Authorization To Impose License Requirements for Exports or Reexports to Entities Acting Contrary to the National Security or Foreign Policy Interests of the United States, 49311-49323 [E8-19102]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security
• Industry and Security Bureau

[Federal Register Volume 73, Number 163 (Thursday, August 21, 2008)]
[Rules and Regulations]
[Pages 49311-49323]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-19102]



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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 730, 744 and 756

[Docket No. 0612243150-8535-02]
RIN 0694-AD82


Authorization To Impose License Requirements for Exports or 
Reexports to Entities Acting Contrary to the National Security or 
Foreign Policy Interests of the United States

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Final rule.

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SUMMARY: The Entity List (Supplement No. 4 to Part 744 of the Export 
Administration Regulations (EAR)) provides notice to the public that 
certain exports and reexports to parties identified on the Entity List 
require a license from the Bureau of Industry and Security (BIS) and 
that availability of License Exceptions in such transactions is 
limited. This rule expands the scope of reasons for adding parties to 
the Entity List. This rule also amends the EAR to state explicitly that 
a party listed on the Entity List has a right to request that its 
listing be removed or modified and sets procedures for addressing such 
requests.

DATES: This rule is effective August 21, 2008.

FOR FURTHER INFORMATION CONTACT: Karen Nies-Vogel, Chair, End-User 
Review Committee, Office of the Assistant Secretary, Bureau of Industry 
and Security, kniesv@bis.doc.gov, (t) 202-482-3811, (f) 202-482-3911.

SUPPLEMENTARY INFORMATION: 

Background

    The Entity List (Supplement No. 4 to Part 744 of the EAR) provides 
notice to the public of the identity of certain parties whose presence 
as a recipient of items subject to the EAR can result in the imposition 
of a license requirement in an export or reexport transaction.
    BIS published a proposed rule (72 FR 31005, June 5, 2007) to 
authorize adding to the Entity List entities that BIS has reasonable 
cause to believe, based on specific and articulable facts, have been, 
are or pose a risk of being involved in activities that are contrary to 
the national security or foreign policy interests of the United States 
or those acting on behalf of such entities. This new authorization 
would not be used to add to the Entity List entities that are U.S. 
persons (as defined in Sec.  772.1 of the EAR). The proposed rule also 
provided a procedure for entities listed on the Entity List to request 
removal or modification of their entries. After review of the comments 
on the proposed rule, BIS is publishing this final rule.

Reasons for This Rule

    This rule will allow BIS to focus its export control efforts more 
closely on problematic recipients of items that are subject to the EAR, 
where those recipients do not meet the criteria set forth in Sec. Sec.  
744.2, 744.3, 744.4, 744.6, 744.10, 744.17, 744.20 or 744.21 for 
addition to the Entity List. Pursuant to this rule, the U.S. government 
will be able to conduct prior review and make appropriate licensing 
decisions regarding proposed exports and reexports to such recipients 
to the degree necessary to protect United States national security or 
foreign policy interests. The government will be able to tailor license 
requirements and availability of license exceptions for exports and 
reexports to parties that have taken, are taking, or pose a significant 
risk of taking actions that are contrary to U.S. national security or 
foreign policy interests without imposing additional license 
requirements that apply broadly to entire destinations or items. BIS 
believes that such targeted application of license requirements 
provides the flexibility to prevent items subject to the EAR from being 
used in ways that are inimical to the interests of the United States, 
with minimal costs to and disruption of legitimate trade. As export 
controls continue to focus not just on countries, but also on 
individual customers or entities, BIS believes it is important to 
provide more information to the public about entities of concern. 
Implementation of this rule will provide additional information to 
enhance the ability of members of the public to screen potential 
recipients of items subject to the EAR.
    In addition, this rule will simplify the EAR by reducing the need 
to issue general orders that impose license requirements on specific 
parties, thereby reducing the number of EAR provisions that the public 
would be required to review to determine license requirements under the 
EAR.

Summary of the Provisions of This Rule

    This rule authorizes imposing foreign policy export and reexport 
license requirements, limiting the availability of license exceptions, 
and setting license application review policy for exports and reexports 
to entities under certain circumstances. Specifically, such steps may 
be taken where there is reasonable cause to believe, based on specific 
and articulable facts, that an entity has been involved, is involved or 
poses a risk of being involved in activities that are contrary to the 
national security or foreign policy interests of the United States or 
is acting on behalf of such an entity. Under this rule, the activities 
at issue need not involve items or activities that are subject to the 
EAR in order for the entity to be placed on the Entity List. Pursuant 
to this rule, BIS will implement changes to the Entity List made by 
decision of an interagency committee called the End-User Review 
Committee (the ``Committee''). The End-User Review Committee will 
consist of representatives of the Departments of Commerce, State, 
Defense, Energy and, if appropriate in a particular case, the Treasury. 
The grounds for changes to the Entity List established by this rule are 
in addition to the grounds provided in Sec. Sec.  744.2, 744.3, 744.4, 
744.6, 744.10 744.17, 744.20 and 744.21 of the EAR.
    This rule lists, as illustrative examples, five types of conduct 
that the End-User Review Committee could determine are contrary to U.S. 
national security or foreign policy interests. The five types of 
conduct are:
    (i) Supporting persons engaged in acts of terror.
    (ii) Actions that could enhance the military capability of, or the 
ability to support terrorism of governments that have been designated 
by the Secretary of State as having repeatedly provided support for 
acts of international terrorism.
    (iii) Transferring, developing, servicing, repairing, or producing 
conventional weapons in a manner that is contrary to United States 
national security or foreign policy interests or enabling such 
transfer, development, service, repair or production by supplying 
parts, components, technology, or financing for such activity.
    (iv) Preventing accomplishment of an end use check conducted by or 
on behalf of BIS or the Directorate of Defense Trade Controls of the 
Department of State by: precluding access to; refusing to provide 
information about; or providing false or misleading information about 
parties to the transaction or the item to be checked. The conduct in 
this example includes: expressly refusing to permit a check, providing 
false or misleading information, or engaging in dilatory or evasive 
conduct that effectively prevents the check from occurring or makes the 
check inaccurate or useless. A nexus between the conduct of the party 
to be listed and the failure to produce a complete, accurate and useful 
check is required, even though an

