New BIS Best Practices for Preventing Dual-Use Diversion
On August 31, 2011, the Bureau of Industry and Security published a new set of “best practices,” developed in cooperation with U.S. industry to help guard against the diversion of dual-use items shipped to a transshipment "hub" or to any intermediate country before being shipped to the country of ultimate destination. Recommendations include using only those forwarders that have sound compliance programs and avoiding routed transactions for dual-use exports.
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Applies to EAR Trade, but Could also Apply to “Export Logistics Supply Chain” and Others
BIS states that transshipment is a routine and growing part of legitimate world trade with logistical benefits, but also can be used illegally to disguise the actual country of ultimate destination. Transshipment practices may also create a risk that items are diverted to unauthorized end-users or end-uses.
While this guidance applies to items and transactions that are subject to the EAR, BIS states it clearly has broader potential application. BIS envisions this guidance as a step toward a strengthened dialogue with all members of the export logistics supply chain industry, other agencies that administer export controls, and foreign governments in a manner that may make the guidance pertinent beyond its application to the EAR.
7 Best Practices Focus on “Knowing” Customers & Trade Facilitators, Prevention
The following seven suggestions reflect BIS’ new best practices for industry to guard against diversion risk, particularly through transshipment trade:
Pay attention to red flag indicators -- Companies should pay heightened attention to the Red Flag Indicators on the BIS Website and communicate any red flags to all divisions, branches, etc., particularly when an exporter denies a buyer’s order or a freight forwarder declines to provide export services for dual-use items.
Use facilitators/forwarders with sound compliance - Exporters/Re-exporters should seek to utilize only those Trade Facilitators/Freight Forwarders that administer sound export management and compliance programs which include best practices for transshipment.
Obtain sufficient info from customers - Companies should “know” their foreign customers by obtaining detailed information on the bona fides (credentials) of their customer to measure the risk of diversion. Specifically, companies should obtain information about their customers that enables them to protect dual-use items from diversion, especially when the foreign customer is a broker, trading company or distribution center.
Avoid routed export transactions with dual-use exports - Companies should avoid routed export transactions when exporting and facilitating the movement of dual-use items unless a long standing and trustworthy relationship has been built among the exporter, the foreign principal party in interest (FPPI), and the FPPI’s U.S. agent.
Provide appropriate classification & destination info on docs - When the Destination Control Statement (DCS) is required, the Exporter should provide the appropriate Export Control Classification Number (ECCN) and the final destination where the item(s) are intended to be used, for each export to the end-user and, where relevant, to the ultimate consignee. For exports that do not require the DCS, other classification information (EAR99) and the final destination should be communicated on bills of lading, air waybills, buyer/seller contracts and other commercial documentation. For re-exports of controlled and uncontrolled items, the same classification and destination specific information should be communicated on export documentation as well.
Provide and report ECCNs for all exports - An Exporter/Re-exporter should provide the ECCN or the EAR99 classification to freight forwarders, and should report in AES the ECCN or the EAR99 classifications for all export transactions, including “No License Required” designation certifying that no license is required.
Use info technology to combat diversion threats - Companies should use information technology to the maximum extent feasible to augment "know your customer" and other due-diligence measures in combating the threats of diversion and increase confidence that shipments will reach authorized end-users for authorized end-uses.
(See ITT’s Online Archives or 07/28/11 news, 11072820, for BP summary of BIS stating it expected the update to these best practices soon.
See ITT’s Online Archives or 09/01/10 news, 10090120, for BP summary of BIS seeking comments on best practices from industry on the transit, transshipment, and reexport of dual-use items.
See ITT’s Online Archives or 01/26/11 news, 11012636, for BP summary of the routed transaction aspects of Census Bureau’s January 2011 proposed rule to modify Automated Export System requirements, etc.
See ITT’s Online Archives or 02/19/10 news, 10021930, for BP summary of a February 2010 BIS freight forwarder guidance, which included information on the responsibilities of the forwarding community, routed and non-routed export transactions, etc.)
BIS guide available here.