Recently, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued new guidance to exporters intended to further assist BIS in its efforts to crack down on third-party diversion to Russia.

Specifically, BIS’s recent guidance outlines the various mechanisms it has employed—outside of its usual public screening lists (i.e., the Unverified List, Entity List, Military End-User List, and Denied Persons List)—to notify companies and universities about parties that present risks of diversion to Russia. According to BIS, it has obtained information supporting the below-described notifications through a variety of sources, including information from the exporting community, government data, news reports, and other open-source resources. The specific mechanisms utilized by BIS to help prevent exporters from unknowingly exporting items to parties of concern include:

1. “Supplier List” Letters identify parties presenting diversion risks that are not on public screening lists but have been identified by BIS as having exported to or facilitated transactions with destinations or end users of concern. BIS may send “Supplier List” letters to companies and institutions that have had no prior dealings with the foreign parties identified therein. Further, BIS encourages recipients of such letters to carefully examine transactions with the named parties for any potential red flags.

2. Project Guardian Requests advise companies and institutions to monitor or “be on the lookout” for transactions with specific parties or for inquiries about specific items. BIS may also advise recipients to deny or suspend any such transactions or inquiries and to contact the local Export Enforcement field office for guidance.

3. “Red Flag” Letters indicate to companies that one of their customers may have engaged in possible violations of the Export Administration Regulations (“EAR”) regarding the same item a company previously exported to that customer. “Red Flag” letters indicate a “high probability” that a future export violation may occur based on the customer’s reexport or transfer history. Recipients of “Red Flag” letters should conduct additional due diligence to be certain they can overcome the red flag identified by BIS before proceeding.

4. “Is Informed” Letters impose licensing requirements on specific items destined to specific entities or destinations, in addition to specific U.S. person activities. Companies and universities must comply with these requirements to avoid violating the EAR, as non-compliance with an “Is Informed” letter is equivalent to non-compliance with any other export licensing requirement for enforcement purposes. While BIS has reemphasized the use of such letters, they are not new.

Importantly, BIS will consider as an aggravating factor in any enforcement action a company or university’s decision to proceed with a transaction (without obtaining an export license) when the company or university knew or had reason to know or believe that a red flag exists which could not be affirmatively addressed or explained.

Screening Against Trade Integrity Project Website

Beyond the above notifications, BIS also increased due diligence expectations for exporters dealing with Common High Priority List (“CHPL”) items, which the U.S. government and its allies have identified as items Russia seeks to procure for its weapons programs. For transactions involving CHPL items, BIS strongly recommends screening against the list provided by the Trade Integrity Project (“TIP”), a non-government U.K. entity that monitors military and dual-use trade with Russia and has identified parties in third countries with a recent history of exporting CHPL items to Russia. For transactions involving CHPL items and parties identified on the TIP list, BIS states that companies should conduct additional due diligence to spot potential red flags before proceeding with any such transactions.

Recent BIS Enforcement Actions

In addition to the new guidance, BIS released an updated version of its Don’t Let This Happen to You! report, which includes case examples of recent BIS criminal and administrative enforcement actions. New actions involve violations of the antiboycott regulations, firearm exports, exports related to China and Iran, non-compliance with a BIS settlement agreement, as well as a voluntary self-disclosure from a university. BIS urges exporters to review this publication to understand the types of activities and missteps that lead to enforcement actions and to avoid violations of the EAR.

For example, according to BIS, Cryofab, Inc., a New Jersey-based manufacturer of cryogenic equipment, violated the EAR by exporting gas storage containers and related tools to a nuclear research facility in India without the required export license. BIS stated that Cryofab failed to screen the facility, Bhabha Atomic Research Center (“BARC”), against the BIS Entity List, on which BARC was designated, and did not seek or obtain the required licenses for its transactions. BIS ordered Cryofab, which BIS noted to be an experienced exporter, to pay a civil penalty and to have an independent consultant complete an external audit of its export controls compliance program.

In addition to companies, BIS has increasingly focused its efforts on universities and research institutions, which more often now must ensure they have effective export compliance programs in place, whether due to the involvement or employment of foreign national researchers, global exchange programs, or other international touchpoints that are now common in higher education.

In its report, BIS also highlighted a recent settlement with Indiana University involving the export of genetically modified fruit flies classified under ECCN 1C353 to research institutions and universities around the world without the required export licenses. Notably, Indiana University voluntarily disclosed the violations to BIS, which stated that the university’s disclosure and cooperation resulted in a non-monetary penalty. Instead, BIS imposed a suspended one-year denial order on its export privileges for certain ECCN Category 1C items, required export compliance training to relevant administrators, and required the university to deliver presentations on the circumstances of its violations to relevant forums.

BIS’s cases demonstrate the various ways companies and institutions may run afoul of the EAR, with examples covering China, Russia, Iran, and the rest of the world, as well as licensing requirements imposed by controls related to national security, military end-users, and others. The two aforementioned actions highlight the importance of carefully reviewing all items and parties to a transaction for any licensing requirements or other prohibitions, in addition to the potential benefits of disclosing any actual or apparent violations once they become known.