On September 11, 2013, the Department of Commerce Bureau of Industry and Security (“BIS”) issued a proposed notice of rulemaking to amend various provisions of the EAR governing transactions with parties identified on the Unverified List (“UVL”).
The UVL is a list of foreign parties to export transactions in which pre-license checks and post shipment verifications of compliance with U.S. re-export controls and other EAR requirements could not be completed by the U.S. Government for reasons the government determines to be outside the government’s control. Such situations can arise in situations where there is lack of cooperation by the end user, lack of cooperation by the host foreign government, absence of a true physical location for the end user, and inability of the end user to account for the proper location or end use of exported items.
Presence of a party to the transaction on the UVL constitutes a “red flag” the presence of which constitutes notice of a risk of division that must be resolved prior to export. In this way, red flags impose an affirmative duty on exporters to perform additional inquiries, verification of bona fides, and other due diligence before proceeding with a transaction to resolve red flags and ensure that a prospective transaction does not involve diversion to an embargoed destination, prohibited proliferation activity or violate other provisions of the EAR. If a company cannot resolve a red flag, it should refrain from the transaction or submit all the relevant information to BIS in a license application or other form specified by BIS.
BIS states that the proposed rule seeks to increase the government’s visibility into transactions involving UVL parties. Accordingly, the proposed rule would make the following changes:
- Add the UVL to Supplement No. 6 to Part 744 of the EAR;
- Require filing of an Automated Export System record for exports involving a UVL party;
- Remove the availability of EAR license exceptions for transactions involving a UVL party; and
- Require exporters to obtain a specific form of statement from the UVL in transactions that do not require a license for export.
The proposed rule also seeks to add procedures by which parties can request removal from the UVL.
Among other things in the proposed rule, BIS notes:
…the proposed suspension of license exceptions, which would allow pre-shipment review by the U.S. Government of exports, reexports, and transfers (in-country) of certain controlled items involving persons listed on the UVL, coupled with the proposed requirement for exporters to obtain a UVL statement for exports, reexports, and transfers (in-country) involving such persons of items not subject to a license requirement, provides greater guidance on what steps are necessary in order to undertake an export, reexport, or transfer (in-country) of items subject to the EAR involving a party to the transaction who is listed on the UVL.
A copy of the proposed rule is available at federalregister.gov under the citation “78 FR 55664.” The last day for public comment is October 11, 2013.
The public comment process is an essential part of our representative form of government that offers private industry a say in the federal rulemaking process. Companies affected by rules should consider submitting comments, especially when a rule would impose unnecessary burdens or have adverse affects on competition, employment, investment, productivity, innovation, or the ability of U.S. businesses to compete with foreign business in domestic and foreign markets. If your company believes a different approach is warranted than that proposed by the rule, it can consider making a public comment suggesting a correction and explaining why the correction is needed.
*The above is not intended as an exhaustive list of restrictions that may apply to a particular transaction nor advice for a specific transaction because the specifics of an individual case may implicate application of other U.S. laws as well as foreign laws that carry added or different requirements. In addition, U.S. export control and sanctions laws are frequently subject to change. Such changes can affect the continued validity of the information above, which is based on U.S. law existing as of September 11, 2013. For these reasons, assistance from a qualified attorney competent to advise on such matters is highly recommended.
Matthew A. Goldstein is an International Trade Attorney in Washington D.C. licensed to practice in the District of Columbia and the State of Arizona. He can be reached at (202) 550-0040 and Matthew@GoldsteinPLLC.com.
 “Revisions to the Export Administration Regulations (EAR): Unverified List (UVL),” 78 Fed. Reg. 55,664 (September 11, 2013).
 Ibid. at 55,666.