BIS Guidance: Key Points for Exporters
In October 2024, the Commerce Department’s Bureau of Industry and Security issued New Guidance to Financial Institutions on Best Practices for Export Administration Regulations. The Guidance reinforces U.S. and non-U.S. financial institutions’ obligations under the Export Administration Regulations (EAR) to not knowingly facilitate violations of the EAR.
Importantly, the Guidance applies to U.S. and foreign financial institutions (FIs).
Although the Guidance is a directive to FIs, it very much affects exporter customers of FIs, with whom FIs must engage to comply with the Guidance. Indeed, some FIs have instituted broad export compliance protocols, required exporters to furnish export-specific information about their business and specific export transactions, and delayed clearing payments associated with specific transactions pending the completion of due diligence.
Given the impacts for exporters, we are providing this quick reference resource. For a deeper dive on the Guidance, see MassPoint PLLC’s October 2024 update, New BIS Guidance to Financial Institutions on Best Practices for Compliance with the Export Administration Regulations by Hdeel Abdelhady.
What Exporters Need to Know:
• The Guidance states that “every export has a related financial transaction,” positioning FIs as gatekeepers for export control compliance.
• This expanded FI role comes amid heightened national security concerns, particularly regarding Russia’s invasion of Ukraine and efforts to restrict China’s military modernization.
• Exporters should expect, and have received, increased scrutiny of their international transactions as FIs implement these requirements.
Understanding General Prohibition 10 (GP 10):
• FIs are required to enforce GP 10 of the EAR, which prohibits facilitating export violations.
• This applies to both U.S. and foreign FIs, regardless of location or nationality.
• FIs can be held liable if they proceed with a transaction “with knowledge” that an EAR violation has occurred, is about to occur, or is intended.
• This “knowledge” standard includes not just what FIs actually know, but what they should have known through due diligence.
• Exporters should anticipate that FIs will conduct due diligence on customers and specific transactions to avoid potential liability.
How FI Compliance Affects Exporters:
1. Expect Expanded Screening
- Your FI will likely screen you, your customers, and transaction parties against multiple restricted lists:
- Entity List
- Unverified List
- Military End-User List
- Denied Persons List
- Special attention will be paid to Common High Priority List (CHPL) items likely or potentially destined for Russia.
- Both names and addresses will be screened to catch shell company evasion.
- Cross-border payments face additional scrutiny and real-time screening.
2. Prepare for Enhanced Due Diligence:
- FIs will request documentation proving your exports are EAR-compliant.
- You may be asked to certify that you have sufficient export compliance controls.
- FIs will monitor for “red flags” in your transactions and may request additional information.
3. Understand Derisking Risk:
- FIs may terminate relationships with exporters when export compliance concerns cannot be resolved or certain red flags are present.
- A history of problematic transactions could lead to complete account closure.
4. Be Aware of Mandatory Reporting:
- FIs must file Suspicious Activity Reports (SARs) for potential EAR violations.
- Your FI may not inform you if they file a SAR about your activities.
Current Implementation Impact:
• FIs have already begun requesting detailed transaction information from exporters
• Financial institutions are delaying transactions pending completion of export-related due diligence
• Some exporters report significant delays in payment processing for international transactions.
Action Items for Exporters:
1. Review Your Export Products:
- Identify which of your products might be subject to the EAR.
- Pay special attention to to the CHPL.
2. Enhance Documentation:
- To avoid delay and complexity, prepare export transaction information in anticipation of FI inquiries, particularly if your bank has signaled that it will request that information.
- Include as appropriate and available, end-use/user certificates, ECCN, CHPL (HTS Code), destination information, and results of screening against, e.g., the Entity List, OFAC sanctions lists, and Russia sanctions evaders lists.
3. Designate Personnel to Liaise With FIs:
- Assign specific staff to handle FI export due diligence requests if practicable.
- Ensure your export compliance and finance teams coordinate closely.
- Train customer-facing staff on new requirements.
Additional Export Control Context:
• The EAR controls dual-use items (civilian and military) with broad extraterritorial scope.
• Even foreign-made products with more than de minimis U.S. content fall under EAR jurisdiction.
• The guidance specifically warns that “nearly all microelectronics and integrated circuits” destined for Russia, Belarus, Iran, or military end users are subject to the EAR regardless of manufacturing location.
Conclusion
While directed at FIs, the Guidance’s practical effect is that exporters must now satisfy two layers of export compliance: your own obligations under the EAR and your FIs’ obligations to ensure your compliance. Companies that proactively adapt to these new requirements will minimize transaction delays and reduce the risk of account termination or regulatory scrutiny.