In response to the ongoing conflict in Ukraine and growing concerns about the diversion of controlled goods to the Russian military, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) has issued a critical advisory for businesses involved in international trade. The BIS recently strongly recommended that organizations enhance their denied party screening processes by checking trade transaction parties against entities identified by the Trade Integrity Project (TIP). This initiative, spearheaded by the UK-based Open-Source Centre, aims to monitor and restrict the flow of military and dual-use goods to Russia, thereby preventing these items from being used to support the country’s military activities.
As the geopolitical landscape becomes increasingly complex, the BIS’s directive highlights the importance of thorough due diligence in export activities to safeguard against potential legal, financial, and ethical risks. Let’s explore the reasoning and practical issues associated with this guidance and understand what it could mean for regulatory expectations going forward.
Key Takeaways
- BIS has strongly recommended that businesses incorporate the Trade Integrity Project list into their denied party screening processes to prevent controlled goods from reaching the Russian military.
- This advisory follows the ever-increasing regulatory scrutiny faced by organizations involved in global trade particularly those dealing with items on the Common High Priority List (CHPL).
- Incorporating the TIP list into existing denied party screening processes may pose significant challenges without seamless integration.
- In light of the BIS’s continued effort to curb export control evasion, companies must take proactive measures to ensure there are no gaps in their compliance programs.
- Leveraging the expertise of denied party screening solutions providers like Descartes, can enable organizations to quickly adapt to new regulatory requirements and strengthen their compliance efforts.
Understanding the Trade Integrity Project and Its Impact on Russia-Related Export Controls
The Trade Integrity Project (TIP), an initiative of the UK-based Open-Source Centre, monitors military and dual-use trade with Russia. The TIP website maintains a list of entities that have shipped Common High Priority List (CHPL) items to Russia since 2023. The CHPL consists of 50 items, jointly identified by BIS, the European Union, the United Kingdom, and Japan using their six-digit Harmonized System (HS) codes. These items are of significant concern because they are high on Russia’s list of priority military purchases, making them particularly valuable for sustaining the Kremlin’s military efforts.
In the context of ongoing global efforts to curb Russia’s military capabilities and prevent export diversion risks, TIP could play a crucial role by identifying and exposing entities that engage in shipping controlled items to Russia. In an official statement, BIS said it “strongly encourages companies involved in the export, reexport, or transfer (in-country) of CHPL items to adopt, as a best practice, the screening of transaction parties against the list on the TIP website (in addition to the Consolidated Screening List)”.
This recommendation follows a series of actions the agency has taken to curb the evasion of export controls, minimize diversion risks, and signals the continued increase in scrutiny of export compliance requirements that organizations must meet. The likelihood of stricter enforcement actions is also on the horizon.
The BIS guidance does not specify potential penalties for companies that fail to integrate the TIP lists into their export compliance programs. However, organizations should be aware that this omission could have a significant impact. If BIS considers taking enforcement action, the extent to which a company followed the guidance may weigh heavily, especially if the high-risk entity is included on the TIP list, thereby indicating a high probability of export control violations and diversion risks.
Practical Challenges Related to the New Restricted Party Screening Recommendation
While the BIS recommendation to include the Trade Integrity Project’s screening list in due diligence processes is a step toward enhancing export compliance, it also presents a range of practical challenges that businesses must address. Organizations will need to carefully consider how to integrate TIP’s data into their existing denied party screening systems and ensure that their compliance efforts remain both effective and efficient.
Here are a few complexities to consider:
- Access to TIP’s Screening List: One of the primary challenges is accessing the TIP screening list. Currently, organizations must visit the TIP website manually to obtain the latest list of flagged entities, adding an extra step to their compliance processes. This manual approach can be time consuming and prone to errors, particularly for companies that handle a large volume of transactions.
- Data Integration and Compatibility: Due to the nascency of the TIP list compiled by a private organization, integrating into existing workflows of denied party screening systems could be a significant challenge. Without seamless integration, companies may struggle to align TIP’s list with their current export compliance infrastructure. This could lead to inconsistencies in screening processes. Organizations may need additional software investments or updates to ensure that TIP data is effectively incorporated into their compliance checks, which can be both costly and time intensive.
- Frequency of Updates and Accuracy of the Screening List: Another practical challenge is the uncertainty surrounding the frequency of updates to the TIP screening list and the accuracy of the data provided. The TIP website indicates that its data is sourced from public records and may include errors or inconsistencies, cautioning that reliance on this information is “strictly at your own risk.” Additionally, TIP has not disclosed how often its list is refreshed, raising concerns about the timeliness of the information. Companies may find themselves working with outdated data, which could undermine the effectiveness of their denied party screening efforts and expose them to regulatory risks.
- Balancing Business Efficiency with Compliance: The additional steps required to incorporate TIP’s screening list can slow down transaction processing times, potentially affecting sales velocity, and customer satisfaction. Companies must find ways to streamline these processes without compromising on compliance, which may involve reevaluating their overall compliance strategies.
Best Practices for Incorporating the Trade Integrity Project Screening List
To effectively integrate the TIP list into their denied party screening programs, organizations can adopt the following best practices:
- Update your export compliance manual to incorporate the BIS guidance on export diversion risks which includes the recommendation for screening with TIP’s data.
- Regularly update your denied party screening process to include the latest TIP data to avoid relying on outdated information.
- Centralize the management of the TIP list within your organization’s compliance department. This will ensure consistency across all transactions and reduce the likelihood of oversight.
- For each transaction, conduct comprehensive due diligence that includes screening all parties against the TIP list. Document your denied party screening process and maintain detailed records as part of your compliance efforts.
- Work with your trade compliance / denied party screening software provider to create a seamless and automated process for screening against the TIP list.
- Establish a clear escalation protocol for handling potential matches with entities on the TIP list. This should include steps for further investigation, legal consultation, and reporting to the appropriate authorities if necessary.
- Train your compliance and trade teams on the importance of the TIP list and how it fits into broader export control measures. Ensure they understand the implications of dealing with entities on the TIP list.
- Stay informed about updates or changes to the TIP list and adjust your denied party screening processes accordingly. Regularly monitor BIS for any new guidance related to the use of the Trade Integrity Project list.
Stay Ahead of Growing Export Compliance Requirements with Descartes Denied Party Screening
In light of the BIS’s recent recommendations, the importance of robust denied party screening practices cannot be overstated. As the landscape of global trade becomes increasingly complex and enforcement actions potentially become stricter, a thorough and dynamic approach to export compliance will be essential for companies aiming to prevent costly violations and inadvertently supporting ongoing Russia-Ukraine conflict. The BIS’ endorsement of the Trade Integrity Project data makes it a high priority addition to compliance activities.
Descartes’ Global Trade content team is currently evaluating the quality, accuracy, and ongoing maintenance requirements of this data for potential inclusion in our industry-leading due diligence screening ecosystem.
Descartes Visual Compliance™ and Descartes MK™ Denied Party Screening solutions are flexible and modular, allowing organizations to pick the specific and exact functionality and content they need for their particular compliance needs and scale up later as and when necessary.
Ready to strengthen your compliance due diligence with automated screening? Contact us today to speak to a export compliance specialist. We have also put together a resource center for the Russia-Ukraine conflict to help you stay informed about the latest developments with business implications.
Additionally, you can read what our customers are saying about Descartes Denied Party Screening on G2 – an online third-party business software review platform. Or explore this testimonial eBook to see why we are listed among the Top 50 Best Software for Enterprises.
