Due Diligence Uncertainty Still Surrounds MEU, MIEU Rules, NCBFAA Officials Say

U.S. exporters and forwarders are still unsure how much due diligence is enough to comply with the Commerce’s Department’s recently expanded end-user and end-use restrictions, National Customs Brokers & Forwarders Association of America officials said. Although the Bureau of Industry and Security issued some guidance last year, the guidance didn't address all industry questions and was made more complicated by another set of restrictions that took effect this year, the officials said.

“On the export side, this has been a big issue for them that they're still adapting to today,” trade lawyer Oliver Krischik from GKG Law said during a May 5 panel at NCBFAA’s annual conference. “There's still a lot of uncertainty around this.”

BIS expanded licensing requirements surrounding exports to military end-uses and end-users in June 2020 (see 2004270027) and military intelligence end-uses and end-users in March this year (see 2101140035). Both caused confusion and uncertainty for exporters, who were unsure about how thorough their due diligence needed to be to satisfy BIS enforcement officials (see 2007090075 and 2102190042).

Those concerns still remain months later, Krischik said, although companies have adopted various due diligence methods. Some companies pay for business intelligence reports to investigate whether their customers are involved in military projects, he said, while others rely on their screening tools to scan the various sanctions and export control lists maintained by the Treasury, Commerce and Defense departments. Other businesses rely on end-user certificates, which require their customers to certify that they won’t use the export for a military or military intelligence end-use.

“But there's an open question in the industry as to what is sufficient and what BIS would consider sufficient,” Krischik said, adding that BIS hasn’t provided substantial guidance. “Looking at the different approaches, I don't think that there's one standard yet.” BIS has pointed to its January guidance on the 2020 MEU rule (see 2101200016) and said it may consider issuing more guidance.

Until then, forwarders should know how their exporters are approaching items captured under both rules and how they are documenting their due diligence, Krischik said. Joe Brogan, the chair of NCBFAA’s export compliance subcommittee, said the NCBFAA may update its Shipper's Letter of Instruction (SLI) Model to better reflect due diligence requirements for recent sanctions developments (see 2105040040) as well as BIS’s MEU and MIEU rule changes.

“I think we understand that we don't have the deep knowledge [the exporter has] with these end-users and companies overseas,” Brogan said. “The exporter is in the best position to gather information on the transaction, to know the goods and to know the uses of those goods.”

But sometimes the exporter may not be employing the best due diligence practices, Brogan and Krischik said. Although BIS maintains a military end-user list (see 2012220027), the agency has stressed that government lists aren’t exhaustive, and Krischik said forwarders should be wary of exporters who only conduct due diligence by screening against those lists.

“We've heard that some folks are treating it as though it is an exhaustive list,” he said. “So it's important for forwarders to have a little bit of knowledge of how their exporters are dealing with these sensitive exports to these countries, how they're dealing with this due diligence and this documentation of that due diligence.”

Forwarders may have been most directly impacted by the MEU rule’s change to Electronic Export Information filing requirements, which were revised to cover filings for certain exports regardless of the value of the shipment. The change met strong opposition from industry and caused BIS to postpone the effective date (see 2006250026). “That represented a huge change,” Brogan said. “We simply needed time to adapt.” Krischik said NCBFAA is monitoring whether exports to Myanmar will be captured under those filing requirements, especially after the country was made subject to BIS’s MEU and MIEU restrictions earlier this year (see 2103040075 and 2104080026).

BIS officials have told NCBFAA that “at least for the moment, they're not planning” to add Myanmar to the list of countries subject to the expanded EEI requirements, Krischik said. “But the situation is developing over there in Myanmar,” he said, “so the government may take action as things proceed.”