Yes, I thought Gemini had left out the dual-use goods screening requirements for Indian banks, which I had run into some years ago, so I asked…

For Indian banks, the requirement to check for dual-use goods has shifted from “best practice” to a hard legal mandateas of 2023, largely driven by amendments to the WMD Act and updated RBI Master Directions.

Here is the specific breakdown of the requirements for Indian financial institutions.

1. The Core Legal Mandate: The WMD Act (Amendment)

The most critical regulation is the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Amendment Act, 2022.

• The “Finance” Clause: Section 12A was inserted to explicitly prohibit the financing of any activity related to weapons of mass destruction and their delivery systems.
• The Implication: Before this amendment, the law mostly targeted exporters/manufacturers. Now, if a bank provides a Letter of Credit (LC) or processes a payment for a dual-use item that is being exported illegally, the bank itself can be held liable for “financing” a prohibited activity.

2. The Regulatory Instruction: RBI Master Direction

The Reserve Bank of India (RBI) operationalized the WMD Act through the Master Direction on KYC (Updated 2023) to align with FATF Recommendation 7 (Proliferation Financing).

• Section 12A & 54: The RBI explicitly instructs banks to ensure they do not deal with funds or assets of individuals/entities designated under the WMD Act or UNSC resolutions (Iran/North Korea).
• Risk Assessment: Banks are now required to conduct a “Proliferation Financing Risk Assessment.” This means they must identify which of their customers (e.g., chemical manufacturers, aerospace startups) deal in dual-use goods and apply higher scrutiny to them.

3. The Control List: SCOMET

Indian banks do not screen against “Wassenaar” or “US Commerce” lists directly. They screen (or should screen) against the SCOMET List (Special Chemicals, Organisms, Materials, Equipment, and Technologies).

• What it is: This is India’s national dual-use list, maintained by the DGFT (Directorate General of Foreign Trade). It consolidates all the major regimes (Wassenaar, MTCR, NSG) into one document.
• The Check: If a bank customer is exporting an item on the SCOMET list, they must present a valid SCOMET Export Authorization (license) to the bank.
• Bank Obligation: In Trade Finance, the bank is expected to verify that the goods declared in the Letter of Credit/Invoice do not require a SCOMET license, or if they do, that the license is present and valid.

4. How Indian Banks Actually Implement This

In practice, Indian banks (especially larger ones like HDFC, ICICI, SBI) handle this in two layers:

1. Sanctions Layer (Automated):
   • They screen names/entities against the UNSC Consolidated List and the MHA (Ministry of Home Affairs) designated list. This is automated and mandatory for every transaction.
2. Trade Finance Layer (Manual/Semi-Automated):
   • When processing an export bill or LC, the trade desk checks the HS Code.
   • If the HS code matches a “high risk” SCOMET category (e.g., nuclear materials, high-end electronics), they ask the exporter for a “Non-SCOMET declaration” or the actual license.
   • Note: The DGFT’s online system for SCOMET licenses actually requires exporters to input their Bank Details(Bank Name, Branch, IFSC), which creates a digital trail linking the bank to the specific licensed transaction.

Summary Table for Policy Drafting

Component	Requirement Source	What Banks Must Do
The Law	WMD Act Amendment 2022	Ensure no funds are provided to prohibited WMD activities.
The Regulator	RBI Master Direction (KYC)	Conduct PF (Proliferation Financing) Risk Assessments; screen UNSC lists.
The List	SCOMET List (Appendix 3 of ITC HS)	Verify SCOMET authorization for controlled exports.
The Trigger	Trade Finance / Forex	Flag transactions involving HS codes that overlap with SCOMET items.

so, I asked Gemini why India had been left out of the first response – and, as usual Gemini was its usual solicitous self:

That was an oversight on my part, and you are right to call it out. India absolutely should have been in that conversation, especially given the aggressive legal updates in 2022 and 2023.

I likely excluded it from the initial “top tier” list for two nuanced reasons regarding how compliance is viewed globally versus locally:

1. Recency of the “Financial” Mandate

The countries I listed (US, HK, Singapore) have had explicit banking guidance on dual-use goods for quite some time.

• India’s Shift: Until the WMD Act Amendment in 2022, the burden in India was almost entirely on the exporter(via the DGFT and Customs). Banks were primarily checking boxes to ensure paperwork (like the IEC code) was in order.
• The Change: The 2022 Amendment (Section 12A) was the game-changer that explicitly criminalized the financingof these goods.¹ This moved India from “administrative checks” to “active liability” very recently, so it sometimes gets missed in older global compliance playbooks.

