On June 12, 2024, the US Department of Commerce announced new export restrictions related to Russia’s war against Ukraine. While the US government has maintained sanctions and required additional licensing requirements for exports and transfers to Russian military organizations and their suppliers, the Bureau of Industry and Security (BIS) is now addressing concerns over foreign shell companies based in Hong Kong that use multiple corporate identities to engage in unlawful trade.

To counter organizations looking to bypass US export controls, BIS has now added eight addresses in Hong Kong to the Entity List. This means that any company, organization, or individual identifying one of the following addresses that is a purchaser, consignee or end-user will now have additional restrictions placed on them for any transaction subject to the Export Administration Regulations (EAR). The addresses are:

• Unit D, 16/F One Capital Place, 18 Luard Rd, Wan Chai, Hong Kong.
• Unit 04, 7/F Bright Way Tower, No. 33 Mong Kok Road, Kowloon, Hong Kong.
• Room 19C Lockhart Centre 301-307, Lockhart Rd. Wan Chai, Hong Kong.
• Room 803, Chevalier House 45-51, Chatham Road South, Tsim Sha Tsui, Hong Kong.
• Flat/RM 2309, 23/F, Ho King Commercial Centre, 2-16 Fa Yuen Street, Mong Kok, Kowloon, Hong Kong.
• Office 4, 16/F Ho King Commercial Centre, 2-16 Fayuen Street, Hong Kong.
• Room 1318-19, 13F, Hollywood Plaza, 610 Nathan Road, Mong Kok, Kowloon, Hong Kong.
• Room 1318-20, 13F, Hollywood Plaza, 610 Nathan Road, Mong Kok Kowloon, Hong Kong.

Who this applies to:
Organizations sending international shipments, even if located outside of the US, should familiarize themselves with US trade regulations as the laws apply for shipments in transit through the United States as well as many goods of US origin.

Penalties for violation:
Knowingly or unknowingly violating the EAR can result in criminal and/or civil penalties including fines of up to $300,000 or twice the value of the transaction per violation and/or denial of export privileges for civil penalties and up to $1 million dollars and/or imprisonment of up to 20 years per violation for criminal penalties.

Examples of violations:
Avnet Asia Pte. Ltd, a Singapore-based electronic components and software distributor, was implicated in violating U.S. export regulations. Former Sales Account Manager Cheng Bo, aka Joe Cheng, was involved in a criminal conspiracy to unlawfully ship ECCN 3A001 power amplifiers to China using a fictitious Hong Kong company, Globe Communication Limited, to mask a Chinese military end-user. Another ex-employee facilitated unauthorized exports of U.S. goods to China and Iran, breaching the IEEPA, including ECCN 3A001 components. Avnet Asia cooperated with U.S. authorities in the investigation and terminated implicated personnel. Cheng, indicted for IEEPA violations and money laundering, remains a fugitive. In January 2021, Avnet Asia settled with the government agreeing to a $1.5 million fine for criminal liability for the conduct of former employees, including Cheng, plus a $3.2 million BIS settlement (partially suspended) for illegally exporting various electronic components controlled by the Export Administration Regulations (EAR) from Singapore to China and Iran.

Alexander Brazhnikov, through his company ABN Universal in Carteret, New Jersey, was involved in a sophisticated network that illegally obtained more than $65 million worth of regulated electronic components from U.S. suppliers. Nearly 2,000 illegal shipments of EAR99 electronic components were smuggled and exported to entities on the BIS Entity list, including Russian military and security forces. Brazhnikov took deliberate steps to obscure the true destination of the parts, concealed Russian funding sources, and hid the identities of the Russian defense firms receiving these U.S.-origin electronics. He received a 70-month prison sentence, a $75,000 criminal fine, a $65 million forfeiture, forfeited two houses valued at approximately $500,000 each, and was subject to a special assessment fee. Additionally, an administrative ruling imposed a 15-year denial order against Brazhnikov.

Best Practices:
All companies sending product abroad should establish a robust trade compliance program. Ensure your processes and procedures include documentation of product classifications. If you are unsure of a product’s classification, access BIS’s SNAP-R system (https://snapr.bis.doc.gov/snapr/) to submit commodity classification requests. When applying exceptions, exercise caution and document your organization’s process for determining the product’s Export Control Classification Number (ECCN).

Conduct background checks and verification processes to ensure that the organization you are dealing with is reputable and is likely to comply with export regulations. Request copies of business licenses and registration documents and verify the validity of the documents through the corresponding governmental company registry site. For companies registered for business in Hong Kong, the Hong Kong Companies Registry can be accessed at: https://www.e-services.cr.gov.hk/ICRIS3EP/system/dashboard/e-search.do. Ensure that the registered address listed on the documentation matches that provided by the government registry and that the address(es) are not on the Entity List.

For shipments to China or Hong Kong, file form BIS-711, even for product classified as EAR99. BIS-711 provides the government with the intended use of the goods and acknowledges compliance with export regulations.

Maintain all records as proof of compliance for a minimum of five years, including all relevant documents, applications, records, forms, business communications, contracts, notes and correspondence with BIS.

If you believe your organization has violated the Export Administration Regulations (EAR), the Bureau of Industry and Security actively encourages the submission of Voluntary Self-Disclosures (VSDs) at https://www.bis.doc.gov/index.php/enforcement/oee/voluntary-self-disclosure.

ERAI Members:
ERAI Members can easily search the Entity list through the US. Consolidated Screening list search on the ERAI website. The search links directly to the International Trade Administration (ITA) Developer Portal and searches through the Unverified List, Entity List, Military End-User List, and Denied Persons List. Members can find the search by going into the “Search” section of our site and clicking on the “US Consolidated Screening List” tab. For assistance in validating registrations, please contact the ERAI office at 239-261-6268 or eraiinfo@erai.com.

Resources:

Bureau of Industry and Security: https://www.bis.gov/

Additional Export Restriction Addresses Press Release: https://www.bis.gov/press-release/department-commerce-announces-additional-export-restrictions-counter-russian

U.S. Sanctions and Export Control Law Explanations: https://www.justice.gov/opa/media/1341411/dl?inline

Considerations for Export Control Activities for Your Organization: https://exportcontrol.lbl.gov/training/export-control-considerations-for-entities-on-bis-entity-list/

SNAP-R: https://snapr.bis.doc.gov/snapr/