On 28 June 2023, the US Bureau of Industry and Security (“BIS”) announced that the “Five Eyes” countries (Australia, Canada, New Zealand, the United Kingdom and the United States) have agreed to formally coordinate on export control enforcement, with a particular emphasis on the export controls targeting Russia and Belarus, which have been a core tool in the broader sanctions toolbox. Baker McKenzie has deep export controls expertise in four of the Five Eyes countries: Australia, Canada, the United Kingdom, and the United States. We asked some of our experts in these countries for their thoughts on this latest development and what it could mean for multinational companies.
Brief background
As summarized by BIS, the collaboration further aims to:
- facilitate the exchange of information related to export control violations;
- leverage enforcement resources to expand each country’s capacity to prevent and deter evasion of export controls;
- minimize gaps in enforcement, and foster joint investigations and coordinated enforcement actions; and
- strengthen partnerships with the private sector to enhance the resilience of global supply chains and prevent unauthorized diversion of controlled items.
What does this development mean for multinational companies?
- Given the very close security relationship between the Five Eyes countries, we expect this initiative to have a significant impact on the compliance and enforcement risks for companies with business in these countries, perhaps even more so than the G7 Enforcement Coordination Mechanism. We do not say this lightly, as we anticipate that the G7 Enforcement Coordination Mechanism will have significant impact on sanctions enforcement across the G7, as evidenced by our blog series earlier this year “Sanctions Enforcement Around the G7” (you can find links to that blog series here).
- We would not be surprised if the Five Eyes enforcement collaboration borrowed some elements from the collaboration announced in October between the US and UK sanctions authorities (the US Office of Foreign Assets Control (OFAC) and the UK Office of Financial Sanctions Implementation (OFSI)). This could include personnel exchanges for capacity-building, reflecting the secondments we are seeing between OFAC and OFSI. Given the particularly robust historic enforcement by US BIS, overall, we expect this Five Eyes coordination to result in an increased enforcement environment throughout the rest of the Five Eyes countries.
- US BIS could deploy officials to the other Five Eyes countries, using Canada as a blueprint. In January 2023, BIS announced that it would be hiring someone to fill a full-time analyst position in Canada, which Assistant Secretary Matt Axelrod said would be the first time ever that BIS had embedded a full-time analyst outside the United States.
- While the initial emphasis of this initiative is the export controls targeting Russia and Belarus, we do not expect this initiative to be limited to Russia and Belarus.
What should companies do now to prepare for the impacts of this development?
- Companies with business operations or supply chains that touch these countries should assess whether their export compliance programs adequately address the compliance and enforcement risks in each of the Five Eyes countries.
- In the context of investigations, companies that discover export controls compliance issues or potential violations involving more than one of these countries should ensure that their investigation protocols take into account the need for local expertise in each country.
- Companies should be prepared for local regulators in the Five Eyes countries to step up their enforcement activities. Some governments will also likely assess the adequacy of measures available for dealing with non-compliance with export control laws. This is in the context of reviews already underway, such as of the Australia autonomous sanctions regime (see our blog post here), where issues under consideration include more flexible enforcement options by introducing a system of civil pecuniary penalties in situations where the circumstances do not warrant a criminal conviction. There are also suggestions that the UK is contemplating a new civil penalties regime for export control offences, similar to certain sanctions violations.
- Companies should be mindful that their exports may be at risk for a verification of control status by local customs and/or export control authorities. Goods may be detained while the local regulator seeks pertinent information to determine the control status of the exported goods and/or verifies the information included in any export declaration.
- Incorrect export declarations or inconsistencies within a group of declarations may trigger a verification by local authorities. To avoid delays/the risk of detained goods, companies should ensure their export classifications are aligned with local control identifiers and should ensure that any required export declarations are accurate, complete, and contain the requisite level of detail.
- Should a local regulator initiate a verification of control status, exporters must ensure that underlying supporting documentation, such as country of origin certificate and technical specifications are accessible to provide to the regulator.
- Given enhanced coordination between the Five Eyes, companies should also ensure that an initiation of a verification of control status in one jurisdiction triggers internal communications to other jurisdictions in which a company operates.
