While many professionals in the compliance space around the world are familiar with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals and Blocked Persons (the “SDN List”), another U.S. government list is quickly rising in importance. As news articles over the past few years (think ZTE and Huawei) have indicated the U.S. Department of Commerce’s Bureau of Industry & Security’s Entity List is becoming increasingly noticed and used as a tool of U.S. foreign policy in curtailing the flow of U.S. origin goods and technologies to certain foreign parties.
The Entity List is arguably the most potent list at the BIS, an agency tasked with administering the Export Administration Regulations (“EAR”), a set of regulations governing U.S. origin goods – broadly defined in a way that covers many goods made even outside the United States with U.S. technologies or foreign goods that have transited through the United States. While a BIS list, the naming of parties to the Entity List, the modification of their entries, and their removal is the responsibility of the End-User Removal Committee (ERC), an inter-agency group with representatives from various U.S. departments, including Commerce, Defense, and Energy.
The impact of being on the Entity List can be devastating. The limitations can vary, for example some Russian entities on the list are subject to somewhat narrow prohibitions on certain oil extraction-related technologies (which can be very broad for their purposes given the scope of what they do) to blanket bans on all items subject to the EAR. It usually leads to a domino effect, where even transactions that are not prohibited become impossible to execute due to de-risking by suppliers, vendors, and service providers like banks and shippers, in cases where the transaction is not even prohibited under the regulations. Broad prohibitions can be painful and can cause companies to collapse. You may recall a story where China’s ZTE was apparently unable to fix a urinal in its men’s room due to difficulty in obtaining a part, all arising from its Entity List designation.
Removal from the Entity List, while rare, is not impossible. The rarity may come from the fact that few may take the necessary expert approach towards removal. It’s critical to take immediate steps quickly to begin the process for permanent removal, and this should be done by experienced lawyers well-versed in U.S. trade regulations, particularly export controls. Given the reputation issues at stake, companies that are serious about rehabilitating their businesses must address the designation seriously.