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U.S. Bureau of Industry and Security Updates Entity List with 44 Entities in China

What happened? On August 1, 2018, the U.S. Bureau of Industry and Security (BIS) updated the Export Administration Regulations (EAR) Entity List (EL) to add forty-four more entities in China (eight entities and thirty-six subordinate institutions, as well as numerous aliases for the listed entities), and modify one existing entry for another entity in China, on the basis that the entities have acted contrary to the national security or foreign policy interests of the United States. The BIS notice can be found in 83 FR 37423(August 1, 2018); the full EL can be found in Supplement No. 4 to Part 744 of the EAR.

What's the risk? All exports, re-exports, and transfers of EAR-controlled items to these new EL entities – including of non-sensitive, EAR99 items – are prohibited absent BIS approval, and license applications are subject to a presumption of denial. However, it is important to note that BIS did not sanction every subsidiary or affiliate of the eight lead entities, and BIS has previously provided guidance that subsidiaries, parent companies, and sister companies are legally distinct from listed entities and not automatically subject to EL restrictions placed upon affiliated EL entities (in contrast to the 50 Percent Rule applied in the context of U.S. economic sanctions administered by the Office of Foreign Assets Control). See BIS Licensing FAQ No. 134. However, BIS also cautions that extra due diligence should be performed when exporting to non-EL entities affiliated with EL entities, in order to ensure that the affiliate is in fact a separate legal entity (as opposed to a branch or operating division) and that the items are not ultimately destined for the EL entity. 
 

What can businesses do to address the risk? In light of this recent action, U.S. and non-U.S. businesses trading in U.S. goods with China should promptly confirm that their denied party screening software is programmed to detect the newly-listed entities and their aliases. In addition, while not prohibited, transactions with EL entity affiliates pose potential diversion risks, and merit close review and careful coordination with compliance and management personnel. Companies may wish to take steps to identify known affiliates of listed entities and treat the presence of such entities in a transaction as a red flag warranting additional review, as well as adding the known affiliates to the company's list of business partners subject to regular re-screening, so as to ensure prompt notice if those entities are themselves added to the EL (or another denied party list) in the future.

Further detail: The newly listed entities are all related to one of five state-owned research institutes, two aerospace trading companies, and one information and communications technology company, as follows:

 

Additions:

  • China Aerospace Science and Industry Corporation Second Academy, and eight aliases and thirteen subordinate institutions

  • China Electronics Technology Group Corporation 13th Research Institute (CETC 13), and six aliases and twelve subordinate institutions

  • China Electronics Technology Group Corporation 14th Research Institute (CETC 14), and seven aliases and two subordinate institutions

  • China Electronics Technology Group Corporation 38th Research Institute (CETC 38), and seven aliases and seven subordinate institutions

  • China Electronics Technology Group Corporation 55th Research Institute (CETC 55), and four aliases and two subordinate institutions

  • China Tech Hi Industry Import and Export Corporation, and two aliases

  • China Volant Industry, and two aliases

  • Hebei Far East Communication System Engineering, and two aliases

 

Modifications:

  • Chengdu GaStone Technology Co., Ltd. (CGTC) and four aliases and nine addresses

Many of these entities will already be familiar to compliance professionals engaged in denied party screening and due diligence for exports / re-exports to China. For example, the newly added 13th, 14th, 38th, and 55th Research Institutes of the China Electronics Technology Group Corporation (CETC) are affiliated with previously listed 10th, 11th, 20th, 29th, and 54th CETC Research Institutes.[1] Similarly, newly listed China Aerospace Science and Industry Corporation (CASIC) Second Academy, China's main designer and producer of air and space defense systems, and newly listed China Volant Industry are both owned and controlled by the state-owned CASIC and join three other CASIC subordinates previously added to the EL (CASIC Third Academy and its subordinate No. 33 and No. 35 Research Institutes).


[1] According to the Guardian, CETC's No. 38 Research Institute designed the radar system for the KJ-500, the new airborne early warning and control aircraft for the Chinese People's Liberation Army, while the 14th Research Institute developed China's military quantum radar system, which is based on the technology of single photon detection.

© 1998-2020 Wiggin and Dana LLPNational Law Review, Volume VIII, Number 217

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About this Author

Tahlia Townsend International trade lawyer Wiggin Dana
Partner

Co-chair of the International Trade Compliance Practice Group, Tahlia is trusted by Fortune 50 multinationals, leading universities, international law firms, emerging companies, and small businesses to provide prompt, practical, effective guidance and thought leadership on trade sanctions administered by the Office of Foreign Assets Controls (OFAC) and on U.S. export controls under the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), and to develop tailored, risk-based programs for compliance with, obtain licenses for...

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Sean Koehler Litigation lawyer Wiggin Dana
Associate

Sean is an Associate in the Litigation Department, where he represents clients in civil, criminal, and regulatory matters.

As a member of the firm's International Trade Compliance and Sanctions Practice Group, Sean counsels clients on compliance with the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), the Foreign Trade Regulations (FTR), and U.S. trade sanctions regulations administered by the Office of Foreign Assets Control (OFAC). His experience in this area includes conducting over eighty internal investigations into potential export violations; authoring numerous voluntary self-disclosures and directed disclosures to the U.S. government; program management of enterprise-wide compliance programs; developing corrective actions designed to address and prevent export violations; training and advising compliance personnel and in-house investigators; and performing quality control on voluntary self-disclosures prepared by in-house personnel. 

Sean recently designed and managed the implementation of a best-in-class EAR and OFAC compliance program at a global electronics company, which led to the dismissal of a federal criminal investigation. Sean has also been seconded to a leading aerospace and defense contractor, where he conducted investigations, oversaw junior in-house investigators, and developed and implemented compliance enhancements as part of the company’s continuous improvement program.

As a litigator, Sean has successfully represented indigent defendants charged with federal criminal offenses and prisoners whose civil rights were violated while incarcerated. Sean has also advised many clients about compliance with Connecticut Consumer Protection laws and regulations, including Connecticut’s medical marijuana program.

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