The U.S. Department of Commerce, Bureau of Industry and Security (BIS), recently announced the addition of 28 Chinese entities to the Entity List under the Export Administration Regulations (EAR), effectively prohibiting all U.S. trade with these entities. While other recent U.S. actions against Chinese entities have been driven by national security concerns (over high performance computing, IT supply chain security, and concerns over Huawei and its affiliates), the primary motivation for this action is the identification of entities engaging in and enabling activities contrary to the foreign policy interests of the United States, particularly those that have been implicated in human rights violations and abuses.
- 28 Chinese governmental organizations and commercial firms have been added to the Entity List, effective October 9, 2019.
- The entities listed have been tied to human rights abuses against Uighurs and other Muslim minority groups in China’s Xinjiang Uighur Autonomous Region (XUAR).
- BIS is imposing a license requirement for all items subject to the EAR with a license review policy of case-by-case review for certain Export Control Classification Numbers (ECCNs) and a policy of presumption of denial for all other items subject to the EAR.
- This action continues a trend of impactful, China-focused technology restrictions by the U.S. government, with significant implications for trade and business.
New Restrictions on Entities
On October 9, 2019, BIS published a final rule to amend the EAR to add 28 entities to the Entity List. The entities include the XUAR People’s Government Public Security Bureau, eighteen of its subordinate municipal and county public security bureaus, one other subordinate institute, and eight companies — Dahua Technology; Hikvision; IFLYTEK; Megvii Technology; Sense Time; Xiamen Meiya Pico Information Co. Ltd.; Yitu Technologies; and Yixin Science and Technology Co. Ltd.
These new listings are based on a BIS determination that the subject entities are either engaging in activities contrary to the foreign policy interests of the United States or enabling those same activities. According to the Commerce Department, the identified entities, located in the XUAR and other locations in China, are associated with the human rights abuses and oppression of the Uighurs, Kazakhs, and other Muslim minority groups in China, and have assisted in the Chinese government’s implementation of repression, mass arbitrary detention, and high-technology surveillance against these groups in the XUAR.
The Entity List designations prohibit any person (U.S. or foreign) from providing the restricted entities with “items subject to the EAR” (i.e., effectively all commodities, goods, and software with more than de minimis U.S.-origin content) without a BIS-issued license. The BIS license review policy for all 28 listed entities is two-fold:
- Case-by-case review for certain protective and detection items in ECCNs 1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983, 2E983, and EAR99 items described in the Note to ECCN 1A995 (i.e., items that provide protection against chemical or biological agents that are consumer goods, packaged for retail sale or personal use, or medical products); and
- Presumption of denial for all other items subject to the EAR.
Accordingly, U.S. businesses with customers in China should carefully review their transactions to ensure that their EAR-subject products are not being sold to these entities.
How Ankura Can Help
This final rule is part of a continuing trend from the U.S. Government of restricting Chinese organizations’ access to U.S. markets and technology through the use of export controls, supply chain controls, and more stringent foreign direct investment regulations. This latest action is illustrative of the unexpected developments that U.S. and international companies, investors, and counsel will continue to face in this new regulatory world. Stakeholders will have to adapt to unpredictable regulatory changes applicable to technology, supply chains, and data security.
Ankura’s unique experience and expertise as former in-house compliance executives and counsel with global technology companies, technical experts and solution providers, and trusted external advisors allows our team to rapidly and efficiently help our clients and their counsel grapple with and stay ahead of emerging developments.
Ankura’s experts can help companies engaged in business in China, and their counsel, with:
- Jurisdiction and Classification Assessments – The Ankura team has deep subject matter expertise in conducting export jurisdiction, classification and de minimis analyses, and can assist companies and counsel quickly determine whether their products and technologies are subject to U.S. export restrictions.
- S. Regulator Engagement – Ankura regularly advises and assists clients in engaging with U.S. regulators to obtain jurisdiction and classification determinations, advisory opinions, and export/reexport/transfer licenses. Ankura professionals have decades of collective experience engaging with U.S. Government agencies on sensitive trade matters and have helped our clients successfully navigate complex, business critical scenarios through strategic engagement with U.S. regulators.
- Compliance Risk Mitigation – Ankura has deep experience assisting companies adapt to changing regulatory environments with smart, managed application of business-integrated controls. The Ankura team includes team members who have designed and built corporate compliance programs in-house, and understand how to design, deliver, and execute rigorous compliance programs and solutions that operate at the speed of business.
- Distribution, Supply Chain, and Customer Diligence – Ankura integrates our world-class trade compliance expertise with sophisticated geopolitical intelligence and foreign entity diligence capabilities. The Ankura team regularly assists clients with conducting deep-dives into their supply chain and end-users to identify issues that may implicates U.S. trade restrictions.
- Chinese language capability – Ankura’s team integrates U.S. persons with fluency in Mandarin.
© Copyright 2019. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.