Regulatory policy

BIS Announces New End-Use Verification Policy; Adds YMTC, 30 more Chinese entities to unverified list

On October 7, 2022, the Bureau of Industry and Security (BIS) announced a New policy this would continually increase the restrictions on entities that fail to comply with the BRI’s end-use verification controls, whether such non-compliance is the product of the entity’s own actions or the policies of the foreign host government of the entity.

In line with this announcement, the BIS added 31 Chinese entities to the Unverified List (UVL) and removed nine Chinese entities. Among the new entities added to the UVL is Yangtze Memory Technologies Co., Ltd. (YMTC), a Chinese state-owned enterprise, China’s largest NAND flash manufacturer and an important player in the flash memory supply chain. Placing these entities on the UVL adds a number of new immediate restrictions and requirements on exports, re-exports, and transfers of US items to these entities.

Presentation of UVL

As its name suggests, the UVL contains a list of entities for which the BIS has not been able to adequately verify that the entity has generally complied (and is generally in compliance with) the Export Administration Regulations (EAR) as determined by routine end use. verifications carried out by the BIS Law Enforcement Department. To mitigate the risk of items being diverted by these entities to unacceptable end uses or end users, BIS requires exporters to take additional steps prior to export, described in more detail below.

While most prestigious listings of Chinese companies, including those of Huawei and ZTE, have been on the Entity List, BIS designations at UVL come with a different set of restrictions. The table below provides a brief overview of the different purposes, powers and general export restrictions applicable to UVLs and Entity Lists.

Unverified List

List of entities

Scope

Inability to verify the legitimacy and reliability of end uses and end users of items

Involvement or risk of involvement in activities contrary to the national security policy interests of the United States

Designation Power

BIS

End User Review Board (a multi-agency body comprised of representatives from the U.S. Departments of Commerce, State, Defense, Energy, and Treasury)

General export restrictions

Prohibition on Using License Exceptions;

Requirement to collect UVL instructions; and

Mandatory EEI deposit

Licensing requirement for all items within the scope of the Entity Entity List Entry; and

Prohibition on using license exceptions

With regard to YMTC in particular, senators Marco Rubio (R-FL) and Mark Warner (D-VA) made a concerted, years-long effort to lobby the BIS to add YMTC to the entity list, citing extensive ties to the Chinese government and military. Although the BIS did not do so in its October 7 action, the agency added YMTC to the UVL – and left the door open for adding YMTC to the more restrictive entity list earlier. , in accordance with its recently announced End Use Control Policy. .

New end-use verification policy

Typically, non-compliance with BIS end-use audits is attributed to entity actions, such as refusal or unwillingness to respond to the BIS. With respect to the companies targeted by the recent BIS announcement, however, accountability for non-compliance is less clear, as many Chinese entities have cited Chinese government policies as the cause of their failure to perform the BRI end-use checks.

Under the new BRI policy, however, the agency asserted that “a sustained lack of cooperation from the host government” could, ultimately, be a sufficient basis for adding an entity to the list. list of entities. Entities will be added to the UVL first if end-use checks cannot be completed within an initial 60-day period. After UVL designation, the UVL-listed entity would then have an additional 60 days to complete these end-use verifications before BIS begins the process of adding the entity to the UVL list. entities.

YMTC and other entities added to the UVL are now in this final 60 day period, after which BIS will begin the process of adding non-compliant entities to the entity list. Effective immediately, the below restrictions applicable to transactions with UVL-listed entities will apply.

Requirements for US Exports to UVL Entities

For exports, re-exports and transfers to entities on the UVL list of items subject to EAR, exporters are required to comply with three additional requirements:

  • First, the ability to use all license exceptions is suspended.
  • Second, even for non-licensable items, exporters are required to collect from the UVL listed consignee a written, signed and dated statement providing all of the following information:
    • UVL part name; full physical address (and shipping, business, and end-user addresses, if different); phone number; fax number; e-mail address; website; and the name and title of the person signing the UVL declaration;
    • an agreement not to use the item(s) for any use prohibited by the United States EAR, 15 CFR Parts 730-772, and an agreement not to re-export or transfer (within the country) the item(s) to a destination, use, or user prohibited by the EAR;
    • a statement indicating the end use, end user and country of final destination of the item(s) subject to EAR;
    • a cooperative agreement with end-use audits, including post-shipment audit, performed by or on behalf of BRI, U.S. Department of Commerce, for any item subject to EAR in transactions to which they have participated in the past five years. This cooperation includes facilitating the timely conduct of screening and providing complete and accurate information regarding the disposition of items subject to EAR;
    • an agreement to provide copies of this document and any other export, re-export, or transfer (in-country) records to be kept in EAR Part 762; and
    • an attestation that the person signing the UVL declaration has sufficient authority to legally bind the party.
  • Finally, all exports of tangible items must have Electronic Export Information (EEI) filed in the Automated Export System (AES) prior to export.

Conclusion

The new BRI End-Use Control Policy imposes new requirements on U.S. exports, effective immediately, with respect to the 31 entities added to the UVL on October 7. In line with this policy, we would expect to see a more steady flow of companies being added to the UVL. UVL or list of entities in the coming months.

In a separate action released the same day, the BIS also issued a long-awaited statement provisional final rule the implementation of new export controls on advanced computer chips, computers and components; create new end-use controls on semiconductor manufacturing and supercomputer components; and the implementation of new and expanded foreign direct product rules for these items and in relation to certain entities designated on the Entity List. Read our customer alert regarding this announcement here.

For more information or questions about these changes or any related matter, please contact Josephine Aiello LeBeau (202-973-8813, [email protected]), Anne Seymour (202-973-8874, [email protected]), or any member of the export controls and sanctions practice at Wilson Sonsini Goodrich & Rosati.