2. “Check the License” vs. “Screen the Goods”

This is a subtle but critical distinction in how the requirement works:

• The “Hong Kong/US” Model (Detective Approach):These regulators expect banks to act like detectives. Even if the exporter says “this is a harmless pipe,” the bank is expected to look at the description, screen it against a list (like the Commerce Control List), and say, “Wait, this pipe specifications match a nuclear centrifuge part.”
• The “India” Model (Gatekeeper Approach):Historically, the RBI and DGFT framework treated banks more as gatekeepers of documentation. The requirement was often: “Did the customer give you a valid SCOMET license? If yes, process it. If no, get a declaration.”While this is changing, many Indian banks still operate on the premise that if the customer declares it as Non-SCOMET, the bank is safe. In contrast, US/EU regulators increasingly tell banks they cannot just trust the customer’s declaration and must independently verify the goods.

Summary: Where India Fits Now

If I were to redraw that first list for 2025/2026, India belongs firmly in the “Strict” category, but with a different flavor:

• US/EU: Strict because of global reach and independent screening expectations.
• India: Strict because of criminal liability (under the WMD Act) and the tight integration with Forex laws (FEMA).

For a compliance policy or screening tool, you need to distinguish between the Source Regimes (where the lists are agreed upon diplomatically) and the Implementation Lists (the actual legal documents you screen against).

Most screening tools ingest the Implementation Lists because those contain the specific codes (ECCNs) and legal definitions used by customs.

1. The “Big Four” (The Source Regimes)

These are the multilateral agreements where experts decide what counts as “dual-use.”

• Wassenaar Arrangement (WA): Covers conventional arms and dual-use goods and technologies (e.g., encryption, sensors, lasers, aerospace). This is the largest and most commercially relevant list.
• Nuclear Suppliers Group (NSG): Covers nuclear material and nuclear-related dual-use equipment (e.g., high-grade graphite, certain machine tools).
• Missile Technology Control Regime (MTCR): Covers delivery systems (missiles, drones) and related technology (e.g., propulsion, guidance systems).
• Australia Group (AG): Covers chemical and biological weapons proliferation (e.g., precursors, fermenters, toxins).

2. The Implementation Lists (What You Actually Screen)

Banks and exporters do not usually screen against the “Wassenaar list” directly. They screen against the national laws that incorporate those regimes.

List Name	Jurisdiction	Description
Commerce Control List (CCL)	USA	Managed by the BIS. Items are identified by an ECCN (Export Control Classification Number). This is the global “gold standard” because of the reach of the US Dollar.
EU Dual-Use Annex I	EU	The consolidated list for all EU member states (Regulation 2021/821). It combines all four regimes above into one document.
UK Strategic Export Control Lists	UK	The “Consolidated List of Strategic Military and Dual-Use Items.” Post-Brexit, the UK maintains its own, though it largely mirrors the EU/Wassenaar.
METI Control List	Japan	Managed by the Ministry of Economy, Trade and Industry. Highly specific for Asian trade corridors.

3. The “High Priority” Subsets (Crucial for 2025/2026)

Because screening millions of transactions against the full dual-use list is difficult (and generates many false positives), regulators have recently published shorter, prioritized lists specifically targeting Russian and Iranian supply chains.

• Common High Priority List (CHPL):
  • Issuers: Jointly identified by the US (BIS), EU, UK, and Japan.
  • Content: This is a subset of about 50 HS Codes (Harmonized System codes) that are essentially “Red Alert” items. It includes microelectronics (integrated circuits), CNC machine tools, and ball bearings.
  • Action: If you are building a tool, flagging these HS codes is the highest priority for immediate risk reduction.

4. The “Data Problem” (HS Codes vs. ECCN)

This is the hardest part of building a screening tool.

• The Mismatch: Dual-use lists are defined by technical specifications (e.g., “Carbon fiber with tensile strength > X”), but bank data usually only has HS Codes (e.g., “6815.10 – Articles of carbon”).
• The Solution: You need a Correlation Table.
  • The European Commission publishes a “Correlation Table” that maps EU Dual-Use codes to Customs CN codes.
  • Warning: It is not 1-to-1. One HS code might contain both controlled and uncontrolled items. This is why “catch-all” screening often produces false positives (e.g., stopping a shipment of tennis rackets because they share an HS code with controlled carbon fiber).

