Document ID: BIS-2017-0014-0001
Agency: bis
Document Type: Rule
Title: Certain Persons from the Entity List: Removal and Addition; and Export Administration Regulations Conforming Change
Posted Date: 2017-03-29T04:00Z

[Federal Register Volume 82, Number 59 (Wednesday, March 29, 2017)]
[Rules and Regulations]
[Pages 15458-15461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06227]

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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 744

[Docket No. 170109042-7255-01]
RIN 0694-AH30

Removal of Certain Persons From the Entity List; Addition of a 
Person to the Entity List; and EAR Conforming Change

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Final rule.

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SUMMARY: This rule amends the Export Administration Regulations (EAR) 
by removing two persons listed under the destination of China from the 
Entity List. The two removals are the result of a request for removal 
received by BIS pursuant to the section of the EAR used for requesting 
removal or modification of an Entity List entry and a review of 
information provided in the removal request in accordance with the 
procedure for requesting removal or modification of an Entity List 
entity. In light of the recent settlement of administrative and 
criminal enforcement actions against ZTE Corporation and ZTE Kangxun, 
the End-User Review Committee (ERC) has determined that these two 
persons being removed have performed their undertakings to the U.S. 
Government in a timely manner and have otherwise cooperated with the 
U.S. Government in resolving the matter which led to the two entities' 
listing.
    This final rule also adds one person to the Entity List. This 
person who is added to the Entity List has been determined by the U.S. 
Government to be acting contrary to the national security or foreign 
policy interests of the United States. This person will be listed on 
the Entity List under the destination of China.
    Lastly, this final rule makes a conforming change to the EAR as a 
result of the removal of these two persons from the Entity List.

DATES: This rule is effective March 29, 2017.

FOR FURTHER INFORMATION CONTACT: Chair, End-User Review Committee, 
Office of the Assistant Secretary, Export Administration, Bureau of 
Industry and Security, Department of Commerce, Phone: (202) 482-5991, 
Email: ERC@bis.doc.gov.

SUPPLEMENTARY INFORMATION:

Background

    The Entity List (Supplement No. 4 to part 744) identifies entities 
and other persons reasonably believed to be involved, or to pose a 
significant risk of being or becoming involved, in activities contrary 
to the national security or foreign policy interests of the United 
States. The EAR imposes additional license requirements on, and limits 
the availability of most license exceptions for, exports, reexports, 
and transfers (in-country) to those listed. The ``license review 
policy'' for each listed entity or other person is identified in the 
License Review Policy column on the Entity List and the impact on the 
availability of license exceptions is described in the Federal Register 
notice adding entities or other persons to the Entity List. BIS places 
entities and other persons on the Entity List pursuant to sections of 
part 744 (Control Policy: End-User and End-Use Based) and part 746 
(Embargoes and Other Special Controls) of the EAR.
    The End-User Review Committee (ERC), composed of representatives of 
the Departments of Commerce (Chair), State, Defense, Energy and, where 
appropriate, the Treasury, makes all decisions regarding additions to, 
removals from, or other modifications to the Entity List. The ERC makes 
all decisions to add an entry to the Entity List by majority vote and 
all decisions to remove or modify an entry by unanimous vote.

ERC Entity List Decisions

Removals From the Entity List

    This rule implements a decision of the ERC to remove the following 
two entries from the Entity List: Zhongxing Telecommunications 
Equipment (ZTE) Corporation and ZTE Kangxun Telecommunications Ltd. 
These two entities were added to the Entity List on March 8, 2016 (see 
81 FR 12006).
    The U.S. Government recently reached an agreement with ZTE 
Corporation and ZTE Kangxun for the settlement of administrative 
charges and entry of a guilty plea in a criminal case against the 
companies. On March 7, 2017, Secretary of Commerce Wilbur L. Ross, Jr., 
issued a statement regarding the settlement and guilty plea, which 
resulted in a very substantial monetary penalty, intrusive independent 
monitoring, and additional suspended penalties that will be imposed if 
ZTE fails to meet its obligations or further violates U.S. export 
controls.
    In light of the settlement, the ERC has determined that ZTE 
Corporation and ZTE Kangxun have performed their undertakings to the 
U.S. Government in a timely manner and have otherwise cooperated with 
the U.S. Government in resolving the matter which led to the two 
entities' listing. Therefore, the ERC has decided to remove these two 
entities from the Entity List.
    This final rule implements the decision to remove the following two 
entities located in China from the Entity List:

China

    (1) Zhongxing Telecommunications Equipment (ZTE) Corporation, ZTE 
Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, 
Shenzhen, China; and
    (2) ZTE Kangxun Telecommunications Ltd., 2/3 Floor,

