On Tuesday, the U.S., UK, Australia, Canada, and New Zealand—known as the “Export Enforcement Five” or “E5”—issued joint guidance to industry and academia on how best to identify Russian export control evasion tactics. The E5 coordinates with other members of the Global Export Control Coalition (GECC) on export controls specific to Russia. In addition to the E5, the GECC countries are the 27 EU member states, Iceland, Japan, Liechtenstein, Norway, South Korea, Switzerland, and Taiwan.
The joint guidance identifies 45 six-digit Harmonized System (HS) codes containing items Russia needs for its weapons systems. When exporting goods listed in one of these HS codes, exporters are encouraged to conduct additional due diligence to ensure the end user is not attempting to evade export controls or sanctions. The HS codes are divided into four tiers based on priority:
- 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 components and circuits
As part of a company’s risk-based customer and transactional due diligence, the joint guidance outlines the following potential “red flags” that may indicate attempted export control or sanctions evasion:
- Transactions related to payments for dual-use or defense items from a company incorporated after February 24, 2022 and located in a non-GECC country;
- A new customer trading in Tier 1 or Tier 2 products, based in a non-GECC country, and incorporated after February 24, 2022;
- An existing customer who only started receiving exports of Tier 1 or Tier 2 products after February 24, 2022 and is now exporting or reexporting the goods to known transshipment points;
- An existing customer located outside the E5 who requests or receives a significant increase in Tier 1 or Tier 2 products after February 24, 2022;
- A customer who cannot or will not provide details on banks, shippers, or third parties (e.g., end-users); intended end-use; or corporate ownership;
- Transactions involving smaller-volume payments from the same end-user’s foreign bank account to multiple suppliers of dual-use products;
- Parties listed as the ultimate consignee or in the “consign to” field who do not typically engage in business involving the goods being shipped (e.g., other financial institutions, mail centers, logistics companies);
- A customer paying significantly more than the known market price for a good; or
- A customer or address similar to one of the parties sanctioned by one or more of the E5.
This joint guidance builds on the Tri-Seal Compliance Note released by the U.S. Commerce, Treasury, and Justice Departments earlier this year.