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US Commerce Department Adds 33 China-based Companies to Unverified List

Sanctions Knowledge & Training

The US Commerce Department’s Bureau of Industry and Security (BIS) has added 33 China-based businesses to its Unverified List (UVL) – highlighting potential export risks.

The aim is to demonstrate that US exporters should conduct additional due diligence and assess transaction risks when doing business with these companies. 

BIS is taking action against the 33 entities because it has been unable to carry out routine end-use checks which establish the legitimacy and reliability of the end use or end user of exported items. 

Reasons for this could include an inability to contact or locate the business, failure to appropriately demonstrate the disposition of items, or lack of cooperation by a host government with BIS’s conduct of end-use checks. 

“The ability to verify the legitimacy and reliability of foreign parties receiving US exports through the timely completion of end-use checks is a core principle of our export control system,” said Assistant Secretary for Export Enforcement, Matthew Axelrod. 

He added that the measures would also signal to the Chinese government the importance of their cooperation in scheduling end-use checks.

Focus on Technology Business

Many of the 33 new additions to the UVL are technology companies, including some dealing with semiconductors, a scarcity of which has been one of the most notable fallouts of recent global supply chain issues.

An “unverified” listing doesn’t stop US exporters engaging with a business, or signal specific national security or foreign policy concerns, but it does mean that additional documentation – including a UVL statement from authorized officials of listed parties certifying compliance with EAR and committing to end-use checks by BIS – will be required when exporting, reexporting or transferring items to them.

Those listed will also not be eligible for EAR license exceptions. This means the exporter must seek an export license from BIS before exporting controlled items to these entities. This impacts items that, although subject to a license requirement for certain destinations such as China, can ordinarily be exported without a license, provided requirements of an applicable license exception are met. 

Technology companies that supply encryption software routinely rely on License Exception for end-users located in China. Those companies will now need an export license from BIS before providing the same software to UVL entities.

Ongoing Tensions with China

While the addition of these businesses to the UVL does not indicate any specific concerns, it does reflect increased scrutiny by the federal government in relation to Chinese business practices and perceived threats from China.

According to our latest state of financial crime report, China is the top geopolitical hotspot that firms were most concerned about heading into 2022. Secretary of State Anthony Blinken described US-China relations as “the biggest geopolitical test of the 21st century”.

The designation of the 33 companies comes after the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned eight firms in December that “actively support the biometric surveillance and tracking of ethnic and religious minorities in China.” This includes Xinjiang, a key focus for policymakers concerned about forced labor and human rights violations. 

The measures were pursuant to Executive Order 14032, which prohibits people in the US investing in Chinese companies found to have ties to the military or the surveillance industry. 

Firms dealing with designees on the UVL should ensure they are screening against relevant BIS lists, and conducting additional due diligence checks where necessary. Firms should be essentially mindful of the heightened sensitivities around technology exports to China across both export restrictions and sanctions. 

Uncover more details about the State of Financial Crime in 2022 in our new guide.

The US Commerce Department’s Bureau of Industry and Security (BIS) has added 33 China-based businesses to its Unverified List (UVL) - highlighting potential export risks. The aim is to demonstrate that US exporters should conduct additional due diligence and assess transaction risks when doing business with these companies.  BIS is taking action against the 33 entities because it has been unable to carry out routine end-use checks which establish the legitimacy and reliability of the end use or end user of exported items.  Reasons for this could include an inability to contact or locate the business, failure to appropriately demonstrate the disposition of items, or lack of cooperation by a host government with BIS’s conduct of end-use checks.  “The ability to verify the legitimacy and reliability of foreign parties receiving US exports through the timely completion of end-use checks is a core principle of our export control system,” said Assistant Secretary for Export Enforcement, Matthew Axelrod.  He added that the measures would also signal to the Chinese government the importance of their cooperation in scheduling end-use checks.

Focus on Technology Business

Many of the 33 new additions to the UVL are technology companies, including some dealing with semiconductors, a scarcity of which has been one of the most notable fallouts of recent global supply chain issues. An “unverified” listing doesn’t stop US exporters engaging with a business, or signal specific national security or foreign policy concerns, but it does mean that additional documentation - including a UVL statement from authorized officials of listed parties certifying compliance with EAR and committing to end-use checks by BIS - will be required when exporting, reexporting or transferring items to them. Those listed will also not be eligible for EAR license exceptions. This means the exporter must seek an export license from BIS before exporting controlled items to these entities. This impacts items that, although subject to a license requirement for certain destinations such as China, can ordinarily be exported without a license, provided requirements of an applicable license exception are met.  Technology companies that supply encryption software routinely rely on License Exception for end-users located in China. Those companies will now need an export license from BIS before providing the same software to UVL entities.

Ongoing Tensions with China

While the addition of these businesses to the UVL does not indicate any specific concerns, it does reflect increased scrutiny by the federal government in relation to Chinese business practices and perceived threats from China. According to our latest state of financial crime report, China is the top geopolitical hotspot that firms were most concerned about heading into 2022. Secretary of State Anthony Blinken described US-China relations as “the biggest geopolitical test of the 21st century”. The designation of the 33 companies comes after the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned eight firms in December that “actively support the biometric surveillance and tracking of ethnic and religious minorities in China.” This includes Xinjiang, a key focus for policymakers concerned about forced labor and human rights violations.  The measures were pursuant to Executive Order 14032, which prohibits people in the US investing in Chinese companies found to have ties to the military or the surveillance industry.  Firms dealing with designees on the UVL should ensure they are screening against relevant BIS lists, and conducting additional due diligence checks where necessary. Firms should be essentially mindful of the heightened sensitivities around technology exports to China across both export restrictions and sanctions.  Uncover more details about the State of Financial Crime in 2022 in our new guide.

Originally published February 17, 2022, updated February 17, 2022

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