On July 10, 2024, the US Department of Commerce’s Bureau of Industry and Security (“BIS”) issued guidance on addressing the risks of diversion of items subject to US export controls to countries or parties of concern (the “Guidance”). The Guidance summarizes mechanisms that BIS uses to notify companies and universities about parties that present diversion risks and that do not appear on its screening lists, as well the level of due diligence BIS expects in response to such communications, as follows:
- “Supplier list” letters: BIS may issue a letter to a company or university identifying a list of “parties of diversion concern,” along with guidance on red flags to watch out for and suggested due diligence, regardless of whether the recipient company or university has previously transacted with such parties. BIS indicates that it may learn about these parties of diversion concern through commercially available datasets (e.g., commercially available Russian import datasets). BIS will also generally provide tailored guidance about red flags to look out for in the context of transactions involving such parties. BIS indicates that letter recipients should closely scrutinize their transactions with the identified parties to determine if any such red flags are present, and to resolve any red flags before proceeding with a transaction.
- Project Guardian requests: BIS sends Project Guardian requests to companies and universities requesting that they be on the lookout for transactions with a specific party or inquiries regarding a specific item. In such requests, BIS asks that if any such transactions or product inquiries are identified that they be denied, and that the recipient contact their local Export Enforcement field office for further guidance. If a company or university voluntarily provides information to BIS in response to a Project Guardian request, it will be considered a mitigating factor in any subsequent enforcement action, even for unrelated conduct.
- “Red flag” letters: BIS issues “red flag” letters to companies to inform that them that one of their customers may have violated US export controls by reexporting or transferring the same type of item the company previously exported to that customer.Companies receiving such letters are expected to conduct additional due diligence to resolve the red flags identified by BIS before fulfilling any orders placed by customers identified in such letters (e.g. by affirmatively verifying that the customer is no longer engaged in violations of US export controls). Companies are also expected to keep detailed records on the information received from the customer and its decision-making progress. The Guidance notes that if a recipient of a “red flag” letter is not able to resolve the red flag, it should either refrain from engaging in the transaction or obtain a BIS export license, and that proceeding without resolving a red flag will be considered an aggravating factor in any subsequence enforcement action.
- “Is informed” letters: BIS may impose additional licensing requirements on specific entities, destinations, or US Person activities and communicate such supplemental license requirements via “is informed” letters to companies and universities. Each “is informed letter” will explain the scope of the supplemental license requirements, the applicable license review policy, and the process for submitting license applications to BIS. Recipients of “is informed” letters who engage in a prohibited transaction identified in the letter without authorization from BIS are deemed to have violated US export controls and may be subject to BIS enforcement.
The Guidance also recommends that companies and universities that export, reexport, or transfer Common High Priority List (“CHPL”) items (a set of items identified by their 6-digit Harmonized System code that Russia seeks to procure) conduct additional screening to prevent diversion of such items to Russia. BIS recommends screening counterparties involved in the export, reexport, or transfer of CHPL items using the screening list and tools made available by the Trade Integrity Project (“TIP”), which uses publicly available trade data to identify companies that have supplied CHPL items to Russia since 2023. The Guidance indicates that companies and universities transacting in CHPL items should closely scrutinize parties identified on the TIP website to determine if any red flags are present before proceeding with a transaction involving such items.
