Denied Parties Screening: Red Flags to Watch for in Export Transactions

December 9, 2021 Author: Global Wizard Team

Do you know what red flags to look out for that could indicate possible compliance violations? Do you know what to do if you suspect that someone may be noncompliant with the U.S. rules and regulations for international trade? It can be daunting to wade into the waters of international exports. Especially, when you think of the consequences, like steep fines or prison time, but your best line of defense is staying informed.

Here’s what you need to know about export compliance red flags and what to do about them:

Bureau of Industry and Security’s Defined Red-Flag Indicators

The Bureau of Industry and Security (BIS) has established a list of red flags that may indicate a violation of the Export Administration Regulations (EAR). These tips are important to keep in mind as you prepare goods and services for international trade.

According to the BIS, some of the warning signs that indicate an export is noncompliant are:

  • The customer or its address is similar to one of the parties found on the Commerce Department's [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, such as an order for sophisticated computers for a small bakery.
  • The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.
  • 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.
  • Routine installation, training, or maintenance services are declined by the customer.
  • Delivery dates are vague, or deliveries are planned for out-of-the-way destinations.
  • A freight forwarding firm is listed as the product's final destination.
  • The shipping route is abnormal for the product and destination.
  • Packaging is inconsistent with the stated method of shipment or destination.
  • When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for re-export.

This is not a full list of all the reasons to suspect export violations, but it is a good place to start. Ultimately, you should be able to trust yourself as an expert in the business; you know what kinds of transactions are typical and which ones aren’t. If you come across any suspected red flags or you think there is a violation taking place, it should be reported to the Department of Commerce at (800) 424-2980.

What Should You Do When You Encounter a Red Flag?

If you find a red flag within the information that comes to your firm, you have a duty to exercise your due diligence and ensure the appropriate end-use, end-user, and ultimate country of destination of your product.

You are required by the Export Administration Regulations (EAR) to obtain documentary evidence regarding the transaction, regardless of whether or not you uncover red flags. You can usually rely on the initial information provided to you by your customers unless red flags surface, then you would be required to verify the information they have given you.

You should also use this information to review the U.S. government restricted parties lists to check for parties prohibited or restricted from participating in U.S. export transactions.

Do Not Self-Blind

You don’t want to “put blinders on” and keep yourself ignorant of relevant information. For example, you should not instruct your sales force to tell customers to refrain from discussing actual end-use, end-user, and country of destination. Failure to gather this information or to comply with these regulations can be seen as self-blinding.

Reevaluate the Information

If you’ve encountered a red flag where you needed to obtain additional information from the potential customer, you should reevaluate whether or not the red flag(s) can be explained or justified as to the legitimacy of the transaction. If they can, you can likely proceed with the transaction. If they cannot and you continue with the transaction, you run the risk of violating the EAR.

Refrain from the Transaction, Report to the BIS, and Wait

If you have a reason for concern after your inquiry, you should refrain from the transaction and report it to the BIS. You have an important part to play in protecting national security and foreign policy interests, and much of this has to do with identifying and inquiring after red flags. If you have questions, you can always contact the BIS Office of Export Enforcement or submit a confidential tip.

What You Need to Know About the Consolidated Screening List

When you cannot trade with a certain entity or person, they are placed on the denied persons list, which you may also hear what is called the denied parties list. This list, like the list of red flags, is managed by the BIS.

You may have also heard of the consolidated screening list and that this list is all you need to check to ensure you are compliant with the Export Administration. While this consolidated screening list is a great place to start, it’s not a full list of prohibited exports. For that, you need an export compliance software solution like Global Wizard.

What’s included in the consolidated screening list? The list is grouped together from the following sources:

  • The Department of Commerce, Bureau of Industry and Security
  • The Department of State, Bureau of International Security and Non-Proliferation
  • The Department of State, Directorate of Defense Trade Controls
  • The Department of the Treasury, Office of Foreign Assets Control

This consolidated list was created as an effort to combine all the major restricted parties into one place where exporters can easily discover who they can’t ship to.

If there is a consolidated list, why do we need export compliance screening tools? The CSL is incomplete. It only pulls information from the top eleven major lists, leaving data from a large number of other lists out. The CSL is also only updated once per day at 5:00 AM EST and parties can be added or removed at any time during the day. A denied party screening solution will do the leg work for you, pulling information from the over 100 lists out there, in real-time, on every export, saving you time and money.

Export compliance sanctions change quickly, which can impact your company in very unpleasant ways. This can cost you millions of dollars, you can lose your export privileges, you could face criminal charges, and even prison time. You can’t rely on just the consolidated list. It’s incomplete and there’s just too much at stake. You need an export compliance software solution to keep your business secure.

Setting the Record Straight About Denied Party Screening Tools

Global e-commerce and connectivity are growing at an exponential rate. E-commerce alone is gaining footing in the global marketplace, growing from 7.4 percent of the global retail market in 2015 to a projected 15.5 percent in 2021. It’s a popular choice for investments and new businesses with no break in sight.

With this rise in global retail comes a rise in the need for global export services and export compliance technology. Denied party screening is an important part of all that.

What should you keep in mind about the denied party list? Here are some tips on how to stay compliant:

  • All businesses have an obligation to screen, not just the ones that operate with homeland security-sensitive industries.
  • Every time money changes hands, you must ensure that the good or service is not headed towards someone on a government watch list. Services like travel agencies are not exempt.
  • You cannot rely on your freight-forwarding company to screen for you; the burden of compliance also falls on you.
  • Even if you operate domestically, you still should check for export compliance. There are parties on the watch list who are located within the U.S.
  • Any transactions that flow through the U.S. financial system need to comply with export laws, even if your business is not located within the U.S.
  • Nearly every nation has debarred individuals and entities, so even if there isn’t a specific embargo on that country, you still need to screen for compliance.
  • Denied and restricted party lists can change at any time, so you need to continue to screen your customers and contacts even if you’ve already screened them.
  • You can’t just screen the person you are exporting to; you also need to verify end-user compliance. That consists of obtaining documentation from the purchaser stating that they are the ultimate destination and that they will be using the service or product as intended.

When red flags pop up, you can’t rely on a denied party list or the consolidated screening list. With so many data points to keep up with, it’s impossible to do it all yourself efficiently. An export compliance software solution, like Global Wizard, is crucial to the security and integrity of your business.

Global Wizard’s restricted parties screening solution goes beyond the consolidated and denied party lists. It pulls information from an extensive number of government lists and databases, screening them all together, and sending you responses in real-time. Further, with continuous screening, you stay compliant throughout your sales and delivery processes.

At Global Wizard, we are proud to offer a truly scalable solution here in the U.S. to ensure export compliance, and our price point can’t be beat. We have the software that you need to keep your exports above board so you can rest easy.

Want to learn more? Contact us today!