Military End User List (MEU-List)
On December 23, 2020, the U.S. Bureau of Industry and Security (BIS) added a new sanctioned party list to the Export Administration Regulations (EAR): the Military End User List (MEU). This can be found in Supplement No. 7 to Part 744 of the EAR.
The Military End User List must be checked for when, for example, certain recipients in China, Venezuela, and Russia are subject to the EAR in connection with goods. That is, the term is used in the EAR to describe products and activities over which BIS exercises regulatory jurisdiction. Products and activities that are not, on the other hand, subject to the EAR are outside the EAR’s regulatory jurisdiction and thus not affected by the rules.
The new U.S. sanctioned party list
On December 21, 2020, the U.S. Department of Commerce announced that the new MEU list will be added to the EAR (effectively the U.S. dual-use regulations). Among the first 103 listed companies already published are 58 Chinese and 45 Russian companies. The U.S. government believes that these companies qualify as “military end users” and thus fall under the “military end user” controls in the EAR that apply to certain exports, re-exports, or domestic transfers to China, Russia, and Venezuela.
Background of the Military End User List
New restrictions on re- and exports of dual-use items and dual-use technologies from the U.S. to Russia, China, and Venezuela have already been in effect since June 29, 2020. These restrictions represent a tightening of licensing requirements for exports to these countries if they are related to a military end-user or end-use. The U.S. Department of Commerce’s goal with the new regulations is to establish a new process for determining military end-users and thereby (literally) “combat efforts by China and Russia to divert U.S. technology for their destabilizing military programs.”
If a facility is on the MEU list, exporters, re-exporters, and (domestic) transferors are prohibited from exporting, re-exporting (re-exporting), and domestically transferring designated items to those facilities. From the U.S. government’s perspective, these facilities pose an unacceptable risk of use in or detour to a “military end-use” or “military end-user.”
However, from a U.S. perspective, the MEU list is not an exhaustive list. Thus, a listing on the MEU list does not mean that other parties not on the list are exempt from legal prohibitions. Thus, parties not on the MEU list but on the Section 1237 list of the National Defense Authorization Act may also trigger a “red flag” under the EAR with the U.S. Department of Defense. Thus, they require additional due diligence for exporters, re-exporters, or domestic shippers.
When do companies need to check the Military End User List?
This depends on whether the company falls within the scope of the MEU sanctioned party list. The new MEU list only affects companies that either trade in affected U.S. products (from Supplement No. 2 to Part 744 of the EAR) or are a “U.S. person” as defined.
It should be noted that the legal consequences of an MEU listing are different from those of more extensive financial sanctions. It is not a provision ban (prohibits the provision of funds or economic resources to sanctioned persons). The MEU sanctioned party list seeks only to restrict trade in defined items to end users (military end users). In the case of trade with end users from the four countries just mentioned on the MEU sanctioned party list, the companies concerned are subject to a licensing requirement.
How does the MEU sanctioned party list impact your due diligence and KYC processes?
Already when publishing the MEU list, BIS warned that it is not an exhaustive sanctioned party list of all military end-users. This means that end-users that are not listed are not automatically exempt from sanctions. Exporters must therefore continue to ensure that controlled goods are not supplied to military end-users from Burma, China, Russia, or Venezuela (even if they are not on the MEU sanctioned party list).
The MEU list was introduced by BIS to help exporters verify their customers and whether these customers are military end-users or involved in military end-use. Due to these developments, Know Your Customer (KYC) risk analyses are becoming more important again. Associated with the process according to KYC principles, “due diligence” checks are carried out. “Due diligence” means as much as “due diligence”, which is to be observed in the audits. In this process, a company or person is examined for economic, legal, tax and financial circumstances with the help of complex questions. In addition, trading partners and their ownership structures, in new and existing business relationships, are part of the audits.