Why End Use and End Users Matter in Export Compliance

You’ve found a buyer in another country and are preparing to close the sale. Before moving forward, you need to answer two important questions:

• Who will ultimately use the product?
• What will the product ultimately be used for?

The answers may determine whether your shipment requires an export license—or is prohibited altogether.

To comply with the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR) and U.S. sanctions requirements, exporters must look beyond the immediate customer. They need to understand the ultimate end user, intended end use, destination and other parties involved in the transaction.

Why must exporters know the end user and end use?

An export may require a license or not be allowed because of its end user or end use, even when the product would not normally require a license based on its classification and destination.

Export compliance therefore involves more than determining an Export Control Classification Number (ECCN) or confirming that a product is EAR99. Exporters also need to evaluate:

• Who is purchasing, receiving and ultimately using the product.
• Where the product will be installed or used.
• What the product will be used to manufacture, support or develop.
• Whether a military, intelligence, nuclear or other sensitive activity is involved.
• Whether the product may be resold, transferred or reexported.

A distributor, reseller, freight forwarder or intermediate consignee is not necessarily the ultimate end user.

What are an end user and an end use?

The end user is the person, company, government agency, research institution or other organization that will ultimately use or benefit from the exported item.

The end use is the specific purpose for which the item will be used.

General descriptions such as “for manufacturing,” “for research” or “for commercial use” may not provide enough information. Exporters may need to know:

• What will be manufactured or researched.
• Where the equipment will be installed.
• Whether the product will be incorporated into another item.
• Whether a government, military or intelligence organization is involved.
• Whether the item will be resold or transferred to another party.

Exporters must also determine whether the end user—or another party involved in the transaction—is subject to U.S. trade restrictions. The Departments of Commerce, State and Treasury maintain lists of individuals, companies, organizations and addresses subject to restrictions on certain exports, reexports or transfers. Depending on the list and the specific entry, a match may result in a license requirement, additional compliance obligations or a prohibition.

This process is known as restricted party screening. However, screening alone does not establish that a transaction is compliant. An exporter must still understand the intended end use, identify the true end user and investigate any warning signs.

When a customer cannot or will not identify the ultimate user or provide a clear explanation of the intended use, the exporter may have an unresolved compliance red flag.

Which end uses are restricted under the EAR?

Part 744 of the Export Administration Regulations (EAR) contains end-use and end-user controls that apply separately from the licensing requirements based on a product’s ECCN and destination.

These controls include restrictions involving:

• Nuclear activities.
• Rockets, missiles and unmanned aerial vehicles.
• Chemical and biological weapons.
• Military and military-intelligence end uses and end users.
• Certain advanced-computing, semiconductor and supercomputer activities.

Some of these restrictions can apply to EAR99 products and other items that would not normally require a license.

Exporters should review the current version of 15 CFR Part 744 whenever a transaction may involve a sensitive destination, organization or activity.

For ITAR-controlled transactions, exporters must also identify the specific end user, end use and destination. A defense article generally cannot later be transferred to a different end user, end use or destination without authorization unless a specific exemption applies.

Does EAR99 mean an item can be exported to anyone?

No. EAR99 does not mean “free to export anywhere to anyone.”

EAR99 means the item is subject to the EAR but is not specifically described by an ECCN on the Commerce Control List. Many EAR99 items can be exported without a license, but restrictions may still apply because of:

• The destination.
• The end user or another transaction party.
• The intended end use.
• An embargo or sanctions program.
• A denial order.
• Knowledge that the transaction may involve diversion or another EAR violation.

This is why product classification and restricted party screening must be combined with end-use and end-user due diligence. Read more: EAR99 Isn't a Free Pass for Export Compliance  

What are common end-use and end-user red flags?

Supplement No. 3 to Part 732 of the EAR includes BIS’s Know Your Customer Guidance and a list of warning signs exporters should consider.

Common red flags include:

• The customer will not identify the ultimate end user.
• The product does not fit the buyer’s normal line of business.
• The buyer provides vague or inconsistent end-use information.
• The requested shipping route or delivery location is unusual.
• A freight forwarder is identified as the final destination.
• The order appears inconsistent with the customer’s size, facilities or technical capabilities.

Other information obtained during the normal course of business may also create concerns. For example, an exporter may discover that the customer shares an address, employees, management or facilities with a restricted organization.

When a red flag appears, the exporter should pause the transaction, ask additional questions and document how the concern was resolved. Exporters should not proceed simply because the customer provided an end-use statement or no restricted-party match was found.

When should exporters use an end-user certificate?

An end-user certificate, also called an end-use statement or end-user statement, documents who will ultimately use an exported item, where it will be used and its intended purpose. It may also include assurances that the item will not be resold, transferred, reexported or used for unauthorized activities.

In some transactions, an end-user certificate is legally required or must accompany an export license application. Examples include the BIS-711 Statement by Ultimate Consignee and Purchaser under the EAR and the DSP-83 Nontransfer and Use Certificate for certain ITAR-controlled exports.

Even when a certificate is not required, exporters may request one when a transaction involves an elevated-risk destination, a sensitive product or unresolved questions about the customer or intended use. The certificate can provide an additional layer of due diligence.

However, an end-user certificate does not replace restricted party screening or independent verification. If the certificate conflicts with other information or does not resolve a red flag, the exporter should investigate further before proceeding.

Learn more in What Are End-User Certificates and When Do You Need One?.

How Shipping Solutions can help

Manual screening end users can require searching numerous government and international lists, documenting the results and repeating the process whenever transaction information changes.

Shipping Solutions Restricted Party Screening Software searches names and addresses against more than 200 government and international lists. Screening results are stored in an audit trail, helping exporters document their compliance activity and repeat screenings as a transaction progresses.

Shipping Solutions Export Controls Software helps users evaluate potential export controls using information such as:

• Product classification
• Countries involved in the transaction
• Export date
• Military or nonmilitary end use

The software displays potential licensing requirements, available exceptions and the reasoning behind the results.

Screening and export control software do not replace an exporter’s responsibility to understand the end use, investigate suspicious information and resolve red flags. They do make the screening, analysis and documentation process faster, more consistent and easier to audit.

The bottom line

Knowing the end user and end use is not a one-question exercise completed at the end of the shipping process. It should begin during customer onboarding and continue through order entry, licensing, shipment and any later service, reexport or transfer.

A strong process combines accurate product classification, detailed end-use information, screening of every relevant party, ownership research, red-flag review and proper documentation.

Shipping Solutions Trade Compliance Software can automate important parts of that process—helping exporters screen parties, check export controls and maintain an audit trail while reducing the time and errors associated with manual compliance work.

Like what you read? Subscribe today to the International Trade Blog to get the latest news and tips for exporters and importers delivered to your inbox.