Have you considered the adverse consequences of transferring dual-use goods into Russia without proper export control compliance?
Importing dual-use goods into Russia lays a heavy burden on the exporter. With the ever-changing sanctions and control lists to monitor, even a slight oversight can cause a critical export control violation.
Many businesses have paid the cost of non-compliance, from legal penalties to restricted market access to loss of export privileges. And the last thing you want for your business is risking non-compliance when importing into Russia.
At Blackthorne IT, this article explores the major risks of transferring dual-use goods into Russia, how export control violations happen, and actions you can take to avoid them.
Let’s dig deeper!
What Are Dual-Use Items Controls?
Dual-use item controls are national and international regulations governing the export, brokering, transit, and technical assistance of dual-use goods.
These controls include export licensing, sanctions, strict documentation procedures, and regulatory compliance obligations.
Specific regulations may vary from one country to another. However, they are all meant to prevent mishandling of advanced technologies. When exporting to countries like Russia, these regulations become even more complex, risking non-compliance.
7 Risks of Exporting Dual-Use Goods to Russia
Beyond closing that sale and shipping your goods, you have a legal responsibility to ensure compliance with export control regulations, sanctions, and documentation requirements.
Here are the seven main risks your business can face when exporting dual-use equipment to Russia:
1. Export Compliance Diversion
Export compliance diversion occurs when dual-use goods are diverted to unintended end-users, end-uses, or destinations. This is possible through transshipment via third countries or deceptive documentation.
The risk has been on the rise with the increase in Russian proliferators acting as transshipment agents only to divert dual-use equipment from third countries to Russia. The exporter is responsible for preventing export compliance diversion, as violations are treated as planned non-compliance.
2. Rapidly Changing Dual-Use Goods Sanctions
Export control authorities regularly update sanctions for dual-use goods destined for Russia, particularly in the European Union, the US, and the UK. A lack of real-time visibility into the changing export rules places you at the risk of violating new sanctions.
For instance, a policy revision or an update to the sanctions list can make your business non-compliant during shipment, even though you were compliant at the time of contract signing. Hence, you must stay up-to-date with dual-use controls that may affect your shipment before, during, and after delivery to Russia.
3. Inadequate End-Use and End-User Screening
Adequate vetting of product end users and applications is essential in export control compliance. Over-reliance on customer-provided information without verifying parties involved in the transaction can result in export control violations.
The risk of violation increases when involved parties intentionally conceal their identity or end-use plans.
For instance, a Russian importer can anonymously buy equipment parts meant for the production of satellites and guided bombs, disguised as equipment for a civilian telecom firm.
Beyond the end-user declaration, here are some best practices you can adopt for effective end-use and end-user screening:
- Vet all customers and intermediaries against updated sanctions and regulations and establish automatic re-screening protocols.
- Request end-use certificates confirming that the buyer is the ultimate recipient and has no intentions of re-exporting or using the goods for military purposes.
- Communicate regulatory conditions in writing and require written acknowledgement from the recipient.
- Request official business registration documents to verify the legitimacy of the buyer.
- Research the digital presence of the buyer on social media and the company website to identify any inconsistencies in business activities.
4. Inaccurate Classification of Dual-Use Goods
Dual-use goods must be accurately classified under the relevant multilateral export control regimes, such as the Missile Technology Control Regime and the Nuclear Suppliers Group.
Detailed systems such as the Export Control Classification Number (ECCN) in the US and the EU’s Export Control Number (ECN) demand precise assignment of classification codes to determine licensing requirements and compliance procedures.
A mismatch in the classification can trigger the wrong export requirements, leading to unmet regulatory requirements or unauthorised shipments.
When customs authorities suspect a misclassification, your shipment can be delayed, detained, or subjected to further scrutiny until compliance is verified.
5. Documentation Errors
Documentation errors are among the most frequent causes of export control violations. Common mistakes include missing or incorrect documents, inaccurate or incomplete information, and failure to comply with documentation requirements.
Any errors, omissions, or inconsistencies can result in demurrage fees, rejection of the shipment, or delayed delivery.
For instance, a mismatch between a commercial invoice and a packing list can raise issues, extending the customs clearance process.
Your business should maintain technical documentation such as conformity assessment reports and compliance approvals to support traceability, end-use monitoring, and compliance audits.
Other documentation best practices to lower the risk of non-compliance include:
- Identify mandatory documentation and maintain it for the minimum legally required duration.
- Include documentation retention clauses in contracts with intermediaries like freight forwarders, distributors, and logistics providers.
- Implement a robust document filing and retrieval system (physical and electronic) for ease of access.
- Maintain a log of communication with export authorities, including classification and end-use control guidelines for non-listed dual-use items.
6. Insufficient Internal Controls
Many exporters, especially SMEs, engage in cross-border trade without a formal internal compliance program (ICP). This increases non-compliance risk when transferring dual-use goods to high-risk destinations like Russia.
Effective ICPs embed export compliance at every level of operations. This starts with a commitment from senior management and continues with clearly defined roles, spearheaded by the Chief Export Control Officer (CECO).
The CECO oversees export screening, stays updated on regulatory changes, and guides internal compliance procedures.
The key components of sufficient internal controls include:
- A dedicated compliance structure, independent from commercial or sales functions.
- End-use and end-user screening protocols.
- Transaction and shipment verification procedures.
- Regular performance reviews and internal audits to identify and correct weaknesses.
- Tailored risk assessments based on the size, sector, and trade activities of the organisation.
- Security measures to combat unauthorised transfer of dual-use goods, including software and technology.
- Staff training to create awareness of emerging export violations and resolution procedures.
Additionally, large organisations can appoint export managers within individual business units to oversee compliance at all levels.
7. Limited Supply Chain Visibility
Losing track of the destination of your goods and the end users is a major compliance risk when exporting dual-use items.
When importing to Russia, goods often pass through multiple intermediaries, from the freight forwarders to logistics providers, consignee, and resellers.
Without clarity of the network, you may unknowingly facilitate diversion, transshipment, or unauthorised re-exports. To reduce the risk, you must ensure your goods are traceable from the source to the destination.
Here are the steps you can take to optimise supply chain visibility:
- Establish clear compliance goals with internal stakeholders and supply chain partners.
- Identify pain points, high-risk routes, and non-compliance loopholes through route and cost tracking software and optimisation tools.
- Vet supply chain partners based on export compliance capability.
- Leverage supply chain technology that supports real-time tracking and data sharing across parties involved.
- Build a compliance-conscious supply chain network with transparency and shared responsibility as the core values.
While the best practices discussed lower the risk of non-compliance, it can be challenging to address any non-compliance issues, especially without legal expertise in trade compliance. Hence, you may consider partnering with a legally authorised exporter of record like Backthorne for dual-use compliance during and after importation.
Why Blackthorne when Exporting to Russia
Blackthorne offers trade compliance at all levels of the global supply chain, from customs clearance to freight forwarding and logistics management.
Here are the top three reasons for working with us when exporting dual-use goods to Russia:
- Global accreditation and expertise: With over 25 years of experience in international trade, various trade bodies recognise us for financial and professional competence. This includes approval by the UK for customs compliance and an approved UN vendor.
- Comprehensive export compliance services: Blackthorne offers exporter of record and export licensing services for controlled items, ensuring technical, documentation, and customs compliance.
- Supply chain visibility: No need to worry about the status of your shipment, cost implications, or compliance. We have the tools and technology to track transaction records, comply with regulatory updates, and facilitate compliance audits.
You can email us today at sales@blackthorneit.com to mitigate compliance risks and export dual-use goods compliantly to your desired destinations.
