BIS Plans to Tackle Diversion Risks with Unidentified End Users
In October 2024, the Bureau of Industry and Security (BIS) issued a Notice of Proposed Rulemaking (NPRM) aimed at addressing diversion risks in transactions involving unidentified end users, with a proposed rule expected in March 2025. This marks the beginning of a rulemaking process, inviting stakeholder feedback to help shape the final regulation. Export compliance professionals, particularly in the tech sector, welcome this initiative, as they often grapple with the complexities of managing diversion risks in multi-tier sales structures where the ultimate end user is not always identifiable.
Unique Compliance Challenges with Unknown End Users
Transactions with unknown end users pose unique compliance challenges. Companies must rely on enhanced due diligence to verify the legitimacy of purchases and intended uses. It is well understood that the consignee listed in a shipment is not always the ultimate end user. Modern logistics often involve intermediaries, such as distributors or resellers, particularly for high-tech goods like microelectronics or aerospace components. These intermediaries fulfill critical roles in order fulfillment, payment management, and logistical coordination but also introduce significant diversion risks, especially in transshipment hubs to Belarus and Russia such as the UAE and CIS countries.
BIS Guidelines and Exporter Responsibilities
The BIS Export Compliance Guidelines outline the responsibility of exporters to prevent U.S.-origin items from reaching unauthorized end users or destinations. Companies are expected to develop robust Export Control Compliance Programs (ECCPs) that proactively address potential diversion risks. The guidelines emphasize vigilance for red flags, including:
Customers unwilling to provide information about the end user.
Limited business background of the purchaser.
Unfamiliarity with product performance characteristics.
Refusal of routine installations or after-sales services.
Use of PO boxes or unsuitable facilities for ordered items.
Histories of sanctions or export control violations.
The Need for BIS Guidance
Clear and actionable BIS guidance is essential for mitigating risks associated with transactions involving unknown end users. The reseller model, while reducing operational burdens, complicates compliance, particularly in high-risk regions. Exporters need standardized frameworks to evaluate and address diversion risks effectively.
The proposed BIS rule represents a vital step toward modernizing export controls to align with current global trade complexities. As regulations evolve, exporters must enhance their compliance programs, incorporate BIS guidance into their practices, and remain vigilant against diversion risks to succeed in today’s regulatory environment.
Disclaimer: The views expressed here are solely my own and do not represent the positions of my employer. They do not constitute legal advice nor create an attorney–client relationship.