Are You Exporting To A "Restricted Person"?

By Margaret M. Gatti, Esq.
December 1999

All Rights Reserved

Restricted Persons are individuals and companies that have been designated as "bad guys" by one or more U.S. government agencies. In designating an individual or a company as a restricted person, the government agency which makes the restricted person designation subjects the restricted person to either an export prohibition or an export control. There are currently four different government-issued restricted persons lists with which exporters must contend. Three of these lists spell out prohibited buyers and end users, i.e., buyers and end users to whom exporters can't sell in any event. The fourth list spells out buyers and end users that are subject to export controls, i.e. buyers and end users to whom exporters can't sell without first applying for and obtaining a U.S. government agency issued export license. A description of each of the four restricted persons lists follows:

Restricted Persons List #1 is the State Department's Debarred List. This list (a.k.a. Debarment List) is a list of persons who have been precluded by the State Department from participating-either on a direct basis or on an indirect basis-in any transaction, which requires a State Department license or State Department approval. Transactions which require State Department licenses and State Department approvals are transactions which involve the export of defense articles, defense services and the technical data related to defense articles and defense services.

Restricted Persons List #2 is the Commerce Department's Denied Parties List. This list (a.k.a the Denial List) is a list of persons (denied persons) who have been denied export privileges by the Commerce Department (denial orders) because they have, or are believed to have, violated the Export Administration Act or the Export Administration Regulations (EAR). Denial orders are designed to cut off the access of denied persons to U.S.-origin items by denying such parties the right to export and by prohibiting third parties from dealing with a denied party in a transaction involving the export of U.S.-origin items.

Restricted Persons List #3 is the Office of Foreign Assets Control's (OFAC's) Specially Designated Nationals List. This list (a.k.a. the SDN List) is a list comprised of individuals and entities with which U.S. persons are precluded from dealing. The individuals and entities on the SDN List were placed on the SDN List because they are deemed by OFAC to be associated with international narcotics or terrorism or because they are owned or controlled by, or acting for or on behalf of, the governments of countries which the U.S. considers to be hostile to U.S. foreign policy or national security objectives.

Restricted Persons List #4 is the Commerce Department's Entity List. The Entity List is maintained by the Department of Commerce to provide notice and to inform the public of certain entities that are of concern to Commerce because of their suspected involvement in the proliferation of chemical or biological weapons, nuclear weapons or explosive devices and missile systems. Based on Commerce's concerns in this regard, Commerce has subjected the entities on the Entity List to licensing controls on the export and re-export of specified items. If the specified items for a particular entity are "all items subject to the EAR", then a license is required for all exports and re-exports to the named party. However, if the Entity List specifies only a certain product category such as computers, then-absent other issues which cause the need for an export license-only the export or re-export of products in the specified product category to the named entity would require an export license. The license requirement for the specified items exists without regard to the intended end-use for the specified items.

To avoid making a prohibited or otherwise controlled export sale to a restricted person, U.S. exporters must screen the buyers and end users in their export transactions against the current version of each government-issued restricted persons list. Unfortunately, however, this is a step that many U.S. exporters are reluctant to take because it inevitably increases export-processing time and because many U.S. exporters feel that it is unlikely in any event that their screenings will yield a positive result. Such reluctance is ill-advised and rather short-sighted, in that any U.S. exporter who deals with a restricted person in an export transaction involving the export of U.S. origin goods is subject -- often on a strict liability basis -- to the imposition of administrative sanctions which include monetary penalties and possibly denial of export privileges. Additionally, if a violation is deemed to be knowing or willful, the exporter involved may face criminal prosecution. The message here should be clear - to avoid the imposition of administrative and possibly criminal sanctions for dealing with a restricted person, U.S. exporters must routinely screen the buyers and end users in all their export transactions against the most current version of each government-issued restricted person list!