BIS Proposes Tougher Requirements for Exports to Entities on Unverified List
Companies Urged to Take Stock of Current Screening Policies and Procedures
The Bureau of Industry and Security proposed Sept. 11 regulatory changes that would impose additional requirements on exports, reexports and in-country transfers of goods to foreign companies on the Unverified List. The rule serves as a reminder of the responsibility exporters have to ensure they are not doing business with individuals or entities designated on various U.S. government restricted parties lists. U.S. exporters and reexporters should take this opportunity to review the effectiveness of their export compliance systems and develop strategies for enhancing them in anticipation of a final rule. The BIS is also accepting comments on its proposed rule through Oct. 11.
U.S. export laws and regulations generally prohibit U.S. persons from dealing with any individual or entity designated on one of the various restricted parties lists without prior authorization from the appropriate government agency. These lists include the Directorate of Defense Trade Controls’ Debarred Parties List and List of Nonproliferation Sanctions, the Office of Foreign Assets Controls’ Specially Designated Nationals Lists, and the BIS’ Denied Parties List, Entity List and Unverified List. U.S. companies are expected to screen their exports against these lists to prevent inadvertent dealings with listed entities.
Currently, the Unverified List identifies individuals and entities in foreign countries that were parties to previous exports subject to the Export Administration Regulations but with respect to which the U.S. government was prevented from conducting pre-license checks or post-shipment verifications; e.g., due to a lack of cooperation on the part of the foreign person, end user, ultimate consignee or host government. The list also currently includes the names of foreign persons that are owned, controlled or otherwise affiliated with the original Unverified List party. U.S. exporters are required to treat Unverified List parties in their transactions as “red flags,” which obligates them to perform additional due diligence before the proposed transaction may proceed.
The proposed rule would first require U.S. exporters to submit Electronic Export Information filings through the Automated Export System for all exports subject to the EAR that involve an Unverified List party. Under the current rules, exporters of goods subject to the EAR are only required to file EEIs for shipments covered by BIS licenses or unlicensed shipments where the value of the goods classified under a single HTSUS classification or Schedule B Code exceeds $2,500.
Second, for any non-licensed (NLR) reexports or in-country transfers involving an Unverified List party, written statements would first have to be obtained by the exporter or reexporter from the Unverified List party before the transaction may proceed. Note that Unverified List statements would only be required for transactions that do not require a BIS license; the BIS already exercises oversight in granting the license and an Unverified List statement would therefore be unnecessary. If a statement is required, the Unverified List party would have to certify the end-use, end-user and country of ultimate destination, agree to end-use checks by the U.S. government for any EAR activity within the last five years, and provide its complete name and physical address.
Third, the proposed rule would prohibit the use of EAR license exceptions when the export, reexport or in-country transfer involves a party on the Unverified List.
Fourth, the rule proposes to amend the criteria for adding persons to the Unverified List in the future.
- Foreign parties could be added to the list if their bona fides (evidence of genuineness and authenticity) cannot be verified during an end-use check for reasons outside the U.S. government’s control; e.g., the foreign party cannot prove the disposition of the exported items, the U.S. government is unable to locate or contact the foreign party, or the host government refuses to cooperate with the end-use check.
- When a foreign party’s lack of cooperation prevents the U.S. government from completing an end-use check, the BIS would add the party to the Entity List and not the Unverified List.
- Foreign parties would no longer be added to the Unverified List solely by reason of their ownership, control or affiliation by/with an Unverified List party unless they too fail an end-use check.
In view of the proposed changes, U.S. companies are urged to review and prepare to revise their current policies and procedures for dealing with Unverified List parties. This is also an opportune time for companies to revisit their overall export screening processes to ensure that that they adequately prevent inadvertent dealings with restricted parties. Effective processes should require screening of all parties to proposed transactions against the various restricted parties lists and current list of country embargoes and sanctions programs. Because these lists and programs change frequently, it is imperative that screening be performed on all transactions regardless of the familiarity of the exporter with a customer and its transactions. Also, screening tools used by the company should be made accessible to other relevant business departments outside of the compliance function, such as marketing, human resources, security, shipping and receiving, purchasing, etc. Although many companies manually screen their transactions, we strongly recommend automated screening solutions that are widely available, reduce the risk of inadvertent human error and burdens on compliance personnel, and generally provide greater protection to companies.
Our experienced export attorneys and professionals routinely assist companies in the design and implementation of effective export compliance programs.
For more information about the BIS proposed rule, submitting comments on this rule or the requirements and restrictions of other U.S. embargoes and economic sanctions programs, please contact Melissa Miller Proctor at (480) 305-2110, Donna Bade at (312) 279-2832 or Anu Gavini at (248) 474-7200.