On December 23, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Federal Register notice in which it amends the Export Administration Regulations (EAR) by adding a new Military End User (MEU) List. This list identifies entities that BIS has determined are military end users for purposes of the “military end user” export control restrictions set forth in the EAR (i.e., 15 C.F.R. § 744.21) that apply to specified items for exports, reexports, or transfers (in-country) to the People’s Republic of China (China) and Russia when such items are destined for a military end user. This final rule adds 102 “military end users” to the newly created MEU List, consisting of 57 under China and 45 under Russia.
BIS notes that it created the list after continuing requests by U.S. companies and exporters for clarity (over 80 requests for advisory opinions have been submitted since the April 2020 MEU rule has been published – see Update of April 28, 2020), and to “inform all potential exporters, reexporters, and transferors that all exports, reexports, or transfers (in-country) of designated items to these entities represent an unacceptable risk of use in or diversion to a ‘military end use’ or a ‘military end user’ for purposes of § 744.21, and therefore require a license.” (Emphasis added.) BIS notes, however, that the establishment of this MEU List “does not imply that other parties, not included on the list, are not subject to the ‘military end-use’ and ‘military end user’ controls under the EAR.” U.S. exporters continue to be expected to conduct sufficient due diligence regarding transactions involving exports to China and Russia.
BIS clearly states in this final rule that “compliance remains the obligation of the exporter, reexporter or transferor” and that exclusion from the MEU list is not indicative of whether or not an export license is required. As such, 15 C.F.R. § 744.21(a) continues to set forth a license requirement for items identified in Supplement No. 2 for transactions involving China, Russia and Venezuela, when the exporter, reexporter, or transferor has “knowledge” that the item is destined for a “military end use” (as defined in § 744.21(f)) or “military end user” (as defined in § 722.21.(g)). Continued due diligence, screening parties against the necessary U.S. denied/restricted party lists, application of BIS’ “Know Your Customer” guidelines and “Red Flag” indicators, as well as obtaining necessary end-use certifications remain important compliance tools. BIS also highlighted that, for China, exporters should also be screening against Department of Defense’s Section 1237 list of the National Defense Authorization Act (see Update of December 7, 2020).
For those Chinese and Russian “military end users” placed on this first MEU List, no EAR license exceptions are available for transactions involving the listed entities for items specified in Supplement No. 2 to part 744, except license exceptions for items authorized under the provisions of License Exception GOV (i.e., exports to U.S. government agencies and recognized international organizations). Further, BIS’s license review policy for license applications where a military end use or military end user is known, will be a presumption of denial.
In the future, additional parties may be added or deleted from the MEU List as determined by BIS, and consultations with the Departments of Defense, Energy, State and the Treasury.