Due diligence and awareness

Exporters of military and dual-use goods, technology and software, and military end-use goods must take proactive steps to ascertain if their exports require a permit.  One aspect of understanding whether a permit is required is determining whether their exports are ultimately intended for military or police use.  This means talking with importers to understand where the exported items are going, who they are going to, and what they will be used for.

If your business supplies weapons and other controlled exports you may be targeted by importers who are not what they appear. You may be approached by importers who are intending to, or being used by others to, circumvent New Zealand’s export controls scheme to source items for military or terrorist uses.  You should undertake due diligence to ensure that this circumvention does not occur. 

When undertaking due diligence there are numerous indicators that an importer is seeking to circumvent the export control regime to obtain prohibited items. Some common red flags are: 

  1. Obfuscation of the end-user or end-use
  2. Reluctance to sign an end-user undertaking – either an export controls regime end-user certificate or a similar company undertaking
  3. Component quality too advanced for the claimed use
  4. Purchase request lacks the required detail
  5. Identical procurement requests from different companies (although they may also actually be linked)
  6. Multiple quote requests without regard to cost to identify a willing supplier
  7. No request for discounts on a large order
  8. No request for associated goods or support to obfuscate the end-user
  9. Requests for support at a different location
  10. No familiarly with the goods
  11. No business experience
  12. Claimed academic use. Is the institution aware of and approves the request?
  13. Unexplained/unnecessary use of an intermediary
  14. Claim to purchase goods on behalf of a well-known company. Is this relationship confirmed by that company?
  15. Use of in-country or third-country brokers or mirror companies
  16. Non-existent entity or shell company
  17. Little or no online presence
  18. Entity office appears temporary, insubstantial or is a residence
  19. Entity premises lacks relevant facilities to utilise the import
  20. Open acknowledgement of indirect pathways because of procurement difficulties with a direct export
  21. Different information on website versions in several languages
  22. Payments laundered through third countries
  23. Links to military or police end-users
  24. Request to split a shipment into smaller parcels to avoid scrutiny
  25. Freight forwarder as the ultimate consignee
  26. Suspicious banking
  27. Personal payment
  28. Unexpected third party payment
  29. Uneconomic payments to avoid bank reporting requirements and scrutiny

Take particular care where an export that falls under the Catch-all provisions is to a distributor.  Seek information about the distributor’s established, intended or likely customers.  Where information is missing, unclear or you are concerned about anything that has come to light during your due diligence checks, you can:

  • Seek advice from the Export Controls team on whether the destination is problematic.
  • Seek to have the distributor sign an undertaking that sales will not be made to the military or police unless with the prior consent of the New Zealand government.
  • Seek to have the distributor sign an undertaking that sales will not be made where use is or may be intended for use relating, directly, or indirectly, to the development, production, or deployment of nuclear explosive devices, biological weapons, and chemical weapons, and their respective means of delivery.

Due diligence is important.  Being a responsible exporter not only helps keep people safe, it is also a smart move for you and your business.  Proper due diligence reduces the risk of you or your business being held liable by the courts should it be subsequently known that a breach of the Customs Act has occurred.   While it will incur a cost, it may be prudent to seek independent legal advice on your businesses due diligence processes.



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