[[Page 15459]]

Suite A, ZTE Communication Mansion Keji (S) Road, Hi-New Shenzhen, 
518057 China.
    The removal of the persons referenced above, which was approved by 
the ERC, eliminates the existing license requirements in Supplement No. 
4 to part 744 for exports, reexports and transfers (in-country) to 
these entities. However, the removal of these persons from the Entity 
List does not relieve persons of other obligations under part 744 of 
the EAR or under other parts of the EAR. Neither the removal of an 
entity from the Entity List nor the removal of Entity List-based 
license requirements relieves persons of their obligations under 
General Prohibition 5 in Sec.  736.2(b)(5) of the EAR which provides 
that, ``you may not, without a license, knowingly export or reexport 
any item subject to the EAR to an end-user or end-use that is 
prohibited by part 744 of the EAR.'' Additionally, this removal does 
not relieve persons of their obligation to apply for export, reexport 
or in-country transfer licenses required by other provisions of the 
EAR. BIS strongly urges the use of Supplement No. 3 to part 732 of the 
EAR, ``BIS's `Know Your Customer' Guidance and Red Flags,'' when 
persons are involved in transactions that are subject to the EAR.

Addition to the Entity List

    This rule implements the decision of the ERC to add one person to 
the Entity List. This person is being added on the basis of Sec.  
744.11 (License requirements that apply to entities acting contrary to 
the national security or foreign policy interests of the United States) 
of the EAR. The person added to the Entity List will be listed under 
the destination of China.
    The ERC reviewed Sec.  744.11(b) (Criteria for revising the Entity 
List) in making the determination to add this person to the Entity 
List. Under that paragraph, persons and those acting on behalf of such 
persons may be added to the Entity List if there is reasonable cause to 
believe, based on specific and articulable facts, that they have been 
involved, are involved, or pose a significant risk of being or becoming 
involved in, activities that are contrary to the national security or 
foreign policy interests of the United States. Paragraphs (b)(1) 
through (5) of Sec.  744.11 include an illustrative list of activities 
that could be contrary to the national security or foreign policy 
interests of the United States.
    Pursuant to Sec.  744.11(b) of the EAR, the ERC determined that 
this person, Shi Lirong, located in the destination of China, be added 
to the Entity List for actions contrary to the national security or 
foreign policy interests of the United States. The ERC determined that 
there is reasonable cause to believe, based on specific and articulable 
facts, that Shi Lirong has been involved in actions contrary to the 
national security or foreign policy interests of the United States. 
Specifically, Shi Lirong was the CEO of ZTE Corporation at the time the 
ZTE documents that contributed to ZTE's listing were signed. Shi Lirong 
signed and approved the document ``Report Regarding Comprehensive 
Reorganization and Standardization of the Company Export Control 
Related Matters,'' which described how ZTE planned and organized a 
scheme to establish, control and use a series of ``detached'' (i.e., 
shell) companies to illicitly reexport controlled items to Iran in 
violation of U.S. export control laws.
    Pursuant to Sec.  744.11(b) of the EAR, the ERC determined that the 
conduct of this person raises sufficient concern that prior review of 
exports, reexports or transfers (in-country) of items subject to the 
EAR involving this person, and the possible imposition of license 
conditions or license denials on shipments to the person, will enhance 
BIS's ability to prevent violations of the EAR. Therefore, this person 
is being added to the Entity List.
    For this person added to the Entity List, BIS imposes a license 
requirement for all items subject to the EAR and a license review 
policy of presumption of denial. The license requirements apply to any 
transaction in which items are to be exported, reexported, or 
transferred (in-country) to this person or in which such person acts as 
purchaser, intermediate consignee, ultimate consignee, or end-user. In 
addition, no license exceptions are available for exports, reexports, 
or transfers (in-country) to this person being added to the Entity List 
in this rule.
    This final rule adds the following person to the Entity List:

China

    (1) Shi Lirong, Yuanzhong Garden Tower A, Room 26A, Futian, 
Shenzhen, China; and Xinghai Mingcheng, 2nd Floor, Shenzhen, China.

