Whether you are picking up a well-respected periodical or a celebrity news magazine, you cannot avoid reading about semaglutide injection drugs – drugs used to control blood sugar levels for individuals with type 2 diabetes and weight loss. “Ubiquitous” is the only word to describe the news coverage of these “miracle medications.” As news has spread about these medications, their use has expanded far outside of Hollywood to individuals across the country, ultimately leading to a reported shortage. So, what impact, if any, does weight, weight loss, or the spread of such medications have on the workplace?

First, studies have long concluded that discrimination based on appearance, including weight, occurs in employment and other areas of life and that it may disproportionally impact a specific group or groups of individuals. Likely in response to such evidence, effective November 26, 2023, New York City passed a law protecting individuals who live or work in or visit New York City from discrimination based on their height or weight regarding employment, housing, and public accommodations. While New York City may be an early adopter of such a law, there may be more jurisdictions that follow this trend. Further, on the federal level, the Equal Employment Opportunity Commission has long taken the position that height and weight are generally unacceptable pre-employment inquiries as they may disproportionately impact employees of different protected characteristics. In short, weight has always impacted the workplace, including workplace decisions.

Second, there may be harassment or workplace bullying related to appearance, including weight. Harassment, whether sexual or based on other protected characteristics, can involve comments or actions related to the physical body and appearance. The same is true of bullying and targeting in the workplace. In today’s climate, where millions of employees are being prescribed or taking weight-loss drugs, this may include employees asking questions of a co-worker who has lost weight, asking whether a co-worker is taking a weight-loss drug, making comments including judgmental statements, stigmatizing such individuals, and similar behavior. While harassment and bullying related to appearance may not be new, such treatment based on the perception that an employee may be taking a weight-loss drug could be a more recent area with which human resources must grapple.

Third, workplace culture may be impacted by the recent focus on weight and weight loss medications, and the level of such impact may depend on several factors. For example, the employer’s geographic location, the industry, the overall focus on health and wellness in the workplace, and the employer’s commitment to inclusivity and belonging may all impact how weight and height will be viewed, including using such weight loss medications. 

At this juncture in history, where celebrities, media, and the American public are hyper-focused on weight, including weight-loss medications, what actions can employers consider? First, it is essential to continue fostering a positive and inclusive work environment that extends to weight, height, body shape, and appearance. Trainings, policies, town halls and education, and other visible commitments to such inclusivity can all support such a culture. Second, training managers, supervisors, and individuals involved in recruiting and hiring about weight/height discrimination and bias, the studies that have demonstrated its existence, and how these employees can foster an inclusive work environment and remove any relevant barriers that may exist. Lastly, employers may wish to review their current culture, policies, and benefits to determine if the employer is supporting the health and well-being of employees and their health journeys and whether there are areas of improvement.

Stop me if you have seen this before. You visit the website of a U.S. privately held manufacturer, and you click on the “About Us” page (if one exists) to find only generic information that could describe any manufacturing business in the United States. There often is no listing of who runs the business – let alone who owns it – and sometimes, there is no information as to how big the facility is or how many employees work there. Often, there is no information as to when the business was founded or its history. 

Contrast that with many international privately held businesses – including in Europe. The websites often have a listing of the executive team, ownership information, employee headcount, and most importantly the top line revenue of the business (and perhaps even its profitability). 

Why the difference? Why are international businesses more transparent? 

The answer to these questions is not readily obvious, but at least in part, the “secrecy” that U.S. businesses have as to the ownership and or revenue information is baked into U.S. corporate law. Up until the time of the passage of the Corporate Transparency Act, lawyers would always talk about the fact that forming in Delaware (as an example) was straightforward and that much of the company’s underlying information would not need to be disclosed. Often, our international clients are surprised by this, as the disclosure rules outside the United States can be extreme, including the disclosure of passports as an example.

I have represented a lot of privately held manufacturers and I understand why certain companies do not want to disclose information. However, I would maintain that U.S. privately held businesses should consider more disclosure – not less – for a few reasons. First, in an era where manufacturers are desperate to find employees, transparency can only help. Knowing who owns the company, who runs it, how big it is, how many employees work there, and the history (i.e., stability) of the organization can be an effective recruiting tool. Second, this information can also help potential customers as they conduct diligence on whether to do business with you. There are other reasons as well.

