Export controls: new red flag checklist for your ICP
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Export controls: new red flag checklist for your ICP

Spotting red flags in business transactions from offer to delivery forms an essential part of trade compliance. This new checklist helps to meet the challenge.

Author: Nicole Mantei
Nicole Mantei
08.08.2022

Warning signs of suspicious requests and customers
Checklist 1: Red flags relating to the end-users and end-use
Checklist 2: Red flags relating to the products
Checklist 3: Red flags relating to the delivery or payment terms
Further assistance for effective ICPs and red flag checks

Warning signs of suspicious requests and customers

Businesses that wish to establish an effective internal compliance program (ICP) need to be aware of the risks and dangers of various export control scenarios. It is essential that companies look out for the key warning signs that can appear anywhere in the business process – from the initial offer to final delivery – and recognize the indicators of suspicious inquiries, bids, or customers.

Germany’s Federal Office for Economic Affairs and Export Control (BAFA) and the EU have addressed this very topic, defining the criteria that indicate circumstances potentially critical for export controls – “red flags” in trade compliance jargon. This new checklist of red flags in global trade also takes into account Commission Recommendation (EU) 2019/1318 and is designed to help companies assess whether they are at risk of unintentional involvement in the proliferation of weapons of mass destruction.

The authorities recommend that exporters include the following checklist and the screening of both customers and potential customers against these criteria as an integral part of any ICP – if this is not already the case. While this new list was released by German and EU authorities, it is useful for companies around the globe and applicable to international processes.

In the following sections, you can find the red flags checklists for three different areas of your business transactions:

  1. End users and end-use
  2. Products
  3. Delivery or payment terms

Checklist 1: Red flags relating to the end-users and end-use

Trade compliance check

Status

New or unknown customers whose identity remains unclear make inquiries. They give clearly evasive answers to questions about their identity or cannot provide any persuasive references.

Yes/No

The contact information provided during the inquiries (phone numbers, email addresses, postal addresses, etc.) does not originate from the same country as the named company or has since been modified.

Yes/No

The customer does not respond sufficiently or at all to questions about the destination or intended use of the goods.

Yes/No

The customer does not ask any business-related or technical questions that are typically part of business negotiations.

Yes/No

The customer requires unusual and excessive confidentiality regarding the destination or the products to be delivered.

Yes/No

The customer is involved with the military, defense industry, or a government research organization but specifies a civilian end-use.

Yes/No

The customer offers unusually favorable payment terms, such as a large amount in cash up front.

Yes/No

End-to-end trade compliance with AEB

AEB's export control solutions deliver comprehensive security for your business with always available and up-to-date software for Compliance Screening, License Management, Export Controls, and Risk Assessment. In the cloud and integrated in systems such as SAP®, Salesforce, or Microsoft Dynamics 365.
More information

Checklist 2: Red flags relating to the products

Trade compliance check

Status

The goods are known to have a dual use and are used in military or sensitive areas. 

Yes/No

The customer provides a vague description of the intended use (unusual volume of spare parts, etc.) or what seem to be unnecessarily detailed specifications for the goods.

Yes/No

The stated value of the goods is not consistent with normal business practices.

Yes/No

The equipment in question is not appropriate for the factory in which it is to be used.

Yes/No

Checklist 3: Red flags relating to the delivery or payment terms

Trade compliance check

Status

The customer requires safety precautions that seem excessive in light of the intended use. The packaging requests do not make sense (seaworthy packaging for delivery within Europe, for example).

Yes/No

The customer is obviously unaware of the safety precautions customary for the ordered goods.

Yes/No

The customer requests unusual labeling, marking, or identification.

Yes/No

The customer imposes unusual requirements for excessive confidentiality about the destination or customers or the specifications of the goods.

Yes/No

The seller is denied access to areas of the facility under circumstances that appear suspicious.

Yes/No

The customer splits a contract for a composite order into several individual contracts for no reason.

Yes/No

People making inquiries provide information about transportation routes that do not make sense geographically or economically.

Yes/No

People making inquiries do not provide plausible explanations about the whereabouts of previously delivered products.

Yes/No

Further assistance for effective ICPs and red flag checks

This new red flag checklist is very helpful for companies setting up a new ICP or optimizing an existing ICP. Further assistance can be found in the Commission Recommendation (EU) 2019/1318 on ICPs for dual-use trade controls. For more recommendations from regional export control authorities, see this article.

It’s important to note that operational and organizational procedures for export controls must always be based on how the company in question is affected and on its organizational structures. Such procedures must also be continuously adapted to ongoing developments. Copying standards or the approach of other companies is therefore not recommended, as that does not reflect a company’s unique export control risks.

It is up to each company to decide how it wants to work with the new checklist developed jointly by BAFA and the EU. The checklist can be applied manually, for example, but AEB’s Risk Assessment solution offers an option to better integrate the checklist and other export control questions into your processes. Risk Assessment offers a simple, software-based method for managing all checklists and questions around trade compliance risk management.

Risk Assessment serves as a hub where all data can be gathered, evaluated, and managed centrally. This lets you easily report risks from every department of your company and share them electronically with your compliance officer. Because end-to-end export controls require enterprise-wide cooperation and communication.

Keep a watchful eye on end-use risks

AEB's Risk Assessment enables everyone in your organization to quickly and easily contribute to export controls and enhanced security for your business transactions. The solution provides digital checklists and questionnaires and delivers transparency for your compliance team. 

More information

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