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21 August 2008
[Federal Register: August 21, 2008 (Volume 73, Number 163)]
[Rules and Regulations]
[Page 49311-49323]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21au08-2]
[[Page 49311]]
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DEPARTMENT OF COMMERCE
Bureau of Industry and Security
15 CFR Parts 730, 744 and 756
[Docket No. 0612243150-8535-02]
RIN 0694-AD82
Authorization To Impose License Requirements for Exports or
Reexports to Entities Acting Contrary to the National Security or
Foreign Policy Interests of the United States
AGENCY: Bureau of Industry and Security, Commerce.
ACTION: Final rule.
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SUMMARY: The Entity List (Supplement No. 4 to Part 744 of the Export
Administration Regulations (EAR)) provides notice to the public that
certain exports and reexports to parties identified on the Entity List
require a license from the Bureau of Industry and Security (BIS) and
that availability of License Exceptions in such transactions is
limited. This rule expands the scope of reasons for adding parties to
the Entity List. This rule also amends the EAR to state explicitly that
a party listed on the Entity List has a right to request that its
listing be removed or modified and sets procedures for addressing such
requests.
DATES: This rule is effective August 21, 2008.
FOR FURTHER INFORMATION CONTACT: Karen Nies-Vogel, Chair, End-User
Review Committee, Office of the Assistant Secretary, Bureau of Industry
and Security, kniesv@bis.doc.gov, (t) 202-482-3811, (f) 202-482-3911.
SUPPLEMENTARY INFORMATION:
Background
The Entity List (Supplement No. 4 to Part 744 of the EAR) provides
notice to the public of the identity of certain parties whose presence
as a recipient of items subject to the EAR can result in the imposition
of a license requirement in an export or reexport transaction.
BIS published a proposed rule (72 FR 31005, June 5, 2007) to
authorize adding to the Entity List entities that BIS has reasonable
cause to believe, based on specific and articulable facts, have been,
are or pose a risk of being involved in activities that are contrary to
the national security or foreign policy interests of the United States
or those acting on behalf of such entities. This new authorization
would not be used to add to the Entity List entities that are U.S.
persons (as defined in Sec. 772.1 of the EAR). The proposed rule also
provided a procedure for entities listed on the Entity List to request
removal or modification of their entries. After review of the comments
on the proposed rule, BIS is publishing this final rule.
Reasons for This Rule
This rule will allow BIS to focus its export control efforts more
closely on problematic recipients of items that are subject to the EAR,
where those recipients do not meet the criteria set forth in Sec. Sec.
744.2, 744.3, 744.4, 744.6, 744.10, 744.17, 744.20 or 744.21 for
addition to the Entity List. Pursuant to this rule, the U.S. government
will be able to conduct prior review and make appropriate licensing
decisions regarding proposed exports and reexports to such recipients
to the degree necessary to protect United States national security or
foreign policy interests. The government will be able to tailor license
requirements and availability of license exceptions for exports and
reexports to parties that have taken, are taking, or pose a significant
risk of taking actions that are contrary to U.S. national security or
foreign policy interests without imposing additional license
requirements that apply broadly to entire destinations or items. BIS
believes that such targeted application of license requirements
provides the flexibility to prevent items subject to the EAR from being
used in ways that are inimical to the interests of the United States,
with minimal costs to and disruption of legitimate trade. As export
controls continue to focus not just on countries, but also on
individual customers or entities, BIS believes it is important to
provide more information to the public about entities of concern.
Implementation of this rule will provide additional information to
enhance the ability of members of the public to screen potential
recipients of items subject to the EAR.
In addition, this rule will simplify the EAR by reducing the need
to issue general orders that impose license requirements on specific
parties, thereby reducing the number of EAR provisions that the public
would be required to review to determine license requirements under the
EAR.
Summary of the Provisions of This Rule
This rule authorizes imposing foreign policy export and reexport
license requirements, limiting the availability of license exceptions,
and setting license application review policy for exports and reexports
to entities under certain circumstances. Specifically, such steps may
be taken where there is reasonable cause to believe, based on specific
and articulable facts, that an entity has been involved, is involved or
poses a risk of being involved in activities that are contrary to the
national security or foreign policy interests of the United States or
is acting on behalf of such an entity. Under this rule, the activities
at issue need not involve items or activities that are subject to the
EAR in order for the entity to be placed on the Entity List. Pursuant
to this rule, BIS will implement changes to the Entity List made by
decision of an interagency committee called the End-User Review
Committee (the ``Committee''). The End-User Review Committee will
consist of representatives of the Departments of Commerce, State,
Defense, Energy and, if appropriate in a particular case, the Treasury.
The grounds for changes to the Entity List established by this rule are
in addition to the grounds provided in Sec. Sec. 744.2, 744.3, 744.4,
744.6, 744.10 744.17, 744.20 and 744.21 of the EAR.
This rule lists, as illustrative examples, five types of conduct
that the End-User Review Committee could determine are contrary to U.S.
national security or foreign policy interests. The five types of
conduct are:
(i) Supporting persons engaged in acts of terror.
(ii) 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.
(iii) Transferring, developing, servicing, repairing, or producing
conventional weapons in a manner that is contrary to United States
national security or foreign policy interests or enabling such
transfer, development, service, repair or production by supplying
parts, components, technology, or financing for such activity.
(iv) Preventing accomplishment of an end use check conducted by or
on behalf of BIS or the Directorate of Defense Trade Controls of the
Department of State by: precluding access to; refusing to provide
information about; or providing false or misleading information about
parties to the transaction or the item to be checked. The conduct in
this example includes: expressly refusing to permit a check, providing
false or misleading information, or engaging in dilatory or evasive
conduct that effectively prevents the check from occurring or makes the
check inaccurate or useless. A nexus between the conduct of the party
to be listed and the failure to produce a complete, accurate and useful
check is required, even though an
[[Page 49312]]
express refusal by the party to be listed is not required.
(v) Engaging in conduct that poses a risk of violating the EAR when
such conduct raises sufficient concern that prior review of exports or
reexports involving the party and the possible imposition of license
conditions or license denial enhances BIS's ability to prevent
violations of the EAR.
These examples are illustrative of conduct that could be contrary
to the national security or foreign policy interests of the United
States. An entity could be added to the Entity List if specific and
articulable facts provided reasonable cause to believe that the entity
is involved in, has been involved in, or poses a significant risk of
being or becoming involved in conduct described by one or more of the
five listed illustrative examples or other activities that are contrary
to U.S. national security or foreign policy interests.
This rule also authorizes BIS to modify the license requirements,
license exception availability or license application review policy
that applies to any entity placed on the Entity List pursuant to this
rule. As with decisions to place an entity on the Entity List, BIS will
make such modifications in accordance with the decisions of the End-
User Review Committee.
This rule does not authorize adding to the Entity List an entity to
which exports or reexports require a license pursuant to Sec. Sec.
744.12, 744.13, 744.14 or 744.18 of the EAR. Those sections impose
license requirements because of the presence of certain parties on the
List of Specially Designated Nationals and Blocked Persons published by
the U.S. Department of the Treasury, Office of Foreign Assets Control.
This rule does not authorize placing U.S. persons, as defined in Sec.
772.1 of the EAR, on the Entity List.
All impositions of license requirements or statements of license
application review policy or any modification thereof pursuant to this
rule must be done by publishing an amendment to the Entity List found
at Supplement No. 4 to part 744 of the EAR. License exceptions are not
available for any entity added to the Entity List pursuant to this rule
unless specifically authorized in the entry for the entity.
This rule permits a party listed on the Entity List to request that
its listing be removed or modified. Such requests, including reasons
therefor, must be made in writing, and BIS will provide a written
response. Such requests will be reviewed by an End-User Review
Committee composed of representatives of the Departments of Commerce,
State, Defense, and Energy and, if appropriate in a particular case,
the Treasury. The End-User Review Committee will make a decision in
accordance with the procedures set forth in Supplement No. 5 to part
744 of the EAR. The Deputy Assistant Secretary for Export
Administration will convey the decision to the requesting party. This
decision shall be the final agency action on such a request and may not
be appealed to the Under Secretary for Industry and Security under part
756 of the EAR.
Summary of the Changes From the Proposed Rule
Changes to Sec. 744.11
Section 744.11 of the proposed rule included an introductory
paragraph, set forth criteria for listing a party on the Entity List
and provided five illustrative examples of conduct that could meet the
criteria. In response to the public comments, this final rule revises
the introductory paragraph, paragraph (b), the criteria and two of
those illustrative examples.
This final rule adds two sentences to the end of the introductory
paragraph of Sec. 744.11 in the proposed rule. This final rule also
replaces the phrase ``that BIS has reasonable cause to believe'' in the
criteria with the phrase ``for which there is reasonable cause to
believe.'' BIS is making these changes in the final rule in response to
public comments stating that more information about the procedure for
adding, removing and modifying Entity List listings pursuant to this
rule should be disclosed. This addition and replacement are intended to
make clear that decisions to add, remove or modify Entity List listings
pursuant to Sec. 744.11 are made by an interagency End-User Review
Committee.
