Just because a foreign entity or person is listed on the U.S. Commerce Department’s Unverified List doesn’t mean that exporters simply can ignore it.
The department’s Bureau of Industry and Security (BIS) has said that a U.S. exporter’s involvement with an entity or individual placed on the Unverified List is a “red flag,” posing a high risk that the items in the export transaction will be illegally diverted to an unauthorized destination or used in prohibited nuclear, missile or chemical/biological weapons activity.
This means that when one of these listed parties is involved in a transaction, according to BIS, the U.S. exporter has an additional “affirmative duty to inquire, verify or otherwise substantiate the proposed transaction to satisfy yourself that the transaction does not involve a proliferation activity or does not violate other provisions of the EAR (Export Administration Regulations),” said Paul DiVecchio of DiVecchio & Associates, a Boston-based consultant with more than 35 years of export regulatory compliance experience.
However, DiVecchio explained that placement on the Unverified List (UVL) doesn’t mean a U.S. exporter cannot do business with the listed entity or individual. “Instead, BIS is saying that you need to be extremely careful before you become involved in a transaction that includes a party on the UVL,” he said.
The Unverified List, short for the List of Unverified Persons in Foreign Countries, was officially established by BIS in June 2002. The purpose was to make exporters aware of the U.S. government’s concerns with certain foreign entities or individuals due to possible national security concerns, but whose overseas locations could not be definitively identified during BIS’ prelicense checks or post-shipment verifications.
There are myriad reasons why end-use checks may be incomplete. For example, BIS may be unable to find the foreign party’s address indicated on the export documents and thus cannot contact the party by telephone or email for additional information. There may be cases in which BIS is prevented by foreign governments from performing thorough export end-use checks.
Under these circumstances, the lack of sufficient information precludes BIS from adding these foreign entities or individuals of concern to the more explicit Entity List, resulting in their placement on the Unverified List.
While the Unverified List rarely has been used by the agency over the past 20 years, on May 17 BIS added 33 individuals to it. The new entries included 11 persons located in China, 12 in Russia, five in the United Arab Emirates, two in Canada and one person each in Estonia, Finland and Pakistan.
DiVecchio believes the Unverified List is bound to grow. Prelicense checks and post-shipment verifications are supported by the State Department through the overseas U.S. embassies and consulates. “Because the State Department is understaffed, one can expect there will be more consignees without verifiable bona fides,” he said.
Many exporters rely on commercial third-party compliance software services to ensure export transactions don’t run afoul of any government restricted party lists, including the Unverified List. These software vendors are supposed to update their lists as soon as additions or changes are announced in the U.S. government’s Federal Register. The Unverified List also is available on the BIS website.
“We use external services to consolidate all the lists, so operationally we just check one place,” said Brian Amero, who manages global compliance and ethics at Teradyne and serves as an American Shipper Editorial Board member. “I use Dow Jones when manually checking, for example, when we add a new distributor. It is like a mini-background check. For automated transactional screening, I use BluJay.”
Freight forwarders also are not immune from checking export transactions that they manage on behalf of exporters against the various export control lists, including the Unverified List.
“We know as a freight forwarder that we have a liability in the same transaction as the exporter and therefore we have automated our systems with all of the lists,” said Michael Ford, chief compliance officer at Philadelphia-based BDP International. “We purchase the data and integrate it into our system. We have created our own logic that is placed against an export order at the time of creation and several other times, all prior to flight or sailing.”
Since the Unverified List contains less detail than other lists, Ford said there may be a tendency among exporters and forwarders to assume the party is not a high risk. “As we know, it’s the opposite. Limited details should produce more caution towards the party,” he said.
“Taking the time to research the ‘possible’ match or link to the [Unverified List] party requires time, as well as the ability to ‘pause’ an order until you feel certain that you spent the right amount of time understanding all the facts presented to you in the order,” Ford said.
DiVecchio said several of his exporter clients already have received “hits” on the Unverified List since BIS added the 33 individuals.
If an exporter receives a hit against the Unverified List, DiVecchio recommends:
• Notify the export compliance officer in charge, which is critical if the hit relates to a remote facility, overseas affiliate or reseller.
• Evaluate and investigate the potential transaction to determine whether the company will proceed with the transaction. In some cases, the company may decide to refuse the business.
• If the product is eligible for a license exception to the country where the Unverified List party is located, then the company cannot use the license exception. It has to apply for a validated license with Commerce.
• Before exporting, re-exporting or transferring any product or technology to a Unverified List party, a company must acquire a written, signed and dated statement from that party that includes physical addresses of the end user (no Post Office boxes), as well as other contact information such as telephone and fax numbers, emails and websites; agreement not to use the item in any way that’s prohibited by the EAR; a clear declaration of the end use; agreement to cooperate with any U.S. government end-use checks; and accessibility to any requested documents related to the shipment. This document must be retained in the U.S. exporter’s records.
Since these export transactions must be filed in the Automated Export System (AES), which is part of U.S. Customs and Border Protection’s Automated Commercial Environment (ACE), Unverified List violations will be easier for BIS enforcement officers to detect and investigate, DiVecchio warned.
He advised if an export transaction appears suspicious, the exporter or forwarder should notify the local BIS Office of Export Enforcement. “It’s better to partner with the agency than throw caution to the wind,” DiVecchio said.