At the very least, U.S. privately held manufacturers should think about whether maintaining secrecy of all information is actually helping them in any way or just serving as a barrier for growth.

As most manufacturers know, employers employing 100 or more employees and federal contractors employing 50 or more employees meeting certain criteria are required to file component 1 data reports annually on the EEO-1 report with the U.S. Equal Employment Opportunity Commission (EEOC). The law requires covered employers to report on the racial/ethnic and gender composition of their workplace across EEO job categories.

Recently, the EEOC announced that the 2023 EEO-1 component 1 data collection will be open on Tuesday, April 30, 2024, and the deadline to file the report is June 4, 2024. As a reminder, the EEOC requires electronic submission through a web-based portal referred to as the “EEO-1 Component 1 Online Filing System”. Therefore, beginning on April 30, 2024, employers will be able to access the portal and file the EEO-1 Component 1 Report. Also, on that date, the EEOC’s filer support message center, which is a filer help desk, will be available to assist filers and answer questions. The EEOC anticipates posting the 2023 EEO-1 Component 1 Instruction Booklet and the 2023 Data File Upload Specifications by March 19, 2024, in the portal listed above.

As employers may know, for purposes of this reporting, all job positions should be appropriately classified under the EEOC’s ten major EEO job categories; descriptions of these categories and examples of positions falling within each category are available on the EEOC’s website and in its other materials (including frequently asked questions, factsheets, and other materials). For each employee, employers should report their race/ethnicity and gender. The EEO-1 Component 1 Report is a “snapshot” of the workforce employment data, which should be any pay period from the last quarter of the year, October through December.

Employers who require assistance with regard to compliance with the EEO-1 Component 1 Report obligation should consult competent counsel.

This week, we are pleased to have a guest post from Intellectual Property + Technology Group lawyer John L. Cordani, Jr. and Business Litigation Team lawyer, Janet J. Kljyan.

We have seen a noticeable uptick in lawsuits commenced by “copyright trolls” in recent years, including against businesses in the manufacturing space. The Supreme Court is currently considering a case that could have a significant impact on the viability of typical copyright troll claims and, more broadly, the continued prevalence of copyright trolling.

Copyright trolls file lawsuits for the purpose of extracting a settlement in an amount, making defense of the case difficult to justify rather than to actually protect a copyright. They are plaintiffs who are in the business of being plaintiffs.

Copyright trolls are often law firms or led by lawyers and tend not to be the original creators of the copyrighted work. Such entities purchase the right to “enforce” a copyrighted work—usually images or photographs—and then use technology to scour the internet for instances of allegedly infringing uses of the work (such as images used in blogs, business websites, and social media pages). Businesses like manufacturers with a public website or internet presence featuring stock images are vulnerable to such demands. The demand letters often try to intimidate the recipient and extract a relatively large settlement for what is often an insignificant infringement. Such letters can be misleading about the remedies a court will realistically award. Their victims tend to be smaller and mid-sized businesses that may be more likely to be intimidated by the demand letter and less likely to involve attorneys early on.

Copyright trolls take advantage of certain aspects of the United States Copyright Act to advance their goals. Demand letters almost always discuss how the court can theoretically award significant “statutory damages” without the plaintiff having to prove actual damages. Statutory damages can range from $750 to $30,000 per copyrighted work and can go as high as $150,000 if the infringement is proven to be “willful” (knowing and intentional). The Copyright Act also sometimes allows a successful plaintiff to recover its attorneys’ fees from the other party.

Although the Warner Chappell Music v. Nealy case being considered by the Supreme Court does not directly deal with copyright trolling, it will resolve an important question about the statute of limitations and availability of damages that has the potential to take the wind out of trolls’ sails.  Copyright trolls frequently rely on stale infringements, such as photographs published on the internet more than three years prior to the demand letter. Thus, the Supreme Court’s decision on the timeliness of claims could limit the viability of the type of claims typically brought by trolls. During the oral argument held on February 21, 2024, several Justices expressed skepticism about the so-called “discovery rule” that lower courts have used to allow copyright plaintiffs to pursue claims about old infringements.

