Addition of Persons to the Unverified List, Guidance To Exporters as to “Red Flags,” and Criteria for Listing of Unverified Persons in Foreign Countries

AGENCY:

Bureau of Industry and Security, Commerce.

ACTION:

Notice.

SUMMARY:

On June 14, 2002, the Bureau of Industry and Security (“BIS”) published a notice in the Federal Register establishing a list of persons in foreign countries who were parties to past export transactions where pre-license checks or post-shipment verifications could not be conducted for reasons outside the control of the U.S. Government (“Unverified List”). See 67 FR 40910. That notice also advised exporters that the involvement of a listed person as a party to a proposed transaction constitutes a “red flag” as described in the guidance set forth in Supplement No. 3 to 15 CFR part 732. Under that guidance, the “red flag” requires heightened scrutiny by the exporter (and others involved in the transaction) before proceeding with a transaction in which a listed person is a party. Since that time, BIS has issued subsequent notices that added persons to and removed them from the Unverified List, as circumstances warranted. This notice advises exporters that the Unverified List will now also include persons in foreign countries in situations where BIS is not able to verify the existence or authenticity of the end user, intermediate consignee, ultimate consignee, or other party to an export transaction. This notice also adds five persons to the Unverified List and advises exporters that the involvement of these persons as a party to a proposed transaction constitutes a “red flag.”

DATES:

This notice is effective July 16, 2004.

FOR FURTHER INFORMATION CONTACT:

Thomas W. Andrukonis, Office of Enforcement Analysis, Bureau of Industry and Security, Telephone: (202) 482-4255.

SUPPLEMENTARY INFORMATION:

Background

In administering export controls under the Export Administration Regulations (15 CFR parts 730 to 774) (EAR), BIS carries out a number of preventive enforcement activities with respect to individual export transactions. Such activities are intended to assess diversion risks, identify potential violations, verify end-uses, and determine the suitability of end-users to receive U.S. commodities or technology. In carrying out these activities, BIS officials, or officials of other federal agencies acting on BIS's behalf, selectively conduct pre-license checks (“PLCs”) to verify the bona fides of the transaction and the suitability of the end-user or ultimate consignee. In addition, such officials sometimes carry out post-shipment verifications (“PSVs”) to ensure that U.S. exports have actually been delivered to the authorized end-user, are being used in a manner consistent with the terms of a license or license exception, and are otherwise consistent with the EAR.

A. Inclusion of Persons on the Unverified List

In certain instances BIS officials, or other federal officials acting on BIS's behalf, have been unable to perform a PLC or PSV with respect to certain export control transactions, for reasons outside the control of the U.S. Government (including a lack of cooperation by the host government authority, the end-user, or the ultimate consignee). As a result, certain foreign end-users and consignees involved in such transactions have been listed on the Unverified List.

This notice advises exporters and other persons that the Unverified List will now also include persons involved in export transactions where BIS has not been able to verify the existence or authenticity of the end user, intermediate consignee, ultimate consignee, or other party to an export transaction. This could include situations where the end-users or consignees are merely post-office boxes, drop shipment points, or front companies.

The inability of BIS to verify the nature of the activities, or suitability of any end-user or consignee involved in an export transaction can raise concerns about the bona fides of such person, and that person's suitability for participation in future transactions subject to the EAR. Accordingly, BIS continues to advise the exporting community that the participation of a person on the Unverified List in any proposed transaction will be considered by BIS to raise a “red flag” for purposes of the “Know Your Customer” guidance set forth in Supplement No. 3 to 15 CFR part 732. Under that guidance, whenever there is a “red flag,” exporters and other persons have an affirmative duty to inquire, verify, or otherwise substantiate the proposed transaction to satisfy themselves that the transaction does not involve a proliferation activity prohibited by part 744, and does not violate other provisions of the EAR.

The listing of a person on the Unverified List does not equate to a licensing requirement such as that imposed on persons included on the Entity List in 15 CFR part 744. If an exporter or other person involved in the transaction is satisfied that the transaction does not involve a proliferation activity and does not violate any other provision of the EAR, the exporter may proceed with the transaction notwithstanding the inclusion of the person on the Unverified List. If an exporter or other person involved in a transaction continues to have reasons for concern after the inquiry, that person should refrain from such transaction or submit all relevant information to BIS in the form of an application for a license or a request for an advisory opinion. Periodically, BIS will add persons to the Unverified List based on the criteria set forth above, and remove the names of persons from the Unverified List when warranted. Moreover, BIS may add to the Unverified List names of persons that BIS discovers are affiliated with a person on the Unverified List by virtue of ownership, control, position of responsibility, or other affiliation or connection in the conduct of trade or business. Persons on the Unverified List may request that BIS review their inclusion on the Unverified List by filing an appeal in accordance with 15 CFR part 756.

B. Addition of New Entities on the Unverified List

This notice advises exporters and other persons that BIS has added the following five entities to the Unverified List:

Jetpower Industrial Ltd, Room 311, 3rd Floor, Wing On Plaza, 62 Mody Road,Tsim Sha Tsui East, Kowloon, Hong Kong Special Administrative Region.

Onion Enterprises Ltd., Room 311, 3rd Floor, Wing On Plaza, 62 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong Special Administrative Region.

Lucktrade International, Room 311, 3rd Floor, Wing On Plaza, 62 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong Special Administrative Region.

Litchfield Co. Ltd., Room 311, 3rd Floor, Wing On Plaza, 62 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong Special Administrative Region.

Sunford Trading Ltd., Unit 2208, 22/F, 118 Connaught Road West, Hong Kong Special Administrative Region.

This notice advises exporters that Jetpower International Ltd., Onion Enterprises Ltd, Litchfield Co. Ltd, and Sunford Trading Ltd are added to the Unverified List, and that a second address has been added for Lucktrade International in the Hong Kong Special Administrative Region. A “red flag” now exists for transactions involving these persons due to their inclusion on the Unverified List. As a result, exporters have an affirmative duty to inquire, verify, or otherwise substantiate the proposed transaction to satisfy themselves that the transaction does not involve a proliferation activity prohibited in 15 CFR Part 744, and does not violate other provisions of the EAR.

The Unverified List, as modified by this notice, is set forth below.

Unverified List (as of July 16, 2004)

The Unverified List includes names, countries, last known addresses of foreign persons involved in export transactions with respect to which: the Bureau of Industry and Security (“BIS”) could not conduct a pre license check (“PLC”) or a post shipment verification (“PSV”) for reasons outside the U.S. Government's control; and/or BIS was not able to verify the existence or authenticity of the end user, intermediate consignee, ultimate consignee or other party to an export transaction. Any transaction to which a listed person is a party will be deemed to raise a “red flag” with respect to such transaction within the meaning of the guidance set forth in Supplement No. 3 to 15 CFR part 732. The red flag applies to the person on the Unverified List regardless of where the person is located in the country included on the list.