BIS and State Department Officials Discuss End-Use Checks for Exports
At the Bureau of Industry and Security’s 2010 Annual Export Controls Update Conference, BIS and State Department officials discussed end-use checks, including BIS pre-license checks and post shipment verifications and the State Department’s “Blue Lantern” program.
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Highlights of the presentation include:
Post Shipment Verifications Make Up Most of BIS End-Use Checks
As part of its licensing process and preventative enforcement efforts, BIS selectively conducts end-use checks on certain dual-use export transactions. BIS end-use checks are:
Pre-license checks -- are performed in response to red flags on licensing applications that suggest a high likelihood of diversion. PLCs validate information on export license applications.
Post shipment verifications - for licensed goods are performed pursuant to a licensing requirement or spot check. PSVs for no-license required goods are performed because there is a risk of potential diversion. PSVs strengthen assurances that all parties comply with an export license and licensing conditions to deter diversions.
Unfavorable outcomes rose. Through the 3rd quarter of fiscal year (FY) 2010, BIS completed 339 end-use checks (15% PLCs; 85% PSVs) in over 30 countries and approximately 27% were unfavorable. In FY 2009, BIS completed 737 end-use checks (14% PLCs; 86% PSVs) in over 31 countries and approximately 21% were unfavorable.
DDTC’s Blue Lantern Program Monitors Defense Article, Services End-Uses
According to its FY 2008 annual report, the State Department Directorate of Defense Trade Controls’ Blue Lantern program monitors the end-use of defense articles (including related technical data) and defense services exported through commercial channels and subject to Department of State licenses or other approvals under section 38 of the Arms Export Control Act (AECA).
The objectives of the program are to (i) build confidence in the defense trade relationship; (ii) regulate technology transfer; and (iii) impede gray market arms trade (the gray market arms trade uses legitimate means for illicit ends).
Blue Lantern end-use monitoring entails pre-license, post-license, or post shipment inquiries or “checks” undertaken to verify the bona fides of proposed foreign consignees and end-users, to confirm the legitimacy of proposed transaction, and to provide “reasonable assurance that:
- the recipient is complying with the requirements imposed by the U.S. Government with respect to use, transfers, and security of defense articles and defense services; and
- such articles and services are being used for the purposes for which they are provided.”
Unfavorable checks declined. In 2009, there were more than 750 Blue Lantern end-use checks for more than 83,000 license requested. The number of checks has almost quadrupled since the program began in 2000. Of the Blue Lantern cases closed during FY 2009, 13.5% were “unfavorable”, down from an average unfavorable percentage of 14-20% in past years.
(Unfavorable means that the information discovered during a check does not match information provides on export authorization request. This can range from relatively benign to strong indication of diversion or misuse.)
Reasons for unfavorable checks. The reasons for unfavorable checks in FY 2008 included:
•Indications or evidence of diversion or unauthorized retransfer or re-export (24%)
•Foreign party (end-user and/or consignee) involved in transaction but not listed on license/application (23%)
•Unable to confirm order or receipt by end-user (18%)
•Unauthorized brokering (9%)
•Warehousing or stockpiling (6%)
•Derogatory information / foreign party deemed unreliable recipient of USML (5%)
•Unable to confirm existence of foreign party listed on license (5%)
•Refusal to cooperate (5%)
•End-use differs from that listed on license (1%)
If a check is unfavorable, the State Department (i) can recommend license request be rejected or denied, (ii) may put U.S. and foreign parties on Watch List, or (iii) may refer the case to enforcement for further action.
(See ITT’s Online Archives or 06/09/10 news, 10060806, for BP summary announcing the posting of DDTC’s FY 2009 Blue Lantern End-Use Monitoring Report.)
End-use checks presentation available by emailing documents@brokerpower.com.