We prepared the guidance below in collaboration with our long-term partner CRDF Global whose vision – Our world, healthy, safe, and sustainable – Dentons fully shares. On a practical level, during the last four years, we have had the pleasure of working side by side with CRDF to tackle the threat of large-scale weapons and weapons technology proliferation. We assisted on a series of projects involving consulting and delivering trainings on ensuring the responsible (see fully legally compliant) distribution of chemicals, while preventing diversions or purchases of pharmaceutical precursors for chemical weapons and uncovering illicit financial transactions that could contribute to proliferation activities. 

Our most recent CRDF/Dentons joint adventure centred on Disrupting Proliferator State Defense Firms’ Access to Critical Advanced Conventional Weapons Components threat of large-scale proliferation of weapons technology.

This guidance on how to identify and manage Red Flags in relation to sanctions and export controls compliance is addressed to ALL exporters and exporting producers. It is deliberately brief, but each element draws on our more than a decade of experience on advising clients on sanctions and export controls enforcement actions against them, after they invertedly missed a Red Flag. Remember, most jurisdictions impose a strict liability standard when it comes to trade controls – meaning, penalties will be imposed not only for intentional conduct and schemes circumventing trade controls rules, but also for involuntary violations caused by lack of adequate training or human error. 

If you have any questions in relation to any aspect of the guidance, please use the contacts provided at the end.

This guidance is based on Commission Recommendation (EU) 2019/1318 of 30 July 2019 on internal compliance programmes for dual-use trade controls under Council Regulation (EC) No 428/2009, available online here. The consequences of a sanctions and/or export controls violation vary from country to country and depend on the factual circumstances of the given violation. In general, even in the case that a sanction or export controls violation results from an oversight, companies and individuals could be subject to criminal or civil liability; hence, compliance in this area is of the utmost importance.

For the sake of clarity, in this note we define export controls as the sets of laws, policies, and regulations that govern the export and reexport of certain sensitive or dual-use items from one jurisdiction to another, including deemed exports (i.e., exports within one jurisdiction but from a person of one nationality to another). Also, in the context of this note, sanctions mean any law, regulation, embargo, restrictive measure, or other similar instruments, which restrict dealings with certain individuals, entities, or territories and which have been issued under the law of a jurisdiction, country or international organization, including but not limited to the European Union or the United Nations Security Council, as may be applicable to your company.

Identifying the possibility of sanctions and/or export controls violations and the risk of future violations is often difficult, and signs thereof vary, depending on the nature of a transaction, as well as market practices and customs. Such signs are referred to as Red Flags, and all officers, directors, and part- and fulltime employees of your company are required to report those Red Flags to any member, either at the local, regional or the global level, of your company’s legal or compliance department.

Thus, the purpose of this note is to provide easy-to-follow guidance to exporters and exporting manufacturers, to help them identify compliance/risk of diversion Red Flags and thus ensure that their exports are always aligned with national and international applicable security and defence laws and policies. Before we dive in, remember the three compliance rules of thumb: (1) Always share information and suspicious enquiries with your company’s legal or compliance department and in case of doubt, consult with them. (2) Trust your instincts. (3) Always stay vigilant.

Typical Red Flags include but are not limited to the following:

A. Third Party

• The Third Party is affiliated or associated with any individual or entity targeted by sanctions.
• The Third Party or its agent is reluctant to provide standard information about the identity of the Third Party, its management, and beneficiaries.
• There is little to no online information available regarding the Third Party.
• Enquiries are received from individuals who can only be contacted via a P.O. box number or mobile phone number.
• The Third Party has been recently established and has significant financial resources at its disposal, and it is unclear how it came into possession of these financial resources.
• The Third Party’s corporate structure involves a holding company located in an offshore jurisdiction.

B. Products and Services

• The Third Party is not familiar with the use of the goods or services and/or does not ask any commercial or technical questions that would normally be asked during business negotiations.
• The goods or services the Third Party seeks to purchase are not in line with your company’s knowledge of the Third Party’s activities or place of operations.

C. Shipment/Delivery

• The Third Party or its agent is reluctant to provide standard information about the end-use of the goods or services or the final destination of the goods or the place where the services are provided.
• Unusual shipment or delivery terms, or it is unclear whether re-shipment will take place and where; packing requirements do not make sense (e.g., seaworthy packing for delivery within Europe).

D. Payment terms

• The payment terms or method of payment are unusual (e.g., the Third Party is willing to pay a large amount in cash immediately (non-bank transfers)).
• The Third Party is offering to pay prices well over normal market value for the goods or services concerned.
• The Third Party insists on using banks that are not well known, or cash or cryptocurrency.

Please note that the list set out above is not exhaustive, and all officers, directors, and part- and full-time employees of your company must use their own good judgment and apply common sense based on the circumstances of a given transaction to identify other Red Flags. Below, we reflect some examples of dos and don’ts to help you identify and manage potential Red Flags you identified.

Finally, please bear in mind that the above dos and don’ts cannot apply to every given situation that you may encounter. Moreover, it could be the case that certain ones could conflict with locally applicable laws or rules. When in doubt, always contact your company’s legal or compliance department.