BIS Finds New Patterns of Export Control Evasion through Improved Targeting
Better targeting by the Bureau of Industry and Security is leading to higher “unfavorable rates” for foreign end use verifications, said Jose Rodriguez, director of the International Operations Division at the BIS Office of Enforcement Analysis. Speaking at the Sept. 11 meeting of the Regulations and Procedures Technical Advisory Committee, Rodriguez said the past three years have seen unfavorable rates in the range of 20 to 21 percent, compared to unfavorable rates of 9 to 11 percent in the three preceding years. The new emphasis has allowed OEA to identify more red flags and best practices that it will later make available, he said.
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Before 2009, most checks were done on licensed transactions. Over the last three years, that emphasis has shifted to a split of 40 percent licensed transactions / 60 percent controlled but license excepted. BIS is targeting higher risk transactions, so the increase in the unfavorable rate from pre-license checks (PLC) and post-license verifications (PSV) isn’t necessarily indicative of more diversion, Rodriguez said.
When it shifted from licensed to license excepted transactions, BIS found a pattern of abuses by small trading companies in transshipment countries, Rodriguez said, which would ship U.S. items to different prohibited destinations. Intermediaries and broker companies in particular pose a higher risk. The main problem seems to be first sales to these companies, Rodriguez said, as they don’t have an established trading history with the U.S. or with the exporter.
Furthermore, he said, BIS has found exporter due diligence to be lacking in many of these cases. For example, in one case a U.S. company exported telecommunications equipment to a company that billed itself as a music shop. BIS enforcement quickly found irregularities, and Rodriguez said the exporter should have spotted the problem as well. Upon performing an end user check, the company acknowledged ordering the goods for a third party, but the third party was nowhere to be found.
Another trend BIS has recognized is that many of these small trading companies are “overnight operations.” When doing its end user checks, export control officers often find that the company no longer exists. There is no real way to detect that, Rodriguez said. But by being able to monitor these transactions, BIS will be able to continue monitoring when the questionable consignee is shipped U.S. items under a license exception that are controlled for higher-priority reasons like anti-terrorism and national security.
With respect to licensed transactions, the majority of unfavorable results of end user checks are due to compliance issues, Rodriguez said. Recently, BIS has found that many ultimate consignees on the license are saying they didn’t receive the license conditions from the applicant. In such cases, BIS is working with the exporters, Rodriguez said. Sometimes the exporters claim ignorance, while at other times, particularly in large companies, the license conditions don’t make it down to the actual user of the license. BIS has to work more with industry to make sure that license conditions and all the other compliance issues that can be addressed are addressed, Rodriguez said.
As a result of its findings, BIS is changing its targeting criteria. BIS is going to make these additional red flags available either through a paper or through more guidance on its website, Rodriguez said. BIS is also looking at the 80 percent of favorable transactions to improve best practices to share with industry.