International Law Advisory - BIS Amends Export Administration Regulations Concerning the Entity List

On August 21, 2008, the US Bureau of Industry and Security (“BIS”) published a final rule at 73 Fed. Reg. 49,311 amending the Export Administration Regulations (“EAR”), 15 C.F.R. Parts 730, 744, and 756, concerning export and reexport requirements for persons and entities designated on the Entity List (Supplement No. 4 to Part 744).  BIS had previously published a proposed rule on June 5, 2007 seeking public comments about this subject (72 Fed. Reg. 31,005).  The changes are effective immediately.  A summary of the amendments is provided below.

• A newly-established End-User Review Committee (“Committee”), consisting of interagency representatives from the Departments of Commerce, State, Defense, Energy, and Treasury, where appropriate, will have the discretion to add a party to, remove a party from, or modify a party’s designation on the Entity List.
• Changes will be made to the Entity List where there is reasonable cause to believe, based on specific facts, that an entity has been involved in, or poses a risk of being involved in, activities that are contrary to the national security or foreign policy interests of the United States, or is acting on behalf of such an entity.  BIS has stated that it intends to publish guidance in the near future regarding the ability of US persons to deal with parties related to those named in the Entity List.  Note that BIS has stated that “US persons” will not be placed on the Entity List under this new procedure.  Thus, the Entity List restricts only foreign persons from receiving EAR-controlled items that are exported from the United States or re-exported from abroad.
• Section 744.11(b) provides “illustrative” examples of the type of conduct the Committee may view as grounds for designating parties on the Entity List:

1. supporting persons engaged in acts of terror;
2. enhancing the military capability of, or supporting terrorism sponsored by, foreign governments designated by the State Department as providing support for acts of terror;
3. transferring, developing, servicing, repairing, or producing conventional weapons, or enabling such action by supplying parts, components, technology, or financing for weapons, contrary to US national security and foreign policy interests;
4. preventing the accomplishment of an end use check conducted by or on behalf of BIS or the Directorate of Defense Trade Controls by precluding access to, refusing to provide information about, or providing false or misleading information about parties to the transaction or the item to be checked; or
5. engaging in conduct that poses a risk of violating the EAR when such conduct raises sufficient concern that prior review of exports or reexports involving the party, and the possible imposition of license conditions or license denial, enhances BIS ability to prevent violations of the EAR.

• Under § 744.11(a), BIS now will have the authority to impose foreign policy export and re-export licensing requirements, limit the availability of license exceptions, and establish a license application review policy for exports and reexports to designated entities.  Pursuant to this rule, all licensing requirements and license application review policies will be announced through an amendment to the Entity List for each designated party.  License exceptions will not be available to designated parties named on the Entity List unless specifically noted.
• Finally, the rule amends § 744.16 and adds new Supplement No. 5 to Part 744, allowing a party listed on the Entity List to request that its designation be removed or modified, and providing procedures for making such requests, which will be considered by the Committee. 

BIS has reasoned that the application of specific export licensing requirements for parties on the Entity List will provide flexibility to prevent EAR-controlled items and technology from being used in ways that are harmful to US interests, with perceived minimal costs to and disruption of legitimate trade.  These amendments reflect BIS’ policy statements that US export controls should not only focus on certain countries, but also target individual persons or entities of concern with more effective and specific controls.  Moreover, BIS stated in the Federal Register notice (in response to public comments) that it may further focus the controls by tailoring licensing requirements to a specific named entity, suggesting that an exporter will not necessarily be required to obtain a license for all exports to a named entity.  BIS intends that implementation of the rule will provide additional information to enhance the ability of the public to screen potential recipients of items subject to the EAR, as well as simplify the EAR by reducing the need to issue general orders imposing license requirements on specific parties.

Should you have any questions about this development, please contact Jack Hayes at 202.429.6491, Meredith Rathbone at 202-429-6437, or Ed Krauland at 202.429.8083.