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express refusal by the party to be listed is not required.
    (v) Engaging in conduct that poses a risk of violating the EAR when 
such conduct raises sufficient concern that prior review of exports or 
reexports involving the party and the possible imposition of license 
conditions or license denial enhances BIS's ability to prevent 
violations of the EAR.
    These examples are illustrative of conduct that could be contrary 
to the national security or foreign policy interests of the United 
States. An entity could be added to the Entity List if specific and 
articulable facts provided reasonable cause to believe that the entity 
is involved in, has been involved in, or poses a significant risk of 
being or becoming involved in conduct described by one or more of the 
five listed illustrative examples or other activities that are contrary 
to U.S. national security or foreign policy interests.
    This rule also authorizes BIS to modify the license requirements, 
license exception availability or license application review policy 
that applies to any entity placed on the Entity List pursuant to this 
rule. As with decisions to place an entity on the Entity List, BIS will 
make such modifications in accordance with the decisions of the End-
User Review Committee.
    This rule does not authorize adding to the Entity List an entity to 
which exports or reexports require a license pursuant to Sec. Sec.  
744.12, 744.13, 744.14 or 744.18 of the EAR. Those sections impose 
license requirements because of the presence of certain parties on the 
List of Specially Designated Nationals and Blocked Persons published by 
the U.S. Department of the Treasury, Office of Foreign Assets Control. 
This rule does not authorize placing U.S. persons, as defined in Sec.  
772.1 of the EAR, on the Entity List.
    All impositions of license requirements or statements of license 
application review policy or any modification thereof pursuant to this 
rule must be done by publishing an amendment to the Entity List found 
at Supplement No. 4 to part 744 of the EAR. License exceptions are not 
available for any entity added to the Entity List pursuant to this rule 
unless specifically authorized in the entry for the entity.
    This rule permits a party listed on the Entity List to request that 
its listing be removed or modified. Such requests, including reasons 
therefor, must be made in writing, and BIS will provide a written 
response. Such requests will be reviewed by an End-User Review 
Committee composed of representatives of the Departments of Commerce, 
State, Defense, and Energy and, if appropriate in a particular case, 
the Treasury. The End-User Review Committee will make a decision in 
accordance with the procedures set forth in Supplement No. 5 to part 
744 of the EAR. The Deputy Assistant Secretary for Export 
Administration will convey the decision to the requesting party. This 
decision shall be the final agency action on such a request and may not 
be appealed to the Under Secretary for Industry and Security under part 
756 of the EAR.

Summary of the Changes From the Proposed Rule

Changes to Sec.  744.11

    Section 744.11 of the proposed rule included an introductory 
paragraph, set forth criteria for listing a party on the Entity List 
and provided five illustrative examples of conduct that could meet the 
criteria. In response to the public comments, this final rule revises 
the introductory paragraph, paragraph (b), the criteria and two of 
those illustrative examples.
    This final rule adds two sentences to the end of the introductory 
paragraph of Sec.  744.11 in the proposed rule. This final rule also 
replaces the phrase ``that BIS has reasonable cause to believe'' in the 
criteria with the phrase ``for which there is reasonable cause to 
believe.'' BIS is making these changes in the final rule in response to 
public comments stating that more information about the procedure for 
adding, removing and modifying Entity List listings pursuant to this 
rule should be disclosed. This addition and replacement are intended to 
make clear that decisions to add, remove or modify Entity List listings 
pursuant to Sec.  744.11 are made by an interagency End-User Review 
Committee.
    This final rule revises the first sentence of paragraph (b) to 
clarify the meaning of that sentence. This final rule also revises the 
fifth sentence in paragraph (b) to clarify that the list of examples is 
merely illustrative not exhaustive.
    The second illustrative example addresses actions that benefit 
governments that have been designated by the Department of State as 
sponsors of terrorism. In this final rule that example has been revised 
to remove a reference to actions that are detrimental to the human 
rights of citizens of those governments. BIS believes that this 
revision makes the example clearer and more focused.
    The fourth illustrative example addresses lack of cooperation with 
end use checks. As proposed, the example read ``Deliberately failing or 
refusing to comply with an end use check conducted by or on behalf of 
BIS or the Directorate of Defense Trade Controls of the Department of 
State, by denying access, by refusing to provide information about 
parties to a transaction, or by providing information about such 
parties that is false or that cannot be verified or authenticated.'' In 
response to requests that the example be more clearly distinguished 
from the criteria for placing an entity on a BIS publication entitled 
``The Unverified List,'' this final rule emphasizes that some conduct 
on the part of the party to be listed that makes conducting the check 
impossible or that renders its results inaccurate or useless would 
justify placing the entity on the Entity List although that conduct 
need not be an express refusal to permit the check. Accordingly, in 
this final rule, the example has been revised to read: ``Preventing 
accomplishment of an end use check conducted by or on behalf of BIS or 
the Directorate of Defense Trade Controls of the Department of State 
by: precluding access to; refusing to provide information about; or 
providing false or misleading information about parties to the 
transaction or the item to be checked. The conduct in this example 
includes: expressly refusing to permit a check, providing false or 
misleading information, or engaging in dilatory or evasive conduct that 
effectively prevents the check from occurring or makes the check 
inaccurate or useless. A nexus between the conduct of the party to be 
listed and the failure to produce a complete, accurate and useful check 
is required, even though an express refusal by the party to be listed 
is not required.''
    This final rule also revises the fifth illustrative example, which, 
in the proposed rule, read: ``Engaging in conduct that poses a risk of 
violating the EAR and raises sufficient concern that BIS believes that 
prior review of exports or reexports involving the party and the 
possible imposition of license conditions or license denial enhances 
BIS's ability to prevent violations of the EAR.'' In response to public 
comments recommending the example be modified to apply only to imminent 
and serious violations of the EAR, this final rule revises the example 
to read: ``Engaging in conduct that poses a risk of violating the EAR 
when such conduct raises sufficient concern that the End-User Review 
Committee believes that prior review of exports or reexports involving 
the party and the possible imposition of license conditions or license 
denial enhances BIS's ability to prevent

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violations of the EAR.'' BIS believes that, given the varying 
consequences of violations based on the facts in individual cases, 
declaring certain violations to be a priori less serious than others 
would be unwise. BIS also notes that preventing an ``imminent'' 
violation is part of the standard for imposing a temporary denial order 
under part 766 of the EAR. However, BIS concludes that the proposed 
example would be more precise and useful if it more clearly and 
directly tied imposing license requirements, possibly restricting the 
availability of license exceptions and setting licensing policy, to the 
ability to prevent violations. In addition, this final rule replaces 
the phrase ``that BIS believes'' with the phrase ``that the End-User 
Review Committee believes'' because decisions to add, remove or modify 
an Entity List listing pursuant to Sec.  744.11 of the EAR will be made 
by the End-User Review Committee.

