Bureau of Industry and Security Publishes 2011 Best Practices to Prevent Unlawful Diversion
On September 1, 2011, the Bureau of Industry and Security (“BIS”) of the Department of Commerce published “2011 Best Practices for Preventing Unlawful Diversion of U.S. Dual-Use Items Subject to the Export Administration Regulations, Particularly through Transshipment Trade.”
Unlawful diversion occurs where an export-controlled item licensed to a particular recipient is transferred (either by the licensed recipient or by an intermediary) to a different actual recipient. In general, the actual recipient of the item is someone to whom obtaining an export license would have been difficult or impossible. For many years, BIS and other export control and enforcement agencies have focused on unlawful diversion as a major enforcement priority. A significant proportion of recent BIS enforcement actions have involved unlawful diversion to denied entities or to countries subject to embargoes such as Iran and China.
To safeguard against unlawful diversions, BIS has identified seven “best practices,” summarized below:
- Pay attention to “Red Flag” indicators listed on BIS’s website.
- Use intermediaries (expeditors, freight forwarders, etc.) with sound compliance programs.
- Conduct due diligence on and “know” your customer.
- Avoid routed transactions (i.e., ones involving an intermediary) unless the parties have a “long-standing and trustworthy” relationship.
- Use detailed and accurate destination control statements on shipping documents.
- Report ECCN or EAR99 classification to freight forwarders and report this information in the Automated Export System (or AES).
- Use information technology resources to the extent possible to conduct due diligence and protect against diversion of goods.
Companies involved in exporting of any controlled goods should take careful note of these seven “best practices.” Not only do they provide important guidance on preventing diversion, they establish a standard of care against which companies’ compliance measures will likely be judged in the event of a violation. Furthermore, BIS notes that the guidance has application beyond transactions under BIS jurisdiction (such as to those under the jurisdiction of the Department of State).
The full text of the 2011 Best Practices is available at the bottom of the following page:Print PDF