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 (https://www.export.gov/Legal-Considerations). 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).

Details Category:  Compliance & Training

As mentioned in BIS’s previous guidance on exporting items subject to the Export Administration Regulations (EAR) to Hong Kong, which can be found at Hong Kong Import/Export License Requirements (http://www.bis.doc.gov/index.php/policy-guidance/foreign-import-export-license-requirements/hong-kong), Hong Kong and Mainland China are treated as two separate destinations under U.S. law for export control purposes.  Certain items subject to the EAR that do not require an individual validated license for export from the United States to Hong Kong will require a license for re-export from Hong Kong to China.  BIS is providing additional guidance on possible red flags to prevent unauthorized transshipments/reexports.

When inquiring about the end user of an item procured through a Hong Kong company, an exporter should consider specific factors, including, but not limited to:

  • ·         Whether the company is registered with the Hong Kong Companies Registry.  All companies in Hong Kong are required to have company secretaries under the Hong Kong Companies Ordinance. While directors and shareholders do not need to be Hong Kong residents, the company secretary must ordinarily reside in  Hong Kong or be a body corporate having its registered office or place of business in Hong Kong.  While companies usually appoint an individual person as the company’s secretary, some companies engage the services of company secretarial firms who handle various administrative functions for their clients. Many secretarial firms offer a wide range of services, including registered office services for offshore clients. Shipments of controlled items to secretarial firms can be destined for transshipment/reexport.

  • Whether the company has received an import/export license issued by Hong Kong (see http://www.tid.gov.hk/eindex.html) for a control list item, or is aware of Hong Kong license requirements (if dealing with a company with a contact person outside of Hong Kong, this person could be less likely to be aware of Hong Kong license requirements). Exporters are reminded that most multilaterally controlled (i.e., National Security (NS), Nuclear Proliferation (NP), Missile Technology (MT), and Chemical Biological (CB)) items on the Commerce Control List, under Hong Kong’s export control regulations, require an import license even if such items are authorized for export from the United States to Hong Kong under License Exception or the designation No License Required (NLR).  Moreover, reexports of such multilaterally controlled items from Hong Kong require an export license from Hong Kong’s Trade and Industry Departmenteven if, under the Export Administration Regulations (EAR), the destination country of the end user is eligible for authorization for such reexports under License Exception or the designation NLR.

  • ·         Whether there is a legitimate consumer or company in Hong Kong for your product.

  •  

  • ·         Whether the consignee knows the end user and end use are in Hong Kong. Of note, License Exception GBS (740.4) can only be used when a party in Country Group B, which includes Hong Kong, is the ultimate destination.  The exporter should pay attention to discrepancies in the destination country and the country from which an order is placed or payment is made.
     

  • ·         Where the Hong Kong importer is not the end user, whether the importer is willing to provide the purchase order or confirmation of such purchase from the end user. The provision of documents from both the importer and purchaser may reduce the chance of counterfeit documents (e.g., falsified importer letterhead and company stamps).
     

  • ·         Whether the Hong Kong party has an actual business in Hong Kong.  If the party has no actual business in Hong Kong, then whether the service of a logistics service provider is being used to send the consignment to an address which is neither the importer’s nor the end-user’s (e.g., the buyer sends an item to a storage unit of a storage company rather than taking possession of the item or send it to the end-user).

  • ·         Whether documents, particularly end-use statements, are incomplete or contain suspicious information, such as addresses that do not exist, first names only for contact persons (often, generic Western names), persons who cannot be linked to a company or university directory, or end-user names with no accompanying signatures.

  • ·         Whether the location of the end user’s point of contact is in Hong Kong, based on a review of the country code of the contact’s telephone number (i.e., Hong Kong’s country code is 852). A different country code may show some other intended destination country of the product.

Pursuant to Supplement No. 3 to Part 732 of the EAR, red flags must be resolved prior to shipment.  Exporters must not self-blind and ignore relevant information in any export transaction and need to be particularly sensitized to exports to Hong Kong. Exporters should always screen their customers against the U.S. Government’s consolidated export screening list (https://www.export.gov/Legal-Considerations). An interactive tool for searching this list based on entity name and address is also available.

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 or use BIS’s online tip form.

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.

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Pakistan has a nuclear program and a missile program that are subject to end-use and end-user restrictions pursuant to Part 744 of the Export Administration Regulations (EAR) (15 C.F.R. Parts 730-774).

Accordingly, this guidance highlights:

  1. 1.The supplemental licensing requirements applicable to exports, reexports, and transfers (in-country) of items subject to the EAR that may be destined to nuclear or missile activities; and
  2. 2.Best practices for screening customers in Pakistan to prevent diversion of items subject to the EAR to unauthorized end uses and end users.

