BIS Adds Over 100 to Entity List, Including Chinese Suppliers Named in Red Flag Letters

The companies, which weren’t yet subject to formal export restrictions when BIS sent the letters, will be subject to license requirements for all items subject to the Export Administration Regulations when the agency’s final rule takes effect Aug. 27. They also will be subject to foreign direct product rule restrictions under the agency’s new Russia/Belarus-Military End User and Procurement FDP rule, which places export license restrictions on certain foreign-made items that are made with U.S.-origin software or technology (see 2408230006). License applications will be reviewed under a policy of denial.

BIS included at least 29 of the companies in a list of nearly 700 risky foreign suppliers that it circulated to U.S. manufacturers, distributors and exporters earlier this year. The agency warned U.S. companies that the suppliers on the list, which was obtained in June by Export Compliance Daily (see 2406060041), needed to be approached with extra due diligence because they were buying sensitive dual-use parts later found in Russian missiles and drones shot down in Ukraine.

The red flag companies that soon will be added to the Entity List include electronics distributors, technology businesses and trading companies based in mainland China and Hong Kong. BIS also added at least four companies to the Entity List that were named on a similar list of red flag parties maintained by the Trade Integrity Project, an initiative created by the U.K.-based Open-Source Centre. The agency said in July that exporters should incorporate that list into their customer screening programs (see 2407100027).

BIS said the newly added Chinese and Hong Kong companies have procured items for Russia’s military or defense industrial base, including by selling U.S. origin parts to sanctioned Russian companies. Some of those Russian companies have been sanctioned since the country began its war against Ukraine in 2022, BIS said, “or are otherwise linked to the Russian defense industrial base.”

Others added to the list include entities and addresses in Russia, Canada, Crimea, Ukraine, Cyprus, Iran, Kazakhstan, Kyrgyzstan, Turkey and the United Arab Emirates, BIS said. In total, more than 100 of the additions will be designated under the agency’s new Russia/Belarus-Military End User and Procurement FDP rule, and all the entities will be subject to license requirements for all items subject to the EAR.

Licenses will either be reviewed under a presumption of denial or policy of denial, and some exceptions will apply for EAR99 food and medicine, which will be reviewed on a case-by-case basis.

Along with directly shipping controlled items to Russia, BIS said the other entities added to the list have ties to “significant” Russia-related transshipment networks, help design and maintain weapons systems used by the Russian military or are Russia or Belarus military end users. Others were added for their ties to Iran’s Alabuga Special Economic Zone -- a facility that produces thousands of Shahed-136 unmanned drones for Russia’s military -- or for supplying U.S.-origin items to Iran, including goods on the BIS Common High Priority List.

BIS also added three addresses in China and one in Turkey to the Entity List because they are “associated with significant transshipment of sensitive goods to Russia.” The agency said it has “verified that these addresses are associated with a significant number of entities whose activities risk violating the EAR. These risks include associations with parties on the Entity List or the Unverified List at the listed addresses.”

Adding only addresses to the Entity List -- and not a company name -- is a new BIS strategy to target shell companies that frequently change their name to avoid export controls (see 2406120036). Industry officials said the change could lead to screening challenges for exporters (see 2406180033).

Matthew Axelrod, the top BIS export enforcement official, said the Entity List additions target "more than 100 shell companies and tran[s]shippers that put profit before principle" by supplying the Russian military. "The fact that nearly half of these parties are located in countries outside Russia should serve as a stark reminder: it doesn’t matter whether you’re in the People’s Republic of China or Türkiye -- if you send Common High Priority List items (or a range of other items) to Russia, you risk being added to the BIS Entity List," he said.

All exports that now require a license as a result of this rule but were aboard a carrier to a port as of Aug. 27 may proceed to their destinations under the previous eligibility as long as the items are exported before Sept. 26, BIS said. Any items not exported before midnight Sept. 26 will require a license.