This final rule revises the first sentence of paragraph (b) to
clarify the meaning of that sentence. This final rule also revises the
fifth sentence in paragraph (b) to clarify that the list of examples is
merely illustrative not exhaustive.
The second illustrative example addresses actions that benefit
governments that have been designated by the Department of State as
sponsors of terrorism. In this final rule that example has been revised
to remove a reference to actions that are detrimental to the human
rights of citizens of those governments. BIS believes that this
revision makes the example clearer and more focused.
The fourth illustrative example addresses lack of cooperation with
end use checks. As proposed, the example read ``Deliberately failing or
refusing to comply with an end use check conducted by or on behalf of
BIS or the Directorate of Defense Trade Controls of the Department of
State, by denying access, by refusing to provide information about
parties to a transaction, or by providing information about such
parties that is false or that cannot be verified or authenticated.'' In
response to requests that the example be more clearly distinguished
from the criteria for placing an entity on a BIS publication entitled
``The Unverified List,'' this final rule emphasizes that some conduct
on the part of the party to be listed that makes conducting the check
impossible or that renders its results inaccurate or useless would
justify placing the entity on the Entity List although that conduct
need not be an express refusal to permit the check. Accordingly, in
this final rule, the example has been revised to read: ``Preventing
accomplishment of an end use check conducted by or on behalf of BIS or
the Directorate of Defense Trade Controls of the Department of State
by: precluding access to; refusing to provide information about; or
providing false or misleading information about parties to the
transaction or the item to be checked. The conduct in this example
includes: expressly refusing to permit a check, providing false or
misleading information, or engaging in dilatory or evasive conduct that
effectively prevents the check from occurring or makes the check
inaccurate or useless. A nexus between the conduct of the party to be
listed and the failure to produce a complete, accurate and useful check
is required, even though an express refusal by the party to be listed
is not required.''
This final rule also revises the fifth illustrative example, which,
in the proposed rule, read: ``Engaging in conduct that poses a risk of
violating the EAR and raises sufficient concern that BIS believes that
prior review of exports or reexports involving the party and the
possible imposition of license conditions or license denial enhances
BIS's ability to prevent violations of the EAR.'' In response to public
comments recommending the example be modified to apply only to imminent
and serious violations of the EAR, this final rule revises the example
to read: ``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 or reexports involving
the party and the possible imposition of license conditions or license
denial enhances BIS's ability to prevent
[[Page 49313]]
violations of the EAR.'' BIS believes that, given the varying
consequences of violations based on the facts in individual cases,
declaring certain violations to be a priori less serious than others
would be unwise. BIS also notes that preventing an ``imminent''
violation is part of the standard for imposing a temporary denial order
under part 766 of the EAR. However, BIS concludes that the proposed
example would be more precise and useful if it more clearly and
directly tied imposing license requirements, possibly restricting the
availability of license exceptions and setting licensing policy, to the
ability to prevent violations. In addition, this final rule replaces
the phrase ``that BIS believes'' with the phrase ``that the End-User
Review Committee believes'' because decisions to add, remove or modify
an Entity List listing pursuant to Sec. 744.11 of the EAR will be made
by the End-User Review Committee.
Changes to Sec. 744.16 of the EAR
Section 744.16 of the EAR sets forth the procedure by which listed
parties may request modification or removal of their listing. In the
proposed rule, that section included the following statement: ``BIS
will review such requests in conjunction with the Departments of
Defense, State and Energy, and, if appropriate in a particular case,
the Treasury.'' The corresponding language in the final rule reads:
``The End-User Review Committee will review such requests in accordance
with the procedures set forth in Supplement No. 5 of this part'' to
make clear the role of the End-User Review Committee in these
decisions.
This rule also revises Sec. 744.16 of the EAR to provide that
decisions on a listed entity's request to have its listing modified or
removed will be conveyed to the requester by the Deputy Assistant
Secretary for Export Administration. The proposed rule provided that
such decisions would be conveyed by the chairman of the End User Review
Committee. BIS is making this change to make the procedure for
delivering decisions pursuant to Sec. 744.16 EAR consistent with the
procedure for delivering ``is informed'' letters under Sec. Sec.
744.2, 744.3, 744.4, 744.6, 744.17 and 744.21of the EAR.
Addition of New Supplement to Part 744
In response to public comments requesting more information about
the procedures by which the Entity List would be modified pursuant to
this rule, this final rule adds a new supplement: Supplement No. 5 to
Part 744--Procedures for End-User Review Committee Entity List
Decisions. This Committee is the body for all decisions to make changes
to the Entity List pursuant to Sec. Sec. 744.11 and 744.16 of the EAR.
Conforming and Technical Changes Made by This Rule
The proposed rule stated the decision on a party's request to have
its listing removed or modified would be the final agency action on the
request. BIS intended that language to mean that no further
administrative procedures for changing the decision are available. As a
conforming change, this final rule adds language to Sec. 756.1
excluding decisions made by the End-User Review Committee pursuant to
Sec. 744.16 of the EAR from the appeal procedure of part 756 of the
EAR. Such express exclusion is not needed with respect to End-User
Review Committee decisions pursuant to Sec. 744.11 of the EAR because
those decisions must, in all instances, be implemented through an
amendment to the EAR and are excluded from Sec. 756.1 by preexisting
language.
In response to a suggestion in the public comments, this rule
revises Sec. 744.11 of the EAR to reference Supp. No. 4 to part 744 of
the EAR. That reference was not in the proposed rule.
Summary of the Public Comments and BIS's Responses to Those Comments
Comment on Rulemaking Requirements
1. One commenter stated that this proposed rule should be
designated as a major rule because of its broad implications and the
economic consequences that could arise for U.S. exporters if the rule
results in a larger effort by foreign companies to design out U.S.
products.
The Office of Management and Budget (OMB) has authority to
designate rules as major under the Congressional Review Act. OMB has
determined that this rule is not a major rule for purposes of that Act.
The Department of Commerce does not have authority to designate a rule
as major for purposes of the Congressional Review Act.
General Comments on the Proposed Rule
2. Three commenters expressed support in principle for the concept
of targeted entity based license requirements. The reasons cited for
support of the concept were that such controls are better suited to the
global nature of national security and other threats than are broader,
country based controls, that such controls have potential to employ
more efficiently enforcement and compliance resources by government and
the private sector by focusing on entities of concern and that such
controls would allow BIS to conduct more prior reviews of exports to
risky users. However, all of the commenters, whether or not they
expressed support for the concept in principle, expressed reservations
or suggested changes to some aspect of the concept as noted in the
following paragraphs.
3. One commenter stated that adding new entries to the Entity List
creates minimal disruption to private sector screening programs and
specifically contrasted that procedure to the recently promulgated
``China rule.''
BIS believes that the targeted end-user controls set forth in this
rule are valuable because they minimize disruption to business.
However, the military end-use license requirements set forth in the
``China rule'' are also important instruments of United States policy.
The reasons for those license requirements were set forth in the
preamble to that rule (72 FR 33646, June 19, 2007) and need not be
repeated here.
4. Two commenters suggested that all entries on the Entity List
identify the EAR section on which that listing was based.
As set forth in the proposed rule and in this final rule, all of
the entries to be added pursuant to Sec. 744.11 as created by this
rule will be identified as being added pursuant to Sec. 744.11. The
proposal to add section references to all of the existing entities on
the Entity List that do not currently have such references is beyond
the scope of this rule. At this time, BIS does not have plans to add
such references to any pre-existing entries that do not already have
such references. However, BIS plans to have the interagency End-User
Review Committee conduct annual reviews of the Entity List. The
Committee may consider the proposal in this comment as part of its
review.
5. One commenter asserted that the proposed rule is seriously
flawed and imprecise, offering a dubious process, which could be more
effectively handled by existing mechanisms under the Export
Administration Regulations.
BIS believes that the final rule is sufficiently precise. This rule
will provide a mechanism for listing parties in the Code of Federal
Regulations whose activities raise sufficient concern to justify
imposing export and reexport license requirements on items to be sent
to them. By doing so, all potential exporters and reexporters will have
access to information about these parties of concern. BIS agrees that
more public disclosure than was provided in the
[[Page 49314]]
proposed rule of the process by which entities will be added to the
Entity List pursuant to this rule is warranted. Accordingly, this rule
includes a new Supplement No. 5 to part 744, setting forth the process
by which changes to the Entity List will be made.
BIS is publishing this rule precisely to make its license
requirements more easily identifiable by the public and therefore more
effective. License requirements based on country or item may be too
broad to deal with problems that apply to particular recipients of EAR
items. A denial of export privileges may be too rigid or unwarranted in
a particular case. Adding a name to the Unverified List does not impose
a license requirement and, therefore, does not allow BIS to scrutinize
transactions in advance. This rule will reduce the need for ad hoc
procedures such as use of general orders to impose license requirements
on transactions involving problematic entities.
