Commerce Restricts Trade with 28 Chinese Entities
V&E Export Controls Update, October 9, 2019
Effective October 9, 2019, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) added 28 Chinese entities to the Entity List – twenty governmental security bureaus and eight technology companies – thereby effectively barring exports, reexports and transfers of items subject to U.S. jurisdiction to these entities. BIS has the authority to place a foreign person on the Entity List for engaging in activities contrary to U.S. national security or foreign policy interests. These entities have been placed on the Entity List for their involvement in China’s actions against the Uighurs and other Muslim minorities. The U.S. Government is concerned that China is repressing these minorities.
The eight technology companies added to the Entity List are Dahua Technology, Hikvision, IFLYTEK, Megvii Technology, SenseTime, Xiamen Meiya Pico Information Co., Yitu Technologies, and Yixin Science and Technology Co. Ltd. These companies are involved in surveillance and artificial intelligence, such as providing video surveillance equipment and services, developing voice recognition technologies, designing image recognition software and technology, providing digital forensics and cyber security services, and supplying lighting products. The governmental security bureaus are the Xinjiang Uighur Autonomous Region People’s Government Public Security Bureau and 19 of its subordinates. The action comes after BIS added Huawei and 68 of its affiliates to the Entity List in May 2019, and subsequently added 46 more Huawei affiliates to the list in August 2019. BIS issued a temporary general license permitting certain limited exports, reexports and transfers to Huawei in May 2019 and, in August, extended it through November 18, 2019.
The Federal Register announcement regarding the 28 Chinese entities can be found at this link. As BIS explains in the announcement, the Export Administration Regulations (“EAR”) impose additional license requirements on, and limit the availability of license exceptions for, exports, reexports and transfers to entities on the Entity List. A license is now required from BIS for the export, reexport or transfer to these 28 entities of any item that is subject to the EAR, and there is a presumption of denial for license requests for most items and a case-by-case license review policy for certain items.
These actions by the Trump Administration are important reminders that the lists of parties of concern published by BIS – as well as Treasury’s sanctions lists – are rapidly becoming more extensive. BIS penalizes companies for unlicensed exports to persons on the Entity List. In August 2018, for example, freight forwarder Mohawk Global Logistics Corp. entered into a settlement agreement with BIS under which it agreed to pay a civil penalty of $155,000 for three exports to Russian and Chinese research institutes on the Entity List. For these three transactions, Mohawk had failed to conduct screening, failed to screen the full name of the recipient, and ignored red flags identified in screening, respectively. U.S. companies and their business partners around the world must be extremely diligent with their screening efforts and particularly cautious about potential diversion activities. Often, violations of the EAR related to exports to Entity List persons are the result of a failure to properly diligence a proposed transaction and screen counterparties. Exporters have an affirmative obligation to conduct careful due diligence on all transactions subject to the EAR, and must do so to ensure compliance.
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