Chinese Logistics Companies Need to Be Alert to Export Control Risks, Law Firm Says

Logistics companies, especially those based in China, should closely examine their U.S. export control risks, particularly after the Commerce Department added a range of Chinese logistics firms to the Entity List earlier this month for their involvement in microelectronics exports to Russia (see 2310060044), major Asian law firm King & Wood Mallesons said in a client alert last week.

Some logistics and freight forwarding companies have wrong “perceptions” about their compliance responsibilities, and believe they lack information about the goods they’re transporting so their compliance risks are “relatively small, the firm said, according to an unofficial translation. “Therefore, many logistics companies often do not take any effective export control risk prevention measures in the process of doing business.”

But a “failure” to conduct due diligence on goods or to investigate suspicious red flags could lead to violations of the Export Administration Regulations, the firm said. It listed several “danger signs” logistics companies should monitor, including when a forwarding company is listed as the final destination of the goods, “abnormal” transportation routes, the packaging of the product doesn’t match the shipping method, the delivery date is “uncertain,” or when the transported product is “incompatible with the technical level” of the destination country, such as when semiconductor manufacturing equipment is listed as being destined to a country “without an electronics industry.”

Logistics firms should also watch out for when the performance of the product doesn’t match the buyer's business scope -- such as if a “small bakery orders multiple cutting-edge lasers" -- or if the customer won’t provide information about the end use or end user of the products. Companies should also be suspicious of clients with almost no business background, clients that aren’t familiar with the “performance characteristics” of the products and clients that are “evasive or unclear about whether the products to be transported are for domestic use, export or re-export.”

The firm recommended logistics companies closely review customers before providing them services, which may include asking about their cargo, any potential license requirements and the countries involved in the transactions. Logistics firms “should establish an export control compliance system as soon as possible, systematically review customers, suppliers, logistics transportation operations, regular transportation items, etc. to further reduce compliance risks, and conduct regular compliance training for relevant employees to improve compliance consciousness,” the law firm said.