Given the complexity of this issue and the uncertain future of the discovery rule, it is important to stay abreast of the status of the law and to confer with an attorney when a demand letter from a copyright troll is received. While a copyright troll’s demand letter may make the validity of a copyright claim seem black-and-white, the devil is in the details. The recipient of a demand letter should undertake a factual investigation into issues such as the origin of the copyrighted work, third-party licensing, the timing of the alleged infringement, and the alleged copyright registration to assess the strength of their defenses and the availability of statutory damages and attorneys’ fees.

This week’s post was co-authored by Robinson+Cole Labor and Employment Group lawyer Jessica C. Pinto

Illinois has rung in the new year by mandating some of the most progressive employee leave requirements in the nation. Effective January 1, 2024, Illinois’s Paid Leave for All Workers Act will require nearly all Illinois employers to provide employees with paid leave that can be used for any reason – the first state in the Midwest to mandate such a law.

While once unheard of, Illinois now joins two states – Maine and Nevada- in mandating that covered employers provide employees with paid time off. Several local jurisdictions have also enacted similar ordinances, including Bernalillo County (New Mexico), Cook County (Illinois), and Chicago.  It remains to be seen whether this trend will gain traction elsewhere in the country.

So, where did these new paid leave laws originate? Several laws were first fashioned as paid sick leave laws but were subsequently amended to include more expansive language allowing for paid time off for “any reason.” These prior sick leave laws typically permitted employees to take time off for medical-related needs, such as receiving treatment for a medical condition or caring for a family member, among other things. These new laws enable employees to use leave for any reason, which is a significant departure.

The shift towards mandatory paid leave laws lies in public policy aimed at providing employees with economic security and increased wellness. Illinois’s law cites the central reasons for its passage as providing employment and economic security for employees and safeguarding the welfare, health, safety, and prosperity of the people of Illinois. Government officials indicate that Illinois law provides more protection and flexibility for its workers, allowing employees to protect their employment when faced with the unpredictability of life.

Specifically, Illinois’s Paid Leave for All Workers Act enables Illinois workers to earn and use up to a minimum of 40 hours of paid leave per any 12-month period without any accompanying documentation to explain their reason for doing so. The law is applicable to most Illinois workers, with few exceptions related to certain short-term student-workers and employees in higher education and certain railroad or carrier workers, among others. Illinois workers will earn one hour of paid leave for every 40 hours worked, with accrual beginning upon the start of employment or January 1, 2024, whichever is later. Notably, employees can carry over unused, accrued leave to the following year, but employers are not obliged to provide more than 40 hours of paid leave in a year. In the alternative, employers may choose to frontload paid leave by providing a full year’s worth of leave at the beginning of the year that satisfies the minimum requirements of Illinois law. However, employers that choose to frontload may adopt use-it-or-lose-it policies. Eligible employees may use earned time off for any reason after 90 days of employment; employees hired before January 1, 2024, can begin using earned time off starting March 31, 2024.

Given the new trends in legislation mandating vacation or paid time off, employers should consider reviewing their policies to confirm that they are compliant with applicable state and local laws in jurisdictions where they employ workers.

This week’s post includes an excerpt from our co-authored article PFAS will be increasing concern for manufacturers in year ahead,” published in the Hartford Business Journal’s Economic Forecast issue on January 8, 2024.

PFAS — perfluoroalkyl and polyfluoroalkyl substances — have been on the scene for years now, but we expect to see exponential growth in all things PFAS in 2024.

Governmental and private party PFAS investigations have significantly increased and, as they say, when you look for PFAS, you find them.

PFAS have been detected in a significant number of public drinking water systems, wastewater treatment facilities, private wells, surface water bodies, fish tissues and elsewhere, both in Connecticut and nationally.

Federal and state governments are also increasingly requiring manufacturers and distributors to report whether there are any PFAS in the products they make, use or distribute.

All of this investigation and reporting will lead to increased governmental and regulatory knowledge and awareness of the presence of PFAS in the environment and in a wide variety of products.

With this increased knowledge comes increased regulatory, scientific and legal action.

