US, 'E5' Partners Release New Guidance on Avoiding Evasion of Russia Export Controls, Sanctions

Jointly compiled by the U.S., Australia, Canada, New Zealand and the U.K., which together formed the E5 partnership in June (see 2306280025), the guidance includes a list of 45 prioritized Harmonized System codes for items “Russia needs for its weapons systems,” of which nine or “highest priority.” It also “identifies anomalous patterns” that may raise diversion concerns, due diligence tips for screening such parties and red flags, the Bureau of Industry and Security said in a news release.

The list of HS codes is divided into four tiers, of which the first two are “particularly sensitive.” Those two cover integrated circuits of HS codes 8432.31, 8432.32, 8432.33 and 8432.39, as well as electronics items tied to wireless communication, satellite-based radio navigation and passive electronic components of HS codes 8517.62, 8526.91, 8532.21, 8532.24 and 8548.00.

Tier three includes 25 HS codes covering various electronics components, television cameras, telecommunication equipment, ball and roller bearings, aircraft parts, telescopic sights and navigational equipment. Tier four includes 11 HS codes covering manufacturing, production and quality testing equipment for electric components and circuits.

“Exporters are strongly encouraged to conduct additional due diligence when encountering one of the listed HS codes to ensure end user legitimacy and mitigate attempts to evade the E5’s respective export controls and/or sanctions,” the guidance said. “HS codes can be found on trade documents including commercial invoices, packing slips, airway bills, sea or house bills, or other supporting trade documentation.”

The list “will be updated when required,” the guidance said.

The guidance also identifies patterns associated with importers in non-Global Export Control Coalition (GECC) partnership countries “that raise diversion concerns.” Those are that the company never received exports prior to Feb. 24, 2022; that the company received imports prior to Feb. 24, 2022, but did not receive any from the high priority tier one and tier two HS codes listed in the guidance; or that the company received exports from those two tiers prior to Feb. 24, 2022, but saw a significant spike in exports after that date.

The GECC countries are Iceland, Liechtenstein, Norway, Switzerland, Australia, Canada, the 27 member states of the EU, Japan, South Korea, Taiwan, New Zealand, the U.K. and the U.S.

The guidance says exporters should “conduct customer and transactional due diligence” that address these diversion patterns prior to export. That includes evaluating the customer’s date of incorporation (and whether the customer was incorporated after Feb. 24, 2022), and evaluating the end-user and end-use of the item, and in particular whether the customer’s line of business is consistent with the ordered items. Exporters also should “evaluate whether the customer’s physical location and public-facing website raise any red flags (e.g., business address is a residence, no website is available).”

“For existing customers, exporters should pay particular attention to anomalous increases in the volume or value of orders. Exporters should also request and review additional information about the end-use and end-user, as well as inconsistencies between the items ordered and the customer’s line of business,” the guidance said.

The guidance also lists “new transactional and behavior red flags,” which include:

• Transactions related to payments for defense or dual-use products (items that can be used for both civilian and military purposes) from a company incorporated after Feb. 24, 2022, and based in a non-GECC country;
• A new customer whose line of business is in trade of products associated with the tier one or two HS codes, is based in a non-GECC country, and was incorporated after Feb. 24, 2022;
• An existing customer who did not receive exports associated with the tier one or two HS codes prior to Feb. 24, 2022, and is now exporting or re-exporting such items to known transshipment points;
• An existing customer, based outside the E5 countries, received exports associated with one or more of the tier one and two HS codes prior to Feb. 24, 2022, and requested or received a significant increase in exports with those same codes thereafter;
• A customer who lacks or refuses to provide details on banks, shippers, or third parties, including about end-users, intended end-use, or company ownership;
• Transactions involving smaller-volume payments, all from the same end-user’s foreign bank account, to multiple, similar suppliers of dual-use products;
• Parties to transactions listed as ultimate consignees or listed in the “consign to” field who do not typically engage in business consistent with consuming or otherwise using the subject commodities (e.g., other financial institutions, mail centers, or logistics companies);
• A customer that significantly overpays for a commodity, as determined by known market prices; and
• A customer or address thereof that is similar to one of the parties on a proscribed party or sanctions list of one or all of the E5.

“Failure to comply with these recommendations can result in reputational harm, future business relationship challenges, fines, and/or criminal charges,” the guidance said. “Know the laws and your obligations.”