Bureau of Industry and Security (BIS) issued new guidelines to assist deemed export applicants in obtaining licenses. The guidelines primarily apply to employment situations; however, they also address other situations such as the release of controlled technology to foreign students participating in research. 

The guidelines cover basic requirements for applying and renewal and include an application checklist. 

Background on Licenses for Deemed Exports/Reexports 

The obligation to obtain an export license from BIS before releasing controlled technology to a foreign person is informally referred to as a “deemed” export. The release is considered an export to the person’s country or countries of nationality.   

The Export Administration Regulations (EAR), Section 734.13, defines a deemed export as releasing or otherwise transferring “technology” or “source code” to a foreign person in the United States.  

Typical organizations using deemed export licenses include universities, research institutions, bio-chemical firms, medical organizations, and computer companies.    

New Guidance 

 The basic guidance for filling out license applications is set forth in Supplement 1 to part 748 of the EAR. The new guidelines supplement the basic guidance and are intended to assist licensing officers in reviewing license applications more efficiently. 

Basic Requirements 

The guidelines reiterate that applicants must include all the necessary information and documentation required when submitting a license application. BIS will return applications with insufficient information.  

Basic documentation required: 

By |2024-09-13T11:56:54-04:00September 13, 2024|EEI, Export, U.S. Bureau of Industry and Security (BIS), U.S. Department of Commerce|0 Comments
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ICYMI: State Department Reaches $200M Settlement with RTX Corporation for Export Violations

The U.S. Department of State has reached a settlement with RTX Corporation to resolve 750 violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).

The settlement resolved multiple violations including:

  • Unauthorized exports of defense articles resulting from the failure to establish proper jurisdiction and classification
  • Unauthorized exports of defense articles, including classified defense articles
  • Unauthorized exports of defense articles by employees via hand-carry to proscribed destinations listed in 22 C.F.R. 126.1; and
  • Violations of terms, conditions, and provisos of Directorate of Defense Trade Controls (DDTC) authorizations

RTX disclosed the violations voluntarily and cooperated with the State Department’s review.

Under the terms of the agreement, RTX will pay a penalty of $200M. $100 million will be suspended and used for remedial compliance measures to improve RTX’s compliance program. RTX must also engage an external Special Compliance Officer to ensure compliance with the agreement for at least 24 months.

This settlement demonstrates the State Department’s priorities in enforcing export controls and the importance of prioritizing compliance programs.

Diaz Trade Law can help create a new export compliance plan for your business or review and update an existing one. To learn more about how we can help, contact us at info@diaztradelaw.com or call us at 305-456-3830.

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By |2024-09-10T15:39:03-04:00September 10, 2024|Export, ITAR, U.S. Department of State (DOS), U.S. Directorate of Defense Trade Controls (DDTC)|0 Comments
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