Supplier and customer compliance for exporters: what to check and what a mistake costs

For an exporting company, every new order is also a compliance question. Who is the buyer, who really owns it, where will the goods end up, and what will they be used for? Since 2022, the expansion of sanctions on Russia and of export controls on advanced technology has made these questions harder and the consequences of getting them wrong much larger.

Why exporters are exposed

Distributors and resellers. Many exporters sell through third parties and never see the final customer. Diversion through intermediaries in neighbouring countries is one of the most common evasion routes.

Dual-use goods. Electronics, machinery, chemicals, software and components can have military uses. Export control rules can apply even when the buyer is not on any sanctions list.

Extraterritorial rules. US export controls can follow goods made outside the US with US technology, and US sanctions can apply to non-US companies dealing in dollars or US-origin items.

Changing lists. The EU, US and UK add entities to their lists frequently. A customer that was clean last quarter can be designated today.

What to check

Sanctions lists (EU, US, UK, UN)

Screen buyers, consignees, end users, distributors and freight agents against the OFAC SDN list, the EU consolidated list, the UK OFSI list and the UN list. Exporters should also check the US BIS Entity List and other Commerce lists, which restrict exports to specific foreign companies. Apply the 50% ownership rule to every counterparty.

Politically exposed persons (PEPs)

State-owned buyers and government-linked distributors are common in export markets. PEP involvement raises bribery risk and calls for enhanced due diligence on commissions, agents and payment routes.

Insolvency

Export receivables are often large and paid on credit terms. A buyer in insolvency proceedings is a payment risk, and an insolvent supplier can break your production chain.

Adverse media and legal proceedings

Reports of diversion, smuggling, export control investigations or fraud are early signals that a distributor may be a risk, often before any official listing.

Beneficial owners

Identify the individuals who ultimately own each buyer and distributor. Newly created trading companies with opaque ownership, located in transit hubs, are a classic diversion red flag.

Real cases: what a mistake cost

Seagate: USD 300 million (BIS, 2023)

In April 2023 the US Commerce Department's Bureau of Industry and Security (BIS) imposed a USD 300 million civil penalty on Seagate Technology LLC and Seagate Singapore International Headquarters. BIS found that Seagate shipped more than 7.4 million hard disk drives to Huawei entities between 2020 and 2021 in violation of the foreign direct product rule. BIS described it as the largest standalone administrative penalty in its history, and the order also included a multi-year audit requirement and a suspended denial order.

Source: BIS press release

Microsoft: USD 2,980,265.86 (OFAC, 2023)

In April 2023 OFAC announced a settlement of USD 2,980,265.86 with Microsoft Corporation for 1,339 apparent violations, most of them under Russia and Ukraine related sanctions, between 2012 and 2019. Software licences and services were sold through third-party resellers to blocked persons and parties in sanctioned territories, because the resellers did not reliably identify end customers. BIS imposed a separate, parallel penalty for export violations.

Source: OFAC enforcement release, April 2023

Both cases show that selling through distributors or affiliates does not move the responsibility away from the exporter.

Practical checklist

• Screen every buyer, consignee, end user, distributor and agent before quoting.
• Include the BIS Entity List and other export control lists, not only financial sanctions lists.
• Apply the 50% ownership rule and record beneficial owners.
• Obtain end-user statements for sensitive or dual-use goods.
• Flag orders routed through known diversion hubs or with unusual shipping instructions.
• Classify your products for export control purposes and keep the classification current.
• Re-screen your full customer and distributor base daily.
• Monitor insolvency of buyers on credit terms and of critical suppliers.
• Track adverse media and proceedings on distributors.
• Keep records of every check and licence decision for audit.

How to automate it

An export business can have thousands of buyers, distributors and suppliers across many jurisdictions. Unicorn Intelligence runs automatic, daily compliance checks on all your customers and suppliers: sanctions, PEPs, insolvency, adverse media and proceedings, and beneficial owners, with alerts delivered straight into your CRM.

The test is free, and new accounts also get 50 $ of credit.

Informative content: decisions and legal obligations remain yours.