On March 8, 2016, the Department of Commerce’s Bureau of Industry and Security ("BIS") issued a final rule (effective upon publication and with grandfathering limited to items already en route aboard a carrier as of March 8) adding the Chinese multinational telecommunications company Zhongzing Telecommunications Equipment Corporation ("ZTE Corporation") and three affiliated entities to the Entity List of the Export Administration Regulations ("EAR"). The Entity List identifies parties reasonably believed to be involved in activities contrary to the national security or foreign policy interests of the United States. BIS’s statement on the listing of ZTE Corporation is available here.

ZTE Corporation is a provider of electronics products, including smartphones, that rely on components from U.S. technology suppliers. The added entities are:

  1. ZTE Corporation located at ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzen, China;
  2. ZTE Kangxun Telecommunications Ltd., located at 2/3 Floor, Suite A, ZTE Communication Mansion Keji (S) Road, Hi-New Shenzhen, 518057, China;
  3. Beijing 8-Star (a.k.a. "8s") located at Unit 601, 6th Floor, Tower 1, Prosper Center, No. 5, Guanghua Road, Chaoyang District, Beijing, China; and
  4. ZTE Parsian, located at No. 100, Africa Ave., Mirdamad Entersection, Tehran, Iran.

Companies will need to use caution in any future business with related ZTE affiliates to ensure a specific item is not intended for a ZTE affiliate that is on the Entity List. Placement on the Entity List severely restricts the supply of items (i.e., goods, software, technology) "subject to the EAR" to ZTE Corporation and the other sanctioned entities but does not restrict transactions involving items that are not "subject to the EAR." Should a company wish to export, reexport or make an in-country transfer of any item "subject to the EAR" (whether controlled or classified as "EAR99") to any of the above sanctioned entities, a specific license from BIS is required. BIS has imposed a license review policy of "presumption of denial" in all cases. In this context, an item is "subject to the EAR" if it is (i) of U.S. origin, (ii) exported from the United States, (iii) manufactured outside the United States but incorporates 25% or more "controlled" U.S. content (if to China) or 10% or more "controlled" (non-EAR99) U.S. content (if to Iran), or (iv) a foreign direct product of certain national security controlled U.S. technology.

BIS based its listing decision at least in part on two ZTE corporate documents that indicate the company carefully established, controlled, and used shell companies to re-export controlled items to Iran without authorization under the EAR. BIS has posted English versions of the internal ZTE documents here and here.