Throughout the last few years, export controls have taken heretofore unseen prominence in news media headlines. In the United States, companies such as “Huawei” and “ZTE” and government agencies like the “Bureau of Industry and Security” and “CFIUS” nearly became household names amidst the various U.S.-China trade issues. However, the development of new export controls have become much more prominent all over the world. In particular, export controls are focusing more on both emerging technologies and threat typologies as well as moral considerations and human rights. With more variables being woven into more export control regimes, institutions must also weave more factors into their own due diligence and risk-rating processes.
In November 2020, the European Union announced a new set of rules for controlling the export of “dual-use” goods and technologies – a term indicating applications for both civilian and military purposes. Items such as high-powered computers, various chemical compounds and drones all have a wide array of use in civil society but can also be used for offensive means. A number of such items were added to the updated control list. Of particular note in the cybersecurity community, the regulations also took into account cyber-surveillance software and technology.
At the heart of this legislation was a determination to ensure that such technologies exported from the EU were not then used by other states to commit human rights abuses. This element of the new EU export control regulations took a page out of the book of the U.S. State Department, which issued draft guidance to U.S. exporters of items with surveillance capabilities in 2019 (and finalized in October 2020). The purpose was to encourage exporters to conduct appropriate due diligence and ensure that their end-users would not use their products in a manner inconsistent with human rights. An increased emphasis on human rights also has implications for private sector companies and their reputational risk appetite. For instance, just a month before the EU’s announcement was the criticism garnered by the transfer of 15 surveillance drones to Belarus during the 2020 protests.
As the evolution of export control policies makes apparent, being able to have a clear picture of the nature of the goods being traded, the end-users and potential end-uses is of growing importance in standard due diligence. With an eye towards the future, Sigma looks forward to expanding these capacities to offer its clients the ability to paint that picture. Sigma has worked to bring together various sources, such as trade data and company registers, to better understand what is being traded and by whom. By giving clients the ability to flag not just entities, but dual-use or military-classified products as well, a more accurate risk calculation can be made and potential adverse media of a transaction (even if technically legal) can be avoided.
Indeed, companies and trade financiers must be diligent in assessing what a transaction could mean not only in the court of law, but in the court of public opinion as well. This shift in the reasoning behind today’s modernized export control regimes serves as a great indication that due diligences of end-uses and end-users can be as important as proper classification. Now more than ever institutions must leverage data and news screening to answer questions beyond just the ‘what’ of the export, but the ‘who’ as well.