The Environmental Protection Agency (EPA) has made addressing PFAS exposure a federal enforcement priority for 2024-2027. In addition, EPA plans to list two PFAS compounds, perfluorooctanoic acid and perfluorooctanesulfonic acid, as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act.

This will significantly increase the EPA’s ability to require PFAS investigations across the country. And when PFAS are found, remediation typically must occur to minimize public exposure.

Increased knowledge of the presence and potential harms associated with PFAS has increased litigation around the country. This litigation trend will continue to grow as we become more and more aware of the ubiquity of these compounds.

This week’s post includes an excerpt from our co-authored article PFAS will be increasing concern for manufacturers in year ahead,” published in the Hartford Business Journal’s Economic Forecast issue on January 8, 2024.

There are a lot of trends that we could identify for corporate compliance / litigation, but the one that stands out for me relates to contracts – the lifeblood for many of our clients. 

COVID-19 exposed the weaknesses in our global supply chains and in the business-to-business contracts that drive the entire system.

Manufacturers need to review their long-term agreements or standard terms and conditions if they sell “purchase order to purchase order.”

Most manufacturers are on high alert for business and/or legal terms that can significantly impact their margins, legal rights, etc.

What has changed in the past few years that will only increase in 2024? The rise in the use of contractual templates.

Companies — big and small — are looking for ways to make their contracting process more “efficient,” and thus, everyone is pulling out a template that has been approved up the chain of command.

These templates are filled with contractual clauses — some that make sense and others that do not. These templates also contain clauses that often have no relevance to the actual contractual negotiation that is going on.

Templates have made contracts longer in length — not shorter. And, because of all the extraneous language and clauses that are included to make the template effective, the negotiations are dragging on for months.

Time will tell if the manufacturing industry moves away from the templates to get deals done quicker in 2024 and beyond.

This week’s post was co-authored by Robinson+Cole Labor and Employment Group lawyer Madison C. Picard.

As we look ahead to 2024, there are a number of new issues and trends that appear on the local, state, and federal horizon with regard to labor and employment laws that may impact manufacturers. The following are a few of those issues and trends:

  1. Expanded Anti-Discrimination Protections: This past year, numerous states and localities amended their discrimination laws to include new protected statuses, including hairstyle or texture, off-duty cannabis use, citizenship, immigration status, and others. We expect that this trend will continue in the new year. Likewise, as the federal Pregnant Workers Fairness Act into effect this year, expanding the protections for pregnant employees and the manner in which accommodations associated with pregnancy are generally viewed, we may see states and localities passing similar protections and a change to the approach that employers use in addressing such needs. Manufacturers should review their handbooks to ensure that their anti-discrimination policies comply with federal law and the laws of the relevant states and localities where employees are working.
  • Growth in Restrictions of Non-Competes: Last year, the Federal Trade Commission initially proposed a complete ban on the use of non-compete agreements; however, it has indicated that it plans to vote on a final version of this proposed rule in April 2024. Similarly, there has been a significant uptick in recent years in the number of states that restrict non-compete agreements and provisions by statute, including based on non-exempt status, position, and salary, among others, which will likely continue. 
  • EEO-1 Reporting Changes: Manufacturers who are required to file EEO-1 reports annually may see changes to this form and the manner in which certain characteristics are reported. Specifically, in 2024, the Equal Employment Opportunity Commission (EEOC) is expected to revise the reporting process, including amending the gender reporting categories so that employees have an opportunity to self-identify as non-binary voluntarily. The EEOC may also make changes to the race/ethnicity reporting to include individuals from origins in Middle Eastern countries who have historically reported as “white.” Manufacturers should keep an eye out for this change and modify voluntary disclosure forms and any internal data-tracking procedures as necessary.
  • Creative Approaches to Retention: In 2023, manufacturers were generally challenged regarding recruitment and retention in a post-pandemic environment that included labor shortages and mismatches of skills, among other issues. These issues may continue in 2024 due to economic uncertainty and may create opportunities for manufacturers to develop creative ways to retain employees, distinguish themselves in the job market, and renew efforts to retain employees. For example, manufacturers may introduce new and more flexible benefits and time off, create individual incentives, implement exit interviews, and focus on culture and morale, among other action items.
  • Increased State Paid Leave Benefits: Many states and localities have introduced paid leave laws and ordinances in recent years, and that trend will continue into 2024. Several states and one county also mandate paid vacation time for employees (including, most recently, Illinois). Manufacturers, especially multi-state employers, may need to review their policies to ensure they are compliant in all of the states and localities where they employ workers.  
  • Technology Developments: Workplace injuries and, consequently, workers’ compensation claims have increased in recent years. Although sometimes new technology in the workplace can contribute to these injuries, as of recently, it can also help prevent it by enhancing occupational safety.  This year, manufacturers have started to turn to artificial intelligence (AI) and other analytic tools for assistance in mitigating incidents of workplace violence, and we expect this to increase in 2024. Of course, manufacturers should remain cautious in relying on AI for certain internal processes, such as screening and hiring, to prevent unlawful discrimination. Government contractors, in particular, should ensure their processes, which may involve AI, are lawful, as the U.S. Department of Labor’s Office of Federal Contract Compliance Programs recently expressed concerns about using AI for this purpose.
  • New Labor Laws: The Biden administration has kept its promise of expanding employee rights to engage in union-organizing activity and made several changes to the law in this regard. Many of these changes will take effect in early 2024, including the new rule expanding what employers qualify as a joint employer under the National Labor Relations Act (NLRA). We can expect to see additional pro-labor changes in 2024, including restrictions on mandatory captive audience meetings. Whether unionized or union-free, manufacturers may be impacted by the NLRA and should remain informed with regard to changes in this area.  

