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Monday
Feb252019

Israel arms exports will require KYC and sanctions checks

The agency in charge of granting licenses to defense exporters will start to require KYC, blacklist, and sanctions searches to applications for marketing and export licenses. This move is meant to strengthen control by Israeli authorities over marketing and export of military goods, which sometimes allegedly find their way into dubious hands.

The Israeli Ministry of Defense Export Control Authority (DECA) system for granting export licenses is two-tiered: The first stage is a request for a marketing license (in order to carry out substantive marketing activities), and the second is a request to grant the export license itself.

The new requirements refer to both stages. However, in an effort not to burden the exporters, the new forms are not required for marketing license applications for “unclassified products,” which don't require special scrutiny by DECA.             

Requests for a marketing license of a classified product (as detailed in DECA’s internal lists) or for requests for the export and sale license itself (for any product) the forms require that a basic KYC process be conducted by the exporter.

This includes verification of the end user’s identity and ownership (including those of any interim parties), an initial check of the customer’s record in terms of arms and non-conventional weapons proliferation, and verification that it is not listed in a major defense blacklist and sanctions list.

In case of an export license for a classified product, the exporter is required to fill out a more detailed questionnaire, highlighting suspicious indicators such as generous payment terms, request for a large quantity of spare parts, unusual shipment terms, etc.    

Unti now, the DECA agency did not take any position of involvement in exporters’ compliance programs, other than for adherence to the DECA regulatory requirements, dealing mainly with the defense aspects of marketing or exporting a military or dual-use product.

However, recently Israeli arms and technology allegedly found their way into dubious hands or were mentioned in unflattering contexts. There is also a global trend for more control over arms exports and movements to prevent misuse by rogue regimes or organizations. 

The DECA has reformed its services and organizational structure to lessen bureaucratic burdens from requesting exporters and aims to simplify the license grant process. Exporters and the Israeli defense industry have welcomed these steps. 

As regards to the new requirements, in light of exporters’ calls for postponement of their coming into effect, the MOD has announced that an initial grace period for “organization” is given. After the grace period, the requirements shall enter into full power and license requests without the filled new forms shall not be handled by DECA.  

This brings a wind of change to the world of defense export in Israel, requiring each company to be aware, at least on a basic level, to considerations of national and international security as well as global crime prevention.

Israel is considered a defense manufacture and export powerhouse, and its defense exports amounted to over $9 billion last year. The defense industry in Israel is very developed, and is estimated to include some 500 companies that provide, directly and indirectly, to more than 100,000 households.      

Notwithstanding some protests by exporters, it is expected that the Israeli defense companies will adhere to the new regulatory regime. This will also bring a new era to the DECA’s reference to the data provided in the new forms by the exporters -- a step that may significantly influence the ways and policies in which Israeli MOD will grant export licenses from now on.  

_____

Asher Miller, pictured above, is a compliance expert and the founder of Miller Law, an Israeli law firm specializing in compliance and industry-government transactions. He can be contacted at here.

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