On April 11, 2019, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) added 50 names to the Unverified List (UVL) (of which 37 are located in China and 6 in Hong Kong), while also removing 10 names. The UVL list is found at Supplement No. 6 to Part 744 of the U.S. Export Administration Regulations (EAR). BIS said that it added these 50 names “on the basis that BIS could not verify their bona fides because an end-use check could not be completed satisfactorily for reasons outside the U.S. Government’s control.” By “bona fides,” BIS means that it could not confirm whether items previously exported to these parties were used the way the exporting party said they would be used, or was unable to confirm information about the actual end-user in those transactions. In other words, the U.S. Government is concerned about possible diversion of the exported products to unauthorized end-users or end-uses, because it cannot obtain enough information about the UVL parties or about the ultimate disposition of the items that were sent to them.
BIS’s export control regulations, the EAR, may impose licensing requirements for any one of three reasons: 1) the item and destination country, 2) the end-user, and 3) the end-use. The U.S. Government periodically conducts end-use checks to confirm that items exported under BIS’s regulatory authority are being used as stated by the exporter of the item subject to the EAR. These are typically in the form of either a pre-license check (PLC) occurring before the export takes place, or a post-shipment verification (PSV) occurring afterwards. If BIS is unable to confirm whether items that were certified upon export as being destined to a particular party for a particular application are in fact to be used by that party for the stated application, BIS may add one or more of the parties who received the export to the UVL and impose restrictions on future exports to the party(ies).
UVL-designated parties are not always engaged in conduct contrary to U.S. law or policy. Even BIS acknowledges that UVL designations may occur for “reasons unrelated to the cooperation of the foreign party subject to the end-use check.” Simple mistakes can be one reason: if an exporter puts address X on a license application when a recipient has moved to address Y, BIS may look for the party at address X and impose a UVL designation if the party can’t be located. Parties wishing to avoid these scenarios can take steps such as ensuring they have an easily accessible website with their name and address in English, along with a description of any recent name or address changes (or additional names or addresses) that may cause confusion, and valid contact information. This can also help avoid another potential cause for UVL designations: uncooperative or simply unresponsive local governments. BIS generally requires some form of consent by local authorities in order to conduct end-use checks, and if they refuse such a request or simply don’t facilitate it in a timely manner, this can cause parties in those jurisdictions to end up with a UVL designation. If the U.S. Government can confirm a company’s information online and contact the company directly to have its questions answered, this can provide a path to avoiding a UVL designation if the company is cooperative. Another key step parties can take to avoid UVL designations is to keep good records of their transactions and be willing to provide those records to the U.S. Government upon request. For example, invoices, shipping records, any end-use certifications or “know-your-customer” due diligence information gathered about counterparties would go a long way to giving BIS comfort about the details of transactions it is looking into, and about whether a recipient of U.S. supplies is diverting them contrary to U.S. law and policy. Essentially, be available, be open and transparent, keep good records, and be cooperative, and you are less likely to end up with a UVL designation.
The UVL list has far less dramatic consequences than placement on certain other U.S. Government lists, like BIS’s Entity List or Denied Parties list and the Treasury Department Office of Foreign Assets Control’s Specially Designated Nationals (SDN) list. Most US exports to UVL-designated parties are permissible provided that the UVL designee provides a “UVL statement” in support of the export. In fact, U.S. and non-U.S. companies trade regularly with UVL parties. Oftentimes BIS uses UVL designations as a less severe restriction when it does not have specific, affirmative information indicating there’s a national security or foreign policy concern with a particular party. For example, if BIS simply lacks information about a party, the party may get a UVL designation; if BIS has specific information indicating potentially problematic conduct by a party, the party may end up on the Entity List, Denied Parties list or SDN list.
On the other hand, a UVL designation can cause serious business disruption. Many types of automated restricted party screening software (along with the U.S. Government’s Consolidated Screening List) will flag UVL parties, causing many companies simply to avoid doing business with them due to uncertainty about what the UVL list is, how to comply with it, and what the level of risk would be. The regulatory restrictions imposed on UVL parties can be relatively significant: exporting parties cannot use license exceptions when shipping to UVL parties and must obtain a “UVL statement” even when no U.S. export license is required. In other words, all trade with the UVL party that is subject to U.S. export controls jurisdiction requires some kind of documentation, whether a license or a UVL statement. This can be a significant deterrent to international business, particularly in higher-volume, lower-margin sectors.
But if the business partners of a UVL designee have the patience to comply with the relatively simple rules that apply to UVL designees, business can proceed without major obstacles (assuming all parties are cooperative – and assuming the U.S. Government does not ultimately uncover specific, affirmative concerns about the UVL designee that causes them to deny license applications or impose more severe restrictions). Obtaining a UVL statement is fairly simple: it needs to be in writing, signed and dated by an appropriate person, provide identifying information including the UVL party’s name, address, phone and fax numbers, email address, and website, along with the intended end-use, end-user and destination country for the particular transaction(s), and must include a specific statement by the UVL party agreeing to comply with the EAR and with BIS end-use checks and records requests. While that may seem like a lot of information to provide to the U.S. Government, and some parties may be uncomfortable about agreeing to U.S. Government restrictions and obligations, the reality is those are the baseline conditions for doing international trade business that is subject to the jurisdiction of U.S. export controls. It’s a take-it-or-leave-it offer by BIS.
Beyond overcoming the UVL restrictions applicable to specific transactions, parties are encouraged to try to get themselves off the list. Assuming a party is willing to comply with these basic conditions that BIS imposes, getting off the list is achievable. The party or its counsel should request removal from the list in writing to BIS, explaining its business and any specific circumstances of particular transactions that may be relevant, in other words providing the “bona fides” that BIS found to be lacking. There may be some back-and-forth with BIS if the agency has follow-up questions. As always when interacting with the U.S. Government, accuracy and completeness from the outset are the key, which again requires keeping good records and being willing to provide them to the U.S. Government. It’s also a good idea to put in place a written export compliance program to show BIS that you are a responsible party, and to keep records of implementing it. Other than that, there is no “secret” to this list or to getting off the list.
BIS’s track record in administering this list demonstrates that it has been willing to remove parties that are cooperative and that meet the regulatory standards. (In the April 11 Federal Register notice, BIS also announced that it had removed three Chinese parties from the UVL list.) UVL designees should not be intimidated by the prospect of contacting the U.S. Government in an effort to seek removal from the list, provided that they go into the process understanding what it will look like and with adequate preparation.