Changes to Sec.  744.16 of the EAR

    Section 744.16 of the EAR sets forth the procedure by which listed 
parties may request modification or removal of their listing. In the 
proposed rule, that section included the following statement: ``BIS 
will review such requests in conjunction with the Departments of 
Defense, State and Energy, and, if appropriate in a particular case, 
the Treasury.'' The corresponding language in the final rule reads: 
``The End-User Review Committee will review such requests in accordance 
with the procedures set forth in Supplement No. 5 of this part'' to 
make clear the role of the End-User Review Committee in these 
decisions.
    This rule also revises Sec.  744.16 of the EAR to provide that 
decisions on a listed entity's request to have its listing modified or 
removed will be conveyed to the requester by the Deputy Assistant 
Secretary for Export Administration. The proposed rule provided that 
such decisions would be conveyed by the chairman of the End User Review 
Committee. BIS is making this change to make the procedure for 
delivering decisions pursuant to Sec.  744.16 EAR consistent with the 
procedure for delivering ``is informed'' letters under Sec. Sec.  
744.2, 744.3, 744.4, 744.6, 744.17 and 744.21of the EAR.

Addition of New Supplement to Part 744

    In response to public comments requesting more information about 
the procedures by which the Entity List would be modified pursuant to 
this rule, this final rule adds a new supplement: Supplement No. 5 to 
Part 744--Procedures for End-User Review Committee Entity List 
Decisions. This Committee is the body for all decisions to make changes 
to the Entity List pursuant to Sec. Sec.  744.11 and 744.16 of the EAR.

Conforming and Technical Changes Made by This Rule

    The proposed rule stated the decision on a party's request to have 
its listing removed or modified would be the final agency action on the 
request. BIS intended that language to mean that no further 
administrative procedures for changing the decision are available. As a 
conforming change, this final rule adds language to Sec.  756.1 
excluding decisions made by the End-User Review Committee pursuant to 
Sec.  744.16 of the EAR from the appeal procedure of part 756 of the 
EAR. Such express exclusion is not needed with respect to End-User 
Review Committee decisions pursuant to Sec.  744.11 of the EAR because 
those decisions must, in all instances, be implemented through an 
amendment to the EAR and are excluded from Sec.  756.1 by preexisting 
language.
    In response to a suggestion in the public comments, this rule 
revises Sec.  744.11 of the EAR to reference Supp. No. 4 to part 744 of 
the EAR. That reference was not in the proposed rule.

Summary of the Public Comments and BIS's Responses to Those Comments

Comment on Rulemaking Requirements

    1. One commenter stated that this proposed rule should be 
designated as a major rule because of its broad implications and the 
economic consequences that could arise for U.S. exporters if the rule 
results in a larger effort by foreign companies to design out U.S. 
products.
    The Office of Management and Budget (OMB) has authority to 
designate rules as major under the Congressional Review Act. OMB has 
determined that this rule is not a major rule for purposes of that Act. 
The Department of Commerce does not have authority to designate a rule 
as major for purposes of the Congressional Review Act.

General Comments on the Proposed Rule

    2. Three commenters expressed support in principle for the concept 
of targeted entity based license requirements. The reasons cited for 
support of the concept were that such controls are better suited to the 
global nature of national security and other threats than are broader, 
country based controls, that such controls have potential to employ 
more efficiently enforcement and compliance resources by government and 
the private sector by focusing on entities of concern and that such 
controls would allow BIS to conduct more prior reviews of exports to 
risky users. However, all of the commenters, whether or not they 
expressed support for the concept in principle, expressed reservations 
or suggested changes to some aspect of the concept as noted in the 
following paragraphs.
    3. One commenter stated that adding new entries to the Entity List 
creates minimal disruption to private sector screening programs and 
specifically contrasted that procedure to the recently promulgated 
``China rule.''
    BIS believes that the targeted end-user controls set forth in this 
rule are valuable because they minimize disruption to business. 
However, the military end-use license requirements set forth in the 
``China rule'' are also important instruments of United States policy. 
The reasons for those license requirements were set forth in the 
preamble to that rule (72 FR 33646, June 19, 2007) and need not be 
repeated here.
    4. Two commenters suggested that all entries on the Entity List 
identify the EAR section on which that listing was based.
    As set forth in the proposed rule and in this final rule, all of 
the entries to be added pursuant to Sec.  744.11 as created by this 
rule will be identified as being added pursuant to Sec.  744.11. The 
proposal to add section references to all of the existing entities on 
the Entity List that do not currently have such references is beyond 
the scope of this rule. At this time, BIS does not have plans to add 
such references to any pre-existing entries that do not already have 
such references. However, BIS plans to have the interagency End-User 
Review Committee conduct annual reviews of the Entity List. The 
Committee may consider the proposal in this comment as part of its 
review.
    5. One commenter asserted that the proposed rule is seriously 
flawed and imprecise, offering a dubious process, which could be more 
effectively handled by existing mechanisms under the Export 
Administration Regulations.
    BIS believes that the final rule is sufficiently precise. This rule 
will provide a mechanism for listing parties in the Code of Federal 
Regulations whose activities raise sufficient concern to justify 
imposing export and reexport license requirements on items to be sent 
to them. By doing so, all potential exporters and reexporters will have 
access to information about these parties of concern. BIS agrees that 
more public disclosure than was provided in the

