Dual-use goods refer to products, technologies, or materials that can have both civilian and military or illicit applications. These goods may have legitimate commercial uses but can also be exploited for illegal purposes, such as the development of weapons of mass destruction or surveillance equipment for authoritarian regimes. Governments and international organizations regulate the export and trade of dual-use goods to prevent their misuse and proliferation.
Examples of Dual-Use Goods
Dual-use goods encompass a wide range of items, from advanced technology and chemicals to machinery and software. Some of the most common examples include industrial lasers, encryption software, satellite technology, laboratory equipment, nuclear materials, and precision tools. While these items serve legitimate purposes in sectors such as healthcare, telecommunications, and manufacturing, they also have the potential to be repurposed for military applications or the development of weapons of mass destruction (WMDs).
For instance, a chemical used in agriculture might also be utilized in chemical weapons manufacturing, or high-performance computing systems may support both commercial data centers and military command infrastructure.
Regulatory Oversight and International Frameworks
To mitigate the risks associated with dual-use goods, governments and international bodies have established stringent regulatory frameworks. In the European Union, the export of dual-use items is governed by Regulation (EU) 2021/821, which sets common control rules across all member states. In the United States, the Export Administration Regulations (EAR)—enforced by the Bureau of Industry and Security (BIS)—serve a similar function.
Many dual-use goods are subject to export controls that require companies to obtain licenses before they can be shipped to certain destinations or end users. These controls are informed by international regimes such as the Wassenaar Arrangement, the Nuclear Suppliers Group (NSG), the Australia Group, and the Missile Technology Control Regime (MTCR).
Exporters must assess the destination country, the nature of the item, and the end-use or end-user to determine whether a license is required. Failure to comply can lead to severe penalties, including fines, loss of export privileges, and even criminal charges.
Risk of Diversion and Financial Crime Implications
One of the primary risks associated with dual-use goods is their potential for diversion—where items exported for civilian purposes are secretly rerouted for unauthorized or military use. This poses a significant threat in regions where sanctions, embargoes, or conflict are present.
From a financial crime perspective, the trade in dual-use goods can be exploited for:
Proliferation financing, where entities raise or move funds to support the development of WMDs
Sanctions evasion, by using front companies, intermediaries, or falsified documentation
Trade-based money laundering, where over- or under-invoicing is used to disguise the movement of value
Financial institutions and logistics providers are expected to recognize red flags associated with dual-use goods transactions and apply enhanced due diligence (EDD) where necessary. This includes screening counterparties, verifying end-use declarations, and assessing trade routes or volumes that appear unusual.
Due Diligence and Compliance Best Practices
Organizations involved in the manufacturing, distribution, or financing of dual-use items must implement robust compliance controls to mitigate risk. These controls may include:
Classifying goods accurately according to control lists and harmonized codes
Conducting sanctions and export control screening on customers, suppliers, and third parties
Reviewing end-use certificates and conducting checks on ultimate beneficial owners (UBOs)
Training staff on the identification and handling of dual-use goods
Coordinating with legal and trade compliance teams to manage export licensing requirements
For financial institutions, it’s essential to integrate dual-use goods risk into customer risk assessments and transaction monitoring scenarios, particularly when financing cross-border trade.
Importance in the Context of Global Security
The regulation of dual-use goods is not only a matter of commercial compliance—it is a critical component of global non-proliferation and security strategies. By controlling the flow of sensitive technologies, governments aim to prevent the escalation of armed conflict, the spread of WMDs, and the destabilization of fragile regions.
For businesses, understanding and complying with dual-use regulations protects not only their legal standing but also their reputation and access to global markets.