6. One commenter stated that foreign availability should be a key
factor in all decisions, particularly with respect to items that may
pose little or no national security or foreign policy concerns. If a
foreign company presents such concerns that it must be listed, controls
should be applied only to items that present a national security or
foreign policy concern rather than across the board.
Decisions to set the license requirements, license exception
availability and licensing policy for any entity listed pursuant to
Sec. 744.11 will be made by the End-User Review Committee. Nothing in
this rule either precludes or requires considering foreign availability
in the Committee's deliberations. Because this rule is intended to
focus license requirements on specific entities based on the conduct of
those entities, BIS believes that decisions about the factors to
consider and items to control should be decided on a case-by-case
basis.
7. One commenter stated that the preamble to the proposed rule
states that the reasons for which BIS may place an entity on the Entity
List are stated in Sec. Sec. 744.2, 744.3, 744.4, 744.6, 744.10 and
744.20. However, only Sec. Sec. 744.10 and 744.20 referred to Supp. 4
of the EAR. The commenter recommended that BIS add a reference to Supp
4 in Sec. Sec. 744.2, 744.3, 744.4, and 744.6 and proposed Sec.
744.11.
Although Sec. Sec. 744.2, 744.3, 744.4 and 744.6 of the EAR do not
explicitly mention Supp. No. 4 to part 744, they do provide for BIS to
inform by amendment to the Export Administration Regulations that
exports or reexports to certain parties require a license because those
parties pose an unacceptable risk of use in or diversion to the
activities set forth in those sections. Such amendments take the form
of amendments to Supp. No. 4 to part 744 of the EAR. BIS believes that
adding a reference to Supp. No. 4 in these sections is unnecessary and
beyond the scope of this rule. Section 744.11 of the EAR in the
proposed rule referred to the Entity List, but did not explicitly
identify the Entity List as Supp. No. 4 to part 744. BIS believes that
such identification would be useful. Accordingly, this final rule
revises the introductory text of Sec. 744.11 of the EAR to make such
identification.
8. The proposed rule provided that new Sec. 744.11 could not be
used to add to the Entity List parties for whom a license is required
pursuant to Sec. Sec. 744.12, 13, 14 or 18 of the EAR. Those sections
apply a BIS license requirement to certain entities that appear on the
List of Specially Designated Nationals and Blocked Persons that is
published by the Office of Foreign Assets Control in the Department of
the Treasury. Two commenters recommended that the same limitation apply
to entities added to the Entity List pursuant to Sec. 744.20 of the
EAR. Section 744.20 provides for inclusion on the Entity List certain
parties who are sanctioned under certain statutes by the Department of
State. Both Sec. 744.20 and the new Sec. 744.11 established by this
rule are foreign policy based export controls. One commenter expressed
concern that not excluding entities listed pursuant to Sec. 744.20
from listing pursuant to new Sec. 744.11 could cause differences of
opinion between the Departments of State and Commerce in the EAR as to
which entities are listed because of the foreign policy concerns that
underlie Sec. 744.11 and those listed because of the concerns that
underlie Sec. 744.20. The other commenter expressed concern that not
excluding entities listed pursuant to Sec. 744.20 from listing
pursuant to new Sec. 744.11 could lead to duplicate listings on the
Entity List based on the two sections.
BIS believes that the potential consequences cited by these two
commenters are not likely to pose problems in practice and that no
change to the rule is needed on this point. A single committee (the
End-User Review Committee) will vote on all changes to the Entity List
regardless of the section that authorizes placement of the entity on
the Entity List. The Department of State will have a representative on
that Committee. Therefore, conflicting interagency opinions regarding a
proposed listing are likely to be resolved before that listing is
published. If the Committee were to conclude that more than one section
supported placing an entity on the list, it could list all of the
applicable sections with that entity's entry rather than have multiple
listings.
9. One commenter recommended that BIS use the new Sec. 744.11 to
impose license requirements on entities that have been targeted for
non-proliferation reasons by the United States government or by foreign
governments where other provisions of part 744 do not authorize
inclusion on the Entity List.
BIS believes that no change to the language of the proposed rule is
needed because of the issues raised by this comment. Sections 744.2,
744.3, and 744.4 of the EAR provide a basis for listing entities on the
Entity List because ``there is an unacceptable risk of use in or
diversion to'' proliferation activities related to certain nuclear end-
uses, certain rocket systems and unmanned air vehicles and certain
chemical or biological weapons end-uses. Section 744.6 provides a basis
for listing an entity on the Entity List because activities of U.S.
persons in connection with that entity could involve certain nuclear
activities, certain missile related activities or certain chemical or
biological weapons activities. In addition, to the extent that an
entity's proliferation related activities meet the criteria in new
Sec. 744.11, that section could serve as a basis for listing the
entity. BIS believes that these sections provide sufficient basis for
using the Entity List to promote non-proliferation interests and that
the decisions to list an entity should be made on a case-by-case basis.
Comments on Proposed Sec. 744.11(b) Criteria for Revising the Entity
List--In General
10. One commenter stated that BIS should ensure that the criteria
for making a decision to list an entity are well defined and clear, to
avoid capturing entities that are in compliance with their countries'
laws and regulations, particularly if those companies are located in
countries that are allies or major trading partners of the United
States.
Because the criteria set forth in the proposed rule are intended to
protect U.S. national security and foreign policy interests, BIS
believes that revising the criteria to preclude listing parties who are
acting in accordance with their own countries' laws and regulations
would undermine the purpose for imposing these license requirements.
Nevertheless, BIS understands the need to act consistently with overall
U.S. government interests, including the
[[Page 49315]]
interest in maintaining appropriate relationships with U.S. allies and
major trading partners. BIS believes that the multi-agency composition
of the End-User Review Committee will provide balanced consideration of
relevant U.S. government national security and foreign policy interests
including interests based on relationships with other governments.
11. One commenter stated that BIS should ensure that ``behaviors''
that can lead to placement on the List are at a comparable level in
terms of failure to comply with U.S. government requirements.
An important role of the End-User Review Committee is to promote
consistent practice with respect to the Entity List. The Committee's
procedures, including the right of escalation by any member agency, are
intended to promote such consistency. However, the criteria for placing
an entity on the Entity List do not require that the party's conduct
violate a U.S. law or regulation. Placement on the Entity List pursuant
to new Sec. 744.11 imposes a license requirement, sets licensing
policy and sets the availability of license exceptions for the listed
party. Failure to comply with government requirements would likely be a
violation of law for which other actions, either instead of or in
addition to placing an entity on the Entity List, would be appropriate.
12. One commenter stated that actions that would warrant placement
on the list should be examined principally against international
standards for business conduct and internationally agreed upon
principles for addressing common threats to the world community, rather
than on purely unilateral considerations.
BIS recognizes that international business, by its nature, must be
conducted in accordance with the laws of more than one country. BIS
also recognizes the value of international standards in influencing the
laws and regulations of individual countries. In keeping with this
recognition, the EAR include requirements drawn from multilateral
export control regimes and United Nations arms embargoes. However, the
EAR also include requirements that are based on U.S. interests that are
not based on conclusions reached by a multinational body. BIS believes
that multi agency participation (including the Department of State) on
the End-User Review Committee will provide perspective (including an
international perspective) in all decisions to modify the Entity List
pursuant to Sec. 744.11. However, as stated in both the proposed rule
and in this final rule, the underlying purpose of the rule is to
protect U.S. national security and foreign policy interests. As such,
BIS believes that it would be counterproductive to adopt a rule that
would require decisions to modify the Entity List pursuant to Sec.
744.11 to meet an internationally agreed upon standard.
Comments on the Illustrative Examples of Criteria for Placing an Entity
on the Entity List Sec. 744.11(b)--In General
13. One commenter stated that the five illustrative examples of
conduct are stated very broadly, that they are only illustrative and
that clearer and narrower limits are needed to prevent confusion. Two
commenters specifically stated that more guidance on the type of
conduct that would place an entity on the Entity List is needed.
BIS believes the criteria and the illustrative examples must be
broadly stated to illustrate effectively the kinds of activities that
are contrary to U.S. national security or foreign policy interests and
that justify placing an entity on the list. BIS notes that the decision
to place an entity on the list must be based on specific and
articulable facts. In recent years, BIS has sought to tailor certain
export license requirements to specific users and has been forced to
resort to ad hoc solutions to do so. Section 744.20 of the EAR allows
for placing an entity on the Entity List only if the party is first
sanctioned by the Department of State pursuant to certain statutes.
That section has been used only one time. General Order Number 3 (Supp
No. 1 to part 736 of the EAR) has been used to impose license
requirements on parties where there is no regulatory basis to list
those parties on the Entity List. BIS believes that broadly stating its
criteria for placing an entity on the list will reduce the need for
such ad hoc procedures. Broad illustrative examples are needed to
illustrate effectively the broad nature of the criteria.