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proposed rule of the process by which entities will be added to the 
Entity List pursuant to this rule is warranted. Accordingly, this rule 
includes a new Supplement No. 5 to part 744, setting forth the process 
by which changes to the Entity List will be made.
    BIS is publishing this rule precisely to make its license 
requirements more easily identifiable by the public and therefore more 
effective. License requirements based on country or item may be too 
broad to deal with problems that apply to particular recipients of EAR 
items. A denial of export privileges may be too rigid or unwarranted in 
a particular case. Adding a name to the Unverified List does not impose 
a license requirement and, therefore, does not allow BIS to scrutinize 
transactions in advance. This rule will reduce the need for ad hoc 
procedures such as use of general orders to impose license requirements 
on transactions involving problematic entities.
    6. One commenter stated that foreign availability should be a key 
factor in all decisions, particularly with respect to items that may 
pose little or no national security or foreign policy concerns. If a 
foreign company presents such concerns that it must be listed, controls 
should be applied only to items that present a national security or 
foreign policy concern rather than across the board.
    Decisions to set the license requirements, license exception 
availability and licensing policy for any entity listed pursuant to 
Sec.  744.11 will be made by the End-User Review Committee. Nothing in 
this rule either precludes or requires considering foreign availability 
in the Committee's deliberations. Because this rule is intended to 
focus license requirements on specific entities based on the conduct of 
those entities, BIS believes that decisions about the factors to 
consider and items to control should be decided on a case-by-case 
basis.
    7. One commenter stated that the preamble to the proposed rule 
states that the reasons for which BIS may place an entity on the Entity 
List are stated in Sec. Sec.  744.2, 744.3, 744.4, 744.6, 744.10 and 
744.20. However, only Sec. Sec.  744.10 and 744.20 referred to Supp. 4 
of the EAR. The commenter recommended that BIS add a reference to Supp 
4 in Sec. Sec.  744.2, 744.3, 744.4, and 744.6 and proposed Sec.  
744.11.
    Although Sec. Sec.  744.2, 744.3, 744.4 and 744.6 of the EAR do not 
explicitly mention Supp. No. 4 to part 744, they do provide for BIS to 
inform by amendment to the Export Administration Regulations that 
exports or reexports to certain parties require a license because those 
parties pose an unacceptable risk of use in or diversion to the 
activities set forth in those sections. Such amendments take the form 
of amendments to Supp. No. 4 to part 744 of the EAR. BIS believes that 
adding a reference to Supp. No. 4 in these sections is unnecessary and 
beyond the scope of this rule. Section 744.11 of the EAR in the 
proposed rule referred to the Entity List, but did not explicitly 
identify the Entity List as Supp. No. 4 to part 744. BIS believes that 
such identification would be useful. Accordingly, this final rule 
revises the introductory text of Sec.  744.11 of the EAR to make such 
identification.
    8. The proposed rule provided that new Sec.  744.11 could not be 
used to add to the Entity List parties for whom a license is required 
pursuant to Sec. Sec.  744.12, 13, 14 or 18 of the EAR. Those sections 
apply a BIS license requirement to certain entities that appear on the 
List of Specially Designated Nationals and Blocked Persons that is 
published by the Office of Foreign Assets Control in the Department of 
the Treasury. Two commenters recommended that the same limitation apply 
to entities added to the Entity List pursuant to Sec.  744.20 of the 
EAR. Section 744.20 provides for inclusion on the Entity List certain 
parties who are sanctioned under certain statutes by the Department of 
State. Both Sec.  744.20 and the new Sec.  744.11 established by this 
rule are foreign policy based export controls. One commenter expressed 
concern that not excluding entities listed pursuant to Sec.  744.20 
from listing pursuant to new Sec.  744.11 could cause differences of 
opinion between the Departments of State and Commerce in the EAR as to 
which entities are listed because of the foreign policy concerns that 
underlie Sec.  744.11 and those listed because of the concerns that 
underlie Sec.  744.20. The other commenter expressed concern that not 
excluding entities listed pursuant to Sec.  744.20 from listing 
pursuant to new Sec.  744.11 could lead to duplicate listings on the 
Entity List based on the two sections.
    BIS believes that the potential consequences cited by these two 
commenters are not likely to pose problems in practice and that no 
change to the rule is needed on this point. A single committee (the 
End-User Review Committee) will vote on all changes to the Entity List 
regardless of the section that authorizes placement of the entity on 
the Entity List. The Department of State will have a representative on 
that Committee. Therefore, conflicting interagency opinions regarding a 
proposed listing are likely to be resolved before that listing is 
published. If the Committee were to conclude that more than one section 
supported placing an entity on the list, it could list all of the 
applicable sections with that entity's entry rather than have multiple 
listings.
    9. One commenter recommended that BIS use the new Sec.  744.11 to 
impose license requirements on entities that have been targeted for 
non-proliferation reasons by the United States government or by foreign 
governments where other provisions of part 744 do not authorize 
inclusion on the Entity List.
    BIS believes that no change to the language of the proposed rule is 
needed because of the issues raised by this comment. Sections 744.2, 
744.3, and 744.4 of the EAR provide a basis for listing entities on the 
Entity List because ``there is an unacceptable risk of use in or 
diversion to'' proliferation activities related to certain nuclear end-
uses, certain rocket systems and unmanned air vehicles and certain 
chemical or biological weapons end-uses. Section 744.6 provides a basis 
for listing an entity on the Entity List because activities of U.S. 
persons in connection with that entity could involve certain nuclear 
activities, certain missile related activities or certain chemical or 
biological weapons activities. In addition, to the extent that an 
entity's proliferation related activities meet the criteria in new 
Sec.  744.11, that section could serve as a basis for listing the 
entity. BIS believes that these sections provide sufficient basis for 
using the Entity List to promote non-proliferation interests and that 
the decisions to list an entity should be made on a case-by-case basis.

Comments on Proposed Sec.  744.11(b) Criteria for Revising the Entity 
List--In General

    10. One commenter stated that BIS should ensure that the criteria 
for making a decision to list an entity are well defined and clear, to 
avoid capturing entities that are in compliance with their countries' 
laws and regulations, particularly if those companies are located in 
countries that are allies or major trading partners of the United 
States.
    Because the criteria set forth in the proposed rule are intended to 
protect U.S. national security and foreign policy interests, BIS 
believes that revising the criteria to preclude listing parties who are 
acting in accordance with their own countries' laws and regulations 
would undermine the purpose for imposing these license requirements. 
Nevertheless, BIS understands the need to act consistently with overall 
U.S. government interests, including the

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interest in maintaining appropriate relationships with U.S. allies and 
major trading partners. BIS believes that the multi-agency composition 
of the End-User Review Committee will provide balanced consideration of 
relevant U.S. government national security and foreign policy interests 
including interests based on relationships with other governments.
    11. One commenter stated that BIS should ensure that ``behaviors'' 
that can lead to placement on the List are at a comparable level in 
terms of failure to comply with U.S. government requirements.
    An important role of the End-User Review Committee is to promote 
consistent practice with respect to the Entity List. The Committee's 
procedures, including the right of escalation by any member agency, are 
intended to promote such consistency. However, the criteria for placing 
an entity on the Entity List do not require that the party's conduct 
violate a U.S. law or regulation. Placement on the Entity List pursuant 
to new Sec.  744.11 imposes a license requirement, sets licensing 
policy and sets the availability of license exceptions for the listed 
party. Failure to comply with government requirements would likely be a 
violation of law for which other actions, either instead of or in 
addition to placing an entity on the Entity List, would be appropriate.
    12. One commenter stated that actions that would warrant placement 
on the list should be examined principally against international 
standards for business conduct and internationally agreed upon 
principles for addressing common threats to the world community, rather 
than on purely unilateral considerations.
    BIS recognizes that international business, by its nature, must be 
conducted in accordance with the laws of more than one country. BIS 
also recognizes the value of international standards in influencing the 
laws and regulations of individual countries. In keeping with this 
recognition, the EAR include requirements drawn from multilateral 
export control regimes and United Nations arms embargoes. However, the 
EAR also include requirements that are based on U.S. interests that are 
not based on conclusions reached by a multinational body. BIS believes 
that multi agency participation (including the Department of State) on 
the End-User Review Committee will provide perspective (including an 
international perspective) in all decisions to modify the Entity List 
pursuant to Sec.  744.11. However, as stated in both the proposed rule 
and in this final rule, the underlying purpose of the rule is to 
protect U.S. national security and foreign policy interests. As such, 
BIS believes that it would be counterproductive to adopt a rule that 
would require decisions to modify the Entity List pursuant to Sec.  
744.11 to meet an internationally agreed upon standard.

