The U.S. Department of Commerce's Bureau of Industry and Security ("BIS") plays a critical role in protecting U.S. national security and advancing foreign policy objectives through its regulation of U.S. exports. Two important tools in BIS's enforcement arsenal are the Entity List and the Unverified List ("UVL"). These lists identify foreign persons and organizations that present potential risks to U.S. national security and impose restrictions on U.S. exporters' ability to do business with those entities. Inclusion on either list can have significant commercial and reputational consequences. However, listed parties do have avenues to seek removal through formal procedures.
This article provides an overview of the BIS Entity List and Unverified List, the implications of being listed, and basic procedures for seeking removal from these lists.
The Entity List
The Entity List is published and maintained by BIS under the Export Administration Regulations ("EAR") in Supplement No. 4 to Part 744. It includes foreign individuals and entities that are reasonably believed to be involved in, or pose a significant risk of being involved in, "activities contrary to the national security or foreign policy interests of the United States."
Foreign parties are added to the Entity List by decision of the End-User Review Committee ("ERC"), which includes representatives from the Departments of Commerce, State, Defense, Energy, and the Treasury. The ERC can add parties to the Entity List for a variety of reasons such as when the foreign party is engaged in acts of terror, the manufacturing or servicing of certain weapons, or activities that enhance the military capability of government sponsors of terrorism. In addition, a party may be added to the Entity List if it prevents the successful completion of an End-Use Check ("EUC") by BIS officers or is operating in a region where the host government consistently fails to cooperate with BIS to support the facilitation of EUCs.
U.S. persons are restricted from exporting, reexporting, or transferring most items subject to the EAR to parties on the Entity List without first obtaining a license from BIS. However, license applications involving parties on the Entity List are often subject to a presumption of denial. Additionally, certain Foreign Direct Product ("FDP") rules under the EAR also restrict some exports, reexports, or transfers of certain foreign-produced items that involve an Entity-Listed party.
The Unverified List
The Unverified List ("UVL"), is set forth in Supplement No. 6 to Part 744 of the EAR. It includes foreign individual or entities for whom BIS has been unable to "verify bona fides (i.e., legitimacy and reliability relating to the end use and end user of items subject to the EAR)" because an EUC or other form of shipment verification has been unable to be completed "for reasons outside the U.S. Government's control." This may occur where BIS officers have been denied access to foreign party's facilities, encountered uncooperative behavior on the part of a EUC subject, or have otherwise not been able to confirm the legitimacy of shipment details.
Unlike the Entity List, inclusion on the UVL does not generally prohibit exports to such parties. However, pursuant to 15 C.F.R. § 744.15(b), U.S. parties must obtain a "UVL statement" from a listed party before proceeding with an export, reexport, or transfer. The UVL statement must be in writing, signed by an official with sufficient authority to bind the UVL party, and include the following points –
- The UVL party's name, address, and contact information;
- A statement that the UVL party agrees not to use, reexport, or transfer the items in any way that is prohibited under the EAR;
- A declaration of the ultimate end-user and end use of the subject items;
- An agreement to cooperate with EUCs and other shipment verifications conducted by BIS for transactions they were party to in the past five years;
- An agreement to provide copies of the UVL statement and maintain proper records as required under part 762 of the EAR; and
- A certification that the signing individual has sufficient authority to legally bind the UVL party.
Removal from the Lists: Procedures and Considerations
To be removed from the Entity List, a party must submit a formal request to the ERC pursuant to 15 C.F.R.§ 744.16. The process involves the following steps –
- Written Request: The entity must submit a written request with detailed supporting documentation justifying why removal is warranted. This may include explanations of changed behavior, cessation of the activities that led to listing, or restructuring of the entity.
- Evaluation Process: The ERC reviews the request and may consider input from relevant U.S. agencies. The evaluation considers whether the circumstances leading to the listing have changed sufficiently to mitigate the original concerns.
- Decision: The ERC votes on whether to remove the entity. A unanimous vote is required. If approved, the removal is published in the Federal Register.
- Timing: There is no fixed timeline for the review process, which can take several months or more depending on. the complexity of the case and interagency coordination.
Removal from the UVL is governed by 15 CFR § 744.15. As the UVL is a less-restrictive list compared to the Entity List, removal from the UVL is typically more probable given certain procedures are followed.
- End-Use Check: Typically, removal from the UVL will involve the facilitation of an EUC by BIS and proper cooperation by the listed party. Participating in and successfully completing an EUC is the most effective way to be removed from the UVL as this is the primary method BIS may use to verify a party's bona fides. Once BIS, or its partner agencies, can verify the party's bona fides, the party may be removed from the UVL.
- Voluntary Request: An EUC may follow the submission of a formal request for removal from the UVL by a listed party. A listed party may submit a request for removal pursuant to 15 C.F.R. § 744.15(d) with evidence that it has taken steps to enable verification of its bona fides and corrected any behavior or actions that were contrary to compliance with the EAR.
- Review and Publication: BIS reviews the request and, if warranted, publishes a removal notice in the Federal Register. Similar to the Entity List removal process, BIS can take several months to process a request for UVL removal and issue a final decision.
Engaging with internal compliance teams and legal counsel can help to effectively address non-compliant practices and advance a party's chances of receiving a favorable decision at the end of a de-listing process. In addition, foreign parties may seek assistance from external legal counsel in the U.S. that is familiar with the UVL and Entity List removal processes. Oftentimes, U.S. counsel can provide helpful guidance and insights on cooperating with BIS, participating in EUCs, and implementing any necessary corrective actions or procedures. In addition, U.S. legal counsel can help facilitate meetings and communications with BIS officers in the host country and those in the U.S. that are responsible for the review and approval of a removal request to help guide a listed party through the removal process in an efficient manner.
Conclusion
The UVL and Entity List are powerful tools in BIS's arsenal for advancing compliance with U.S. export controls. Being listed can significantly disrupt business operations and reputations, making it critical for affected parties to understand both the implications and the processes for removal. Overall, removal from the UVL and Entity List requires consistent communication with BIS and thorough consideration and remediation of non-compliant activities that led to the initial listing. By navigating removal procedures carefully, parties listed on the UVL or Entity List may restore their standing and resume lawful trade activities involving U.S. origin goods and U.S. parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