BIS believes that the overall effect of this rule will be to reduce
the possibility of confusion by consolidating names of parties whose
presence in a transaction trigger an EAR license requirement onto a
single list.
As noted in the discussion above of the changes from the proposed
rule, BIS has modified two of the illustrative criteria to describe
more precisely the conduct that could justify placing an entity on the
Entity List.
Comments on the Term ``Specific and Articulable Facts'' in Sec.
744.11(b)
14. One commenter asked whether intelligence reporting would be
used in the process and if so, would the intelligence be no more than
two years old and actionable? The commenter went on to recommend that
only intelligence that has been certified by the Director of National
Intelligence should be used in this process. In support of these
recommendations, the commenter offered several assertions.
This commenter asserted that, based on experience as a government
employee in employment related to license application review, much
intelligence information is of poor quality or outdated. This commenter
also asserted that, in recent years, the focus of intelligence
gathering has been closely tied to proliferation of weapons of mass
destruction. Finally, this commenter asserted that a unit of the
Department of Defense has, at times, stepped in to provide intelligence
of poor quality.
BIS intends that the End-User Review Committee utilize reliable
information that is relevant to the case at hand in making its
decisions. BIS believes that the Committee will be in a position to
evaluate the reliability of information on a case-by-case basis. Adding
a provision to this final rule prohibiting the use of information
because of its age, source, whether it is ``actionable'' or whether it
has been certified by a particular official would arbitrarily restrict
the Committee and might preclude the use of reliable information in
some cases. BIS believes that a former employee's opinions regarding
the quality or focus of intelligence reporting available during that
former employee's government tenure should not be a basis for limiting
by regulation the information that the End-User Review Committee may
consider. Therefore, BIS is making no change to the rule based on this
comment.
15. One commenter stated that the proposed rule could present
problems for exporters in terms of compliance and ability to remain
competitive in the international arena. This commenter asked for
additional information about the standards that ``specific and
articulable facts'' would have to meet, specifically what universe of
conduct would lead to imposing a license requirement.
BIS believes that compliance with the license requirements imposed
by this rule will impose a minimal additional burden on exporters. Most
exporters will meet the definition of U.S. Person in Sec. 772.1 of the
EAR and thus may not be placed on the Entity List pursuant to this
rule. By expanding the grounds for placing a name on the Entity List,
BIS will be reducing the need to issue general orders that impose
license
[[Page 49316]]
requirements, thereby reducing the number of provisions of the EAR that
must be reviewed to identify potential recipients whose presence
triggers a license requirement. BIS believes that describing in advance
every sort of action that could be contrary to U.S. national security
and foreign policy interests would be impossible and that attempting to
do so would be counterproductive. Rather, the examples are intended to
illustrate, in a general way, the nature of conduct that could be a
basis for listing.
Comments Relating to the First Illustrative Example--Supporting Persons
Engaged in Acts of Terror Sec. 744.11(b)(1)
16. One commenter asked that BIS state the meaning of ``Supporting
persons engaged in acts of terror.'' That same commenter asserted that
there is no internationally agreed definition of terrorism and asked
what the term ``acts of terror'' means.
BIS believes that the meaning of terror and terrorism are
sufficiently understood in common parlance that defining these terms is
not necessary for public understanding of this rule. However, as
examples and not as limitations, the acts set forth in 18 U.S.C.
2331(1), 18 U.S.C. 2331(5) and the acts described in the preamble to
the General Order Concerning Mayrow General Trading and Related
Entities (71 FR 32272, June 5, 2006) would be considered supporting
persons engaged in acts of terror for purpose of Sec. 744.11 of the
EAR.
This rule is intended to protect U.S. national security and foreign
policy. Accordingly, obtaining international agreement as to the
meaning of a term in the rule is unnecessary.
17. One commenter asked what types of exports or reexports these
restrictions are intended to cover.
The license requirements imposed by adding a name to the Entity
List could apply to any item subject to the Export Administration
Regulations. The Committee could tailor the requirements based on the
risks imposed by the party to be listed. The conduct that provides the
reason for listing a party need not be an export or reexport of any
type.
Comments Relating to the Second Illustrative Example--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 Sec. 744.11(b)(2)
18. One commenter stated that it is not clear whether the
illustrative example applies only to governments that the Department of
State has designated as supporters of terrorism.
BIS's intent is that any party taking the action described in this
illustrative example could be placed on the Entity List. The action
would have to enhance the military capability or the ability to support
terrorism of a government that has been designated by the Secretary of
State as having repeatedly provided support for acts of international
terrorism. However, the action itself need not be taken by such a
government. BIS does not believe that any change to the text of the
rule is needed to make this point clear.
19. One commenter asked whether the first clause addresses actions
described in Sec. 744.21 of the EAR as part of the China rule.
Read as a whole, this illustrative example does not address actions
described in Sec. 744.21 of the EAR. Attempting to ascribe a meaning
to the first clause of this illustrative example without reference to
the final clause could be misleading. Section 744.21 of the EAR imposes
a license requirement for certain exports and reexports for military
end-uses in China where the exporter or reexporter knows that the item
at issue in the specific transaction will be employed in a military
end-use. This illustrative example deals with imposing license
requirements on exports and reexports to certain parties by listing
those parties and the license requirements on the Entity List because
those parties have taken actions to enhance certain capabilities
(including military capabilities) of governments that have been
designated by the Secretary of State as having repeatedly provided
support for acts of international terrorism. China has never been so
designated.
20. One commenter asserted that this section should be more clearly
written to have the Department of State specify the government in
question and tie the conduct that enhances the military capability of
that government designated as supporting international terrorism. This,
according to the commenter, would avoid confusion in the exporting
community, avoid capricious interagency behavior and prevent commercial
mischief.
The Department of State determines that certain countries have
repeatedly provided support for acts of international terrorism and so
designates those countries pursuant to its statutory authority. This
rule makes no change to that procedure. BIS believes that there are
several provisions in this rule that provide reasonable safeguards
against capricious interagency behavior: the requirement that the
decisions to place an entity on the Entity List be supported by
specific and articulable facts, the multi-agency composition of the
End-User Review Committee that makes decisions to place an entity on
the Entity List, and the right of agencies to escalate as provided in
Supplement No. 5 to part 744 of this final rule. The fact that
identifying information about the entities will be published will serve
to reduce opportunities for confusion among any segment of the public
that is engaged in exporting or reexporting items that are subject to
the EAR.
Comments Relating to the Third Illustrative Example--Transferring,
Developing, Servicing, Repairing or Producing Conventional Weapons in a
Manner That Is Contrary to United States 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--744.11(b)(3)
21. One commenter stated that the language of this illustrative
example ``should not be a back door maneuver seeking to penalize
parties for certain conduct'' that was in the proposed version of the
recently published China rule but that was removed from the final
version of that rule.
BIS believes that this comment is inapposite. The proposed
modification to Sec. 744.6 of the EAR to which the commenter alludes
would have applied a license requirement to certain support activities
if done with knowledge that the underlying export or reexport
transaction was occurring without a required license (See 72 FR 33817,
July 6, 2006). This illustrative example describes a type of conduct,
including support activities related to that conduct, that, when done
contrary to United States national security or foreign policy
interests, could justify imposing a license requirement for shipments
to the party who engaged in that conduct and for notifying the public
of the existence of that license requirement through publication on the
Entity List.
[[Page 49317]]
22. Two commenters suggested that the conduct in this illustrative
example could cover situations in which foreign companies are complying
with the laws and regulations of their own countries and that these
situations are best dealt with through government to government
negotiations rather than by imposing a license requirement on the party
involved. One of these commenters noted that other governments may have
bilateral arms arrangements and defense cooperation agreements and that
BIS should not drive foreign policy by penalizing entities engaged in
trade that is in compliance with their own domestic laws and
regulations. The other commenter asked specifically in what ``manner''
the entity would have to be involved in such activities to be placed on
the list.
BIS is aware that not all other countries share the views of the
U.S. government and that those countries may enter into arrangements
and agreements consistent with their own interests. Nevertheless, an
important part of BIS's role is to regulate exports in a manner that is
consistent with U.S. foreign policy interests. The participation of the
Department of State on the End-User Review Committee provides an
opportunity for foreign policy input so that the Committee's actions
are consistent with overall U.S. foreign policy interests. Moreover,
the placement of an entity on the Entity List pursuant to this rule
would not preclude the Department of State from engaging with another
government regarding that government's policies and practices.
The use of the word ``manner'' in this illustrative example is
intended to make clear that any of the activities in this illustrative
example must be contrary to U.S. national security or foreign policy
interests to serve as a basis for placing a name on the Entity List.
