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BIS Adds 31, Including YMTC, to Unverified List; Sets New 60-Day Clock for Move to Entity List

October 11, 2022 by Ian Cohen|Top News

The Bureau of Industry and Security added 31 Chinese entities to its Unverified List last week, including Yangtze Memory Technologies Co., a semiconductor firm that U.S. lawmakers for months have urged BIS to add to the more restrictive Entity List. The final rule, which took effect Oct. 7, also removed nine other entities from the UVL and included new guidance on what types of criteria and activities may lead to the transfer of UVL entries to the Entity List.

Along with YMTC, the new UVL entries include a range of Chinese-based technology companies and research institutions. BIS said it hasn’t been able to verify the “legitimacy and reliability” of the entities through end-use checks, including their ability to responsibly receive controlled U.S. exports. Although Congress and some industry observers have asked the Biden administration to go further in penalizing YMTC -- including by adding it to the Entity List (see 2209220022, 2210060023, 2209160064 and 2208020058) -- a new policy announced Oct. 7 could move the company to the Entity List if it doesn't allow BIS to conduct an end-user check within 60 days.

"Where BIS is prevented by a host government from conducting our end-use checks in a timely manner, we will add parties to the Unverified List, and if the delay is extreme enough, the Entity List, to prevent the risk of diversion of any U.S. technology that could undermine our national security interests," said Matthew Axelrod, BIS's top export enforcement official.

Along with the UVL additions, BIS amended the Export Administration Regulations to clarify how it will decide whether to transfer a party from the UVL to the Entity List. Although the agency adds entities to the UVL if it can’t conduct end-use checks on the party, it may decide to further penalize the entity if there is a “sustained and deliberate prevention of an end-use check by a foreign government” that “creates a circumstance that may place an entity at significant risk of being or becoming involved in activities contrary” to U.S. national security or foreign policy.

This may include a “sustained lack of cooperation by the host government to schedule and facilitate the completion of end-use checks,” BIS said. If this occurs, the interagency End-User Review Committee may decide to add the UVL entity to the Entity List to “enhance BIS's ability to prevent violations” of the EAR.

In an Oct. 7 memo, Axelrod outlined a new two-step policy for when the Office of Export Enforcement encounters a foreign government that prevents end-use checks. First, if BIS requests an end-use check but isn't able to complete the check within 60 months, OEE will initiate a process to add the party to the UVL. Second, if BIS still can't complete the end-use check 60 days after the party has been added to the UVL, the party will be moved to the Entity List. That 60-day clock began Oct. 7 for all entities currently on the UVL.

In certain "rare" cases, BIS may extend the 60-day deadline "if we believe that extenuating circumstances justify the foreign government's inability to ensure an end-use check is conducted within the relevant 60-day period," Axelrod said.

All export license exceptions involving parties newly added to the UVL will be suspended, and exporters must obtain a statement from any party listed on the UVL before proceeding with exports that aren’t subject to a license requirement. Exporters must also file Electronic Export Information in the Automated Export System for all exports of “tangible items” subject to the EAR if the transactions involve parties on the UVL.

All exports that no longer qualify for a license exception as a result of this rule that were aboard a carrier to a port as of Oct. 7 may proceed to their destinations under the previous eligibility as long as the items have been exported before Nov. 7, BIS said. Any items not exported before Nov. 7 will be subject to UVL-related restrictions.

The 31 UVL additions are:

China

BIS also removed nine entities from the UVL after it “was able to verify their bona fides." Those entities are:

China