On October 13, 2022, the Bureau of Industry and Security (BIS) of the United States Department of Commerce officially published 31 "Unconfirmed Lists" ("UVL Lists") in the Federal Register, emphasizing the possibility of converting UVLs into "Entity Lists".

What is a UVL list?

The United States government implements a licensing system for the export control of sensitive equipment, software, and technology. The Bureau of Industry and Security (BIS) of the United States Department of Commerce is the main enforcement agency for export control of dual-use products and technologies. "For dual-use controlled products and technologies that require a license to be exported, if individuals or entities engage in transactions without obtaining a license, they will be punished, such as being listed on a UVL list or entity list.".

UVL List: If the United States government is unable to verify whether the end uses and end users of controlled products and technologies are legitimate and reliable, then BIS can include foreign entities and individuals involved in the transaction in the UVL list to further verify whether the relevant transaction complies with the United States export control system.

Entity List: If the BIS confirms that a foreign enterprise has violated U.S. export control laws based on its investigation results, the relevant enterprise will be included in the entity list, also known as the "trade blacklist.". Once included in the "entity list", these enterprises will be subject to stricter supervision and restrictions on the trading of controlled objects.

Transition from UVL list to entity list

This BIS has a special 60 day deadline. Within 60 days from the date an enterprise is listed on the UVL list (i.e., October 7, 2022), BIS will remove the enterprise from the UVL list if it can complete on-site verification of its end use and users, and confirm that the relevant enterprise has not violated relevant regulatory regulations. Otherwise, the UVL enterprise will be included in the entity list.
Consequences of being included in the UVL list and entity list

Enterprises listed on the UVL list will fulfill onerous compliance obligations. Specifically, when a UVL enterprise wishes to obtain US regulated products and technologies, the exporter must apply to BIS for a license, and each business requires submission of a large number of compliance documents. In addition, for products that do not normally require a license, a UVL enterprise must provide a UVL statement to the U.S. exporter before trading, confirming the end use, user, and destination of the traded item. Finally, when exporting tangible goods to individuals or entities on the UVL list, U.S. exporters must submit Electronic Export Information (EEI) in the Automated Export System (AES), regardless of the size of the transaction or the region of destination.

In order to reduce transaction risk or compliance costs, American companies will be more cautious and even refuse to cooperate with companies on the UVL list. In addition, if an enterprise cannot be removed from the UVL list in a timely manner, it will also face the risk of being transferred to the "entity list" by the BIS, resulting in stricter regulation and restrictions on related transactions, and may not be able to import relevant sensitive products and technologies for a long time in the future.

In addition, for listed companies, being listed on the UVL list or entity list can cause panic in the capital market, lower stock prices, and affect investor decision-making.

Reasons why enterprises are included in the UVL list

Enterprises are included in the UVL list because the United States government believes that they cannot verify the end uses or end users of regulated products and technologies. This type of verification includes pre license check ("PLC") and post shipment verification ("PSV").

Specifically, the following situations can lead to the conclusion that BIS cannot verify: the enterprise information on the export documents is inaccurate, so that BIS cannot contact foreign enterprises; The host government does not cooperate with BIS verification; The audited enterprise cannot provide sufficient evidence of the BIS requirements. When BIS is unsure whether the controlled items will be used for end uses or users prohibited by the United States government, if there is no evidence to include the verified enterprises in the "entity list", BIS will include these enterprises in the UVL list.

Remove enterprises from the UVL list

BIS can modify the UVL list on its own. When BIS is able to promptly verify the reliability and authenticity of transactions involving the export, re export, or transfer of controlled items by enterprises on the UVL list, the institution will remove the relevant enterprises from the UVL list.

In addition, UVL enterprises can also apply to BIS for removal and contact BIS by mail, fax, or email (Address: Director, Office of Enforcement Analysis, Bureau of Industry and Security, U.S. Department of Commerce, 14th Street and Pennsylvania Avenue NW., Room 4065, Washington, DC 20230, Fax: (202) 482-0971).

After being listed on the UVL list, enterprises should immediately coordinate and confirm with the Ministry of Commerce of China to avoid information asymmetry. Before sending a removal application to BIS, enterprises should sort out relevant transaction documents and facts, so as to quickly respond to the questions and requirements raised by BIS. For removal applications, enterprises should first understand the reasons for their inclusion in the list from the BIS, explain why they did not cooperate with the BIS before (for example, the contact information on the export documents was incorrect, causing the BIS to be unable to contact the enterprise), and timely submit relevant information according to the requirements of the BIS, such as questionnaire responses, export documents, and third-party certification materials. Subsequently, BIS will initiate an investigation process. If the BIS is unable to conduct on-site inspections in China due to the epidemic, the enterprise can also negotiate with the BIS and strive to arrange inspections in other ways. If the legitimacy and reliability of the enterprise as the end-user, consignee, or other party of the relevant controlled object can be confirmed, BIS will remove the enterprise from the UVL list.

Procedure for removing a UVL enterprise

The Deputy Assistant Secretary for Export Law Enforcement of the United States Department of Commerce will review the removal application and assess whether it is in good faith based on the materials submitted by the enterprise, that is, whether the export, re export, and transfer of related items comply with export control regulations. BIS will conduct on-site inspections based on the situation to confirm that the end use and users of the controlled items obtained are legitimate and reliable. Subsequently, the applicant enterprise will receive a written decision from the United States Department of Commerce. This decision is the final administrative decision, and if the enterprise refuses to accept it, it cannot apply for review.

For enterprises on the UVL list, it may take several months from submitting an application to being officially removed from the list, and often multiple rounds of questionnaire responses and supporting documents need to be submitted. However, compared to enterprises on the entity list, the removal threshold for the UVL list is lower, the process is relatively simple, and the probability of success is higher.

Since 2014, approximately one-third of Chinese companies have been successfully removed from the UVL list. Therefore, enterprises included in the UVL list should start the removal process as soon as possible, and it is expected to complete the on-site verification within 60 days to avoid being included in the entity list subsequently. At the same time, UVL enterprises should quickly establish export control and economic sanctions compliance systems, focus on key areas of U.S. export control, and timely isolate risks in order to avoid being listed again on the UVL list or entity list.

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