Comments Relating to the Fourth Proposed Illustrative Example--
Deliberately Failing or Refusing to Comply With an End Use Check
Conducted by or on Behalf of BIS or DTC by Denying Access, by Refusing
to Provide Information About Parties to a Transaction, or by Providing
Information About Such Parties That is False or That Cannot be Verified
or Authenticated--Sec. 744.11(b)(4)
23. One commenter stated that ``some parties have not been notified
that they have been deemed to fail end use checks--either because they
hadn't failed such checks or because the checks never even had been
attempted.'' The rule ``as applied [should] include steps to ensure
that such parties are not added to the Entity List in these
circumstances.''
All proposed additions to the Entity List pursuant to Sec. 744.11
will be reviewed by the multi-agency End-User Review Committee. The
Committee will be in a position to inquire into the details and
circumstances of the end use check before making a decision. In
addition, the Committee's procedures allow any participating agency to
escalate the decision to a higher level. Finally, this rule contains a
provision for the listed entity to seek to have its listing removed or
modified and to present information supporting its request to the
Committee. BIS believes that these procedures are sufficient to provide
reasonable assurances against errors of the types described in the
comment. BIS has modified the language of this illustrative example to
emphasize that some conduct on the part of the party to be listed that
makes conducting the check impossible or that renders its results
inaccurate or useless must be present for the terms of this example to
be met.
24. Two commenters compared this illustrative example with the
existing Unverified List published by BIS. One commenter stated that
this illustrative example conflicted with the Unverified List because
the Unverified List stated that it did not create a license
requirement. The other commenter stated that the existing mechanism
under the EAR for addressing entities in countries where BIS has been
unable to conduct pre-license checks or post shipment verifications is
more than adequate because it requires enhanced due diligence. This
commenter asserted that establishing new license requirements on U.S.
companies for actions that could be seen by other countries as their
sovereign right could have consequences for U.S. manufacturers as those
companies could decide to ``design out'' their [the U.S. manufacturers]
products.
BIS believes that conduct described in this illustrative example is
sufficiently distinct from the conduct that would form a basis for
placing a party on BIS's Unverified List that conflicting decisions are
unlikely. Moreover, the existing Unverified List is not adequate to
address the situations covered by this rule. BIS may place entities on
the Unverified List because BIS is unable to perform an end use check
or where BIS is unable to verify the existence or authenticity of the
end user, intermediate consignee, ultimate consignee or other party to
an export transaction for reasons outside the control of the U.S.
government (See 67 FR 40910, June 14, 2002 and 69 FR 42652, July 16,
2004). This illustrative example requires a deliberate refusal or a
pattern of conduct by the party to be listed that makes the check
impossible to conduct or that makes the results of the check inaccurate
or useless. To emphasize this point, BIS has revised the language
published in the proposed rule. BIS believes that conduct of the type
described in this illustrative example can warrant imposing a license
requirement on transactions with the parties who engage in the conduct
because a license requirement will result in more comprehensive
scrutiny of transactions than would identifying the party's presence as
a red flag thereby requiring additional scrutiny by a private sector
party. Although nothing in the EAR expressly precludes an entity from
being listed simultaneously on the Unverified List and on the Entity
List, BIS expects that such an event is unlikely given the differences
in criteria underlying the two lists.
Although some risk exists that manufacturers will attempt to design
out U.S. origin components because of any U.S. export control
regulation, BIS believes that judicious review by the End-User Review
Committee will provide reasonable assurance that the Committee will
list only entities whose conduct truly merits placement on the Entity
List.
Comments Relating to the Proposed Fifth Illustrative Example--Engaging
in Conduct That Poses a Risk of Violating the EAR and Raises Sufficient
Concern That BIS Believes That Prior Review of Exports or Reexports
Involving the Party and the Possible Imposition of License Conditions
or License Denial Enhances BIS's Ability To Prevent Violations of the
EAR.--Sec. 744.11(b)(5)
25. One commenter stated that more information is needed for the
fifth illustrative example. The commenter stated that the example
should be replaced with more specific illustrations of conduct that is
of concern to BIS. The commenter stated that some violations are minor
and that BIS should spell out in detail those types of violation risks
that cause it concern. The commenter suggested that if this
illustrative example is to be maintained, some form of materiality
standard should be added and suggested ``engaging in conduct that poses
a substantial risk of imminent and serious violation of the EAR'' as a
possible materiality standard.
Although many acts could pose a risk of violating the EAR, the acts
that would meet the terms of this example are limited to those where
the End-User Review Committee believes that imposing license
requirements through
[[Page 49318]]
the Entity List enhances BIS's ability to prevent violations of the
EAR. In this final rule, BIS has modified the language of this
illustrative example to emphasize that connection. BIS believes that
replacing this illustrative example with several more specific
examples, which inevitably would be more narrow in scope, could mislead
readers into focusing on the specific conduct in the examples
themselves rather than on the nexus between the conduct that poses a
risk of violating the EAR and enhanced ability to prevent violations
that would result from an Entity List listing.
BIS believes that it would not be prudent to designate some EAR
violations as, a priori, more serious than others. The seriousness of a
violation may vary according to the facts of a particular case. This
illustrative example, as clarified in this final rule, is designed to
illustrate that there must be a nexus between the conduct of the party
to be placed on the Entity List and the enhanced ability of BIS to
prevent violations through imposing a license requirement. BIS believes
that further illustrations are not needed to explain this point.
``[P]revent[ing] an imminent violation'' is the standard for
imposing temporary denial orders pursuant to Sec. 766.24 of the EAR.
BIS believes that, in some instances, a license requirement may prevent
a violation even in the absence of an imminent threat and that Sec.
744.11 of the EAR could be used in such instances.
26. One commenter stated that it would be better for BIS to engage
in a partnership with U.S. industry in order to find ways to prevent
potential violations rather than impose additional licensing
requirements on a U.S. company.
BIS is open to suggestion from any member of the public as to ways
to prevent violations and welcomes all such recommendations. However,
members of the public vary in their willingness and ability to detect
and deter violations. This rule recognizes that in some instances, a
license requirement, which enables the government to review the
proposed transaction, impose license conditions, or, if necessary, deny
the license application, is needed to prevent violations. This final
rule revises this illustrative example to tie more explicitly the
conduct of the party to be added to the Entity List to the risk of a
violation and to the End-User Review Committee's belief that imposing
the review associated with license applications will aid BIS in
preventing violations.
Comments Relating to the Listing Process--Sec. 744.11 of the EAR
27. One commenter stated that more information should be provided
about the process for listing entities on the Entity List pursuant to
this rule. Specifically, the commenter wanted more information on the
process that will be employed to determine whether non-EAR related
activities would provide a basis for listing, who would determine the
national security interests of the United States, the levels at which
interagency consultations will take place, who will make listing
determinations with respect to non-EAR activities and, the checks that
will be in place to prevent lower level officials from applying their
own notions of national security and foreign policy.
BIS agrees that this rule should disclose more information on the
process by which Entity List decisions will be made pursuant to
Sec. Sec. 744.11 and 744.16 than the proposed rule disclosed.
Accordingly, this final rule includes, as a supplement to part 744, the
procedures to be used by the End-User Review Committee in making such
decisions. Those procedures provide that the Committee will include
representatives from the Departments of State, Defense, Energy and
Commerce, and the Treasury as appropriate. Decisions to make changes to
the Entity List will be made by majority vote of the Committee. Any
participating agency that disagrees with the outcome may escalate the
matter according to the same procedures that are used to escalate
interagency disputes regarding export license applications. BIS
believes that these procedures provide reasonable assurances that low
level officials will not impose any personal notions of national
security or foreign policy that are inconsistent with actual U.S.
national security or foreign policy interests.
Under this rule, the activity that forms a basis for listing an
entity need not be an activity that is a violation of the EAR or even
be an activity that is regulated pursuant to the EAR. BIS believes that
the multi-agency composition of the End-User Review Committee and its
procedures as set forth in new Supplement No. 5 to part 744 of the EAR
will provide reasonable assurance that any activity forming the basis
for listing an entity will be consistent with the criteria set forth in
Sec. 744.11.
28. Two commenters proposed that any entity under consideration for
placement on the Entity List should be notified and afforded an
opportunity to state its position, provide information and present
arguments against the listing before any action is taken.
BIS is not adopting this proposal because other provisions of the
EAR provide adequate provision for listed parties to be heard. This
rule provides a procedure in new Sec. 744.16 that allows a listed
entity to present information to the End-User Review Committee. In
addition, placement on the Entity List results in the imposition of a
license requirement, the establishment of licensing policy, and the
establishment of limits on use of License Exceptions for that entity.
If any license application to send an item that is subject to the EAR
to a listed entity subsequently is denied, that entity, as a person
directly and adversely affected by the denial, would have a right to
appeal under part 756 of the EAR.
29. Two commenters stated that certain members of the public
(particularly U.S. exporters) who could be affected by new Entity List
listings should have an opportunity to present information before a
final decision is made to place an entity on the Entity List.
