EP ¦ Dual-Use Export Controls as Tools of EU Economic Security

From coordination to a proactive EU approach

The European Union’s system for controlling dual-use exports — goods, software and technologies that can serve both civilian and military purposes — is no longer a niche trade compliance topic. It has become an active instrument of economic security with direct implications for sanctions screening, transaction monitoring, beneficial ownership investigations and anti-circumvention enforcement. The 2025 updates to Annex I of Regulation (EU) 2021/821 and parallel Commission initiatives expose new vulnerabilities for illicit financial flows, new compliance obligations for firms and new opportunities for investigators to detect and disrupt diversion routes that feed warfare, repression and proliferation.

From multilateral coordination to a de facto EU competence

Historically, the EU’s dual-use export regime was tethered to multilateral non‑proliferation arrangements: the Wassenaar Arrangement, the Nuclear Suppliers Group, the Missile Technology Control Regime and the Australia Group. These regimes set control lists and national authorities implemented licences under a coordinated — but largely national—system. Regulation (EU) 2021/821 modernised the legal framework, added cyber‑surveillance and human rights considerations, and reinforced rules on brokering and technical assistance, but it left licence administration and enforcement to Member States. The result has been a hybrid system: a common Annex I binding across the Union, plus national control lists and ad hoc national measures.

The war in Ukraine exposed the weaknesses of that hybrid model. Western components — notably microelectronics and other high‑tech parts — continue to appear inside Russian weapon systems despite sanctions and export controls. Diversion pathways rely on opaque intermediaries and jurisdictions such as China, Hong Kong, Türkiye, the UAE and neighbouring states. The patchwork of national controls, together with gaps in harmonised enforcement, has enabled “forum shopping” and created opportunities for sanctioned end‑users to access controlled items through third parties. For financial crime investigators this translates into layered laundering risks: complex trade chains, legitimate‑facing invoices, shell intermediaries, and payment flows routed through jurisdictions with weak due diligence.

What changed in 2025 and why it matters

In September 2025 the European Commission adopted a delegated regulation updating Annex I of the Dual‑Use Regulation. Unlike previous technical revisions, this update explicitly incorporated items that multilateral regimes could not agree to control because consensus processes were blocked by certain members. The revised annex now includes technologies that EU Member States have committed to control uniformly: quantum technologies (including quantum computers), semiconductor manufacturing and testing equipment and materials (including lithography‑related items), advanced computing integrated circuits and assemblies, certain additive manufacturing equipment and materials, peptide synthesisers, coatings for high‑temperature applications, and updates to technical definitions.

For financial crime practitioners the implications are concrete.

First, entities dealing in these technologies will face heightened licensing requirements and scrutiny when exporting from the EU. Transactions involving upstream suppliers, brokers, service providers, insurers and financiers could be subject to licence checks or denial decisions.

Second, the inclusion of whole categories such as semiconductor equipment and quantum components means broader economic sectors are now functionally part of an export‑control perimeter. That widens the universe of potentially suspicious transactions: from bank wires for lab equipment to leasing agreements for manufacturing machinery and escrow arrangements for IP transfers.

Bastian Schwind-Wagner_Follow "The EU’s 2025 expansion of dual‑use export controls reframes export licensing as an active tool of economic security, raising compliance expectations for banks, insurers and trade financiers. Financial crime teams must integrate export‑control intelligence into transaction monitoring and due diligence to detect diversion, circumvention and illicit trade finance networks."

Short‑term coordination tools and enforcement gaps

To mitigate the uneven national measures that produced regulatory fragmentation, the Commission introduced a voluntary coordination mechanism allowing Member States to share draft national control lists and seek feedback before adoption. This improves transparency but does not eliminate asymmetries: Member States still retain substantial discretion and may continue to add controls at different speeds. The Commission’s updated Annex I seeks to reduce fragmentation by absorbing items agreed multilaterally or by groups of Member States into the EU‑wide binding list, but the delegated act process requires an examination period during which the Parliament and Council can object.

From a financial crime perspective, fragmented national lists and staggered timing of national measures create a detection problem. Payment flows and trade documents crossing internal EU borders can look legitimate where an export licence is not yet required or where national enforcement is lax. Investigators should therefore assume that a controlled‑item designation in one Member State may not yet be mirrored in another and factor this into risk scoring and cross‑border intelligence sharing.

Circumvention and the anatomy of illicit trade finance

Reports and customs analyses make clear that controlled components continue to reach Russia through opaque supply chains. Typical circumvention patterns include the use of re‑labelled goods, intermediary companies in third countries, split shipments, false end‑use declarations, and complex financial arrangements that obfuscate the beneficial owner or final destination. Financial crime professionals must therefore pay attention to indicators beyond single payments: unusually structured trade financing, rapid changes in supplier or consignee, shipments routed through multiple transit hubs, and discrepancies between technical specifications on invoices and the actual equipment shipped.