Comments on the Illustrative Examples of Criteria for Placing an Entity 
on the Entity List Sec.  744.11(b)--In General

    13. One commenter stated that the five illustrative examples of 
conduct are stated very broadly, that they are only illustrative and 
that clearer and narrower limits are needed to prevent confusion. Two 
commenters specifically stated that more guidance on the type of 
conduct that would place an entity on the Entity List is needed.
    BIS believes the criteria and the illustrative examples must be 
broadly stated to illustrate effectively the kinds of activities that 
are contrary to U.S. national security or foreign policy interests and 
that justify placing an entity on the list. BIS notes that the decision 
to place an entity on the list must be based on specific and 
articulable facts. In recent years, BIS has sought to tailor certain 
export license requirements to specific users and has been forced to 
resort to ad hoc solutions to do so. Section 744.20 of the EAR allows 
for placing an entity on the Entity List only if the party is first 
sanctioned by the Department of State pursuant to certain statutes. 
That section has been used only one time. General Order Number 3 (Supp 
No. 1 to part 736 of the EAR) has been used to impose license 
requirements on parties where there is no regulatory basis to list 
those parties on the Entity List. BIS believes that broadly stating its 
criteria for placing an entity on the list will reduce the need for 
such ad hoc procedures. Broad illustrative examples are needed to 
illustrate effectively the broad nature of the criteria.
    BIS believes that the overall effect of this rule will be to reduce 
the possibility of confusion by consolidating names of parties whose 
presence in a transaction trigger an EAR license requirement onto a 
single list.
    As noted in the discussion above of the changes from the proposed 
rule, BIS has modified two of the illustrative criteria to describe 
more precisely the conduct that could justify placing an entity on the 
Entity List.

Comments on the Term ``Specific and Articulable Facts'' in Sec.  
744.11(b)

    14. One commenter asked whether intelligence reporting would be 
used in the process and if so, would the intelligence be no more than 
two years old and actionable? The commenter went on to recommend that 
only intelligence that has been certified by the Director of National 
Intelligence should be used in this process. In support of these 
recommendations, the commenter offered several assertions.
    This commenter asserted that, based on experience as a government 
employee in employment related to license application review, much 
intelligence information is of poor quality or outdated. This commenter 
also asserted that, in recent years, the focus of intelligence 
gathering has been closely tied to proliferation of weapons of mass 
destruction. Finally, this commenter asserted that a unit of the 
Department of Defense has, at times, stepped in to provide intelligence 
of poor quality.
    BIS intends that the End-User Review Committee utilize reliable 
information that is relevant to the case at hand in making its 
decisions. BIS believes that the Committee will be in a position to 
evaluate the reliability of information on a case-by-case basis. Adding 
a provision to this final rule prohibiting the use of information 
because of its age, source, whether it is ``actionable'' or whether it 
has been certified by a particular official would arbitrarily restrict 
the Committee and might preclude the use of reliable information in 
some cases. BIS believes that a former employee's opinions regarding 
the quality or focus of intelligence reporting available during that 
former employee's government tenure should not be a basis for limiting 
by regulation the information that the End-User Review Committee may 
consider. Therefore, BIS is making no change to the rule based on this 
comment.
    15. One commenter stated that the proposed rule could present 
problems for exporters in terms of compliance and ability to remain 
competitive in the international arena. This commenter asked for 
additional information about the standards that ``specific and 
articulable facts'' would have to meet, specifically what universe of 
conduct would lead to imposing a license requirement.
    BIS believes that compliance with the license requirements imposed 
by this rule will impose a minimal additional burden on exporters. Most 
exporters will meet the definition of U.S. Person in Sec.  772.1 of the 
EAR and thus may not be placed on the Entity List pursuant to this 
rule. By expanding the grounds for placing a name on the Entity List, 
BIS will be reducing the need to issue general orders that impose 
license

[[Page 49316]]

requirements, thereby reducing the number of provisions of the EAR that 
must be reviewed to identify potential recipients whose presence 
triggers a license requirement. BIS believes that describing in advance 
every sort of action that could be contrary to U.S. national security 
and foreign policy interests would be impossible and that attempting to 
do so would be counterproductive. Rather, the examples are intended to 
illustrate, in a general way, the nature of conduct that could be a 
basis for listing.

Comments Relating to the First Illustrative Example--Supporting Persons 
Engaged in Acts of Terror Sec.  744.11(b)(1)

    16. One commenter asked that BIS state the meaning of ``Supporting 
persons engaged in acts of terror.'' That same commenter asserted that 
there is no internationally agreed definition of terrorism and asked 
what the term ``acts of terror'' means.
    BIS believes that the meaning of terror and terrorism are 
sufficiently understood in common parlance that defining these terms is 
not necessary for public understanding of this rule. However, as 
examples and not as limitations, the acts set forth in 18 U.S.C. 
2331(1), 18 U.S.C. 2331(5) and the acts described in the preamble to 
the General Order Concerning Mayrow General Trading and Related 
Entities (71 FR 32272, June 5, 2006) would be considered supporting 
persons engaged in acts of terror for purpose of Sec.  744.11 of the 
EAR.
    This rule is intended to protect U.S. national security and foreign 
policy. Accordingly, obtaining international agreement as to the 
meaning of a term in the rule is unnecessary.
    17. One commenter asked what types of exports or reexports these 
restrictions are intended to cover.
    The license requirements imposed by adding a name to the Entity 
List could apply to any item subject to the Export Administration 
Regulations. The Committee could tailor the requirements based on the 
risks imposed by the party to be listed. The conduct that provides the 
reason for listing a party need not be an export or reexport of any 
type.

