The U.S. Government is continuing its frequent and highly visible use of denied party lists as an important tool in administering the export control laws. Each of the Bureau of Industry and Security (BIS), the Office of Foreign Assets Control (OFAC) and the Directorate of Defense Trade Controls (DDTC) has its own restricted party lists, and new parties are being added regularly - U.S. exporters are challenged to keep up with the steady flow of changes. The following are examples of recent restricted party actions for exporters to have on their radar screens.
1. BIS Entity List. BIS announced a number of additional designations to the Entity List within recent weeks under §744.16 of the Export Administration Regulations (EAR). These include:
A large number of parties listed in Entity List designations are located in China, but parties in other countries are frequently designated as well, such as Pakistan, Singapore, Russia, Taiwan, Netherlands and Canada. Common reasons for listings include providing support for the Chinese military, theft of U.S. technology (especially if this will be used to support foreign military efforts), repression of ethnic and religious minority groups, corruption, undermining free and fair elections, malicious cyber activities and evasion of U.S. sanctions such as those on Iran.
2. BIS Military End User List. BIS also administers the Military End User List under the Military End Use/End User regulations set forth at EAR §744.21. In addition, BIS administers the Military-Intelligence End Use/End User regulations set out at EAR §744.22. The following are a number of recent actions under these regulations:
It is significant to note that the Military-Intelligence End Use/End User regulation not only restricts U.S. exporters from entering into transactions with certain restricted parties, but also prohibits U.S. persons from “supporting” a military-intelligence end use or a military-intelligence end user in countries covered under the rule.[1] This requirement applies to activities by U.S. persons even if the items involved are not subject to the EAR. The term “support” is broadly defined to include performing any contract, service, or employment the exporter knows may assist or benefit the above end uses or end users including ordering, buying, removing, concealing, storing, using, selling, loaning, disposing, servicing, financing, transporting, freight forwarding, conducting negotiations in furtherance of and otherwise facilitating such activities.[2]
3. Non-SDN Chinese Military-Industrial Complex Companies List. On December 16, 2021, the following eight Chinese companies were added to the OFAC Non-SDN Chinese Military-Industrial Complex Companies List (the “Non-SDN CMIC List)”:
In addition, on December 10, 2021 OFAC added the Chinese company Sensetime Group Limited to the Non-SDN CMIC List.
4. OFAC SDN List. Perhaps the best-known U.S. restricted party list is the OFAC List of Specially Designated Nationals and Blocked Persons (the “SDN List”). OFAC has continued to add parties regularly to the SDN List in recent months (this is in addition to OFAC’s eight other restricted party lists). In December 2021 alone OFAC issued announcements on ten separate occasions announcing new SDN designations under a variety of OFAC sanctions programs including Hong Kong, Central African Republic, Venezuela, N. Korea, Burma, Iran, Syria, Belarus, CAATSA, Counter Terrorism, Counter Narcotics, Kingpin Act and Global Magnitsky programs.
5. BIS Enforcement Action For Dealing With Parties On the Entity List. On November 8, 2021 BIS announced an enforcement action and penalty against SP Industries, Inc. (d/b/a SP Scientific) of Warminster, Pennsylvania for exporting items to Huawei Technologies Co. Ltd. and its two subsidiaries Huawei Device Co., Ltd. and HiSilicon Technologies Co., Ltd., which are listed on the Entity List. BIS is actively enforcing the prohibition against engaging in export transactions with parties on the Entity List, and more enforcement actions likely are underway. Additional information regarding this case is available here.
The above are just examples over an eight-week period of developments involving restricted parties – additional amendments are occurring on a regular basis.
In the old days, the most important export requirement involved checking your export against the Commerce Control List (CCL) under the EAR and the U.S. Munitions List (USML) under the International Traffic In Arms Regulations (ITAR) to see if an export license was required. In recent years, however, the agencies have been placing increasing emphasis on the full array of export requirements under the EAR, OFAC sanctions and ITAR, including:
Restricted party screening is now a critical component of the export compliance tool kit and an important cornerstone of export compliance activities.
There are a number of compliance best practices that exporters frequently utilize in their denied party screening activities, including:
Restricted party screening likely will continue to increase in importance in the coming years. Exporters will be well served to pay proper attention to this important function in their compliance efforts.
This article contains general, condensed summaries of actual legal matters, statutes and opinions for information purposes. It is not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel. For more information, please visit our website at www.williamsmullen.com or contact Thomas McVey, 202.293.8118 or tmcvey@williamsmullen.com.
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[1] See EAR §744.6(b).
[2] EAR §736.2(b)(7)(i)(A) provides in pertinent part: If you are a ‘‘U.S. person,’’ as that term is defined in § 772.1 of the EAR, you may not engage in any activities prohibited by § 744.6(b) or (c) of the EAR, which prohibit, without a license from BIS, the shipment, transmission, or transfer (in-country) of items not subject to the EAR; facilitating such shipment, transmission, or transfer (in-country); or the performance of any contract, service, or employment (including, but not limited to: ordering, buying, removing, concealing, storing, using, selling, loaning, disposing, servicing, financing, or transporting, freight forwarding, or conducting negotiations in furtherance of) that you know or are informed by BIS will support:… (5) A ‘military-intelligence end use’ or a ‘military-intelligence end user,’ as defined in § 744.22(f) of the EAR, in the People’s Republic of China, Russia, or Venezuela; or a country listed in Country Groups E:1 or E:2.