U.S. and EU “RED FLAG” INDICATORS
THINGS TO KEEP IN MIND IN AN EXPORT TRANSACTION
Use this as a mental check list to uncover possible violations of the U.S. Export Administration Regulations
- The customer or address is similar to one of the parties found on the BIS list of denied persons;
- The customer or purchasing agent is reluctant to offer information about the end-use of the item;
- The product’s capabilities do not fit the buyer’s line of business;
- The item ordered is incompatible with the technical level of the country to which it is being shipped;
- The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing;
- The customer has little or no business background;
- The customer is unfamiliar with the product’s performance characteristics but still wants the product;
- Customer declines routine installation, training or maintenance services;
- Delivery dates are vague or deliveries are planned for out of thew way destinations;
- A freight forwarding firm is listed as the product’s final destination;
- The shipping route is abnormal for the product and destination;
- The packaging is not consistent with the method of shipment or destination;
- The buyer is unclear about whether the purchased product is for domestic use, for export, or for reexport.
You can review the BIS page, “Know your Customer Guidance” at the following URL: https://www.bis.doc.gov/index.php/all-articles/23-compliance-a-training/51-red-flag-indicators
“RED FLAGS” UNDER EU COUNCIL REGULATIONS
Pursuant to EU Commission recommendations on internal compliance programs for dual-use trade controls, a company should be vigilant if one or more of the following red flags are detected.
- Your product is still being developed or has not yet found many customers in your domestic market;
- The characteristics of your product are technically superior to those of established competitors;
- Your customer requested unusual customization of a standard product or modification requests raise concerns about potential applications of the customized product;
- Your product has known dual-use, military, or sensitive applications;
- The customer is new to your company and it is difficult to find information about him or her in open sources;
- Your company might be unaware where your product finally ends up because the stated end user is a trading company, distributor or based in a free trade zone;
- The stated use is civilian but the end user is tied to the military, the defense industry or a governmental research body;
- The customer does not seem to be familiar with the product and its performance characteristics;
- The customer requests a product that seems overly capable for the intended application;
- The contact information in enquiries is located in countries other than for the stated company;
- The company has a foreign company name;
- The company website lacks appropriate content;
- The customer is reluctant to offer information about the end use of the items, provide clear answers to routine commercial or technical questions or to provide an end user statement;
- An unconvincing explanation is given by the customer as to the technical sophistication of the items or the extent to which they are required in his normal business;
- Unusual shipping, packaging or labelling arrangements are refused; the usual incoterms for shipments are refused as are the sealing of containers/trucks and the confirmation of receipt by the consignee/end-user;
- Unusually favorable payment terms are requested in terms of price and payment in advance;
- The payment is made by parties other than the customer or the stated intermediaries;
- Routine installation, training or maintenance services are declined;
- The installation site is in an area under strict security control or is in an area to which access is severely restricted;
- The installation site is unusual in regard to the exporter’s line of business or in regard to the type of equipment being installed;
- There are unusual requirements for excessive confidentiality in regard to final destinations, customers or specification of items;
- There is either a lack of interest in any spare parts or a request for an excessive number of them.
For more on EU “Red Flags”, see Annex 2: https://eur-lex.europa.eu/eli/reco/2019/1318/oj