Comments Relating to the Second Illustrative Example--Actions That 
Could Enhance the Military Capability of, or the Ability To Support 
Terrorism of Governments That Have Been Designated by the Secretary of 
State as Having Repeatedly Provided Support for Acts of International 
Terrorism Sec.  744.11(b)(2)

    18. One commenter stated that it is not clear whether the 
illustrative example applies only to governments that the Department of 
State has designated as supporters of terrorism.
    BIS's intent is that any party taking the action described in this 
illustrative example could be placed on the Entity List. The action 
would have to enhance the military capability or the ability to support 
terrorism of a government that has been designated by the Secretary of 
State as having repeatedly provided support for acts of international 
terrorism. However, the action itself need not be taken by such a 
government. BIS does not believe that any change to the text of the 
rule is needed to make this point clear.
    19. One commenter asked whether the first clause addresses actions 
described in Sec.  744.21 of the EAR as part of the China rule.
    Read as a whole, this illustrative example does not address actions 
described in Sec.  744.21 of the EAR. Attempting to ascribe a meaning 
to the first clause of this illustrative example without reference to 
the final clause could be misleading. Section 744.21 of the EAR imposes 
a license requirement for certain exports and reexports for military 
end-uses in China where the exporter or reexporter knows that the item 
at issue in the specific transaction will be employed in a military 
end-use. This illustrative example deals with imposing license 
requirements on exports and reexports to certain parties by listing 
those parties and the license requirements on the Entity List because 
those parties have taken actions to enhance certain capabilities 
(including military capabilities) of governments that have been 
designated by the Secretary of State as having repeatedly provided 
support for acts of international terrorism. China has never been so 
designated.
    20. One commenter asserted that this section should be more clearly 
written to have the Department of State specify the government in 
question and tie the conduct that enhances the military capability of 
that government designated as supporting international terrorism. This, 
according to the commenter, would avoid confusion in the exporting 
community, avoid capricious interagency behavior and prevent commercial 
mischief.
    The Department of State determines that certain countries have 
repeatedly provided support for acts of international terrorism and so 
designates those countries pursuant to its statutory authority. This 
rule makes no change to that procedure. BIS believes that there are 
several provisions in this rule that provide reasonable safeguards 
against capricious interagency behavior: the requirement that the 
decisions to place an entity on the Entity List be supported by 
specific and articulable facts, the multi-agency composition of the 
End-User Review Committee that makes decisions to place an entity on 
the Entity List, and the right of agencies to escalate as provided in 
Supplement No. 5 to part 744 of this final rule. The fact that 
identifying information about the entities will be published will serve 
to reduce opportunities for confusion among any segment of the public 
that is engaged in exporting or reexporting items that are subject to 
the EAR.

Comments Relating to the Third Illustrative Example--Transferring, 
Developing, Servicing, Repairing or Producing Conventional Weapons in a 
Manner That Is Contrary to United States National Security or Foreign 
Policy Interests or Enabling Such Transfer, Service, Repair, 
Development, or Production by Supplying Parts, Components, Technology, 
or Financing for Such Activity--744.11(b)(3)

    21. One commenter stated that the language of this illustrative 
example ``should not be a back door maneuver seeking to penalize 
parties for certain conduct'' that was in the proposed version of the 
recently published China rule but that was removed from the final 
version of that rule.
    BIS believes that this comment is inapposite. The proposed 
modification to Sec.  744.6 of the EAR to which the commenter alludes 
would have applied a license requirement to certain support activities 
if done with knowledge that the underlying export or reexport 
transaction was occurring without a required license (See 72 FR 33817, 
July 6, 2006). This illustrative example describes a type of conduct, 
including support activities related to that conduct, that, when done 
contrary to United States national security or foreign policy 
interests, could justify imposing a license requirement for shipments 
to the party who engaged in that conduct and for notifying the public 
of the existence of that license requirement through publication on the 
Entity List.

[[Page 49317]]

    22. Two commenters suggested that the conduct in this illustrative 
example could cover situations in which foreign companies are complying 
with the laws and regulations of their own countries and that these 
situations are best dealt with through government to government 
negotiations rather than by imposing a license requirement on the party 
involved. One of these commenters noted that other governments may have 
bilateral arms arrangements and defense cooperation agreements and that 
BIS should not drive foreign policy by penalizing entities engaged in 
trade that is in compliance with their own domestic laws and 
regulations. The other commenter asked specifically in what ``manner'' 
the entity would have to be involved in such activities to be placed on 
the list.
    BIS is aware that not all other countries share the views of the 
U.S. government and that those countries may enter into arrangements 
and agreements consistent with their own interests. Nevertheless, an 
important part of BIS's role is to regulate exports in a manner that is 
consistent with U.S. foreign policy interests. The participation of the 
Department of State on the End-User Review Committee provides an 
opportunity for foreign policy input so that the Committee's actions 
are consistent with overall U.S. foreign policy interests. Moreover, 
the placement of an entity on the Entity List pursuant to this rule 
would not preclude the Department of State from engaging with another 
government regarding that government's policies and practices.
    The use of the word ``manner'' in this illustrative example is 
intended to make clear that any of the activities in this illustrative 
example must be contrary to U.S. national security or foreign policy 
interests to serve as a basis for placing a name on the Entity List.

Comments Relating to the Fourth Proposed Illustrative Example--
Deliberately Failing or Refusing to Comply With an End Use Check 
Conducted by or on Behalf of BIS or DTC by Denying Access, by Refusing 
to Provide Information About Parties to a Transaction, or by Providing 
Information About Such Parties That is False or That Cannot be Verified 
or Authenticated--Sec.  744.11(b)(4)

