US Exporters Being Asked to Certify Their Products Don’t Contain Russian Steel

As the EU implements its new import restrictions on Russian iron and steel, European companies are starting to ask U.S. exporters whether their products contain those Russian metals, said Scott Gearity, a consultant with the Export Compliance Training Institute. Gearity said most U.S. companies shouldn’t face any legal issues in making that certification, and Bailey Reichelt, a lawyer with Aegis Trade Law, stressed that companies don’t need to include an end-use statement as part of every benign contract, a practice that could scare potential customers that don’t deal in items subject to trade controls.

The EU last month issued guidance on conducting due diligence on iron and steel products processed in third countries with inputs from Russia (see 2310050022 and 2210060071), a practice lawyers have said could prove challenging (see 2307070025). Gearity said some U.S. companies “already” have received requests from their European customers asking them to certify their products don’t use Russian steel.

Gearity, speaking during a LinkedIn event last week hosted by the Export Compliance Training Institute, said U.S. companies in that situation should first ask why their European customer is asking for the certification. If the reason is to comply with the bloc’s new restrictions on Russia, and the U.S. company is “confident” that their certification is accurate, “I don't see a big problem with it,” he said.

But that scenario can be more complicated if U.S. companies receive similar requests to certify that their products don’t contain raw materials from other countries, Gearity said, such as Israel. That could lead to an antiboycott violation, he said, even if the U.S. company doesn’t comply with the request. The Bureau of Industry and Security in September fined Pratt & Whitney nearly $50,000 for failing to timely report multiple requests to participate in an unsanctioned foreign boycott (see 2309070017).

“But that’s not really going to be an issue with Russia,” Gearity said. Reichelt agreed, saying the U.S. “wants you to not do business with Russia.”

Although end-user statements and certifications can be a helpful compliance practice, Reichelt warned against overusing them. She said some companies “put a destination-control statement on everything regardless of if it's export controlled or not.” Some customers who receive that end-user statement, especially ones that weren’t expecting to receive any export controlled items, may not know how to respond, she said.

She also said a company that places an end-user statement on every transaction may be a sign that the company doesn’t properly classify its items.

“That gets you into a whole other issue with lots of resources that will have to be expended later on. You're kicking the can down the road by not doing it accurately,” Reichelt said. “Whether you under-control or over-control, just be accurate. If you're going to do it, just do it right.”

Some companies, especially businesses outside the U.S., are just seeking extra reassurance in their contract to make them “feel good about the transaction,” she said. “There's not really a prohibition on giving them warm, fuzzy feelings about things that are true and accurate,” Reichelt said. “I think a lot of people get caught up in: there needs to be a law authorizing you to do something. And when there's just an absence of guidance, they're very scared of it.”

Gearity and Reichelt also touched on some of the export compliance challenges faced by freight forwarders and other parties slightly removed from the actual item being shipped, such as second- or third-tier contractors. Gearity said freight forwarders “have a tough job,” partly because their compliance role isn’t always clearly defined, including within export regulations.

“You’ve got to deal with a lot of people who are putting all sorts of stuff into your hands and don't necessarily tell you what it is or describe it very well, and you have some responsibility for it, but the regs don't always make it clear how much responsibility you have for it,” Gearity said. “So I have a lot of empathy for freight forwarders.” A senior BIS official in September asked forwarders to be more proactive in export compliance even though they may not always have the “primary” responsibility for ensuring goods comply with export licensing requirements (see 2309120031).

Reichelt said most parties in a transaction have a responsibility to monitor for red flags. But her clients who are second- or third-tier contractors -- in an effort to be compliant -- sometimes unnecessarily look to “challenge other people's compliance programs or other people's judgment on how they ran a classification.”

“You're not expected to be the export police. If there's a red flag, you should evaluate it, and you should document your evaluation, but you don't have a duty to do other people's job for them in running their classifications for them or policing them. That's not on you,” Reichelt said. “You're only obligated to what the regs obligate.”