Compliance Screening
The Unreliable Entity List for China: FAQ and trade compliance solutions
The introduction of the Provisions on the Unreliable Entity List (UEL) makes it clear that China’s trade compliance controls have made significant progress. For businesses, other organizations, and individuals based in China, it is crucial to incorporate UEL regulations into existing trade compliance programs. Various points in the UEL Provisions are subject to further discussions and refinement. But experts agree that the new system will be gradually improved and that it forms a key cornerstone of China’s new trade controls.
Who is affected by the new regulation and does it apply to you?
Companies, other organizations, and individuals based in China are required to comply with the new regulation since the Provisions on the Unreliable Entity List took effect.
Many authorities across the globe publish official sanctions lists. It is important to understand the scope and implications of China's Unreliable Entity List with its new, official provision released by the Ministry of Commerce (MOFCOM). It represents a key cornerstone of China’s new export control regime.
The range of activities that can lead to designations is comprehensive!
Sanctions list compliance relies on screening automation
Various authorities around the globe publish official sanctions lists. The US OFAC and the EU are two examples. Now, China has joined them with its new Unreliable Entity List. It is just a matter of time until the first entries will be made and first measures will be enacted. Restricted party screening is a key component in effective trade compliance programs.
Compliance Screening from AEB offers various plans to meet different needs and secure global trade transactions. The AEB solution also offers convenient machine translation of non-Latin characters – including Chinese. This delivers even more comprehensive coverage of your business partner screening.
Your questions and our answers: Unreliable Entity List FAQ
Trade compliance involves an abundance of national and international regulations. It is an area of dynamic developments and regular changes. China has made great progress in their national export control program in 2020 and there are many questions around the Unreliable Entity List. In this FAQ, our Global Trade Expert Olga Pramberger delivers insights.
- May 31, 2019: The Ministry of Commerce of China (MOFCOM) first announced the introduction of the Unreliable Entity List. It followed the designation of Huawei (and its worldwide subsidiaries) on the US Entity List by the US authority BIS on May 16, 2020.
- September 19, 2020: The Provisions on the Unreliable Entity List of China were published by MOFCOM and took effect on the day.
The new Provisions on the UEL detail the following goals:
- Safeguard China’s national sovereignty, security, and development interests
- Maintain a fair and free international economic and trade-related order
- Protect the legitimate rights and interests of enterprises, other organizations, and individuals of China
Trade compliance experts and various media publications summarize the UEL Provisions' goal as "protecting China's business and government interests".
The new Provisions on the Unreliable Entity List do not mention one authority in particular. Instead, they describe a "Working Mechanism" that refers to relevant central governmental authorities in China. The Office of the Working Mechanism is located at the competent department of commerce of the State Council. This Working Mechanism is in charge of organization and implementation of the UEL system. In this context, it is authorized to decide to announce investigations on the actions taken by relevant foreign entities based on:
- Its administrative duties and functions or
- Suggestions or reports by relevant parties.
- Foreign enterprises
- Other foreign organizations
- Individuals of foreign countries
- Activities that endanger the national sovereignty, security, or development interests of China
- Behaviours that interrupt normal transactions with a Chinese enterprise, other organization, or individual of China
- Behaviours that apply discriminatory measures against enterprises, other organizations, or individuals of China, which violates regular market transaction principles and causes serious damage to the legitimate rights and interests of these enterprises, organizations, or individuals
If the facts about the relevant activities by foreign entities are clear, the Working Mechanism may directly take decisions to designate such entities. If the facts are not clear, the investigation results of the Working Mechanism will determine whether or not relevant foreign entities will be listed on the UEL. In either case, the following factors will be considered (at the discretion of the Working Mechanism) for the final decision :
- The degree of danger to national sovereignty, security, or development interests of China
- The degree of damage to the legitimate rights and interests of enterprises, other organizations, or individuals of China
- Compliance with internationally accepted economic and trade rules
- Other relevant factors
- Restricting or prohibiting the foreign entity from engaging in China-related import or export activities
- Restricting or prohibiting the foreign entity from investing in China
- Restricting or prohibiting the foreign entity’s relevant staff or transport vehicles from entering China
- Restricting or revoking the relevant staff’s work permits and status of stay or residence in China
- Imposing fines in accordance with the severity of the circumstances
- Other necessary restrictive measures
Exception: Under special circumstances where it is necessary for a Chinese entity to conduct transactions with a designated foreign entity under restrictive measures, the Chinese entity can apply for an exception from the Working Mechanism. If the Working Mechanism approves the transaction, the Chinese entity can continue undertaking transactions with the foreign entity in line with the approval.
The UEL Provisions are in accordance with the Foreign Trade Law of the People’s Republic of China, the National Security Law of the People’s Republic of China, and other relevant laws in this context.
Olga Pramberger
AEB Product Expert for Compliance Screening