This week’s post is authored by Emilee Mooney Scott and is also available on Robinson+Cole’s Environmental Law + blogThank you to Emilee for contributing. Emilee is a partner in the firm’s Environmental, Energy + Telecommunications Group, focusing her practice on a variety of environmental compliance and transactional matters, including emerging contaminants.

As we have previously reported, PFAS (per- and polyfluoroalkyl substances) are a class of substances coming under increasing regulatory scrutiny.  As manufacturers ring in the new year they should be aware of two new PFAS reporting requirements that could need careful attention in 2024.

De Minimis Exemption No Longer Available for PFAS Under EPCRA

Certain PFAS have been subject to Toxics Release Inventory (TRI) reporting under the Emergency Planning and Community Right to Know Act (EPCRA) since 2020. This reporting obligation began with an initial list of 172 PFAS, which has since expanded.  That said, only a few dozen facilities submitted TRI reports for PFAS in each of the years since 2020.  EPA followed up with facilities from which it had expected to receive filings, and reported that such facilities had concluded that TRI reporting was not necessary because of the de minimis exemption to TRI reporting.   Under the de minimis exemption, substances present in mixtures in a concentration below 1 percent (or 0.1 percent for carcinogens) could be omitted from TRI reports.  Since PFAS are often present in mixtures in very low concentrations the de minimis exemption essentially allowed almost all PFAS to remain unreported.

By a new rule published on October 31, 2023, EPA designated PFAS subject to TRI reporting as “chemicals of special concern” subject to enhanced reporting requirements.  Because chemicals of special concern are not subject to the de minimis exemption to TRI reporting, and must be reported even in minute concentrations, this change will dramatically increase the amount of PFAS subject to reporting in the 2024 reporting year (2024 TRI filings are due July 1, 2025).

A second PFAS-related change to EPCRA reporting requirements has already gone into effect and might already be impacting your supply chain.  EPCRA requires that certain suppliers of mixtures and/or trade name chemical products must disclose to their customers the presence of any TRI-reportable substance in their products unless such substance is present below the de minimis concentration of 1 percent (0.1 percent for carcinogens).   In the same October 31 final rule, EPA also eliminated the use of the de minimis exemption to supplier notification requirements for any chemicals of special concern (including TRI-reportable PFAS, and also lead, mercury, and other chemicals of special concern).  As a result, manufacturers may soon learn that products in their supply chain contain small concentrations of PFAS that would not have been previously reported or disclosed because they would have been below the de minimis threshold.  This enhanced knowledge would in turn also inform TRI reports for the chemicals of special concern.

