Due Diligence Guidance Concerning Exports, Reexports, and Transfers (In-Country) to Pakistan

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:

I. 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;

II. Restrictions on specific activities of U.S. persons; and

III. 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 license requirements in 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, including several provisions relevant for trade with Pakistan, 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, which will help you to understand your duty of care when red flags arise in the course of your business. To facilitate your compliance with Part 744 and Supplement No. 3 to Part 732 of the EAR, the Bureau of Industry and Security (BIS) is publishing this additional guidance specific to Pakistan.

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 such as:

Jiuding Refrigeration & Air-conditioning Equipment Co (Pvt) Ltd and K-SOFT Enterprises based on their contributions to Pakistan’s unsafeguarded nuclear activities.[3]
Broad Engineering for its contributions to Pakistan's ballistic missile program.[4]

BIS has also added entities located in other countries to the Entity List due to their involvement with Pakistan trade, such as:

Poly Asia Pacific Ltd. (PAPL) and Peaktek Company Ltd., both located in China, based on contributions to Pakistan’s unsafeguarded nuclear activities.[5]
Pegasus General Trading FZC, under the destination of the U.A.E., as this entity has made multiple attempts to acquire U.S.-origin commodities ultimately destined for Pakistan’s unsafeguarded nuclear program, has provided false and misleading information to BIS during an end-use check, and has falsified official documents to obfuscate the true end-users of items subject to the EAR.[6]

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.[7]

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 in Pakistan. 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 Pakistan or certain other countries, 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 safeguarded or unsafeguarded nuclear fuel cycle activities.
Pursuant to Section 744.3 of the EAR, a license is required to export, reexport, or transfer (in-country) to or within Pakistan or certain other countries any item subject to the EAR if you know that the item will be used: in the design, development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of rocket systems (including missiles and launch vehicles) or unmanned aerial vehicles (UAVs) for the delivery of chemical, biological, or nuclear weapons; or in the design, development, production, or use of a rocket system or UAV capable of a range of at least 300 kilometers. In addition, a license is required even if you cannot determine characteristics of the rocket system or UAV (e.g., the range capabilities) or whether they will be used for the delivery of chemical, biological, or nuclear weapons.
In addition, even if you yourself do not have actual knowledge of a restricted end-use, BIS may inform persons that a license is required for a contemplated export, reexport, or transfer (in-country) 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.

Restrictions on Specific Activities of U.S. Persons

The EAR had long restricted certain U.S. person activity with regard to missiles or chemical and biological weapons activity, even when the activity did not involve items subject to the jurisdiction of the United States. However, these controls had not been updated in many years, until March 2021, when license requirements were expanded for U.S. person activity pursuant to new authority in the Export Control Reform Act of 2018 (ECRA).[8]

Section 1753(a)(2) of ECRA (50 U.S.C. 4812(a)(2)), provides authority to regulate the activities of U.S. persons, wherever located, related to nuclear explosive devices, missiles, chemical or biological weapons, whole plants for chemical weapons precursors, foreign maritime nuclear projects, and foreign military intelligence services.
Section 744.6 of the EAR now requires a license for U.S. persons to engage in an expanded scope of support activities, including support for design, development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of nuclear explosive devices or missiles in Pakistan or certain other countries.
Section 744.6 of the EAR now provides a more comprehensive definition of the activities covered by this section, including in a new description of support activities that may require a license (e.g., shipping or transmitting from one foreign country to another foreign country any item not subject to the EAR you know will be used in or by any of the covered end uses or end users).

To avoid overlapping license requirements across U.S. government agencies, BIS has clarified that § 744.6 of the EAR does not regulate U.S. person activities that require a license from or are prohibited by another federal department or agency, including the Departments of Energy, State, or the Treasury. The issuance of a BIS license also does not authorize U.S. persons to engage in any conduct that is otherwise prohibited by U.S. law, including any criminal statute.

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)[9], 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. In addition, exporters, reexporters, and transferors (in-country) are encouraged to do the following:

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:
- A new customer places an unexpected and/or high-value order for sophisticated equipment.
- The customer is a reseller or distributor. In such cases, you should always inquire who the end user is.
- The customer has no website or social media and is not listed in online business directories.
- The customer’s website or social media lists clients that are on the Entity List.
- The 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.
- Your customer places an order 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 affiliated with 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.
- BIS has identified a number of EAR99 items and CCL items controlled only for Anti-terrorism reasons (e.g., not generally requiring a license to Pakistan as a country), 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
  - Charged-coupled device (CCD) Cameras designated EAR99
  - Electrochemistry equipment designated EAR99
  - Spectrophotometers designated 3A999.f
- Additionally, in January 2020 the U.S. Department of Justice announced the unsealing of an indictment against five men for operating an international procurement network to acquire U.S.-origin goods for AERO and PAEC without export licenses in violation of federal laws.[10]. According to the unsealed indictment, from 2014 to 2019 the network caused the unlicensed exports of the following products from the United States:

- Helium Leak Detector

- Coaxial/electronic connectors

- Aircraft parts

- FPGAs

- Industrial equipment brake parts

- Pulser/receiver

- Engine parts

- Capacitors

- Power Sensor

- Development Boards

- Power Supply

- Force sensor

- Ignition and Firing module

- Cartridge Heaters

- Rack mount monitors

- Digital/Analog converters

- Connectors and Thermostats

- Electronic Components

- Phase shifter

- Semiconductors

- Encoders

- Industrial Safety Equipment

- Satellite Communications Equipment

- QRM Switching System

- Emulators

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.
- For example, the Entity List entry for 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.
  - Although 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.
  - The 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). 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).

[1] Expansion of Foreign Policy Controls; Missile Technology Destinations, 57 Fed. Reg. 26773 (Jun. 16, 1992) [2] India and Pakistan Sanctions and Other Measures, 63 Fed. Reg.64322 (Nov. 19, 1998)

[3] Addition of Entities and Revision of Entries on the Entity List; and Addition of Entity to the Military End-User (MEU) List, 86 Fed. Reg.67317 (Nov. 26, 2021) [4] Addition of Entities to the Entity List, Revision of Entry on the Entity List, and Removal of Entities From the Entity List, 85 Fed. Reg.83416 (Dec. 18, 2020)

[5] 86 Fed. Reg.67317 (Nov. 26, 2021)

[6] 86 Fed. Reg.67317 (Nov. 26, 2021)

[7] Addition of Entities to the Entity List, and Revision of Entry on the Entity List, 85 Fed. Reg.14794 (Mar. 16, 2020)

[8] Expansion of Certain End-Use and End-User Controls and Controls on Specific Activities of U.S. Persons, 86 Fed. Reg.4865 (Jan. 15, 2021)

[9] https://www.trade.gov/data-visualization/csl-search (accessed Sep. 9. 2022)

[10] https://www.justice.gov/opa/pr/five-men-indicted-operating-international-procurement-network-export-us-origin-goods-pakistan (accessed Sep. 9, 2022)