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Why this export compliance consultant is ‘mad as hell’

Commentary: Commerce and BIS put numerous American companies at risk of export control violations by fumbling enforcement date of Huawei additions to Entity List.

    I’m mad as hell and let me tell you why.
    In my nearly 40 years of interpreting and advising my myriad of clients on export control regulations, I have never seen such a terrible mishandling of rulemaking rollout that I have just witnessed with this latest placement of Huawei and 68 of its overseas affiliates on the Commerce Department’s Entity List.
   Specifically, there has been mass confusion within the export industry, as well as among the legal community, when the effective date for the Entity List restrictions are to commence.
   The Trump administration declared the enforcement clock for these Entity List additions turned on last Thursday at 4:15 p.m. EST, or in other words, the date and time that the Federal Register notice was released in prepublication form.
   In that same prepublication notice, the Commerce Department’s Bureau of Industry and Security stated that the final Federal Register notice will be published at midnight, starting Tuesday, thus traditionally could be assumed as setting the start of enforcement by the agency.
   So which date is it?
   Let’s face it, most exporters do not refer to the public inspection postings of Federal Register notices — or for that matter even know these exist.
   Even if the exporter’s compliance manager had reviewed the public inspection notice of the Entity List additions, he or she could have read the statement on the second page, “Effective Date: This rule is effective [INSERT DATE OF DISPLAY ON THE PUBLIC INSPECTION LIST].” That would signal to the exporter that enforcement of the rule actually would actually start at midnight on Tuesday and that his or her exports en route to Huawei through that actual publication date in the Federal Register are still in compliance.
   BIS did not highlight on its website that the effective date of the restriction, May 16, for the addition of Huawei and its 68 overseas affiliates until Friday, in essence 24 hours later than the public inspection notice’s release. At the same time, the agency’s website posting incorrectly referenced the Federal Register notice (which will be officially published Tuesday) and did not correctly identify the Federal Register “public inspection.”
   As of 7 a.m. EST Monday, the BIS Entity List posted on the Export Administration Regulations (EAR), under Supplement No. 4, part 744, had not been updated with Huawei and its 68 affiliates. 
   The Consolidated List on the BIS website, which is used by many export compliance staff to conduct their restricted party screening, also had not been updated by the agency as of 7 a.m. Monday.
   During the scramble to figure out exactly when enforcement of the Huawei additions to the Entity List, the various third-party restricted parties screening vendors did not update their databases until various times on Friday, almost one day after the date of restriction.
   On top of that, media outlets, through no fault of their own, showed a lack of consistency and understanding to the effective date for the Huawei-related additions to the Entity List.
   The bottom line is that the business community relies on predictability and transparency of federal regulations in order to eliminate the risks of noncompliance and enhance opportunities to be competitive in the marketplace.
   If you knew there was such a thing as a “public inspection” to the Federal Register and if you knew where to find it, then you would at least have been able to read the ambiguous language identified on page two, which alludes to the posting date on page 28.
   Add to that, in case you missed it, the “saving clause” found on page 13 of the “public inspection” document, which reads: “Shipments of items removed from eligibility for a license exception or export or re-export without a license (NLR) as a result of this regulatory action that were en route aboard a carrier to a port of export or re-export on [INSERT DATE OF DISPLAY ON THE PUBLIC INSPECTION LIST], pursuant to actual orders for export or re-export to a foreign destination may proceed to that destination under the previous eligibility for a license or export or re-export without a license (NLR).”
   In essence, you had to know that you could not release from your shipping dock exports to Huawei or any of the company’s 68 affiliates on the Entity List no later than 11:59 pm. EST on May 16. Otherwise, you would be in violation. (You would have had to know that the posting to the Federal Register public inspection was made at 4:15 pm EST on May 16. In essence, you would have had seven hours and 44 minutes to know about the posting — 45 minutes prior to the end of the workday — in order to get the shipment off of your dock or you would be in violation of the EAR.)
   BIS has done a great job in posting real-world FAQs and detailed answers on the BIS website. On the homepage, go to Policy Guidance – Entity List FAQs. Several of the FAQs address: “Can a U.S. company have any dealings with a listed entity?” and “Do the license requirements and policies of the Entity List apply to separately incorporated subsidiaries, partially owned subsidiaries or sister companies of a listed entity?”
   However, the terrible mishandling by the Commerce Department of when the enforcement of Huawei additions to the Entity List actually takes place means that some large suppliers of semiconductors and other electronics technology to the Chinese telecom may already be in violation.
   That’s why I’m mad as hell.
    DiVecchio, principal of Boston-based DiVecchio & Associates, has provided export compliance consulting services to U.S. exporters for nearly 40 years. He may be reached by email at [email protected]