Screening Prohibited Parties
As the world becomes increasingly more complicated, one might imagine that there is an official list of “naughty” countries (or individuals) to which U.S. citizens and corporations may not export arms. It would clearly be against U.S. Foreign policy to send arms to a country where U.S. service men and women are put into harm’s way. Officially, there are several lists maintained by several U.S. Regulatory agencies, including the Commerce, Treasury and State Departments. Parties may search the consolidated list of prohibited parties online at: www.export.gov/csl-search
Searching the Consolidated Screening List is not difficult and is legally required for export compliance. While there are companies that offer software to search the Consolidated Screening List, using the list online is easy, quick, reliable and most importantly, free. There have been cases of export violations occurring where an exporter, using a paid screening service, did not catch a recent addition to one of the lists. An after action report showed that the paid subscription service had not updated the list in a timely manner, resulting in a prohibited person being involved in an export transaction. As one might imagine, this resulted in an export violation to the exporter and triggered a monetary fine.
The lists maintained by the U.S. Government exist for a variety of reasons—the interests of the U.S. State Department and the Treasury Department may be identical in seeking to prevent the proliferation of arms worldwide, but the triggering violation will likely be specific to the agency. This has resulted in a number of lists, all of which should be checked and are included within the Consolidated Screening List. The official watch lists maintained by the U.S. Government include the following:
The Denied Persons List: This is a list maintained by the Department of Commerce, Bureau of Industry and Security. The individuals and corporate entities on this list may be U.S.- or foreign-based and have been placed on this list because they have been denied U.S. export privileges. Dealing with any party on this list is not allowed.
The Unverified List: This is also a list maintained by the Department of Commerce, Bureau of Industry and Security. The parties to this list have been involved in prior export transactions, but the Commerce Department was not able to certify the legitimacy of the party in the prior transaction. While not prohibited per se, dealing with a party on this list should be considered a red flag.
The Entity List: This is the third and final list maintained by the Department of Commerce, Bureau of Industry and Security. Some commodities do not require an export license to ship from the United States. However, dealing with a party on this list may trigger a license requirement specific to the party listed within the list. Parties to this list have typically been identified as being an increased risk of diverting lawful exports to prohibited parties and/or destinations.
Non-proliferation Sanctions: This is a list maintained by the U.S. State Department to prevent illegal arms proliferation. Parties to this list have been sanctioned for violating U.S export laws that prohibit the proliferation of nuclear, chemical and biological weapons of mass destruction and their delivery systems, advanced conventional weapons and related materials, technologies and expertise.
The Debarred List: This is the second list maintained by the U.S. State Department. It lists entities and parties that are prohibited from participating directly or indirectly in the export of defense articles, to include technical data and defense services. Parties are added to this list via “statutory debarment” upon conviction of violating or conspiring to violate the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). In some cases, parties are added to this list via an “administrative debarment,” where an administrative proceeding is conducted to determine whether the party violated the AECA, but no criminal charges were pursued.
The Specially Designated Nationals List: This is one of six lists maintained by the Department of the Treasury, Office of Foreign Assets Control. This is a general list of prohibited parties that have violated Treasury regulations. Parties on this list are prohibited from transacting export transactions.
Foreign Sanctions Evaders List: This is another list maintained by the Department of the Treasury, Office of Foreign Assets Control. Foreign individuals and entities on this list have been determined to have violated, attempted to violate, conspired to violate or caused a violation of U.S. sanctions on Syria or Iran. The list also included foreign persons who have facilitated deceptive transactions for, or on behalf of persons subject to U.S. sanctions. Transactions by U.S. persons or conducted within the United States involving parties to this list are prohibited.
The remaining four lists maintained by the Department of the Treasury, Office of Foreign Assets Control are specific to Russian parties, the Palestinian Legislative Council, Iranian parties and certain foreign financial institutions. Parties to these lists are either prohibited from export transactions with U.S. parties, or strict conditions have been created prior to any transaction taking place.
The world is a big place, and parties seeking to do business with American companies are not always honest or legitimate. There are many instances of Iranian and Chinese parties acting in bad faith, attempting to export controlled items for improper purposes, to foreign bad actors. Many who seek to complete an illicit export transaction are caught, arrested and imprisoned. When a U.S. company is involved, fines are usually levied, although criminal charges may also be pursued against the company and/or the controlling managers of the company. It pays to know the parties to any proposed export transaction and screen all parties to the transaction. A domestic supplier may be a debarred party on the U.S. State Department list. Similarly, a freight forwarder may be listed within the Commerce Denied Persons List. U.S.-based exporters and those abroad that deal with U.S.-made goods are advised to screen all parties to an export transaction, whether U.S.-based or foreign-based.
Mr. Wong is a Washington State licensed attorney and manages Hurricane Butterfly, a U.S.-based import/export company that assists foreign and domestic firearm manufacturers, resellers and collectors wade through the regulatory quagmire of U.S. import/export regulations.
The preceding article is not intended as legal advice and should not be taken as legal advice. If the reader has specific legal questions, seek competent legal counsel.