New BIS Guidance Covers Export Control Contract Clauses, Rental Addresses
New guidance issued last week by the Bureau of Industry and Security outlines how exporters should use contractual clauses in their sales contracts to prevent Russia-related trade violations, including how BIS views the EU’s requirement for a “no-Russia” clause. The agency also warned foreign corporate service providers about letting “bad actors” use rented addresses for billing or shipping, which they can use to evade detection when violating export controls.
The EU recently introduced a requirement for EU exporters to insert clauses in their contracts that bar reexports of certain sensitive goods to Russia, known as the “no reexport to Russia” clause (see 2402270046). BIS noted that the terms of any sales contract, including one with an EU company, “have no bearing on the application of U.S. export control restrictions under the EAR.” Exporters must secure a license for export controlled items “regardless of whether you purchased the items under a contract with a “No re-export to Russia” clause, BIS said in a new frequently asked question.
BIS also noted that it doesn’t require companies to include similar contractual clauses, but it said including some type of language about export controls “can help protect you as a seller and ensure your customer does not involve you in a violation” of the Export Administration Regulations, especially for shipments to foreign companies.
“It is particularly important for your foreign customers to understand that the licensing requirements for reexports and exports from abroad in the EAR continue to apply to transactions that take place after the initial export,” BIS said. “Including contractual clauses committing the importer in third countries not to” reexport the items to Russia or Belarus -- or committing them to not resell the items to a third-party business unless that third party also agrees not to sell the items to Russia or Belarus -- “demonstrates the seller’s commitment to minimizing the risk of unlawful diversion of the seller’s items.”
If a foreign customer declines to sign a contract that contains this language, BIS said “that should be considered a red flag that must be resolved before further engaging in the transaction.”
In separate FAQs, BIS said corporate service providers, including businesses that allow local and offshore customers to use their address as a registered place of business, have a responsibility to make sure the address isn’t used to violate U.S. export controls. “BIS may take action against companies or other persons involved in violations of the EAR if circumstances warrant this, even when that entity is not a principal party to the export transaction,” the agency said.
BIS also said it may add a corporate service provider’s address to the Entity List, which could impose specific licensing requirements for a transaction when a company using that address is involved in the transaction. The agency has added several addresses to the Entity List in recent months, and will add four more this week for their ties to the transshipment of goods to Russia (see 2408230016).
These service providers should screen all their customers against the U.S. government’s Consolidated Screening List, BIS said. “In some cases, they should also conduct additional background research to confirm that your customers are not trying to circumvent U.S. law through your services.”
The providers should also pay special attention to customers shipping items to Russia, Iran, North Korea and other countries under a U.S. embargo, BIS said. “If you have a customer engaged in trade with any of these highly restricted destinations, you should take extra care to ensure that they are not engaged in exports involving items subject to the EAR without the appropriate authorization or limit your association with such customers.”
Another set of FAQs said BIS “strongly recommends” screening both the name and address of a party in a transaction to determine whether they’re similar to any party on the Entity List or another U.S. denied party list. If a potential customer is a “near match” to a name or an address on the Entity List, BIS said that would be a “red flag” and recommends “detailed due diligence be undertaken.”
“Minor differences between a listed address and the address used on export paperwork should generally be considered immaterial,” BIS said, “and you should accordingly consider the address a match.” The FAQ lists several scenarios for when companies should consider a customer to be a match to an Entity List entry “despite certain differences.”
Other FAQs issued by BIS cover when shipments of empty nuclear containers to Russia may need a license and offer clarifications about how BIS end-user restrictions intersect with the Office of Foreign Asset Control’s Specially Designated Nationals List (see 2403200036).