On 30 August 2019, the Bureau of Industry and Security (‘BIS’) of the US Commerce Department published due diligence guidance for exports to Pakistan. The guidance reviews supplemental licence requirements for the country under the Export Administration Regulations (‘EAR’), including requirements for parties that appear on Commerce’s Entity List, and recommends a number of best practices for trade with Pakistani end-users. The new guidelines are intended to mitigate recent illicit procurement patterns in Pakistan.
Commerce’s guidance includes a review of the end-use and end-user export restrictions in the EAR that apply to Pakistan’s nuclear and missile activities, which were expanded in 1998 in response to Pakistan’s nuclear tests. These restrictions effectively impose licence requirements on most if not all exports of items subject to the EAR, including EAR99 items, ‘if destined to certain nuclear- or missile-related activities’ in Pakistan. A key part of this export control regime is the Entity List. Entities appearing on this list are subject to heightened licence requirements, often with a presumption of denial, due to involvement in activities of national security concern.
During a 15-year period following 1998, Commerce rarely added entities to the list for known or suspected links to Pakistan’s nuclear and missile programmes. But since 2014, approximately 40 such entities have been added, including companies based outside of Pakistan. These third countries serve as transhipment points for US-origin items illicitly procured on behalf of nuclear end-users in Pakistan, according to the recent guidance. The guidance names just two such entities, Techcare Services FZ LLC in the United Arab Emirates (‘UAE’) and UEC (Pvt.) Ltd. located in Saudi Arabia, the UAE, and Pakistan; but there are many more.
For example, a number of companies connected to a procurement network operated by Pakistan’s Advanced Engineering Research Organisation (‘AERO’) have been added to the Entity List in September 2014, several of which are based outside of Pakistan. UAE-based Euromoto Middle East, which was added to the Entity List in 2017, also has supplied front companies for Pakistan’s nuclear- and missile-related entities, including Khan Research Laboratories (‘KRL’).
In response to these developments, the BIS guidance recommends a number of best practices for exports to Pakistan.
First, when researching new customers, the following ‘fact patterns’ should prompt further due diligence:
- The customer is a reseller or distributor;
- The customer has little-to-no online presence and is not listed in directories;
- The customer has a suspicious address, such as one that is similar to that of an entity listed on the US consolidated screening list;
- The customer places an order ex- works and uses a freight-forwarder for all of its shipping arrangements.
Restricted end-users in Pakistan regularly use trading and engineering companies, including those that fit the ‘fact patterns’ listed above, to import controlled items. These companies are often established firms that act as contracted procurement agents, although there are also shell companies that exist mainly to import items for Pakistan’s nuclear and missile programmes.
A cluster of shell companies is located at 76-E Hill View Plaza, an address in Islamabad’s Blue Area. While legitimate businesses are located in the building, shell companies with suspected links to Pakistan’s nuclear and missile programmes have also used this address for imports, according to current and past warning lists published by the Japanese and German governments. At least one of these companies reportedly acted as a front company for KRL or the Pakistan Atomic Energy Commission (‘PAEC’). Additional companies not yet flagged on watch lists also may be using this address. It continues to be listed as an end-user address for shipments of dual-use or weapons-related items, according to Pakistani import manifests.
Second, exporters should thoroughly assess the potential dual-use applications of their products. The BIS guidance identifies a number of items subject to the EAR that have been sought by Pakistani nuclear and missile entities, including EAR99 items either not listed on the Commerce Control List or listed but controlled only for anti-terrorism reasons. These items include connectors, electromechanical relays, gas measurement equipment, certain GPS systems (controlled under ECCN 7A994), power supplies, reflectometers, and vacuum pumps (not described in ECCN 2B231).
Third, BIS recommends determining the ‘full scope of entity listings,’ which may require manual review. The example cited in the guidance is the PAEC, which appears on the Entity List. BIS explains that the PAEC’s Karachi and Chashma power plants are subject to Entity List restrictions even though they aren’t actually named on the list.
Entity List restrictions in fact apply to all PAEC nuclear fuel cycle facilities, even though none appear by name on the list. The entry for the PAEC defines (rather than lists) the subordinate entities that are covered: ‘[n]uclear reactors (including power plants), fuel reprocessing and enrichment facilities, all uranium processing, conversion and enrichment facilities, heavy water production facilities and any collocated ammonia plants.’
Unfortunately, the names and affiliations of these facilities are often obscure, leaving the supplier to determine their true identities. Even scrupulous exporters may have difficulty doing so.
Finally, the guidance warns that exports made under the terms of a letter of credit (‘LoC’) may have different requirements from an Electronic Export Information (‘EEI’) filing, leading to the misrepresentation of the parties to an export transaction. Notably, an EEI filing should not list a financial institution as the ultimate consignee – although it may be listed in the ‘ship to’ or ‘consign to’ fields in transportation documents associated with a LoC – unless the institution indeed is the recipient of the export.
The latest BIS guidance is valuable for any firm exporting items with nuclear and missile applications to Pakistan or to countries that may be used as a transhipment point for trade to Pakistan. As the guidance points out, there is a heightened risk that such trade may be diverted to Pakistan’s nuclear and missile programmes.
BIS has expanded its Entity List in recent years to capture some of the firms supporting such diversion schemes. But as the guidance makes clear, reliance on automated screening measures and a positive list of controlled items is not sufficient. The guidance concludes that any supplier ‘unable to resolve red flags identified in a prospective export, reexport, or transfer […] should either refrain from participating in the transaction, submit a license application, or submit an advisory opinion request to BIS.’
Links and Notes:
 ‘Due Diligence Guidance Concerning Exports, Reexports, and Transfers (In-Country) to Pakistan,’ US Department of Commerce, Bureau of Industry and Security, 30 August 2019, https://www.bis.doc.gov/index.php/policyguidance/pakistan-due-diligence-guidance.
 ‘Supplement No. 4 to Part 744 – the Entity List,’ U.S. Department of Commerce, Bureau of Industry and Security, https://www.bis.doc.gov/index.php/documents/regulations-docs/2326-supplement-no-4-to-part-744-entity-list-4/file
 Federal Register, Vol. 82, No. 101, 26 May 2017, p. 24242.
 End User List, 26 April 2019, Japan’s Ministry of Economy, Trade, and Industry (METI), https://www.meti.go.jp/policy/anpo/hp/190426_5.pdf.
 Klaus-Peter Ricke, ‘Pakistan’s Rise to Nuclear Power and the Contribution of German Companies,’ Peace Research Institute Frankfurt, PRIF-Report No. 118, 2013, p. 45, https://www.hsfk.de/fileadmin/HSFK/hsfk_downloads/PRIF_118_download.pdf