High Performance Computers

Guidance on Due Diligence to Prevent Unauthorized Transshipment/Reexport of Controlled Items to Russia

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In consideration of the ongoing situation in Crimea, BIS has imposed export restrictions targeted at Russia’s energy and defense sectors. For example, in August 2014, BIS implemented restrictions on exports of certain items destined for Russian deep water, Arctic offshore, or shale energy exploration or production. See: 79 FR 45675 (August 6, 2014) (

http://www.gpo.gov/fdsys/pkg/FR-2014-08-06/pdf/2014-18579.pdf). Subsequently, BIS expanded its military end use and end user controls to impose a license requirement on various items that may not otherwise require a license if the exporter has knowledge that such items may be used by military end users or for military end uses in Russia. See: 79 FR 55608 (September 17, 2014) (http://www.gpo.gov/fdsys/pkg/FR-2014-09-17/pdf/2014-22207.pdf). In addition, BIS has expanded controls on certain microprocessors for military end uses and end users in Russia (as well as other D:1 countries). See 79 FR 75044 (December 17, 2014) (http://www.gpo.gov/fdsys/pkg/FR-2014-12-17/pdf/2014-29450.pdf).

BIS remains concerned about efforts by front companies and other intermediaries, who are not the true final end users, to transship or reexport U.S.-origin items to the Russian Federation in violation of these measures and other export controls. Even prior to the imposition of restrictions based on the situation in Crimea, front companies and other intermediaries obtained U.S.-origin items that may require a license to Russia through intermediate countries subject to a more favorable licensing policy under the Export Administration Regulations (EAR). A salient example is Wassenaar Arrangement dual-use items controlled under the EAR for National Security (NS) reasons.

Therefore, BIS is providing additional guidance to U.S. exporters to prevent unauthorized reexports to Russia, especially for transactions involving NS-controlled items or items listed in Supplement No. 2 to Part 744 of the EAR, which lists items that are subject to the military end use license requirement. As described in Supplement No. 3 to Part 732 of the EAR, whenever a person who is clearly not going to be using the item for its intended end use (e.g., a freight forwarder) is listed as an export item’s final destination, the exporter has an affirmative duty to inquire about the end use, end user, and ultimate destination of the item to ensure the transaction complies with the EAR. In addition, the exporter should pay attention to any information that may indicate an unlawful diversion is planned. This may include discrepancies in the destination country and the country from which an order is placed or payment is made.

When inquiring into the ultimate destination of the item, an exporter should consider e-mail address and telephone number country codes and languages used in communications from customers or on a customer’s website. The exporter should also research the intermediate and ultimate consignees and purchaser, as well as their addresses, using business registers, company profiles, websites, and other resources.

Exporters should always screen their customers against the U.S. Government’s consolidated export screening list (http://export.gov/ecr/eg_main_023148.asp). An interactive tool for searching this list based on entity name and address is also available (http://internationaltradeadministration.github.io/explorer/#/consolidated-screening-list-entries).

Furthermore, exporters should pay attention to the countries a freight forwarder serves, as well as the industry sectors a distributor or other non-end user customer supplies. The exporter should then determine whether a license is required based on the likely country of ultimate destination and end use and end user. The exporter should consider not only the list-based license requirements specified in Supplement No. 1 to Part 738 of the EAR (the Commerce Country Chart) in conjunction with item’s classification specified in Supplement No. 1 to Part 774 of the EAR (the Commerce Control List), but also the end use and end user controls in Part 744 and the embargoes and special controls in Part 746. If the exporter continues to have any doubts or concerns surrounding the end use, end user, or country of ultimate destination after exercising due diligence, the exporter should present all relevant information to BIS in the form of a license application or refrain from the transaction.

Export controls are a shared responsibility between government and industry. If you have any concerns about suspicious inquiries that come to your firm, you are encouraged to contact your local BIS Export Enforcement Office (https://www.bis.doc.gov/index.php/enforcement/oee/investigations#OEEFieldOffice) or use BIS’s online tip form (https://www.bis.doc.gov/index.php/component/rsform/form/14-reporting-violations-form?task=forms.edit).

If you have any questions about export licensing requirements or submitting a license application, you may contact BIS’s Office of Exporter Services at (202)482-4811. If contacting the Office of Exporter Services via e-mail, please include a telephone number to facilitate BIS’s response to your request. (https://www.bis.doc.gov/index.php/about-bis/contact-bis).

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Iran Web Guidance

Guidance on Actions Exporters Can Take to Prevent Illicit Diversion of Items to Support Iran’s Nuclear Weapons or Ballistic Missile Programs

It is the policy of the United States to counter Iran’s pursuit of technology that could enable it to develop nuclear weapons and missiles capable of delivering them. In support of this effort, the United States maintains comprehensive economic sanctions on Iran.

IRAN’S ILLICIT PROCUREMENT EFFORTS

  • Iran is currently trying to procure items for its uranium enrichment centrifuge program. For this program, Iran will need to procure items on the Commerce Control List (CCL) such as carbon fiber (controlled under Export Control Classification Numbers (ECCNs) 1A002, 1C010, 1C210, 1C990) and filament winding machines (ECCNs 1B001, 1B101, 1B201), as well as items classified as EAR99, such as epoxy resin. Epoxy resin and related hardening/accelerator agents are necessary to bind the carbon fibers used in both uranium centrifuge and missile structures. Thus, U.S. manufacturers of such items should be particularly vigilant.
  • As outlined in International Atomic Energy Agency (IAEA) Director General El Baradei’s report of February 22, 2008, Iran has admitted to attempting to evade international sanctions to procure sensitive items, using deceptive procurement tactics to obtain items that can contribute to its weapons of mass destruction (WMD) programs.
  • Specifically, Iranian entities form front companies in other countries for the sole purpose of exporting dual-use items, including U.S. origin items, to Iran that it can use in its nuclear and missile programs. These companies appear to be procuring dual-use items for commercial activities and enable Iran to obtain materials that would typically be prevented by export control restrictions in supplier countries. They make it difficult for businesses to know that the end-user is in Iran. Furthermore, these front companies are often in third countries where U.S. companies have strong trading relationships.

