Bill Requiring Commerce to Report Export License Application Information to Congress Proceeds

The Bill appears to be a response by Congress to the perception that the US Commerce Department’s Bureau of Industry and Security (BIS) has approved significant quantities of license applications to restricted entities in arms embargoed countries like China, despite the presumption of denial that generally applies to the review of those license applications.

The Bill requires that BIS submit annual reports to the House Committee on Foreign Affairs and the Senate Committee on Banking, Housing, and Urban Affairs, with the first report due one year after the date on which the president signs the Bill into law. Each annual report must include the following information for the prior year:

• Information regarding license applications, including for each the name of the applicant, descriptions of the items involved, including Export Control Classification Numbers and applicable reasons for control, the names and locations of the end-users, the license value, the ultimate decision reached by BIS regarding the license, and the date of submission.

• The date, location, and result of any end-use checks performed by BIS.

• Aggregate statistics on all license applications and other requests for authorizations described above.

The reporting requirement does not apply to all license applications submitted to BIS or end-use checks conducted by the agency, but rather pertains only to the arms embargoed destinations (that is, countries listed in Country Group D:5 in Supplement No. 1 to Part 740 of the Export Administration Regulations (EAR)). More specifically, the reporting would be required only for license applications for exports, re-exports, releases, or in-country transfers to entities located in a Country Group D:5 country and included on the BIS Entity List (in Supplement No. 4 to Part 744 of the EAR) or the BIS Military End-User List (in Supplement No. 7 to Part 744 of the EAR). License applications to entities in arms embargoed destinations that are not identified on the Entity List or the Military End-User List, such as subsidiaries or affiliates of Entity List entities that are not explicitly set out on the Entity List, would not be included in the reports.

Under the Bill (if signed into law by the president), annual reports to Congress would be exempt from public disclosure, meaning that the general public will not have access to information regarding any licenses issued by BIS for these entities. Nonetheless, the requirement that this information be made available to certain Congressional committees could increase scrutiny of these license applications and the likelihood of end-use checks by BIS. Moreover, the increased number of persons reviewing the license application also increases the risk of inadvertent public release of such information. Companies considering applying for licenses to Entity List or Military End-User entities in China and the other D:5 countries should be prepared to gather and provide comprehensive information addressing the presumption of denial and any specific concerns about the parties involved.  They should also ensure that due diligence supports the proposed justifications for issuing the license. Such companies may also consider weighing the potential benefit of an export license against the risk of public scrutiny and potential reputational harm if information about their license application becomes public.