So, if bullfighters don’t need to worry about red flags, who does?
You do.
Exporters, you must know what a red flag is, why it’s important and what U.S. export regulations say your responsibilities are regarding red flags. We can help.
Red flags are defined by the Export Administration Regulations (EAR) as “any abnormal circumstances in a transaction that indicate that the export may be destined for an inappropriate end-use, end-user or destination.”
If you have a bad gut feeling, a doubt or even a question—that’s a sign you need to continue to pull on the thread of suspicion and see what unravels.
Because every export process, shipper, customer and situation is unique, there is no single complete list of red flag indicators. There are, however, several ways to identify red flags.
The Bureau of Industry and Security (BIS) provides "Know your Customer Guidance" that includes the following red flag indicators:
I can’t emphasize this enough—this list of red flags is not all-inclusive. As BIS states, it is “intended to illustrate the types of circumstances that should cause reasonable suspicion that a transaction will violate the EAR.”
You may be wondering when you would notice a red flag in the export controls process. A red flag may come up at any time—early in an export transaction, when you’re filling out the requisite paperwork or when you’re finalizing sales invoices. It’s important to be vigilant and pay attention to red flags all the time: from introductions to after the sale has been completed.
In addition to red flags, exporters also need to be aware of the parties they are prohibited or restricted from shipping to, as well as BIS's Unverified List “of parties whose bona fides BIS has been unable to determine in end-use checks.”
You can find more about both of these groups in my blog post, Checking Lists Isn't Enough for Export Compliance... Here's Why. The easiest way to screen all of your customers is with Restricted Party Screening Software—try ours for free.
In addition to red flags that your company personnel may identify themselves, BIS sometimes notifies companies and universities about other foreign parties of national security concerns. These may be companies or individuals that a company or university has or has not exported to.
In March 2024, BIS began sending letters to certain companies with a list of foreign parties that have been diverting Common High-Priority List (CHPL) items to Russia. These letters typically include specific additional guidance about what red flags to look for, as well as suggesting due-diligence tips or screening to prevent unauthorized exports or re-exports.
In a "Project Guardian" letter, BIS asks that a company deny or at least delay fulfilling an order to a particular foreign party until they've spoken to a BIS field office for guidance on how to proceed. With a red-flag letter, BIS lets a company know that it should be cautious when selling to customers who have already diverted items to Russia. Exporters who receive these types of letters should closely scrutinize transactions with the identified parties.
If there are no red flags, proceed with your business. However, if you’re suspicious, BIS says this:
When "Red Flags" are raised in the information that comes to your firm, you have a duty to exercise due diligence to inquire regarding the suspicious circumstances and ensure appropriate end-use, end-user or ultimate country of destination in the transactions you propose to engage in.
Here’s what you should do:
Self-blinding is a term the U.S. government uses that essentially means ignoring the warning signs of a potential export. The BIS website gives the following advice on the idea of self-blinding:
If you encounter a red flag, you immediately need to stop proceeding with the transaction and begin investigating. If your company has an export compliance official or team, now is the time to bring them up to speed with what you've found. And then someone at your company needs to start asking questions.
Interview all the parties in your transaction that have some connection to the red flag you've identified. Ask the relevant questions. For example: Why is the customer not telling you what they intend to do with the product? Why are we shipping to a foreign freight forwarder rather than the customer's warehouse? Why has the customer chosen such an unusual payment method?
Once you've dug into the transaction and asked all the questions related to the red flag that you need to ask, someone at your company needs to determine whether the red flag is explainable or justified. If you can explain away the red flag, the BIS says you can proceed with the transaction. However, if the red flag can’t be explained or justified and you proceed, you risk having knowledge that would make your action a violation of the EAR.
If you continue to have reason for concern after the inquiry, you should either refrain from the transaction or submit all the relevant information to BIS as an application for an export license or other form.
If you have any questions about whether you have encountered a red flag, you should contact the Office of Export Enforcement or use their confidential enforcement lead/tip form to submit a tip. You can also report any violation you believe may be taking place or has occurred to the Department of Commerce hotline: (800) 424-2980.
It is the exporter's responsibility to take seriously the threat of exports that are contrary to the United States’ national security and foreign policy interests. By understanding and acting on red flags, businesses protect not only national interests but their own.
By following the law, exporters can avoid the civil and criminal penalties that result from non-compliance. You can read more about these penalties in Don’t Let This Happen To You.
This article was first published in May 2015 and has been updated to include current information, links and formatting.