EAR Overview

Persons (both U.S. and non-U.S. persons, including individuals, entities, corporations) engaged in exports, reexports, and transfers (in-country) subject to the EAR, must determine whether a license is required prior to proceeding with such transactions. In addition to Commerce Control List (CCL)-based licensing requirements determined by the export control classification number (ECCN) of your product(s) and their destination(s), you should review Part 744 (Control Policy: End-User and End-Use Based) and Part 746 (Embargoes and Other Special Controls) of the EAR.

The supplemental licensing requirements found in Part 744 of the EAR may apply to items designated “EAR99” (i.e., subject to the EAR but not listed on the CCL), as well as to CCL items not otherwise subject to a license requirement based on the country of destination. You must also follow the “Know Your Customer” Guidance in Supplement No. 3 to Part 732 of the EAR. To facilitate your compliance with Part 744 and Supplement No. 3 to Part 732 of the EAR, BIS is publishing this guidance.

Restrictions on Exports and Reexports to Certain Nuclear- and Missile-Related Activities

In 1992, BIS imposed end-use restrictions on items not specifically listed on the CCL when destined for certain missile-related activities in certain destinations, including Pakistan.[1] In 1998, Pakistan detonated a nuclear explosive device. In response, BIS imposed supplemental licensing requirements on certain entities in Pakistan determined to have been involved in nuclear or missile activities and added such entities to the Entity List (Supplement No. 4 to Part 744 of the EAR).[2] The Entity List imposes supplemental licensing requirements on foreign entities involved in activities contrary to U.S. national security and foreign policy.

Recently, BIS has added additional entities in Pakistan to the Entity List, such as: [3]

  • Engineering and Commercial Services, based on its involvement in supplying a Pakistani nuclear-related entity on the Entity List.
  • Solutions Engineering, has been involved in the procurement of U.S.-origin items on behalf of nuclear-related entities in Pakistan that are already listed on the Entity List.

BIS has also added entities located in other countries to the Entity List, such as: [4]

  • Techcare Services FZ LLC, located in the U.A.E., and UEC (Pvt.) Ltd., located in Pakistan, Saudi Arabia, and the U.A.E., made multiple attempts to acquire U.S.-origin commodities ultimately destined for Pakistan’s unsafeguarded nuclear program.

Furthermore, BIS Office of Export Enforcement (OEE) investigations have revealed schemes to export items subject to the EAR to nuclear- and missile-related entities in Pakistan listed on the Entity List without the required licenses.[5]

In addition to the restrictions set forth in Section 744.11 of the EAR that apply to entities listed on the Entity List, any item subject to the EAR, whether or not subject to a CCL-based licensing requirement, may require a license if destined to certain nuclear- or missile-related activities. These end-use-based licensing requirements apply to items designated EAR99, as well as items listed on the CCL:

  • Pursuant to Section 744.2 of the EAR, a license is required to export, reexport, or transfer (in-country) to or within any country not listed in Supplement No. 3 to Part 744 of the EAR, any item subject to the EAR if you know at the time of the contemplated transaction that the item will be used, directly or indirectly, in a nuclear explosive activity, unsafeguarded nuclear activity, or certain nuclear fuel cycle activities, whether or not subject to International Atomic Energy Agency safeguards.

  • Pursuant to 744.3 of the EAR, a license is required to export, reexport, or transfer (in-country) to or within a country listed in Country Group D:4 (Supplement No. 1 to Part 740 of the EAR), which includes Pakistan, any item subject to the EAR if you know that the item will be used: in the design, development, production, or use of a missile or UAV for the delivery of chemical, biological, or nuclear weapons; or in the design, development, production, or use of a missile or UAV capable of a range of at least 300 kilometers. In addition, a license is required to export, reexport, or transfer (in-country) to or within a country listed in Country Group D:4 any item subject to the EAR if you know that the item will be used in the design, development, production, or use of a missile or UAV, but you cannot determine the range of such systems or whether they will be used for the delivery of chemical, biological, or nuclear weapons.  

  • In addition, BIS may inform persons that a license is required for a contemplated export, reexport, or transfer (in-country) pursuant to Sections 744.2(b) or 744.3(b) of the EAR due to an unacceptable risk of use in, or diversion to, the activities described above. BIS may provide specific (individual) notice or amend the EAR to provide general notice to the public of such licensing requirements.

Due Diligence/Best Practices

To ensure compliance with these provisions of the EAR, in addition to screening customers against the U.S. Government’s Consolidated Screening List (CSL)[6], which includes BIS’s Entity List, exporters, reexporters, and transferors (in-country) of items subject to the EAR are also advised to conduct additional due diligence to identify and resolve red flags associated with transactions potentially destined to nuclear- or missile-related activities, in accordance with the “Know Your Customer” Guidance set forth in Supplement No. 3 to Part 732 of the EAR.

