On December 23, 2020, the US Commerce Department’s Bureau of Industry and Security (“BIS”) issued a final rule amending the Export Administration Regulations (“EAR”) by adding a new “Military End User List” (“MEU List”) as supplement no. 7 to part 744 of the EAR. The final rule adds 102 entities to the MEU List, which will consist of Chinese, Russian, and Venezuelan entities that the US Government has determined are “military end users” for purposes of the MEU rule in EAR § 744.21. The final rule does not change the scope of the MEU rules but rather is intended as an effective way for BIS to inform potential exporters, reexporters, and transferors that all exports, reexports, or transfers (in-country) of specified items to the listed entities represent an unacceptable risk of use in or diversion to a “military end use” or a “military end user” and therefore require a license. For the April 28, 2020 amendment to the EAR that tightened the MEU rule, please see our prior blog post here.
The MEU rule imposes a license requirement on the export, reexport, or transfer (in-country) of items specified in supplement no. 2 to part 744 of the EAR to China, Russia, and Venezuela, when the exporter, reexporter, or transferor has knowledge that the item is destined for a “military end use” (as defined in EAR § 744.21(f)) or “military end user” (as defined in EAR § 744.21(g)). Additionally, BIS may inform persons that a license is required for the export, reexport, or transfer (in-country) of any item because there is an unacceptable risk of use in or diversion to such an end use or end user. With the creation of the MEU List, BIS is exercising its authority to inform exporters, reexporters, and transferors that a license will be required when an entity on the MEU List is a party (i.e., purchaser, intermediate consignee, ultimate consignee, or end-user) to a transaction (i.e., export, reexport, or in-country transfer) of any item listed in supplement no. 2 to part 744.
Prior to the final rule, exporters, reexporters, or transferors were responsible for identifying the listed entities as “military end users” themselves, assuming they were not otherwise individually informed by BIS pursuant to the “is informed” process. This task could be demanding even with the help of BIS’s FAQs relating to the MEU rule. For a detailed analysis of these BIS FAQs, please see our prior blog post here. By creating the MEU List, BIS eases the public’s compliance burden. That said, compliance remains the obligation of the exporters, reexporters, or transferors, who must still conduct due diligence for parties not on the MEU List, which is not an exhaustive listing of “military end users.” In other words, entities not on the MEU List may still be determined to be “military end users” subject to the licensing requirement under the MEU rule, as long as the criteria outlined in EAR § 744.21(g) is met. For example, parties not on the MEU List but on the US Department of Defense’s “List of Communist Chinese Military Companies” (the “DoD List”) would raise a Red Flag under the EAR and would require additional due diligence by the exporter, reexporter, or transferor to determine whether a license is required under the MEU rule. It is worth noting that the MEU List and the DoD List are two separate lists compiled under different statutory standards. There are companies on the DoD List that are not on the MEU List, and the fact that a Chinese entity is included on the DoD List does not per se make that entity a “military end-user” under the MEU rule.
The entities identified in the final rule is only the first tranche of entities to the MEU List. Additional parties may be added to or deleted from the MEU List pursuant to a determination by the End-User Review Committee.