Corporate “best efforts” obligations, extraterritoriality and compliance expectations

Recent EU guidance and Council FAQs have tightened expectations on corporate behaviour. The Council has emphasised a “best efforts” obligation under certain sanctions rules, suggesting that entities should take active steps to prevent non‑EU subsidiaries from participating in trade that undermines EU restrictive measures. In practice, banks and other financial intermediaries are being asked — explicitly or implicitly — to do more in due diligence: verifying end‑users and consignees, checking technical descriptions against control lists, and escalating when business relationships include jurisdictions or entities with a history of facilitating diversions.

At the same time, unilateral measures taken by third countries (for example, expanded US semiconductor controls that affected a Dutch firm’s products) have highlighted the geopolitical spillovers of export controls. For compliance teams, this means an expanded watchlist of geopolitical events and regulatory actions that can change risk profiles overnight and create retroactive obligations for previously accepted transactions.

Operational guidance for financial crime investigators and compliance teams

Detecting and disrupting diversion and circumvention requires shifting from a purely sanctions‑centric view to an economic‑security lens that captures dual‑use trade. Investigators and compliance officers should:

• Integrate export‑control intelligence into transaction monitoring rules. Incorporate Annex I categories, national control lists where available, and updated technical descriptions into screening tools so that payments and trade finance linked to controlled items flag earlier.
• Prioritise technical verification. Work with engineers and technical specialists (inside the bank or via external consultants) to reconcile commodity codes, part numbers and specifications on invoices and bills of lading with known controlled categories. Mis‑specified technical details are a frequent sign of attempted obfuscation.
• Monitor routing and intermediaries. Red‑flag trade flows that transit jurisdictions known to be used for rerouting controlled goods, and look for chains of related parties (same beneficial owner, shared addresses, repeated use of the same freight forwarder) suggesting a structured circumvention network.
• Expand beneficial‑ownership checks. Ensure that downstream buyers, consignee affiliates and third‑country intermediaries are subject to enhanced due diligence, including screening against sanctions lists, PEP indicators and adverse media on diversion or proliferation.
• Coordinate cross‑border investigations. The EU’s fragmentation of controls makes information sharing across Member States and with partner jurisdictions essential. Seek out customs data, export licence denials, and multilateral reporting on denials from Wassenaar and related regimes where possible.
• Treat trade finance relationships as potential control points. Letters of credit, guarantees and financing for equipment shipments provide leverage: banks can require documentary evidence of licences, end‑use assurances, and independent inspections before disbursing funds.
• Build specialist teams. Given the technical nature of controlled items (semiconductors, quantum devices, peptide synthesisers), create or access multidisciplinary teams combining trade specialists, engineers, export‑control lawyers and financial investigators.

Regulatory trajectory and enforcement outlook

The 2025 Annex I update signals a broader strategic shift: export controls are being treated as an instrument of economic security and foreign policy, not only as a compliance mechanism tied to non‑proliferation regimes. Legal and policy commentators interpret the Commission’s move as a cautious centralisation of control; if the Parliament and Council allow the delegated act to stand, the EU will consolidate more uniform, faster reactions to technological risks and geopolitical coercion.

For financial crime enforcement this trend points to two likely developments.

First, regulatory expectations on banks and other intermediaries will tighten: authorities will expect more proactive measures to prevent diversion and circumvention, and “best efforts” may evolve into clearer legal obligations.

Second, enforcement activity is likely to increase — not just in the form of fines, but through coordinated investigations that blend customs data, export licence records and financial intelligence to prosecute complex trade‑based schemes.

Conclusion: adapt compliance to the new export‑control ecosystem

For practitioners in the financial crime field, the message is straightforward: dual‑use export controls now intersect directly with sanctions, trade finance and AML priorities. The expansion of EU controls into semiconductors, quantum technologies and other advanced domains expands the universe of transactions that require scrutiny. Successful detection and disruption of illicit diversion will depend on integrating technical trade knowledge into financial monitoring, strengthening cross‑border information sharing, and building the capacity to verify end‑use and beneficial ownership. Those who adapt early — aligning transaction surveillance with export‑control intelligence and beefing up multidisciplinary investigatory capabilities — will be best placed to spot the financial fingerprints of circumvention and to prevent EU‑origin technology from fuelling conflict and repression.

Dive deeper

• EP ¦ Dual-use export controls as tools of EU economic security ¦ Link
• EJIL:Talk! ¦ Caught in a Geopolitical Crossfire: Questioning the Legality of US-Imposed Export Controls on Dutch Computer Chip Machines ¦ Link