Department of Commerce Adds 6 China-Based Entities to Export Administration Regulations List
On February 14, 2023, the U.S. Department of Commerce Bureau of Industry Security (BIS) amended the Export Administration Regulations (EAR) (15 C.F.R. §§ 730 et seq.) list (Entity List) by adding six China-based entities. The Biden Administration determined that those six entities were conducting business contrary to U.S. national security and / or foreign policy interests. Government contractors should be cautious when doing business with the following entities:
- Beijing Nanjiang Aerospace Technology;
- China Electronics Technology Group Corporation 48th Research Institute;
- Dongguan Lingkong Remote Sensing Technology;
- Eagles Men Aviation Science and Technology Group;
- Guangzhou Tian-Hai-Xiang Aviation Technology; and
- Shanxi Eagles Men Aviation Science and Technology Group.
Adding businesses to the Entity List is a significant statement. Indeed, entities added to the Entity List are subject to foreign policy export, reexport, and transfer (in-country) license requirements; limitations on the availability of license exceptions; and a license application review policy. BIS amends the Entity List to include entities that present a threat to U.S. national security and sovereignty. Such a determination is made when “there is reasonable cause to believe, based on specific and articulable facts, that an entity has been involved, is involved, or poses a significant risk of being or becoming involved in activities that are contrary the United States’ national security or foreign policy interests.” 15 C.F.R § 744.11(c)(3). Here, the six China-based entities were found to be involved with what was suspected to be a surveillance balloon the size of three school buses hovering over the United States, which was shot down off the coast of Alaska in early February 2023.
Below is an illustrative list of activities that could be, or represent, a significant risk of being contrary to the national security or foreign policy interests of the United States:
- supporting persons engaged in acts of terror;
- actions that could enhance the military capability of, or the ability to support terrorism of governments that have been designated by the Secretary of State as having repeatedly provided support for acts of international terrorism;
- transferring, developing, servicing, repairing, or producing conventional weapons in a manner that is contrary to U.S. national security or foreign policy interests or enabling such transfer, service, repair, development, or production by supplying parts, components, technology, or financing for such activity;
- prevention of the accomplishment of an end-use check conducted by or on behalf of BIS or the Directorate of Defense Trade Controls in the Department of State; and
- engaging in conduct that poses a risk of violating the EAR when such conduct raises sufficient concern that the End-User Review Committee believes that prior review of exports, reexports, or transfers (in-country) involving the party and the possible imposition of license conditions or license denial enhances BIS’s ability to prevent violations of the EAR.
BIS’s update to the Entity List reflects U.S. efforts to protect its national security and sovereignty. Government contractors should take caution when engaging in transactions with those on the Entity List. Although there is no prohibition on purchasing from those firms on the Entity List, companies contemplating such purchases should ensure items being procured (if of U.S. origin or otherwise subject to the EAR according to 15 C.F.R. § 734.3) were sent to the seller with the appropriate authorization.
The cautions associated with the Entity List differ from those associated with the Department of Defenses’ Section 889 Banned Entities we discussed here and here. As a reminder, using any component in any telecommunications or video surveillance equipment sourced from one of the Section 889 Banned Entities can lead to ineligibility for contract award, while failure to disclose the use of such banned items could result in potential liability under the False Claims Act. On a somewhat related note, and among U.S. efforts to address technology-based threats to protect national security and sovereignty, is the recent Restricting the Emergence of Security Threats that Risk Information and Communications Technology Act, which was endorsed by the Biden Administration on March 7, 2023. That legislation focuses on restricting or banning Chinese-owned social media apps, such as TikTok.
Ultimately, contractors should be cautious when purchasing equipment from foreign countries. While not exhaustive, procuring equipment from firms on the Entity List, the Section 889 Banned Entities List, or the Section 1260H list could lead to unforeseen consequences and headaches down the road. Ensuring businesses on these lists are not in your supply chain and / or having the requisite authorizations if the EAR is applicable, would be a prudent practice moving forward.
If you have questions about the Entity List, its impact on your business, or its potential connection to other blacklists, please contact Cy Alba, Ustina Ibrahim, or Daniel Figuenick, the authors of this blog, or another member of PilieroMazza’s Government Contracts or Cybersecurity & Data Privacy practice groups.