The Bureau of Industry and Security (“BIS”) released today a notice of a proposed rule that would expand the reasons that a company could be placed on BIS’s Entity List. A license is required for exports of all items subject to the EAR, including EAR99 items, to persons or companies listed on the Entity List.

The new reasons for designation on an entity list include acts supporting terrorism, acts that enhance the military (or terrorist) capabilities of governments that are designated as state supporters of terrorism, dealing in conventional weapons in a manner deemed contrary to the interests of the United States, and failing to cooperate in an end-use verification by BIS. All of these seem to be perfectly sound reasons for adding a person or company to the Entity List. But, a fifth reason for inclusion was, shall we say, just a little bit broader and a just a little bit more puzzling:

Engaging in conduct that poses a risk of violating the EAR and raises sufficient concern that BIS believes that prior review of exports or reexports involving the party and the possible imposition of license conditions or license denial enhances BIS’s ability to prevent violations of the EAR.

Before you get too worked up about this, we should note that BIS specifically notes that none of these new reasons, including this last reason, can be used to put a U.S. person on the Entity List.

Still there is some cause for concern. BIS doesn’t provide any clues as to what kind of conduct “poses a risk of violating the EAR.” Is having a subsidiary in a sanctioned country, such as Iran, conduct that poses such a risk? Would a foreign company that speaks out against BIS export controls be engaging in such conduct? It’s impossible to tell.

Of course, from a compliance viewpoint, a U.S. exporter that checks the Entity List has no increased risk from this proposed rule because the export requires a license only after the suspected EAR violator is added to the list.

Comments on the proposed rule are due on or before August 6, 2007.

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