"Export Enforcement Five" Joint Guidance Released

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As a follow-up to the establishment of the “Export Enforcement Five” or “E5” partnership to coordinate on export control enforcement issues in June 2023, the governments of Australia, Canada, New Zealand, the United Kingdom, and the United States have issued joint guidance to industry and academia identifying high priority items critical to Russian weapons systems and urging specific actions to prevent diversion of these items to Russia through third countries.

Matthew S. Axelrod, Assistant Secretary of Commerce for Export Enforcement, emphasized the importance of consistent information across all E5 countries to better anticipate Russian tactics. "The private sector forms our frontline defense, blocking Russia's illicit access to items crucial for its unwarranted conflict with Ukraine," Axelrod said. "All E5 members are committed to enforcing our export restrictions diligently, ensuring no disparity between compliant entities and those facilitating Russia's diversions."

The E5 partnership, established on June 28, 2023, was born out of the necessity to bolster each nation’s export control regimes, bridge enforcement gaps, and promote collective investigation and enforcement actions. The E5 also acknowledged the need to consolidate enforcement ties with industry, countering Russian subversion more effectively.

The quint-seal guidance released provides industry and academia with the list of 45 prioritized Harmonized System (HS) codes containing items Russia needs for its weapons systems, of which nine (9) codes are the highest priority.

Priority HS Codes

Together with international partners including the European Union and Japan, the E5 have agreed to prioritize controlled items in certain Harmonized System (HS) codes that Russia is using in its weapons systems. The E5 have all either implemented sanctions and export controls or have increased scrutiny of these items to prevent potential sanctions and export control evasion.

The HS codes on the list include electronic components such as integrated circuits and radio frequency (RF) transceiver modules. The list includes items that are essential for the manufacturing and testing of electronic components and circuits retrieved from the battlefield.

The list of six-digit HS codes (HS6) is divided into four tiers, with tiers one and two containing particularly sensitive items:

  •   Tier 1: Integrated circuits (also referred to as microelectronics).

  •   Tier 2: Electronics items related to wireless communication, satellite-based radio

    navigation, and passive electronic components.

  •   Tier 3: This tier is divided into electronic and non-electronic items to provide greater

    clarity to the different industries that may work with these items.

  •   Tier 4: Manufacturing, production and quality testing equipment of electric componentsand circuits.

The guidance then identifies anomalous patterns associated with importers in countries outside of the Global Export Control Coalition (GECC), the 39-member global coalition that has implemented substantially similar controls in response to Russia’s invasion of Ukraine.

Applying a Risk-Based Approach to Exporting

Exporters are strongly encouraged to conduct additional due diligence when encountering one of the listed HS codes to ensure end user legitimacy and mitigate attempts to evade the E5’s respective export controls and/or sanctions. HS codes can be found on trade documents including commercial invoices, packing slips, airway bills, sea or house bills, or other supporting trade documentation.

Three Patterns Raise Concerns

After reviewing export data related to the list’s tier one and tier two HS codes, the E5 have identified three patterns associated with importers in non-GECC countries that raise diversion concerns:

  •   the company never received exports prior to February 24, 2022;

  •   the company received exports that did not include any of the tier one and tier two HS codes prior to February 24, 2022; or

  • the company received exports involving the tier one and tier two HS codes prior to February 24, 2022, but also saw a significant spike in exports thereafter.

Accordingly, the E5 is requesting that exporters conduct customer and transactional due diligence prior to export.

Specifically, when opening accounts for new customers engaged in trade and located in non-GECC countries, exporters are urged to:

  •   evaluate the customer’s date of incorporation (e.g., incorporation after February 24, 2022),
  •   evaluate the end-user and end-use of the item (e.g., whether the customer’s line of business is consistent with the ordered items), and
  • evaluate whether the customer’s physical location and public-facing website raise any red flags (e.g., business address is a residence, no website is available).

For existing customers, exporters should pay particular attention to anomalous increases in the volume or value of orders. Exporters should also request and review additional information about the end-use and end-user, as well as inconsistencies between the items ordered and the customer’s line of business.

Select Red Flag Indicators of Export Control and Sanctions Evasion

The E5 is providing an additional select list of potential red flag indicators of export control and/or sanctions evasion that may be relevant to exporters. (Consult your country’s export controls and/or sanctions authority to know your obligations.)

 As no single red flag is indicative of illicit or suspicious activity, all the surrounding facts and circumstances should be considered before determining whether a specific transaction is suspicious or associated with potential export control and/or sanctions evasion.

New Transactional and Behavioral Red Flags

  1. Transactions related to payments for defense or dual-use products (items that can be used for both civilian and military purposes) from a company incorporated after February 24, 2022, and based in a non-GECC country.

  2. A new customer whose line of business is in trade of products associated with the tier one or two HS codes, is based in a non-GECC country, and was incorporated after February 24, 2022.

  3. An existing customer who did not receive exports associated with the tier one or two HS codes prior to February 24, 2022, and is now exporting or re-exporting such items to known transshipment points.

  4. An existing customer, based outside the Export Five, received exports associated with one or more of the tier one and two HS codes prior to February 24, 2022, and requested or received a significant increase in exports with those same codes thereafter.

  1. A customer who lacks or refuses to provide details on banks, shippers, or third parties, including about end-users, intended end-use, or company ownership.

  2. Transactions involving smaller-volume payments, all from the same end-user’s foreign bank account, to multiple, similar suppliers of dual-use products.

  3. Parties to transactions listed as ultimate consignees or listed in the “consign to” field who do not typically engage in business consistent with consuming or otherwise using the subject commodities (e.g., other financial institutions, mail centers, or logistics companies).

  4. A customer that significantly overpays for a commodity, as determined by known market prices.

  5. A customer or address thereof that is similar to one of the parties on a proscribed party or sanctions list of one or all of the Export Five.

The full guidance is available online here.