    23. One commenter stated that ``some parties have not been notified 
that they have been deemed to fail end use checks--either because they 
hadn't failed such checks or because the checks never even had been 
attempted.'' The rule ``as applied [should] include steps to ensure 
that such parties are not added to the Entity List in these 
circumstances.''
    All proposed additions to the Entity List pursuant to Sec.  744.11 
will be reviewed by the multi-agency End-User Review Committee. The 
Committee will be in a position to inquire into the details and 
circumstances of the end use check before making a decision. In 
addition, the Committee's procedures allow any participating agency to 
escalate the decision to a higher level. Finally, this rule contains a 
provision for the listed entity to seek to have its listing removed or 
modified and to present information supporting its request to the 
Committee. BIS believes that these procedures are sufficient to provide 
reasonable assurances against errors of the types described in the 
comment. BIS has modified the language of this illustrative example to 
emphasize that some conduct on the part of the party to be listed that 
makes conducting the check impossible or that renders its results 
inaccurate or useless must be present for the terms of this example to 
be met.
    24. Two commenters compared this illustrative example with the 
existing Unverified List published by BIS. One commenter stated that 
this illustrative example conflicted with the Unverified List because 
the Unverified List stated that it did not create a license 
requirement. The other commenter stated that the existing mechanism 
under the EAR for addressing entities in countries where BIS has been 
unable to conduct pre-license checks or post shipment verifications is 
more than adequate because it requires enhanced due diligence. This 
commenter asserted that establishing new license requirements on U.S. 
companies for actions that could be seen by other countries as their 
sovereign right could have consequences for U.S. manufacturers as those 
companies could decide to ``design out'' their [the U.S. manufacturers] 
products.
    BIS believes that conduct described in this illustrative example is 
sufficiently distinct from the conduct that would form a basis for 
placing a party on BIS's Unverified List that conflicting decisions are 
unlikely. Moreover, the existing Unverified List is not adequate to 
address the situations covered by this rule. BIS may place entities on 
the Unverified List because BIS is unable to perform an end use check 
or where BIS is unable to verify the existence or authenticity of the 
end user, intermediate consignee, ultimate consignee or other party to 
an export transaction for reasons outside the control of the U.S. 
government (See 67 FR 40910, June 14, 2002 and 69 FR 42652, July 16, 
2004). This illustrative example requires a deliberate refusal or a 
pattern of conduct by the party to be listed that makes the check 
impossible to conduct or that makes the results of the check inaccurate 
or useless. To emphasize this point, BIS has revised the language 
published in the proposed rule. BIS believes that conduct of the type 
described in this illustrative example can warrant imposing a license 
requirement on transactions with the parties who engage in the conduct 
because a license requirement will result in more comprehensive 
scrutiny of transactions than would identifying the party's presence as 
a red flag thereby requiring additional scrutiny by a private sector 
party. Although nothing in the EAR expressly precludes an entity from 
being listed simultaneously on the Unverified List and on the Entity 
List, BIS expects that such an event is unlikely given the differences 
in criteria underlying the two lists.
    Although some risk exists that manufacturers will attempt to design 
out U.S. origin components because of any U.S. export control 
regulation, BIS believes that judicious review by the End-User Review 
Committee will provide reasonable assurance that the Committee will 
list only entities whose conduct truly merits placement on the Entity 
List.

Comments Relating to the Proposed Fifth Illustrative Example--Engaging 
in Conduct That Poses a Risk of Violating the EAR and Raises Sufficient 
Concern That BIS Believes That Prior Review of Exports or Reexports 
Involving the Party and the Possible Imposition of License Conditions 
or License Denial Enhances BIS's Ability To Prevent Violations of the 
EAR.--Sec.  744.11(b)(5)

    25. One commenter stated that more information is needed for the 
fifth illustrative example. The commenter stated that the example 
should be replaced with more specific illustrations of conduct that is 
of concern to BIS. The commenter stated that some violations are minor 
and that BIS should spell out in detail those types of violation risks 
that cause it concern. The commenter suggested that if this 
illustrative example is to be maintained, some form of materiality 
standard should be added and suggested ``engaging in conduct that poses 
a substantial risk of imminent and serious violation of the EAR'' as a 
possible materiality standard.
    Although many acts could pose a risk of violating the EAR, the acts 
that would meet the terms of this example are limited to those where 
the End-User Review Committee believes that imposing license 
requirements through

[[Page 49318]]

the Entity List enhances BIS's ability to prevent violations of the 
EAR. In this final rule, BIS has modified the language of this 
illustrative example to emphasize that connection. BIS believes that 
replacing this illustrative example with several more specific 
examples, which inevitably would be more narrow in scope, could mislead 
readers into focusing on the specific conduct in the examples 
themselves rather than on the nexus between the conduct that poses a 
risk of violating the EAR and enhanced ability to prevent violations 
that would result from an Entity List listing.
    BIS believes that it would not be prudent to designate some EAR 
violations as, a priori, more serious than others. The seriousness of a 
violation may vary according to the facts of a particular case. This 
illustrative example, as clarified in this final rule, is designed to 
illustrate that there must be a nexus between the conduct of the party 
to be placed on the Entity List and the enhanced ability of BIS to 
prevent violations through imposing a license requirement. BIS believes 
that further illustrations are not needed to explain this point.
    ``[P]revent[ing] an imminent violation'' is the standard for 
imposing temporary denial orders pursuant to Sec.  766.24 of the EAR. 
BIS believes that, in some instances, a license requirement may prevent 
a violation even in the absence of an imminent threat and that Sec.  
744.11 of the EAR could be used in such instances.
    26. One commenter stated that it would be better for BIS to engage 
in a partnership with U.S. industry in order to find ways to prevent 
potential violations rather than impose additional licensing 
requirements on a U.S. company.
    BIS is open to suggestion from any member of the public as to ways 
to prevent violations and welcomes all such recommendations. However, 
members of the public vary in their willingness and ability to detect 
and deter violations. This rule recognizes that in some instances, a 
license requirement, which enables the government to review the 
proposed transaction, impose license conditions, or, if necessary, deny 
the license application, is needed to prevent violations. This final 
rule revises this illustrative example to tie more explicitly the 
conduct of the party to be added to the Entity List to the risk of a 
violation and to the End-User Review Committee's belief that imposing 
the review associated with license applications will aid BIS in 
preventing violations.