  • Thoroughly research any new or unfamiliar customers: Exporters should exercise increased due diligence when vetting new customers. Exporters are advised that the following fact patterns should prompt additional scrutiny:
  1. oA new customer places an unexpected and/or high-value order for sophisticated equipment.
  2. oThe customer is a reseller or distributor. In such cases, you should always inquire who the end user is.
  3. oThe customer has no website or social media and is not listed in online business directories.
  4. oThe customer’s address is similar to an entity listed on the CSL, or the address indicates the customer is located close to end users of concern, including co-located with an entity listed on the Entity List.
  5. oYour customer places an order ex works and makes all shipping arrangements through a freight forwarding service. In such cases, request that the freight forwarder provide you a copy of the Electronic Export Information (EEI) filing to ensure the information is accurate.

  • Thoroughly assess the potential applications of your products. Whenever you identify red flags indicating a potential concern about your customer, or if you are unable to confirm the bona fides (i.e. legitimacy and reliability) of your customer, you should consider potential dual-use applications of your products. For example, if your products are commonly used in the power generation industry and some of your customers are nuclear power plants, you should consider whether your items might be destined for a nuclear power plant in Pakistan, which may be subject to Entity List-based licensing requirements, as noted below.

  1. oBIS has identified a number of items subject to the EAR but not listed on the CCL (EAR99 items), or listed on the CCL but controlled only for Antiterrorism reasons, which have been sought by nuclear- or missile (including UAV)-related entities, including certain:
  • Connectors designated EAR99
  • Electromechanical relays designated EAR99
  • Gas measurement equipment designated EAR99
  • Global positioning satellite (GPS) systems described in ECCN 7A994
  • Power supplies designated EAR99
  • Reflectometers designated EAR99
  • Vacuum pumps not described in ECCN 2B231

  • Determine the full scope of entity listings. Exporters are reminded to thoroughly screen all exports to Pakistan against the Entity List, one of the lists included in the CSL. It has come to BIS’s attention that in some cases, automated screening may not be sufficient to identify entities listed on the Entity List and manual review may be necessary.
  1. oFor example, the Entity List entry for the Pakistan Atomic Energy Commission (PAEC) extends to all nuclear reactors, including power plants. Although they are not specifically identified on the Entity List, PAEC operates two nuclear power plants that are subject to Entity List licensing requirements.
  • Karachi Nuclear Power Plant (KANUPP), a.k.a., Karachi Nuclear Power Complex, located at Paradise Point, Karachi, Pakistan.
  • Chashma Nuclear Power Plant (CHASNUPP), a.k.a., Chashma Nuclear Power Complex, located near Chashma Colony, Kundian Town, Mianwali District, Pakistan.

  • File true, accurate, and complete export control information. True, accurate, and complete EEI must be filed in accordance with Sections 758.1 and 758.2 of the EAR, as well as the Foreign Trade Regulations (15 C.F.R. Part 30). In the case of exports made under the terms of a letter of credit (LoC), BIS has noticed that the parties to an export transaction may be inadvertently misrepresented on EEI filings due to differences between commercial document requirements and EEI requirements.
  1. oAlthough the terms of a LoC may require transportation documents, such as air waybills and bills of lading, to list the issuing financial institution in the “ship to” or “consign to” field, the financial institution should not be listed as the ultimate consignee on an EEI filing unless it is located abroad and actually receives the export.
  2. oThe party located abroad that actually receives the goods, often listed as the “notify party” under the terms of a LoC, should be reported as the ultimate consignee pursuant to 15 C.F.R. Sections 30.1(c) and 30.6(a)(3).

If you are unable to resolve any red flags identified in a prospective export, reexport, or transfer (in-country), you should either refrain from participating in the transaction, submit a license application, or submit an advisory opinion request to BIS. License applications can be filed via SNAP-R (https://snapr.bis.doc.gov) and advisory opinions can be requested by using the online form on the BIS Website (https://www.bis.doc.gov/index.php/component/rsform/form/22-contact-the-regulatory-policy-division?task=forms.edit). To report suspicious purchase inquiries to BIS, contact your local OEE Field Office (https://www.bis.doc.gov/index.php.enforcement/oee/investigations), or contact the BIS Enforcement Hotline at 1-800-424-2980 or by using the form on the BIS Website (https://www.bis.doc.gov/index.php/component/rsform/form/14-reporting-violations-form?task=forms.edit).



[1] 57 Federal Register 26773 (June 16, 1992)

[2] 63 Federal Register 64322 (November 19, 1998)

[3] 83 Federal Register 12475 (March 22, 2018)

[4] 83 Federal Register 44821 (September 4, 2018)

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

 

   
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