TSCA Reporting Rule for Manufacturers and Importers

Under a new PFAS reporting rule promulgated under the Toxic Substances Control Act on October 11, 2023, any entity that manufactured (including imported) PFAS or PFAS-containing articles in any year since 2011 must provide EPA information on PFAS identity, concentration, uses, production volumes, disposal, exposures, and hazards.  The definition of PFAS under TSCA is much broader than under EPCRA (defined by chemical properties rather than a list of substances) and could apply to thousands of different compounds.

It is important to note that TSCA defines manufacturing to include importing.  Furthermore, unlike some other TSCA reporting requirements, the new PFAS reporting rules will apply to finished product “articles” in addition to bulk chemicals, so importers of finished articles are subject to reporting rules for products that might have had PFAS added several steps earlier in the supply chain.  For example, a jacket made from fabric that has been treated with a PFAS-containing water-repellent coating would be considered a PFAS-containing article subject to the reporting rule if imported since January 1, 2011. 

The more complex the item, and the more different components are included, the more opportunities for PFAS-containing components to be present.  Even something simple like a desktop speaker could include wires (potentially sheathed with PTFE), plastic casing (which may have been strengthened with PFAS-imparting processes), and fabric (treated with a PFAS-containing water and stain-repellent coating).  Fortunately, manufacturers and importers are only required to provide the information “known to or reasonably ascertainable” by the filer, and for earlier years in the reporting period, there might be little, if any, information available.  Even so, a careful examination of the supply chain and related records may be required in order to understand your reporting obligations and/or document what information (if any) is known or reasonably ascertainable.

Reporting forms are due within 18 months after the effective date of the rule (i.e., by May 13, 2025) except for small article importers, who must report within 24 months after the effective date (i.e., by November 13, 2025).

This post is also being shared on our Environmental Law + blog. If you’re interested in getting updates on timely and thoughtful developments in the environmental, health and safety (EH+S) and energy landscapes, we invite you to subscribe to the blog.

This week’s post was co-authored by Edward Heath and Kevin Daly.  Attorneys Heath and Daly are members of Robinson+Cole’s Manufacturing Industry Team and regularly counsel clients on trade compliance, anti-corruption compliance, and other corporate compliance issues.

On September 26, 2023, U.S. export enforcement authorities, jointly with enforcement authorities in four allied countries (the Five Eyes), issued additional guidance in order to prevent the diversion of goods in violation of sanctions against Russia. The guidance is the most specific road map yet regarding both the types of goods and transactions that are the prime focus of enforcement and the diligence measures that these governments expect exporters to apply to transactions involving sensitive goods or destinations.

In light of this guidance, manufacturers might (1) check to see if they are exporting or facilitating the export of any of the sensitive products or other risk factors highlighted in the guidance; and (2) ensure that their current export diligence procedures are aligned with those recommended in the guidance.

Guidance From Five Eyes Nations

On September 26, 2023, the export control enforcement agencies of the Five Eyes nations (Australia, Canada, New Zealand, the United Kingdom, and the United States) issued “Guidance for Industry and Academia” regarding Russia and Belarus sanctions evasion. The guidance specifies 45 types of goods, identified by the HS code, that the countries believe Russia seeks to use in its weapons systems.

What Types of Goods Are Mentioned?

The 45 types of goods are divided into four tiers.

  • Tiers 1 and 2 consist of integrated circuits and electronics items related to wireless communication, satellite-based navigation, and passive electronics components.
  • Tiers 3 and 4 consist of (among others) transformers, television cameras and apparatuses for voice or image transmission, certain electrical equipment, semiconductor devices, ball bearings and roller bearings, aircraft parts, navigational equipment, telescopic sights, and manufacturing, production, and testing equipment for electric components and circuits.

The Five Eyes Guidance identifies three scenarios (involving the 45 types of products of concern) that pose a particular risk of diversion to Russia: 

  1. exports to companies that never received exports before February 2022;
  2. exports to companies that never received exports of Tier 1 or Tier 2 goods before February 2022; and
  3. exports to companies that received exports of Tier 1 or Tier 2 goods before February 2022 and saw a significant spike in exports thereafter.  

What Diligence Steps Are Recommended?

