March 09, 2022
Parties may continue to do business with persons designated on the unverified list, but if items subject to administrative export regulations are involved, including exports, re-exports, or transfers, additional compliance steps are required.
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has added 33 more people to the Unverified List (UVL), including Wuxi Biologics (Shanghai) Co., Ltd. and Wuxi Turbine Blade Co., Ltd. (jointly referred to as Wuxi) on February 8, 2022. While this does not mean Wuxi is sanctioned, the result of being named to the Entity List maintained by the Commerce Department – it does mean that parties who do business with any of the Designated Persons should exercise extra care and diligence when dealing with them.
Many companies maintain necessary business due diligence processes, but the need to conduct additional due diligence can be seen as an extra step that impedes the flow of business, delays an already exacerbated supply chain situation, or leads to more questions than questions. answers. Given this situation, the management of these designations becomes essential to the smooth conduct of global affairs.
The UVL, Entity List, and Denied Persons List are administered by BIS and impose additional obligations involving products, technologies, software, materials, or equipment governed by Export Administration Regulations ( EAR) to parties that engage with parties on the lists.
The Entity List identifies specific licensing requirements for designated entities and individuals, and often prohibits all exports of items subject to EAR without specific BIS authorization. Persons on the Denied Persons List have had their export rights revoked and are therefore unable to export (or, in the case of non-U.S. parties, re-export or transfer) from the United States. United. Parties may continue to do business with individuals on the UVL, but if items subject to the EAR are involved, they will need to take additional compliance measures designed to address BRI’s concerns that the entity remains “unverified”.
The BIS adds entities to the UVL when it is unable to verify good faith (i.e. legitimacy and reliability relating to the end use and end user of the items subject to EAR) of such entities because an end-use control or post-shipment audit could not be satisfactorily completed for reasons beyond the control of the U.S. Government. While there are some restrictions, they are nowhere near as problematic as the restrictions for parties on the entity list.
Parties on the UVL are not eligible to receive items subject to EAR through a license exception, and exporters must file an Automated Export System (AES) record of all exports to parts listed on the UVL. Before exporting, re-exporting or transferring any item subject to EAR (and for which a license has not been granted by the BIS) to an entity on the UVL, the exporter must obtain a “UVL declaration ” specific to the listed entity.
A UVL designation is only relevant for exports, re-exports, or transfers of “EAR-subject” items. “Subject to EAR” describes the items and activities over which BIS has regulatory jurisdiction.
Items subject to EAR generally include the following:
- All items in the United States, including in a United States Foreign Trade Zone or transiting through the United States
- All US Origin Items Wherever They Are
- Foreign-made goods that incorporate, are bundled, or commingled with U.S.-origin items that exceed the applicable de minimis level
- Direct products manufactured overseas using specified US source technology and software
- Foreign-manufactured direct products of an entire plant or any major component of a plant that are the direct product of specified US-origin technology or software
In addition, the specific activities of United States nationals, wherever located, related to the proliferation of nuclear explosive devices, missiles, chemical or biological weapons, entire factories of chemical weapons precursors and certain military and intelligence end uses and end users are also subject to the EAR. Activities of U.S. or foreign persons prohibited by any order issued under the EAR, including a denial order, are also subject to the EAR.
Basic research (when properly defined), published patents and publicly available information (as specifically defined in the EAR) are not subject to the EAR.
Steps to follow
Before exporting, re-exporting or transferring items subject to EAR, the first step is to get a UVL declaration executed. The UVL statement obtained from the client must be in writing, signed and dated by a person with sufficient authority to legally bind the UVL party, and include at least all of the following information:
- UVL party full legal name
- Physical address of the UVL party, including shipping, company, and end-user addresses if different; a postal address is not sufficient
- Telephone and fax number of UVL party
- UVL Party Email Address
- UVL party website (if available)
- Name and title of the person signing the UVL declaration
- Statement that the UVL party agrees not to use the item(s) for any purpose prohibited by the EAR and agrees not to re-export or transfer the item(s) to any designation, use or user prohibited by the EAR
- Declaration of intended end use, end user and country of final destination of item(s) subject to EAR
- Statement that the UVL party agrees to cooperate with end-use verifications, including post-shipment verification performed by or on behalf of BIS for any item subject to EAR in transactions in which it has participated in the last five years 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 UVL statement and all other records to be retained in Part 762 of the EAR to the BIS
- Certification that the person signing the UVL declaration has sufficient authority to legally bind the UVL party
A UVL declaration can be used for multiple exports, re-exports and transfers of the same items between the same parties, as long as the party names, item description(s) and export control classification numbers (ECCN) are correct. . If a UVL declaration is used for multiple exports, re-exports and transfers, the exporter, re-exporter or transferor must maintain a log or other record that identifies each export, re-export and transfer made in accordance with the EAR and the specific UVL declaration which is associated with each. The log or record must be retained in accordance with Part 762 of the EAR.
Should I cancel pending orders for a part when it is added to the UVL?
Not necessarily, but you are required to exercise additional due diligence to verify the parties involved in the transaction, the nature of the transaction and the details of each transaction.
For example, on a practical level, the following steps reflect a reasonable and prudent approach to ensuring that a UVL-related transaction can occur:
- Get executed UVL declaration from client
- Determine or confirm the export classification of the item(s) ordered
- Confirm end destination, customer name, end use and end user
- Determine if a license is required under an EAR general prohibition
- Determine if a license is required based on the classification of the item(s) using the EAR Country Table
If you need a license, obtain the required license from the BIS (attach the executed UVL declaration to the export license application) and submit your electronic export information (EEI) through the automated export system ( AES), then you can proceed with the sale. to the customer regardless of their status on the UVL.
While a license is not required because a license exception generally applies, you are still required to obtain a license for any part included in the UVL. Once the license is approved, before exporting, you must submit your EEI via AES.
If your items can be exported to the client as No License Required (NLR) items (e.g. EAR99 items), once the UVL party has provided you with the executed UVL declaration, you must submit your EEI via AES within order to proceed with the transaction.
For all of the above cases, record keeping is mandatory and important to have in case the transactions come into question at a later date.
If you have any questions or would like more information about the issues discussed in this LawFlash, please contact one of the following Morgan Lewis attorneys:
Giovanna M. Cinelli
Kenneth J. Nunnenkamp
Heather C. Sears
Katelyn M. Hilferty
Carl A. Valenstein