BIS believes that it is not necessary to notify the public at large
of impending Entity List changes. Placement of an entity on the Entity
List results in the imposition of a license requirement, the
establishment of licensing policy, and the establishment of limits on
use of license exceptions for that entity. If any license application
to send an item that is subject to the EAR to a listed entity
subsequently is denied, the license applicant, as a person directly and
adversely affected by the denial, would have a right to appeal under
part 756 of the EAR.
30. One commenter stated that BIS failed to provide a transparent
and rational process, raising serious issues under the national
treatment provisions of the WTO treaty.
BIS does not know what this commenter means by ``serious issues.''
BIS is not aware of any treaty provision that this rule would
contravene.
Comments Concerning Sec. 744.16--Procedure for Requesting Removal or
Modification of an Entity List Entry
31. One commenter asserted that the need for more information about
the process would be vital for persons seeking removal from the list
and that given the broad and far reaching nature of criteria for
listing an entity, senior level officials should have a greater role in
the removal process.
BIS agrees that this rule should disclose more information on the
process by which Entity List decisions will be made than the proposed
rule
[[Page 49319]]
disclosed. Decisions made pursuant to Sec. 744.16 (requests for
removal or modification) will be made by the same End-User Review
Committee that makes decisions to add an entity pursuant to Sec.
744.11 Accordingly, this final rule includes, as a supplement to part
744, the procedures that the End-User Review Committee will use in
making such decisions. That procedure provides that a member agency
that disagrees with a decision has the right to escalate the matter to
more senior officials.
32. One commenter stated that persons whose requests for removal
are denied by the interagency review committee should have an express
right of appeal.
BIS believes that a right of appeal for listing decisions on the
Entity List is not necessary as the EAR already contains a mechanism
for appeals of decisions to reject license applications. A rejection of
a party's request to be removed from the Entity List retains existing
license requirements, licensing policy and restrictions on availability
of license exceptions. In the event that a license application on which
the listed entity is shown as a party is denied, the listed entity as a
party directly and adversely affected by that denial would have a right
to appeal under part 756 of the EAR.
33. One commenter stated that there should be a transparent and
rational process that allows the listed party and interested parties to
request removal. This commenter asserted that failure to provide a
transparent and rational process raises serious issues under the
national treatment provisions of the WTO treaty.
BIS agrees that more disclosure than was contained in the proposed
rule of the process by which Entity List decisions will be made
pursuant to Sec. 744.11 and 744.16 is appropriate. Accordingly, this
final rule includes, as a supplement to part 744, the procedures of the
End-User Review Committee that will make such decisions. BIS does not
know what this commenter means by ``serious issues.'' BIS is not aware
of any treaty provision that this rule would contravene. Comments are
not related to specific proposals in the proposed rule.
34. One commenter suggested that BIS consider replacing the broader
based controls as in the recent China rule with targeted entity based
controls.
Although BIS believes that targeted end-user controls are valuable,
BIS also believes that they cannot at this replace end-use license
requirements imposed by the recent China rule. The reasons for those
license requirements were set forth in the preamble to that rule (72 FR
33646, June 19, 2007) and need not be repeated here.
35. One commenter stated that BIS should take steps to coordinate
any expanded Entity List with the Validated End User process, for
example, make the VEU process available to all entities not included on
the Entity List or by creating a presumption that a party not included
on the list should be eligible, in the absence of other specific and
articulable facts, for VEU status.
BIS believes that neither of these suggestions is practical. The
Validated End User (VEU) authorization (Sec. 748.15 of the EAR) allows
exports and reexports without a specific license of certain items to
end users who have been approved by the End-User Review Committee.
Section 744.11 as set forth in this rule imposes license requirements
on exports and reexports to certain identified parties even if such
exports and reexports would not require a license in the absence of the
Entity List listing. Between these two categories of potential
recipients are many potential recipients for whom neither Entity List
listing nor Validated End User status is likely to be appropriate.
36. Two commenters recommended that the rule include a ``contract
sanctity'' provision. One stated that parties should be able to
complete transactions that were entered into before the date that BIS
determined that specific and articulable facts justified listing of a
party on the Entity List. The other stated that such a provision was
needed to avoid unnecessary disruption to collaborative efforts that
may have been in place for a long time.
This rule provides the authorization for adding parties to the
Entity List, but does not add any parties to the list. BIS believes
that establishing a contract sanctity provision that would apply to all
Entity List additions regardless of circumstances and consequences
would be unwise. BIS notes that this rule does not preclude the use of
a contract sanctity provision in an individual action to add a party to
the Entity List nor does it preclude consideration of a preexisting
contract in evaluating any license application for an export or
reexport to a party added to the Entity List pursuant to this rule.
However, BIS believes that foreseeing at this time all of the possible
circumstances that would justify either including or precluding a
``contract sanctity'' provision in a particular Entity List decision is
not possible. Accordingly, BIS is making no changes to the rule based
on this comment.
37. Two commenters recommended changes for improving the quality of
information on the Entity List. Their recommendations included
identifying the locations of listed entities, supplying known aliases
and contact information and systematic review to correct or remove
outdated entries or entries that have changed names or affiliations.
BIS agrees that more systematic review and updating of the Entity
List is desirable and would make the List more useful to the public.
Therefore BIS intends to have the End-User Review Committee conduct a
systematic review of the Entity List for the purpose of identifying and
implementing any needed corrections and updates at least annually. The
End-User Review Committee procedures published in Supplement No. 5 to
part 744 as part of this rule reference that annual review. BIS expects
that the first review will be completed no later than August 21, 2009.
38. One commenter noted that BIS has stated that it cannot supply
the Chinese names of entities on the Entity List because the Federal
Register cannot accommodate their publication. BIS should overcome this
technical limitation by publishing on its Web site an augmented version
of the Entity List including names of listed entities in original
alphabets.
BIS recognizes that making the Entity List as widely understood as
possible would be beneficial to users of the list and to BIS's interest
in promoting voluntary compliance. However, given other priorities and
BIS's limited resources, implementing a recommendation such as this in
the foreseeable future is unlikely.
39. One commenter stated that BIS should provide clear guidance on
how to deal with entities related to those on the list. BIS should
explicitly state the extent to which the license restrictions on listed
entities apply to related entities and should list all of the related
entities to which restrictions apply.
BIS intends to publish guidance in the near future on dealing with
entities related to those on the Entity List. In addition, the new
Supplement No. 5 to Part 744, which sets forth the End-User Review
Committee's procedures, provides for annual review of the Entity List.
That annual review is to include an assessment of whether affiliates
should be added to or removed from the Entity List.
40. One commenter stated that the rule should make clear that only
listed entities--not, for example, unlisted affiliates, subsidiaries or
sister entities are covered.
[[Page 49320]]
BIS intends to publish guidance on dealing with entities related to
those on the Entity List in the near future.
41. One commenter stated that the Entity List should avoid
capturing parent companies and subsidiaries, and ensure that a decision
to do so takes into consideration all potential consequences for
legitimate business of the parent or subsidiary, particularly if they
could negatively impact additional companies far removed from the
behavior that may cause the listing.
BIS believes that decisions to list or refrain from listing a
subordinate or affiliated entity should be made on a case by case basis
by the End-User Review Committee after consideration of the facts
relevant to that decision.
42. One commenter suggested that BIS include information about the
reason for an entity's listing in order to inform exporters more about
diversion risk. The commenter noted that the section that forms the
basis for a listing indirectly suggests the reason, but that the broad
scope of Sec. 744.11 as proposed would obscure the underlying reason.
The commenter suggested that a ``warning list'' published by the
Japanese Ministry of Economy, Trade and Industry provides a useful
model.
Although informing the public about the nature of diversion risks
may be useful, the Entity List serves to inform the public about
license requirements based on diversion risks or other factors that
meet the criteria for Entity List listing. Accordingly, BIS is not
changing the structure of the Entity List at this time.
43. One commenter recommended that BIS should consider more
systematic use of Sec. 744.20 of the EAR, which allows adding to the
Entity List parties sanctioned by the State Department. The commenter
noted that such sanctions are applied to various parties for
proliferation related activities. The commenter stated that all of
these ``inherently risky'' end-users should be added and retained on
the list even after the State sanction expires unless the End-User
Review Committee determines that they are no longer a risk.
The recommendation to increase use of Sec. 744.20 of the EAR to
place more entities that have been sanctioned by the Department of
State on the Entity List is beyond the scope of this rule. However, BIS
notes that, the conduct for which the Department of State imposed
sanctions might, in a particular case, also meet the standards for
placing the party on the Entity List pursuant to new Sec. 744.11 and
the End-User Review Committee might decide to list such an entity.
44. One commenter asserted that the recently promulgated China rule
goes beyond the Wassenaar Statement of Understanding on the Control of
non-Listed Dual-use Items and that the United States has no overarching
China trade policy, but seeks to cobble together a trade policy
directed to China, creating unpredictability for U.S. exporters in
terms of compliance and ability to remain competitive. This same
commenter also stated that the United States government should change
its position on the development of an International Arms Trade Treaty.