The Five Eyes Guidance also prescribes recommended diligence steps for all new customers located in countries that have not imposed export controls on Russia and Belarus since Russia’s invasion of Ukraine, which are known as non-Global Export Control Countries or “non-GECC.” Basically, this refers to all countries except for the Five Eyes countries, all EU countries, Iceland, Japan, Liechtenstein, Norway, South Korea, Switzerland, and Taiwan.

The recommended diligence steps include checking whether the company was incorporated after February 2022, evaluating whether the customer’s business is consistent with the items ordered, and evaluating whether the customer’s website or physical location reveals any red flags. Additionally, the Five Eyes Guidance lists specific red flags that it advises exporters to be on the lookout for, most of which involve changes in the customer’s behavior since February 2022.

Guidance from the U.S. Department of Commerce

Concurrently with the Five Eyes Guidance, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued related guidance to U.S. exporters. Although both sets of guidance address diversion to Russia and Belarus, there are important differences between the two guidance documents.

First, the BIS Guidance states that U.S. enforcement authorities are prioritizing the nine types of goods in Tier 1 and Tier 2 of the Five Eyes Guidance. The BIS Guidance goes on to set forth recommended diligence steps specific to exports of items listed in Tier 1 and Tier 2. BIS recommends that, at least for these nine types of items, U.S. exporters should seek written assurances of compliance with U.S. export controls when there are parties from non-GECC countries involved.

Second, the BIS Guidance also sets forth recommended diligence steps for such transactions, most of which focus on collecting “know your customer” information. This is a different emphasis compared to the diligence steps recommended in the Five Eyes guidance, which focus foremost on examining changes in customer behavior after the Russian invasion of Ukraine commenced in February 2022. The recommended diligence steps include:

  • Collecting information about the customer’s name, address, website, and line of business;
  • Obtaining information about what the customer intends to do with the products (e.g., consume, transform into a different item, maintain for stock, or resell);
  • Obtaining the name and address of the end user (if than from the customer): and
  • Obtaining attestations of compliance with specific provisions of U.S. export controls.

The BIS Guidance appends a two-page form for collecting this information. The form includes the recommended attestations of compliance.

Implications of Recent Guidance

The recent guidance from BIS and the Five Eyes nations constitutes the most specific guidance yet regarding what concrete steps enforcement authorities expect companies to adopt to prevent and detect diversion of goods to Russia and Belarus. In light of the guidance, companies may want to triage their own export operations to assess whether their operations entail any of the diversion risk factors emphasized in the guidance. This could entail asking questions such as:

  • Does our company deal in any of the products of concern identified in the guidance? If so, which products and which “tiers” are they located in?
  • Does our company export products to or do business with entities located in non-GECC countries?
  • How does the diligence we conduct for export transactions compare with the diligence steps identified in the guidance?

Companies that deal in the products of concern may wish to consider implementing changes to their diligence procedures for transactions within the scope of the new guidance. In the guidance, export enforcement authorities have articulated specific types of information they want companies to collect about transactions involving the products of concern. The Five Eyes Guidance focuses on the collection of information regarding potential red flags regarding the customer’s location and changes occurring after February 2022. The BIS guidance focuses on collecting complete know-your-customer information (such as end-use, end-user, and the customer’s corporate information) and assurances of compliance. The BIS guidance even prescribes a specific form (more detailed than the general BIS-711 form) for collecting this information. In enforcement actions, these authorities may use the tools identified in the guidance in evaluating the sufficiency of companies’ compliance programs, and may view failure to adopt the diligence measures set forth in the guidance as a negative factor in assessing compliance programs in the event that a prohibited export occurs. Companies which make changes to their diligence procedures, might also wish to consider documenting the changes made in their export compliance policies or other applicable policies and procedures to ensure that written procedures reflect current operations.

This recent guidance reinforces that enforcement regarding Russian sanctions evasion remains a major priority for the U.S. and allied countries. Enforcement authorities continue to identify new diversion threats and tailor their enforcement priorities accordingly. The joint nature of this guidance also reinforces the continued high level of cooperation between allied governments in enforcing Russia and Belarus sanctions. It is worthwhile for all exporters to review the guidance in order to assess their risk and consider adopting the diligence procedures recommended in the guidance where appropriate to meet those risks.