My prompt:

What countries require that financial services firms check their transactions against dual-use goods lists?

Gemini’s initial response:

Most countries do not have a simple, direct law that says “banks must screen all transactions against dual-use goods lists” in the same way they mandate screening against Terrorist or Sanctions lists (like OFAC or the UN Security Council lists).

However, Hong Kong, Singapore, the United Arab Emirates, and the United States have arguably the most explicit regulatory frameworks or recent guidance that effectively compel financial institutions to perform these checks, particularly for trade finance.

In most jurisdictions, the “requirement” is indirect: banks are legally prohibited from facilitating Proliferation Financing (PF) (funding weapons of mass destruction). Since dual-use goods are the primary method for this, regulators expect banks to screen for them to avoid breaking the broader law.

1. Countries with Explicit Guidance or “De Facto” Mandates

These jurisdictions have issued specific guidance documents telling banks that they are expected to screen for dual-use goods.

• Hong Kong:
  • The Mandate: The Hong Kong Monetary Authority (HKMA) and the Hong Kong Association of Banks (HKAB) have issued granular guidance notes. They explicitly expect banks to check for dual-use goods in trade finance transactions.
  • Specifics: The guidance is detailed, asking banks to identify if goods in a transaction match those on the Import and Export (Strategic Commodities) Regulations. It is considered one of the strictest explicit expectations globally.
• United States:
  • The Mandate: While the US Export Administration Regulations (EAR) primarily target exporters, the Bureau of Industry and Security (BIS) issued new guidance in October 2024 that significantly increased the pressure on banks.
  • Specifics: The “General Prohibition 10” rule prevents any person (including banks) from financing a transaction with “knowledge” that a violation has occurred. The new guidance clarifies that banks cannot ignore “red flags” and explicitly recommends screening customers and transactions against BIS lists (like the Entity List and Commerce Control List) as a best practice to avoid liability.
• Singapore:
  • The Mandate: The Monetary Authority of Singapore (MAS) includes dual-use goods screening as a key part of its Anti-Money Laundering (AML) controls for trade finance.
  • Specifics: Banks are expected to have specific policies to detect “strategic goods” (their term for dual-use items). If a bank fails to catch a dual-use good shipment that aids proliferation, they can be penalized for having inadequate AML/CFT controls.
• United Arab Emirates (UAE):
  • The Mandate: The UAE has recently tightened controls on proliferation financing. Circular No. 1 of 2022 explicitly publicized the “UAE Control List” for dual-use items.
  • Specifics: Financial institutions are required to ensure they are not facilitating the transfer of these goods to sanctioned entities. The publication of the list was accompanied by warnings that compliance is mandatory to avoid penalties.

2. How the “Requirement” Works (The Legal Hook)

If you are looking for a law that looks like the “Patriot Act” but for dual-use goods, you won’t find one. Instead, the requirement comes from Proliferation Financing rules:

Type of Screening	Legal Basis	Applicability
Sanctions Screening	Explicit Law (e.g., OFAC, EU Sanctions).	Mandatory for every transaction (payments, wires, etc.).
Dual-Use Screening	Risk-Based Guidance (e.g., FATF Rec 7).	Expected for Trade Finance (Letters of Credit, Bills of Lading).

Why banks do it anyway:

If a bank processes a payment for a dual-use good (e.g., high-grade carbon fiber) that ends up in an Iranian missile program, the bank can be fined billions for violating Sanctions laws, not just export laws. Therefore, they screen against dual-use lists (like the EU Annex I or US Commerce Control List) to protect themselves.

3. Summary by Region

• European Union: The EU Dual-Use Regulation (2021/821) obliges exporters to get licenses. Banks are not explicitly named as “enforcers” in the regulation itself, but EU banks screen to ensure they aren’t processing payments for unlicensed exports, which would be a predicate offense for money laundering.
• United Kingdom: Similar to the EU. The focus is on the exporter, but the UK’s Financial Conduct Authority (FCA) expects banks to have systems to identify “high risk” trade, which implicitly includes dual-use goods.
• Japan: Under the Foreign Exchange and Foreign Trade Act, banks must confirm that certain transactions (especially those involving “residential status” or specific regions) do not violate export controls, though the burden is heavily shared with the exporter.

Hint: I felt something was missing with this response… tune in tomorrow.