BIS Posts Due Diligence Guidance for Transactions Destined for Pakistan

On August 30th, BIS published Due Diligence Guidance regarding exports, re-exports, and transfers to Pakistan. With the increased concern regarding Pakistan’s nuclear program and risks of diversion, BIS is urging companies to conduct additional due diligence when it comes to transactions destined for Pakistan. The guidance highlights supplemental licensing requirements, as well as best practices for screening customers in Pakistan in order to prevent diversion to unauthorized end-uses and end-users.

There has been a multiple year history regarding BIS actions involving Pakistan. Since 1992, Pakistan has been subject to end-use restrictions on items not listed on the Commerce Control List (CCL), or items designated as EAR99, when an end use for certain missile-related activities is identified. In response to the detonation of a nuclear device in 1998, BIS imposed supplemental licensing requirements on certain entities in Pakistan who were determined to have been involved in nuclear- or missile-related activities. These parties were added to the Entity list. More recently, BIS added additional Pakistani parties to the Entity List, as well as other entities involved in schemes to acquire or export prohibited items to Pakistan.

744 Restrictions

In addition to licensing requirements for items listed on the CCL, items destined to certain nuclear- or missile-related end-uses or end-users are subject to licensing requirements, even if the item is classified as EAR99. End-Use/End-User based requirements are detailed in Part 744 of the Export Administration Regulations (EAR). According to the BIS guidance posted, the following sections of Part 744 should be carefully reviewed prior to exporting, re-exporting or transferring items to Pakistan which may be subject to end-use/user requirements:

• 744.2: A license is required to export, reexport, or transfer (in-country) to or within any country not listed in Supplement No. 3 to Part 744 of the EAR, any item subject to the EAR if you know at the time of the contemplated transaction that the item will be used, directly or indirectly, in a nuclear explosive activity, unsafeguarded nuclear activity, or certain nuclear fuel cycle activities, whether or not subject to International Atomic Energy Agency safeguards.

• 744.3: A license is required to export, reexport, or transfer (in-country) to or within a country listed in Country Group D:4 (Supplement No. 1 to Part 740 of the EAR), which includes Pakistan, any item subject to the EAR if you know that the item will be used: in the design, development, production, or use of a missile or UAV for the delivery of chemical, biological, or nuclear weapons; or in the design, development, production, or use of a missile or UAV capable of a range of at least 300 kilometers. In addition, a license is required to export, reexport, or transfer (in-country) to or within a country listed in Country Group D:4 any item subject to the EAR if you know that the item will be used in the design, development, production, or use of a missile or UAV, but you cannot determine the range of such systems or whether they will be used for the delivery of chemical, biological, or nuclear weapons.

• 744.16: The Entity List, which contains a list of entities ineligible to receive any item subject to the EAR without a license.

BIS may inform persons that a license is required for a contemplated export, reexport, or transfer (in-country) pursuant to Sections 744.2(b) or 744.3(b) of the EAR due to an unacceptable risk of use in, or diversion to, the activities described above. BIS may provide specific (individual) notice or amend the EAR to provide general notice to the public of such licensing requirements.

Due Diligence

BIS suggests screening all parties to a transaction against the Restricted Parties Lists to ensure parties are eligible to receive the items exported. This is a best practice for any transaction. BIS suggests reviewing the entity list separate in addition to any automated screening, as not all screening tools capture the Entity List.

Any red flags should be resolved prior to shipment, but particular attention should be paid to items that have potential nuclear- or missile-related end-uses. All red flags must be resolved prior to any transaction taking place. If red flags are not resolved, a license or advisory opinion must be submitted to BIS. There is a complete list of red flags,  however, some common ones include:

• The customer or its address is similar to one of the parties found on the Commerce Department’s list of denied persons.
• The customer or purchasing agent is reluctant to offer information about the end-use of the item.
• The product’s capabilities do not fit the buyer’s line of business, such as an order for sophisticated computers for a small bakery.
• The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.

BIS also listed items commonly sought by nuclear- and missile-related entities, but not listed on the CCL or only controlled for Anti-Terrorism reasons (AT). Those items include:

• Connectors designated EAR99
• Electromechanical relays designated EAR99
• Gas measurement equipment designated EAR99
• Global positioning satellite (GPS) systems described in ECCN 7A994
• Power supplies designated EAR99
• Reflectometers designated EAR99
• Vacuum pumps not described in ECCN 2B231

Exporters should pay particular attention to these items destined for Pakistan or other countries with nuclear- and missile-related restrictions. Any suspicious inquiries should be reported to the Office of Export Enforcement (OEE) via the online form  or via the hotline.

If you have any questions about a particular transaction or resolving red flags, please contact Export Solutions for a free consultation.