Ask for End-Use, End-User Statements for All Transactions, Commerce Officials Say

Exporters typically incorporate those statements into contracts when they want business partners to certify that they won’t send an item to a restricted party or use it in a way that violates U.S. export controls. Although some companies may require end-use or end-user statements only for the most restricted items and technologies, Commerce officials said they’re more frequently asking exporters to use them for all transactions, including items designated under the Export Administration Regulations as EAR99 -- less sensitive goods that often don’t require a specific license.

“There’s not a one-size-fits-all,” said one Commerce official, speaking on the condition of anonymity as part of a policy for career officials at the BIS annual update conference last week. “But when I met with the company and they would say, ‘Well, when should we ask for an end-user statement?’ All the time. It's just extra due diligence.”

Requiring those certifications can sometimes uncover red flags that the exporter otherwise would have missed, the official said. They gave a hypothetical example of an exporter selling an EAR99 steel cable to a foreign customer, who then certifies on an end-use statement that the cable will be used for a purpose that is very uncommon for steel cables or that doesn’t make sense.

“Now, all of the sudden, you went from having no red flags to their response suddenly creating a red flag, and that's part of the reason that we ask,” the Commerce official said. “Because even though it's an EAR99 item, again, a lot of EAR99 items require licenses when they go to certain end users or certain countries.”

Requiring those statements can also help shield exporters from potentially large fines if their items end up being used in a way that violates export controls, another Commerce official said. Exporters can use those statements to show BIS that they carried out some level of due diligence around a particular transaction, which can mitigate a possible penalty.

BIS in December fined electronics parts manufacturer Integra Technologies $3.3 million (see 2412180037) and chip industry supplier Indium Corporation of America $180,000 (see 2412230052) after both admitted to illegally selling EAR99 items to Russia.

“I always recommend having end-use and end-user statements, because as of right now, every violation that we identify can be up to $375,000 per violation,” the official said. “So it's up to you.”

BIS adjusted its penalties for inflation in January, which raised the maximum penalty for a violation of the Export Control Act from $364,992 to $374,474.

Another Commerce official said BIS “is not in the business of telling companies” what kind of compliance “that they do or don't have to do,” and much of it is based on a company’s “risk tolerance.” But if requiring customers to fill out an end-user and end-use statement is as simple as adding one more form onto dozens of other forms that they must fill out, the official said it’s worth it.

“If you just add that one form on the back, how much does it lower your risk? How much extra information does it give you? And how much cost does it add in the transaction?” the official said. “If it's not a lot, and it significantly lowers your risk, maybe just add it on.”

Those certifications can also help protect exporters against liability if a customer turns out to be a sophisticated export control evader that has experience hiding the item’s true destination from the U.S. seller, such as by reexporting an item multiple times and using different logistics companies for each leg of an item’s journey.

“This may come as a shock to some of you, but if there's a company that does all those things, we probably won't catch them either,” one Commerce official said. “And I don't think anyone in BIS or from the U.S. government expects you, when it's a hyper-sophisticated actor using all those methods, to be able to potentially stop it based on your risk compliance measures and trying to avoid risk.”

But the official noted that if the exporter required the customer to fill out an end-use statement and carried out “all those things to vet the customer,” that will likely mitigate any possible enforcement action.

“Export controls aren’t a wall, they’re a net,” the official said. “There are things that are getting through based on really sophisticated actors.”

They added that “you have to continue your business -- I mean, that's why you exist. You just need to protect yourself. We don't catch the smart ones either.”