Lawyer: Congress Signaling It Could Soon Expand BIS Entity List Authority
Recently introduced bills that could codify aspects of the Bureau of Industry and Security's suspended 50% rule show that lawmakers may be moving toward giving BIS more Entity List authority, said Ashley Roberts, a trade and national security lawyer with Hogan Lovells.
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Speaking during a webinar hosted by the American Bar Association this week, Roberts noted that House members unveiled a bill earlier this month that would allow BIS to add more types of firms to the Entity List, including subsidiaries if they're owned 50% or more by companies on that list (see 2512050007). It also would permit BIS to add firms from its Military End-User List and the Defense Department’s 1260H List of Chinese military companies.
“I don't know how much traction this will get in the house,” Roberts said. “But I think this is a signifier that Congress could also take action in this arena and pass a bill that gives BIS more authority to make amendments to the Entity List, including adding non-listed foreign subsidiaries to that list.”
The bill came several months after House Foreign Affairs Europe Subcommittee Chairman Keith Self, R-Texas, released legislation to codify the BIS 50% rule for the Entity List and MEU List (see 2510010011). The Trump administration suspended the 50% rule, known as the Affiliates Rule, as part of a trade deal with China (see 2510300024).
Even though the rule was suspended for one year, Roberts said companies can start preparing by reviewing their existing process for ownership due diligence, and they may consider requiring customers to inform them as soon as possible if their ownership changes. She also noted that even though exporters will be able to apply for a license if they’re unsure whether a customer is covered by the Affiliates Rule, it’s not clear how long it will take BIS to make decisions on those licenses, especially if the agency is tasked with reviewing ownership information for an influx of submissions.
“If you go into BIS for this license application, I think you want to think about: How important is this business partner?” Roberts said. If the exporter has struggled to determine their ownership information, it might also “take a little bit longer to get a license determination from BIS.”
Asked how BIS expects companies to work through the various complex due diligence challenges that the rule poses, Roberts said that BIS likely expects exporters will need to use new automated screening tools or services. “I think the government is thinking that the private sector should think about implementing these tools or finding another way to really drill down into knowing their customer and the ownership structures of their customers,” she said, “which is sometimes, I think, difficult depending on where your business partners are organized.”
Along with the expected compliance challenges, Barbara Linney, an international trade lawyer with BakerHostetler, said there remains significant uncertainty about whether the rule could come back into effect before the one-year suspension is over or whether BIS will revise the rule’s language.
“I think it's pretty common knowledge that the introduction of the Affiliates Rule -- and frankly, its sudden suspension -- has created a lot of uncertainty for exporters,” she said. “We don't know at this point whether the rule will be reimposed in the exact same form, or whether there might be a further suspension, or whether there might be changes to the rule before it's reimposed.”
Linney also said the one-year suspension could give more time for export compliance screening software companies to develop new or better tools to help exporters comply with the rule, especially because not all screening providers were ready for the Affiliates Rule when it became effective the same day it was published in late September.
Many software providers “were working on and were close to, but hadn't yet quite got to, rolling out new modules for their screening software,” she said. “And then, of course, companies who don't have screening software that does provide that tool for them really need to spend some time thinking about whether that should be something that they would want to add.”
Linney said that exporters and other companies can’t “heave a sigh of relief and decide to sit back and wait to see if it's reimplemented,” especially for manufacturers that are receiving orders now but that have one-year or longer lead times. Linney said her firm has been advising those clients that they must think about whether an order they receive now could be affected by the Affiliates Rule by the time the product is ready to be shipped.
“You have to really think about whether you're going to be able to ship this expensive piece of machinery or equipment that you've just produced,” she said. “So there may be ways in which the due diligence that's required is going to be important [now] anyway, even though the rule has been suspended.”