Unverified and Unsure

Background

The U.S. Commerce Department’s Bureau of Industry and Security (BIS) in October 2024 added three Chinese companies to its Unverified List.

The Unverified List (UVL) is a list of parties that have not cooperated with BIS during post-shipment verification checks. Companies can be added to the UVL 60 days after the U.S. government requests verification checks. If U.S. officials are unable to complete an end-use check after an additional 60 days, BIS will initiate the interagency regulatory process to move those parties to the Entity List, which contains a list of names of foreign businesses, research institutions, government and private organizations, individuals, and other types of legal persons that are subject to specific license requirements for the export, reexport and/or transfer (in-country) of specified items.

BIS sometimes cannot complete end-user checks for various reasons; some examples include:

• If a foreign company cannot be found at the address indicated on the associated export documents
• If U.S. officials are unable to contact the foreign company via email or telephone
• If foreign governments in countries where the entities are based refuse to facilitate the completion of an end-use check, or even prevent U.S. officials from scheduling a check
• If a company that receives items subject to the EAR cannot produce the items for visual inspection or provide documentation about their end use

If BIS is unable to confirm the validity or legitimacy of the entity receiving restricted U.S. goods, software, or technology, concerns about the company’s suitability to receive exports, re-exports, or in-country transfers may land it on the UVL.

How is the Unverified List different from other BIS lists?

BIS administers several lists that impose additional obligations on exporters, financial institutions, and other stakeholders to perform due diligence on transactions that involve products, technology, software, materials, or equipment governed by the EAR.

• The “Entity List” imposes specific license requirements for the entities and individuals included on it, and often prohibits all exports of items subject to the EAR to these entities without specific BIS authorization.
• Individuals on the “Denied Persons List” have had their export rights revoked, so they can’t export (or in the case of non-U.S. parties, reexport or transfer) from the United States.

The UVL is different. Parties can continue to do business with individuals on the UVL, according to BIS, but if the transaction involves items subject to the EAR, exporters and other firms will need to take additional compliance steps designed to resolve the U.S. government’s concerns about the entity’s “unverified” status.

Inclusion on the UVL is not intended to be punitive, but rather it indicates to exporters or other firms that the legitimacy and reliability about the end-use and end-user of items subject to the EAR cannot be completed by the U.S. government through an end-use check, such as a pre-license check (PLC) or a post-shipment verification (PSV).

However, if a foreign government prevents U.S. officials from conducting on-site checks at companies on the UVL, Washington will add them to the more restrictive “Entity List” after 60 days. The United States will also remove companies from the UVL once successful checks happen.

• BIS in October 2024 removed two entities from the UVL because BIS was able to verify their bona fides. China-based Shengwei Technology Co., Ltd. and Saudi Arabia-based Al Gihaz Co., Ltd. for Contracting and Trading were removed from the UVL pursuant to the EAR.
• BIS in August 2023 removed 33 entities from the UVL after governments in China, Indonesia, Pakistan, Singapore, Türkiye, and the UAE cooperated to complete a successful end-use check.
• BIS in late 2022 added China’s top memory chipmaker YMTC and other entities to the UVL. The Commerce Department was investigating whether YMTC sold chips to Chinese telecommunications giant Huawei, in possible violation of U.S. export controls.

What’s a company to do?

Exporters must file an Automated Export System record for items subject to the EAR that are shipped to entities on the UVL. Exporters must also obtain a statement from these parties prior to exporting, reexporting, or transferring to them any item subject to the EAR which is not subject to a license requirement.

This statement is critical. It must be submitted in writing, signed and dated by an individual of sufficient authority to legally bind the UVL party, and must include identifying information, location, and listing of the end-use, end-user, and ultimate destination of items subject to the EAR, as well as written agreement to cooperate with end-use checks, among other things.

Firms and financial institutions involved in trade financing or exports of sensitive items must perform due diligence to ensure they’re not violating the EAR. A company’s inclusion on the UVL should be treated as a “red flag” that requires additional due diligence. Screening all parties for all transactions against the Denied Party List and investigating potentially suspicious transactions is wise.

BIS in October 2024 issued guidance for financial institutions to help them remain in compliance with the EAR’s General Prohibition 10, which prohibits knowingly financing any transaction that violates the EAR, including reexporting or transferring restricted items. As a best practice, BIS recommended screening customers against BIS lists of entities subject to end-user restrictions, including the Unverified List. The presence of a party on the Unverified List should be a “red flag” for financial institutions to perform additional due diligence before proceeding with the transaction.

Conclusion

The Unverified List has helped U.S. officials successfully complete end-use checks in China, allowing BIS to remove Chinese entities from the UVL after verifying their reliability. At the same time, BIS was able to move several Russian companies from the UVL to the Entity List, further restricting suspicious Russian end-users from importing sensitive U.S.-origin goods and technology.

Unlike entities on OFAC’s SDN list, U.S. persons can still transact with entities on the BIS Unverified List. However, no license exceptions may be used for exports, reexports or in-country transfers to parties on the UVL. To prevent diversion of restricted products to unauthorized end-users, exporters, financial institutions, brokers, and other stakeholders must conduct additional due diligence before transacting with a party on the UVL, and closely monitor changes to the UVL, especially if they involve the transfer of a company to the Entity List.