Comments Relating to the Listing Process--Sec.  744.11 of the EAR

    27. One commenter stated that more information should be provided 
about the process for listing entities on the Entity List pursuant to 
this rule. Specifically, the commenter wanted more information on the 
process that will be employed to determine whether non-EAR related 
activities would provide a basis for listing, who would determine the 
national security interests of the United States, the levels at which 
interagency consultations will take place, who will make listing 
determinations with respect to non-EAR activities and, the checks that 
will be in place to prevent lower level officials from applying their 
own notions of national security and foreign policy.
    BIS agrees that this rule should disclose more information on the 
process by which Entity List decisions will be made pursuant to 
Sec. Sec.  744.11 and 744.16 than the proposed rule disclosed. 
Accordingly, this final rule includes, as a supplement to part 744, the 
procedures to be used by the End-User Review Committee in making such 
decisions. Those procedures provide that the Committee will include 
representatives from the Departments of State, Defense, Energy and 
Commerce, and the Treasury as appropriate. Decisions to make changes to 
the Entity List will be made by majority vote of the Committee. Any 
participating agency that disagrees with the outcome may escalate the 
matter according to the same procedures that are used to escalate 
interagency disputes regarding export license applications. BIS 
believes that these procedures provide reasonable assurances that low 
level officials will not impose any personal notions of national 
security or foreign policy that are inconsistent with actual U.S. 
national security or foreign policy interests.
    Under this rule, the activity that forms a basis for listing an 
entity need not be an activity that is a violation of the EAR or even 
be an activity that is regulated pursuant to the EAR. BIS believes that 
the multi-agency composition of the End-User Review Committee and its 
procedures as set forth in new Supplement No. 5 to part 744 of the EAR 
will provide reasonable assurance that any activity forming the basis 
for listing an entity will be consistent with the criteria set forth in 
Sec.  744.11.
    28. Two commenters proposed that any entity under consideration for 
placement on the Entity List should be notified and afforded an 
opportunity to state its position, provide information and present 
arguments against the listing before any action is taken.
    BIS is not adopting this proposal because other provisions of the 
EAR provide adequate provision for listed parties to be heard. This 
rule provides a procedure in new Sec.  744.16 that allows a listed 
entity to present information to the End-User Review Committee. In 
addition, placement on the Entity List results in the imposition of a 
license requirement, the establishment of licensing policy, and the 
establishment of limits on use of License Exceptions for that entity. 
If any license application to send an item that is subject to the EAR 
to a listed entity subsequently is denied, that entity, as a person 
directly and adversely affected by the denial, would have a right to 
appeal under part 756 of the EAR.
    29. Two commenters stated that certain members of the public 
(particularly U.S. exporters) who could be affected by new Entity List 
listings should have an opportunity to present information before a 
final decision is made to place an entity on the Entity List.
    BIS believes that it is not necessary to notify the public at large 
of impending Entity List changes. Placement of an entity on the Entity 
List results in the imposition of a license requirement, the 
establishment of licensing policy, and the establishment of limits on 
use of license exceptions for that entity. If any license application 
to send an item that is subject to the EAR to a listed entity 
subsequently is denied, the license applicant, as a person directly and 
adversely affected by the denial, would have a right to appeal under 
part 756 of the EAR.
    30. One commenter stated that BIS failed to provide a transparent 
and rational process, raising serious issues under the national 
treatment provisions of the WTO treaty.
    BIS does not know what this commenter means by ``serious issues.'' 
BIS is not aware of any treaty provision that this rule would 
contravene.

Comments Concerning Sec.  744.16--Procedure for Requesting Removal or 
Modification of an Entity List Entry

    31. One commenter asserted that the need for more information about 
the process would be vital for persons seeking removal from the list 
and that given the broad and far reaching nature of criteria for 
listing an entity, senior level officials should have a greater role in 
the removal process.
    BIS agrees that this rule should disclose more information on the 
process by which Entity List decisions will be made than the proposed 
rule

[[Page 49319]]

disclosed. Decisions made pursuant to Sec.  744.16 (requests for 
removal or modification) will be made by the same End-User Review 
Committee that makes decisions to add an entity pursuant to Sec.  
744.11 Accordingly, this final rule includes, as a supplement to part 
744, the procedures that the End-User Review Committee will use in 
making such decisions. That procedure provides that a member agency 
that disagrees with a decision has the right to escalate the matter to 
more senior officials.
    32. One commenter stated that persons whose requests for removal 
are denied by the interagency review committee should have an express 
right of appeal.
    BIS believes that a right of appeal for listing decisions on the 
Entity List is not necessary as the EAR already contains a mechanism 
for appeals of decisions to reject license applications. A rejection of 
a party's request to be removed from the Entity List retains existing 
license requirements, licensing policy and restrictions on availability 
of license exceptions. In the event that a license application on which 
the listed entity is shown as a party is denied, the listed entity as a 
party directly and adversely affected by that denial would have a right 
to appeal under part 756 of the EAR.
    33. One commenter stated that there should be a transparent and 
rational process that allows the listed party and interested parties to 
request removal. This commenter asserted that failure to provide a 
transparent and rational process raises serious issues under the 
national treatment provisions of the WTO treaty.
    BIS agrees that more disclosure than was contained in the proposed 
rule of the process by which Entity List decisions will be made 
pursuant to Sec.  744.11 and 744.16 is appropriate. Accordingly, this 
final rule includes, as a supplement to part 744, the procedures of the 
End-User Review Committee that will make such decisions. BIS does not 
know what this commenter means by ``serious issues.'' BIS is not aware 
of any treaty provision that this rule would contravene. Comments are 
not related to specific proposals in the proposed rule.
    34. One commenter suggested that BIS consider replacing the broader 
based controls as in the recent China rule with targeted entity based 
controls.
    Although BIS believes that targeted end-user controls are valuable, 
BIS also believes that they cannot at this replace end-use license 
requirements imposed by the recent China rule. The reasons for those 
license requirements were set forth in the preamble to that rule (72 FR 
33646, June 19, 2007) and need not be repeated here.
    35. One commenter stated that BIS should take steps to coordinate 
any expanded Entity List with the Validated End User process, for 
example, make the VEU process available to all entities not included on 
the Entity List or by creating a presumption that a party not included 
on the list should be eligible, in the absence of other specific and 
articulable facts, for VEU status.
    BIS believes that neither of these suggestions is practical. The 
Validated End User (VEU) authorization (Sec.  748.15 of the EAR) allows 
exports and reexports without a specific license of certain items to 
end users who have been approved by the End-User Review Committee. 
Section 744.11 as set forth in this rule imposes license requirements 
on exports and reexports to certain identified parties even if such 
exports and reexports would not require a license in the absence of the 
Entity List listing. Between these two categories of potential 
recipients are many potential recipients for whom neither Entity List 
listing nor Validated End User status is likely to be appropriate.
    36. Two commenters recommended that the rule include a ``contract 
sanctity'' provision. One stated that parties should be able to 
complete transactions that were entered into before the date that BIS 
determined that specific and articulable facts justified listing of a 
party on the Entity List. The other stated that such a provision was 
needed to avoid unnecessary disruption to collaborative efforts that 
may have been in place for a long time.
    This rule provides the authorization for adding parties to the 
Entity List, but does not add any parties to the list. BIS believes 
that establishing a contract sanctity provision that would apply to all 
Entity List additions regardless of circumstances and consequences 
would be unwise. BIS notes that this rule does not preclude the use of 
a contract sanctity provisi