The U.S. Department of Commerce’s Bureau of Industry and Security issued new guidance to combat Russian money transfer risks and

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) recently issued new guidance to exporters designed to further assist BIS in combating third-party transfers to Russia.

Specifically, BIS’s recent guidance outlines the various mechanisms it uses—in addition to its usual public screening lists (IE, The Unverified List, Entity List, Military End-User List, and Denied Persons List) — notify companies and universities of parties that present a risk of transfer to Russia. According to BIS, it has obtained information supporting the notifications described below from a variety of sources, including information from the export community, government data, news reports, and other open-source resources. Specific mechanisms BIS uses to prevent exporters from unknowingly exporting items to relevant parties include:

• “Supplier List” Letter Identify parties that present diversion risks and are not on the public screening lists but have been determined by BIS to be exporting or facilitating transactions to destinations or end-users of concern. BIS may send “suppliers list” letters to companies and organizations that have not previously transacted with the foreign parties listed. In addition, BIS encourages recipients of such letters to carefully review transactions with the designated parties for any potential red flags.

• Project Guardian Request Companies and institutions are advised to monitor or “go on alert” for transactions with specific parties or inquiries regarding specific items. BIS may also recommend that recipients deny or suspend any such transactions or inquiries and contact their local Export Enforcement field office for guidance.

• Red Flag Letters Indicates to a company that one of their customers may have violated the Export Administration Regulations (“EAR”) by previously exporting the same item to that customer. A “Red Flag” letter indicates a “high” probability of future export violations based on the customer’s re-export or transfer history. Companies that receive a “Red Flag” letter should conduct additional due diligence to ensure they can overcome the red flags identified by BIS before proceeding.

• “Informed” letter In addition to targeting specific U.S. individual activities, license requirements are imposed on specific items shipped to specific entities or destinations. Companies and universities must comply with these requirements to avoid violating the EAR, as failure to comply with a “have been informed” letter is tantamount to failure to comply with any other export license requirement for law enforcement purposes. While BIS has repeatedly emphasized the use of such letters, they are not new.

Importantly, BIS will consider a company or university’s decision to proceed with a transaction (without obtaining an export license) as an aggravating factor in any enforcement action when the company or university knew or had reason to know or believe that a red flag existed that could not be affirmatively resolved or explained.

Screening of Trade Integrity Program websites

In addition to the above notifications, BIS has also increased due diligence requirements for exporters involving Common High Priority List (“CHPL”) items, which the U.S. government and its allies have identified as items that Russia is seeking to procure for its weapons programs. For transactions involving CHPL items, BIS strongly recommends screening against the list provided by the Trade Integrity Program (“TIP”). TIP is a UK non-governmental entity that monitors military and dual-use trade with Russia and has identified third-country parties with a recent history of exporting CHPL items to Russia. For transactions involving CHPL items and parties on the TIP list, BIS says companies should conduct additional due diligence before entering into any such transactions to identify potential red flags.

Recent BIS Enforcement Actions

In addition to the new guidance, BIS also released an updated version of its Don’t Let This Happen to You! report, which includes examples of recent BIS criminal and administrative enforcement actions. The new actions involve violations of antiboycott regulations, firearms exports, exports related to China and Iran, non-compliance with BIS settlement agreements, and voluntary disclosures by universities. BIS urges exporters to read this publication to understand the types of activities and lapses that lead to enforcement actions and to avoid violating the EAR.

For example, according to BIS, New Jersey-based cryogenic equipment manufacturer Cryofab, Inc. violated the EAR by exporting gas storage containers and related tools to an Indian nuclear research institute without obtaining the required export license. BIS said Cryofab failed to screen the institute, Bhabha Atomic Research Center (BARC), against the BIS Entity List (to which BARC was included) and did not seek or obtain the required licenses for its transactions. BIS required Cryofab to pay a civil penalty and have an independent consultant complete an external audit of its export control compliance program, which BIS noted was an experienced exporter.

In addition to businesses, BIS is increasingly focusing its efforts on universities and research institutions, which must now ensure they have effective export compliance programs, whether due to the engagement or hiring of foreign researchers, global exchange programs, or other international touchpoints now common in higher education.

In its report, BIS also highlighted a recent settlement with Indiana University involving the export of ECCN 1C353 genetically modified fruit flies to research institutions and universities around the world without obtaining the required export licenses. Notably, Indiana University voluntarily disclosed the violations to BIS, and BIS said the university’s disclosure and cooperation resulted in a non-monetary penalty. Instead, BIS imposed a one-year suspension of its export privileges for certain ECCN 1C items, required export compliance training for relevant management personnel, and required the university to present its violations to relevant forums.

The BIS cases demonstrate the myriad ways that companies and organizations can violate the EAR, with cases involving China, Russia, Iran, and other countries around the world, as well as licensing requirements imposed by controls related to national security, military end users, and other areas. Both actions highlight the importance of carefully reviewing all items and parties to a transaction for any licensing requirements or other prohibitions, as well as the potential benefits of disclosing any actual or apparent violations as soon as they are discovered.

Husch Blackwell’s Export Controls and Economic Sanctions team continues to closely monitor all international trade and export control developments. If you have any questions or concerns, please contact Cortney Morgan, Grant Leach, Emily Mikes or Eric Dama of our Export Controls and Economic Sanctions team.

This article was written with assistance from Angelina Maleska, a summer intern in the Washington, D.C. office of Husch Blackwell LLP.