EXPORTER DILIGENCE

  • Not all items that Iran could use for weapons of mass destruction-development activities are listed on the CCL. Therefore, exporters must be vigilant on the potential end-use of all items exported from the United States. (e.g., epoxy resin).
  • The exportation of any item that is subject to the EAR (including an EAR99 item) to Iran without a license is prohibited under regulations maintained by the Department of the Treasury's Office of Foreign Assets Control (OFAC). This includes any exports to a third country if the exporter knows or has reason to know that the item will be reexported to Iran.
  • Exporters should screen parties to a transaction against the Denied Persons List, Entity List, Unverified List, BIS General Orders, and the Specially Designated Nationals and Blocked Persons List.
  • Exporters should take note of any abnormal circumstances in a transaction that indicate that the export may be destined for an inappropriate end-use, end-user, or destination. For example:
    • unusual quantity requests;
    • paying above market prices or using unusual payment methods;
    • waivers of normal installation, training or maintenance agreements; and
    • requests for delivery to one country with original orders from a second country or direct delivery to a freight forwarder.
  • When such "red flags" arise, you should check out the suspicious circumstances and inquire about the end-use, end-user, or ultimate country of destination.
  • If you encounter “red flags” that you are unable to resolve with reasonable inquiry, contact BIS.
  • Companies should have in place compliance and/or business procedures to be immediately responsive to theft or unauthorized delivery.
  • If you believe a previous shipment has been diverted and may have gone to an end user in Iran, we encourage you to report it to BIS.

SUMMARY OF STEPS U.S. EXPORTERS CAN TAKE TO PREVENT UNAUTHORIZED EXPORTS TO IRAN

  • Remain vigilant and know your customer. 
  • Understand “Red Flag” indicators.
  • Be cautious of customers operating in transshipment countries or free trade zones.
  • Be familiar with U.S. Government screening lists.
  • Contact BIS if something does not seem right about the transaction or if you suspect a shipment may have been diverted to Iran.
  • Subscribe to the Department of the Treasury, Office of Foreign Assets Control’s service to receive notifications of changes to the List of Specially Designated Nationals and Blocked Persons.
 

E-Commerce

E-Commerce


You will not find the term“E-Commerce” within the Export Administration Regulations (EAR); however, commerce transacted electronically may be subject to the EAR, the same as transactions that are not electronically facilitated.

 

The EAR apply to the conduct of business communication and transactions over networks and through computers and with the non-electronic buying and selling of goods and services and the transfer of funds. Your export (or deemed export)/reexport (or deemed reexport)/transfer transactions and other services may be subject to the EAR. Some transactions and activities specific to the E-Commerce environment where you should determine if you are subject to the EAR include:

  • Orders processed using the internet with tangible delivery of goods;
  • Intangible downloads and releases of technology and software.
  • The various services performed during transactions; and
  • Transfer of funds to certain entities and prohibited activities.

     

Related E-Commerce Links and FAQs
Links:

Assistant Secretary Darryl W. Jackson Opening Keynote Address ACI 3rd
National Forum on International Technology Transfers, San Francisco, CA, January
27, 2007 http://www.bis.doc.gov/news/2007/jackson02012007.htm

FAQs:

Am I required under the EAR to actively screen for terrorist-supporting destinations?

In your business practice, it is prudent to use a standard of care to ensure that you will not violate any of the prohibition identified in the EAR. The EAR does not require a person posting software on the Internet to implement screening procedures for the terrorist countries. The "Know Your Customer" guidance in Supplement No. 3 to Part 732 provides companies with guidelines on how to comply with their responsibilities under the EAR. Related E-Commerce Links and FAQs

 

Red Flag Indicators

Things to Look for in Export Transactions

Use this as a check list to discover possible violations of the Export Administration Regulations. You may also wish to visit our page that provides "Know Your Customer Guidance."

  • The customer or its address is similar to one of the parties found on the Commerce Department's [BIS'] list of denied persons.
  • The customer or purchasing agent is reluctant to offer information about the end-use of the item.
  • The product's capabilities do not fit the buyer's line of business, such as an order for sophisticated computers for a small bakery.
  • The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.
  • The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing.
  • The customer has little or no business background.
  • The customer is unfamiliar with the product's performance characteristics but still wants the product.
  • Routine installation, training, or maintenance services are declined by the customer.
  • Delivery dates are vague, or deliveries are planned for out of the way destinations.
  • A freight forwarding firm is listed as the product's final destination.
  • The shipping route is abnormal for the product and destination.
  • Packaging is inconsistent with the stated method of shipment or destination.
  • When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for reexport.

If you have reason to believe a violation is taking place or has occurred, you may report it to the Department of Commerce by calling its 24-hour hot-line number: 1 (800) 424-2980. Or, if you prefer, use our form to submit a confidential tip.