Export Controls, Dual-Use Goods and Sanctions Screening Explained

A practical guide to export controls, dual-use goods and sanctions screening: control lists, licences, UN, EU and OFAC lists, end-user checks and red flags.

Most exporters will never ship a missile part. Yet export controls and sanctions concern far more companies than they think: a valve, a pump, a laboratory chemical, a router with strong encryption, a drone camera or a piece of software can all be controlled. And sanctions do not care what you sell: a shipment of olive oil to a company owned by a sanctioned person can freeze your payment, close your bank account and end your access to a market.

This lesson gives you a working understanding of the rules and a practical screening routine. You will learn what export controls and sanctions are, where the lists come from, how to check whether your product is controlled, how to screen buyers and end users, and which red flags must make you stop. It is general guidance: licensing decisions belong to your national authority, and on any real case you should involve a specialist adviser.

Export controls and sanctions: what is the difference?

The two overlap: an embargo can ban exports of whole product categories to a country, and controlled items going to a sanctioned destination face both regimes.

Where do dual-use controls come from?

Dual-use lists are built on multilateral export control regimes, in which participating states agree on what to control:

• Wassenaar Arrangement: conventional arms and dual-use goods and technologies
• Nuclear Suppliers Group: nuclear and nuclear-related items
• Australia Group: chemical and biological weapons precursors, equipment and agents
• Missile Technology Control Regime: missiles, drones and their components

Each participating state turns these lists into national law. The EU does it through Regulation (EU) 2021/821, whose Annex I sorts items into ten categories: 0 nuclear, 1 special materials, 2 materials processing, 3 electronics, 4 computers, 5 telecommunications and information security, 6 sensors and lasers, 7 navigation and avionics, 8 marine, 9 aerospace and propulsion. Each item has a control code, such as 5A002 for certain encryption equipment. The United States lists dual-use items on its Commerce Control List under Export Control Classification Numbers (ECCNs); items not listed are classified EAR99.

Lists are not the whole story. Catch-all controls require a licence for unlisted items when the exporter knows, or is informed by the authorities, that they are or may be intended for weapons of mass destruction, for a military end use in an embargoed country, or for other sensitive uses defined by law.

The long reach of US rules

US export controls follow US-origin items around the world. They apply to:

• Items made in the United States, wherever they are
• Foreign-made items that incorporate more than a de minimis share of controlled US content (generally 25% of the value, lower for a few embargoed destinations)
• Certain foreign-made items produced directly from US technology or software (the foreign direct product rules)

An Algerian, Turkish or Emirati company re-exporting US equipment, or integrating US components, can therefore need a US licence. Separately, the US Treasury's Office of Foreign Assets Control (OFAC) administers sanctions programmes and the Specially Designated Nationals (SDN) list. Because most dollar payments clear through US banks, banks worldwide screen against OFAC lists, and a hit will stop your payment whatever your own country's law says.

The sanctions lists you should screen against

At minimum, a careful exporter screens against:

• The UN Security Council Consolidated List, binding on all UN member states
• The EU consolidated list of persons, groups and entities subject to financial sanctions, essential for trade with or through Europe
• The OFAC SDN list and other US lists (and, for controlled items, the US Commerce Department's Entity List)
• The UK consolidated list, if you deal with UK banks or companies
• Your own country's national lists, where they exist

Ownership matters. Under OFAC's 50% rule, an entity owned 50% or more, directly or indirectly, by one or more blocked persons is itself blocked, even if its name is on no list. The EU applies a test of ownership of more than 50% or control. Screening the buyer's name alone is not enough for significant deals: ask who owns it.

A screening routine that works for an SME

1. Classify your products for export control: check each against the applicable control lists, or ask your supplier or the manufacturer for the control code (ECCN, EU code). Record the result in your product data.
2. Screen every party at onboarding and before each shipment: buyer, consignee, end user, notify party, agents, forwarders, banks and, for sea freight to sensitive regions, the vessel.
3. Check the destination: embargoes, sectoral sanctions, licensing requirements for the product and country.
4. Ask about end use and end user, and obtain an end-use statement for sensitive items.
5. Look for red flags (below) and resolve them in writing before shipping.
6. Apply for a licence when required, and do not ship until it is granted.
7. Keep records of classifications, screenings, licences and decisions, for at least as long as your national law requires.

Red flags that must stop you

• The buyer is reluctant to tell you the end use or end user
• The product's capabilities do not fit the buyer's line of business
• The buyer pays in cash, or offers a price well above market, for a sensitive item
• The buyer has little or no business background, website or references
• The buyer declines installation, training or warranty that would normally be wanted
• Delivery dates are vague, or the delivery address is a freight forwarder or a free zone without a clear final destination
• The routing makes no commercial sense, through countries known for diversion
• Packaging or labelling requests do not match the product or destination
• Payment comes from a third party in another country

Common mistakes

• Thinking "we are too small" or "our goods are civilian" means controls do not apply
• Screening only the buyer, not the end user, intermediaries and owners
• Screening once at onboarding and never again, while lists change weekly
• Relying on a freight forwarder or a bank to do your screening for you
• Forgetting intangible transfers: technical drawings, software and know-how sent by email are exports too
• Accepting a letter of credit or payment from a sanctioned bank, which will block the proceeds

Screening fits naturally into the buyer due diligence described in finding and checking international buyers, and into the wider view of risks in international trade. When payment is by letter of credit, expect your bank to run its own sanctions checks on every party and document. Customs is the last line of control: the clearance process is where an unlicensed controlled export is often detected.