The commenter stated that seeking to penalize those involved in
conventional weapons activities while not using its influence to work
towards a meaningful arms trade treaty within the United Nations
framework is dysfunctional and hypocritical.
All of these ideas are outside the scope of the proposed rule and
BIS is making no changes to the rule in response to them. BIS's
rationale for publishing the recently published China rule is set forth
in the preamble to that rule (72 FR 33646, June 19, 2007) and need not
be repeated here. Without expressing an opinion on the commenter's
assessment of the United States government's trade policy towards
China, BIS notes that the composition of the End-User Review Committee
and the right of agencies to escalate disputed decisions are intended
to provide a balanced approach that considers all relevant U.S. policy
interests. BIS does not determine the position that the U.S. government
takes on proposed treaties or represent the United States at the United
Nations.
45. One commenter asserted that repeated on-site visits to known
consignees, increasing pressure from Congress and elsewhere and limited
staff to conduct these visits result in delays and backlogs of pending
license applications. The commenter stated that a better approach would
be for BIS to work with the technical advisory committees to develop a
risk transaction matrix that would identify specific criteria that call
for such on-site visits.
This comment addresses criteria by which transactions are selected
for on-site visits, an issue that is beyond the scope of this rule.
46. One commenter recommended that BIS consider the potential
effect of listing decisions on imports from listed companies and
resulting consequences for U.S. companies.
This rule reflects BIS's statutory mission to utilize export
controls to protect United States national security and foreign policy
interests (by listing problematic entities) without unduly burdening
legitimate export activities (avoiding imposing license requirements to
entire destinations or items when doing so is not necessary). If a
nexus between the potential effect of a listing decision on imports and
protecting U.S. national security or foreign policy interests exists in
a particular case, the impact of the listing decision on imports
properly may be considered in that case. BIS believes that determining
whether such a nexus exists must be done on a case-by-case basis and
that a rule requiring such consideration in all cases would not be
appropriate.
47. One commenter stated that BIS should conduct more training
overseas on U.S. export control requirements to ensure that foreign
companies and governments fully understand the extraterritorial nature
of U.S. export controls.
This comment is outside the scope of the proposed rule. BIS
conducts a number of training sessions both in the United States and
abroad and expects to do so in the future.
Rulemaking Requirements
1. This rule has been determined to be a significant rule pursuant
to Executive Order 12866.
2. Notwithstanding any other provision of law, no person is
required to respond to nor be subject to a penalty for failure to
comply with a collection of information, subject to the requirements of
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA),
unless that collection of information displays a currently valid Office
of Management and Budget (OMB) Control Number. This rule involves two
collections of information that have been approved by OMB. Control
number 0694-0088 ``Multi-Purpose Application'' carries a burden hour
estimate of 58 minutes to prepare and submit form BIS-748.
Miscellaneous and recordkeeping activities account for 12 minutes per
submission. Control number 0694-0134, Procedure for Parties on the
Entity List to Request Removal or Modification of their Listing carries
a burden hour estimate of three hours per submission and an estimate of
five submissions per year.
Send comments regarding these burden estimates or any other aspect
of these collections of information, including suggestions for reducing
the burden, to David Rostker, OMB Desk Officer, by e-mail at david_
rostker@omb.eop.gov or by fax to (202) 395-7285; and to the Regulatory
Policy Division, Bureau of Industry and
[[Page 49321]]
Security, Department of Commerce, Room 2705, Washington, DC 20044.
3. This rule does not contain policies with Federalism implications
as this term is defined in Executive Order 13132.
4. The provisions of the Administrative Procedure Act (5 U.S.C.
553) requiring notice of proposed rulemaking, the opportunity for
public participation, and a delay in effective date, are inapplicable
because this regulation involves a military or foreign affairs function
of the United States (see 5 U.S.C. 553(a)(1)). Further, no other law
requires that a notice of proposed rulemaking and an opportunity for
public comment be given for this rule. Because a notice of proposed
rulemaking and an opportunity for public comment are not required to be
given for this rule by 5 U.S.C. 553, or by any other law, the
analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601
et seq., are not applicable. However, to obtain the benefit of a
variety of viewpoints before issuing this final rule, BIS issued this
rule in proposed form with a request for comments.
5. The license requirements imposed by this rule are an expansion
of foreign policy export controls and require a report to Congress in
accordance with section 6 of the Export Administration Act. The report
was delivered to Congress on August 12, 2008.
List of Subjects
15 CFR Part 730
Administrative practice and procedure, Advisory committees,
Exports, Reporting and, recordkeeping requirements, Strategic and
critical materials.
15 CFR Part 744
Exports, Reporting and recordkeeping requirements, Terrorism.
15 CFR Part 756
Administrative practice and procedure, Exports, Penalties.
0
Accordingly, parts 730, 744 and 756 of the Export Administration
Regulations (15 CFR parts 730-774) are amended as follows:
PART 730--[AMENDED]
0
1. The authority citation for part 730 is revised to read as follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
10 U.S.C. 7420; 10 U.S.C. 7430(e); 22 U.S.C. 287c; 22 U.S.C. 2151
note; 22 U.S.C. 3201 et seq.; 22 U.S.C. 6004; 30 U.S.C. 185(s),
185(u); 42 U.S.C. 2139a; 42 U.S.C. 6212; 43 U.S.C. 1354; 46 U.S.C.
app. 466c; 50 U.S.C. app. 5; 22 U.S.C. 7201 et seq.; 22 U.S.C. 7210;
E.O. 11912, 41 FR 15825, 3 CFR, 1976 Comp., p. 114; E.O. 12002, 42
FR 35623, 3 CFR, 1977 Comp., p. 133; E.O. 12058, 43 FR 20947, 3 CFR,
1978 Comp., p. 179; E.O. 12214, 45 FR 29783, 3 CFR, 1980 Comp., p.
256; E.O. 12851, 58 FR 33181, 3 CFR, 1993 Comp., p. 608; E.O. 12854,
58 FR 36587, 3 CFR, 1993 Comp., p. 179; E.O. 12918, 59 FR 28205, 3
CFR, 1994 Comp., p. 899; E.O. 12938, 59 FR 59099, 3 CFR, 1994 Comp.,
p. 950; E.O. 12947, 60 FR 5079, 3 CFR, 1995 Comp., p. 356; E.O.
12981, 60 FR 62981, 3 CFR, 1995 Comp., p. 419; E.O. 13020, 61 FR
54079, 3 CFR, 1996 Comp. p. 219; E.O. 13026, 61 FR 58767, 3 CFR,
1996 Comp., p. 228; E.O. 13099, 63 FR 45167, 3 CFR, 1998 Comp., p.
208; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; E.O. 13224,
66 FR 49079, 3 CFR, 2001 Comp., p. 786; E.O. 13338, 69 FR 26751, May
13, 2004; Notice of July 23, 2008, 73 FR 43603 (July 25, 2008);
Notice of November 8, 2007, 72 FR 63963 (November 13, 2007).
0
2. Amend Supplement No. 1 to part 730 by adding an entry to the table
immediately following the entry for collection number 0694-0132 that
reads as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
0694-0134.................... Procedure for parties on Sec. 744.16
the Entity List to
Request Removal or
Modification of their
Listing.
------------------------------------------------------------------------
PART 744--[AMENDED]
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3. The authority citation for part 744 is revised to read as follows:
Authority: 50 U.S.C. app. 2401; 50 U.S.C. 1701 et seq. ; 22
U.S.C. 3201 et seq.; 42 U.S.C. 2139a; 22 U.S.C. 7201 et seq.; 22
U.S.C. 7210; E.O. 12058, 43 FR 20947, 3 CFR, 1978 Comp., p. 179;
E.O. 12851, 58 FR 33181, 3 CFR, 1993 Comp., p. 608; E.O. 12938, 59
FR 59099, 3 CFR, 1994 Comp., p. 950; E.O. 12947, 60 FR 5079, 3 CFR,
1995 Comp., p. 356; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p.
228; E.O. 13099, 63 FR 45167, 3 CFR, 1998 Comp., p. 208; E.O. 13222,
66 FR 44025, 3 CFR, 2001 Comp., p. 783; E.O. 13224, 66 FR 49079, 3
CFR, 2001 Comp., p. 786; Notice of July 23, 2008, 73 FR 43603 (July
25, 2008); Notice of November 8, 2007, 72 FR 63963 (November 13,
2007).
0
4. In Sec. 744.1(a)(1), a new sentence immediately following the
current seventh sentence and a new sentence immediately following the
current eighth sentence are added, to read as follows:
Sec. 744.1 General provisions.
(a)(1) * * *
Section 744.11 imposes license requirements, to the extent
specified in Supplement No. 4 to this part, on entities listed in
Supplement No. 4 to this part for activities contrary to the national
security or foreign policy interests of the United States.
* * *
Section 744.16 sets forth the right of a party listed in Supplement
No. 4 to this part to request that its listing be removed or modified.
