On October 7, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Final Rule adding 31 Chinese entities to its Unverified List on the basis that it has been “unable to verify their bona fides because an end-use check could not be completed satisfactorily for reasons outside the U.S. Government’s control.” The Unverified List contains the names and addresses of foreign persons who are or have been parties to a transaction involving the export, reexport, or transfer (in-country) of items subject to the Export Administration Regulations (EAR), and whose credentials and genuine operations could not be verified (i.e., BIS could not verify the legitimate end use and end user of items subject to the EAR). While there may not be sufficient information to add such entities to BIS’ Entity List, placement on the Unverified List “raises concerns about the suitability of such persons as participants in future exports” and “indicates a risk that such items may be diverted to prohibited end uses and/or end users.” The full list of Chinese companies – appearing mostly to be optical, machinery and technology companies – is available for review here.
The use of license exceptions is suspended for transactions involving companies that are on the Unverified List. Additionally, exporters, reexporters, and transferors must obtain a statement from a party or parties to the transaction who are listed on the Unverified List before proceeding with exports, reexports, and transfers (in-country) to such persons. This Final Rule is effective on October 7, 2022. BIS has stated that shipments of items removed from eligibility for a License Exception or export or reexport without a license (NLR) as a result of this action that were en route aboard a carrier to a port of export or reexport, on October 7, 2022, pursuant to actual orders may proceed under their previous eligibility.
The Final Rule also removes nine Chinese entities from the Unverified List after BIS was able to sufficiently conduct end-use checks and determine the bona fides of these companies.
Finally, BIS notes that the “inability of BIS to determine compliance with the EAR because of a host government’s action or inaction” (such as a lack of cooperation to schedule and facilitate the completion of end-use checks) is contrary to U.S. national security. As a result, this Final Rule also revises portions of the EAR to allow BIS to more readily move an entity on the Unverified List to the Entity List in order to enhance BIS’ ability to prevent export violations. The Final Rule offers “illustrative example to specify that situations in which there is a sustained lack of cooperation by a host government authority that prevents an end-use check from being conducted may constitute a basis for adding a party to the Entity List.” BIS’ Office of Export Enforcement has issued a policy memorandum “Addressing Foreign Government Prevention of End-Use Checks” that offers insight into this new policy and calls for (1) adding parties to the Unverified List 60 days after checks are requested but where host government inaction has prevented such end-use checks, and (2) an additional 60-day process for adding Unverified List parties to the Entity List when there is a sustained lack of cooperation by a host government to facilitate completion of the checks.