* * * * *
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5. Section Sec. 744.11 is added to read as follows:
Sec. 744.11 License requirements that apply to entities acting
contrary to the national security or foreign policy interests of the
United States.
BIS may impose foreign policy export and reexport license
requirements, limitations on availability of license exceptions, and
set license application review policy based on the criteria in this
section. Such requirements, limitations and policy are in addition to
those set forth elsewhere in the EAR. License requirements, limitations
on use of license exceptions and license application review policy will
be imposed under this section by adding an entity to the Entity List
(Supp. No. 4 to this part) with a reference to this section and by
stating on the Entity List the license requirements and license
application review policy that apply to that entity. BIS may remove an
entity from the Entity List if it is no longer engaged in the
activities described in paragraph (b) of this section and is unlikely
to engage in such activities in the future. BIS may modify the license
exception limitations and license application review policy that
applies to a particular entity to implement the policies of this
section. BIS will implement the provisions of this section in
accordance with the decisions of the End-User Review Committee or, if
appropriate in a particular case, in accordance with the decisions of
the body to which the End-User Review Committee decision is escalated.
The End-User Review Committee will follow the procedures set forth in
Supplement No. 5 to this part.
(a) License requirement, availability of license exceptions, and
license application review policy. A license is required, to the extent
specified on the Entity List, to export or reexport any item subject to
the EAR to an entity that is listed on the Entity List in an entry that
contains a reference to this section. License exceptions may not be
used unless authorized in that entry. Applications for licenses
required by
[[Page 49322]]
this section will be evaluated as stated in that entry in addition to
any other applicable review policy stated elsewhere in the EAR.
(b) Criteria for revising the Entity List. Entities for which there
is reasonable cause to believe, based on specific and articulable
facts, that the entity has been involved, is involved, or poses a
significant risk of being or becoming involved in activities that are
contrary to the national security or foreign policy interests of the
United States and those acting on behalf of such entities may be added
to the Entity List pursuant to this section. This section may not be
used to place on the Entity List any party to which exports or
reexports require a license pursuant to Sec. Sec. 744.12, 744.13,
744.14 or 744.18 of this part. This section may not be used to place on
the Entity List any party if exports or reexports to that party of
items that are subject to the EAR are prohibited by or require a
license from another U.S. government agency. This section may not be
used to place any U.S. person, as defined in Sec. 772.1 of the EAR, on
the Entity List. Examples (1) through (5) of this paragraph provide an
illustrative list of activities that could be contrary to the national
security or foreign policy interests of the United States.
(1) Supporting persons engaged in acts of terror.
(2) 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.
(3) Transferring, developing, servicing, repairing or producing
conventional weapons in a manner that is contrary to United States
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.
(4) Preventing accomplishment of an end use check conducted by or
on behalf of BIS or the Directorate of Defense Trade Controls of the
Department of State by: precluding access to; refusing to provide
information about; or providing false or misleading information about
parties to the transaction or the item to be checked. The conduct in
this example includes: expressly refusing to permit a check, providing
false or misleading information, or engaging in dilatory or evasive
conduct that effectively prevents the check from occurring or makes the
check inaccurate or useless. A nexus between the conduct of the party
to be listed and the failure to produce a complete, accurate and useful
check is required, even though an express refusal by the party to be
listed is not required.
(5) 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 or reexports involving
the party and the possible imposition of license conditions or license
denial enhances BIS's ability to prevent violations of the EAR.
0
6. Section 744.16 is added to read as follows:
Sec. 744.16 Procedure for requesting removal or modification of an
Entity List Entity.
Any entity listed on the Entity List may request that its listing
be removed or modified.
(a) All such requests, including reasons therefor, must be in
writing and sent to: Chair, End-User Review Committee, Bureau of
Industry and Security, U.S. Department of Commerce, 14th Street and
Pennsylvania Avenue, NW., Room 3886, Washington, DC 20230.
(b) The End-User Review Committee will review such requests in
accordance with the procedures set forth in Supplement No. 5 to this
part.
(c) The Deputy Assistant Secretary for Export Administration will
convey the decision on the request to the requester in writing. That
decision will be the final agency action on the request.
0
7. Add a new Supplement No. 5 to part 744 to read as follows:
Supplement No. 5 to Part 744--Procedures for End-User Review Committee
Entity List Decisions
The End-User Review Committee (ERC), composed of representatives
of the Departments of Commerce, State, Defense, Energy and, where
appropriate, the Treasury, will make all decisions to make additions
to, removals from or changes to the Entity List. The ERC will be
chaired by the Department of Commerce and will make all decisions to
add an entry to the Entity List by majority vote and all decisions
to remove or modify an entry by unanimous vote.
When determining to add an entity to the Entity List or to
modify an existing entry, the ERC will also specify the section or
sections of the EAR that provide the basis for that determination.
In addition, if the section or sections that form the basis for an
addition or modification do not specify the license requirements,
the license application review policy or the availability of license
exceptions, the ERC will specify the license requirements, the
license application review policy and which license exceptions (if
any) will be available for shipments to that entity.
Any agency that participates in the ERC may make a proposal for
an addition to, modification of or removal of an entry from the
Entity List by submitting that proposal to the chairman.
The ERC will vote on each proposal no later than 30 days after
the chairman first circulates it to all member agencies unless the
ERC unanimously agrees to postpone the vote. If a member agency is
not satisfied with the outcome of the vote of the ERC that agency
may escalate the matter to the Advisory Committee on Export Policy
(ACEP). A member agency that is not satisfied with the decision of
the ACEP may escalate the matter to the Export Administration Review
Board (EARB). An agency that is not satisfied with the decision of
the EARB may escalate the matter to the President.
The composition of the ACEP and EARB as well as the procedures
and time frames shall be the same as those specified in Executive
Order 12981 as amended by Executive Orders 13020, 13026 and 13117
for license applications. If at any stage, a decision by majority
vote is not obtained by the prescribed deadline the matter shall be
raised to the next level.
A final decision by the ERC (or the ACEP or EARB or the
President, as may be applicable in a particular case) to make an
addition to, modification of, or removal of an entry from the Entity
List shall operate as clearance by all member agencies to publish
the addition, modification or removal as an amendment to the Entity
List even if, in the case of a decision by the ERC to add an entry
or any decision by the ACEP or EARB, such decision is not unanimous.
Such amendments will not be further reviewed through the regular
Export Administration Regulations interagency review process.
A proposal by the ERC to make any change to the EAR other than
an addition to, modification of, or removal of an entry from the
Entity List shall operate as a recommendation and shall not be
treated as interagency clearance of an EAR amendment. The chairman
of the ERC will be responsible for circulating to all member
agencies proposals submitted to him by any member agency. The
chairman will be responsible for serving as secretary to the ACEP
and EARB for all review of ERC matters. The chairman will
communicate all final decisions that require Entity List amendments
or individual ``is informed'' letters, to the Bureau of Industry and
Security which shall be responsible for drafting the necessary
changes to the Entity List. If the ERC decides in a particular case
that a party should be informed individually instead of by EAR
amendment the chairman will be responsible for preparing the ``is
informed'' letter for the signature of the Deputy Assistant
Secretary for Export Administration.
A listed entity may present a request to remove or modify its
Entity List entry along with supporting information to the chairman
at Room 3886, U.S. Department of Commerce, 14th Street and
Pennsylvania Avenue, NW., Washington, DC 20230. The chairman shall
refer all such requests and supporting information to all member
agencies. The member agencies will review
[[Page 49323]]
and vote on all such requests. The time frames, procedures and right
of escalation by a member agency that is dissatisfied with the
results that apply to proposals made by a member agency shall apply
to these requests. The decision of the ERC (or the ACEP or EARB or
the President, as may be applicable in a particular case) shall be
the final agency decision on the request and shall not be appealable
under part 756 of the EAR. The chairman will prepare the response to
the party who made the request. The response will state the decision
on the request and the fact that the response is the final agency
decision on the request. The response will be signed by the Deputy
Assistant Secretary for Export Administration.
The End-User Review Committee will conduct a review of the
entire Entity List at least once per year for the purpose of
determining whether any listed entities should be removed or
modified. The review will include analysis of whether the criteria
for listing the entity are still applicable and research to
determine whether the name(s) and address(es) of each entity are
accurate and complete and whether any affiliates of each listed
entity should be added or removed.
PART 756--[AMENDED]
0
8. The authority citation for part 756 is revised to read as follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; Notice of July
23, 2008, 73 FR 43603 (July 25, 2008).
0
9. In Sec. 756.1, add a new paragraph (a)(3) to read as follows:
Sec. 756.1 Introduction.
(a) * * *
(3) A decision on a request to remove or modify an Entity List
entry made pursuant to Sec. 744.16 of the EAR.
* * * * *
Dated: August 7, 2008.
Christopher R. Wall,
Assistant Secretary for Export Administration.
[FR Doc. E8-19102 Filed 8-20-08; 8:45 am]
BILLING CODE 3510-33-P