Conforming EAR Change

    This final rule removes Supplement No. 7 to part 744--Temporary 
General License, which was originally added to the EAR in a final rule 
on March 24, 2016 (81 FR 15633). The March 24 final rule amended the 
EAR by adding Supplement No. 7 to part 744 to create a temporary 
general license that returned, until June 30, 2016, the licensing and 
other policies of the EAR regarding exports, reexports, and transfers 
(in-country) to ZTE Corporation and ZTE Kangxun to those which were in 
effect prior to their addition to the Entity List on March 8, 2016. BIS 
subsequently extended the validity date of the temporary general 
license on four occasions (June 28, 2016 (81 FR 41799), August 19, 2016 
(81 FR 55372), November 18, 2016 (81 FR 81663), and February 24, 2017 
(82 FR 11505)), resulting in the current validity end-date of March 29, 
2017.
    As described above under the section Removals From the Entity List, 
this final rule removes the two entities identified in the temporary 
general license from the Entity List. Therefore, this final rule 
removes as a conforming change Supplement No. 7 to part 744 because it 
is no longer needed.

Export Administration Act of 1979

    Although the Export Administration Act of 1979 expired on August 
20, 2001, the President, through Executive Order 13222 of August 17, 
2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order 
13637 of March 8, 2013, 78 FR 16129 (March 13, 2013) and as extended by 
the Notice of August 4, 2016, 81 FR 52587 (August 8, 2016), has 
continued the Export Administration Regulations in effect under the 
International Emergency Economic Powers Act. BIS continues to carry out 
the provisions of the Export Administration Act of 1979, as appropriate 
and to the extent permitted by law, pursuant to Executive Order 13222, 
as amended by Executive Order 13637.

Rulemaking Requirements

    1. Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). This rule 
has been determined to be not significant for purposes of Executive 
Order 12866.
    2. Notwithstanding any other provision of law, no person is 
required to respond to nor be subject to a penalty for failure to 
comply with a collection of information, subject to the requirements of 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), 
unless that collection of information displays a currently valid Office 
of Management and Budget (OMB) Control Number. This regulation involves 
collections previously approved by OMB under control

[[Page 15460]]

number 0694-0088, Simplified Network Application Processing System, 
which includes, among other things, license applications and carries a 
burden estimate of 43.8 minutes for a manual or electronic submission. 
Total burden hours associated with the PRA and OMB control number 0694-
0088 are not expected to increase as a result of this rule. You may 
send comments regarding the collection of information associated with 
this rule, including suggestions for reducing the burden, to Jasmeet K. 
Seehra, Office of Management and Budget (OMB), by email to 
Jasmeet_K._Seehra@omb.eop.gov, or by fax to (202) 395-7285.
    3. This rule does not contain policies with Federalism implications 
as that term is defined in Executive Order 13132.
    4. The provisions of the Administrative Procedure Act (APA) (5 
U.S.C. 553) requiring notice of proposed rulemaking, the opportunity 
for public comment and a delay in effective date are inapplicable 
because this regulation involves a military or foreign affairs function 
of the United States. (See 5 U.S.C. 553(a)(1)). BIS implements this 
rule to protect U.S. national security or foreign policy interests by 
preventing items from being exported, reexported, or transferred (in 
country) to the person being added to the Entity List. If the effective 
date of this rule were delayed to allow for notice and comment, then 
the person being added to the Entity List by this action would be able 
to continue receiving items subject to the EAR without a license, to 
the detriment of the national security and foreign policy interests of 
the United States. In addition, publishing a proposed rule would give 
this party notice of the U.S. Government's intention to place him on 
the Entity List and would create an incentive for this person to 
accelerate his receipt of items subject to the EAR in order to conduct 
activities that are contrary to the national security or foreign policy 
interests of the United States, to set up additional aliases, change 
addresses, and/or to take other measures to try to limit the impact of 
the listing on the Entity List after a final rule is published.
    Further, no other law requires that a notice of proposed rulemaking 
and an opportunity for public comment be given for this rule. Because a 
notice of proposed rulemaking and an opportunity for public comment are 
not required for this rule by 5 U.S.C. 553, or by any other law, the 
analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601 
et seq., are not applicable. Accordingly, no regulatory flexibility 
analysis is required and none has been prepared.
    5. For the two persons removed from the Entity List in this final 
rule and for the conforming EAR change to remove Supplement No. 7 to 
part 744, BIS finds good cause, pursuant to the APA, 5 U.S.C. 
553(b)(B), to waive requirements that this rule be subject to notice 
and the opportunity for public comment because it would be contrary to 
the public interest.
    In determining whether to grant a request for removal from the 
Entity List, a committee of U.S. Government agencies (the End-User 
Review Committee (ERC)) evaluates information about and commitments 
made by listed persons requesting removal from the Entity List, the 
nature and terms of which are set forth in 15 CFR part 744, Supplement 
No. 5, as noted in 15 CFR 744.16(b). The information, commitments, and 
criteria for this extensive review were all established through the 
notice of proposed rulemaking and public comment process (72 FR 31005 
(June 5, 2007) (proposed rule), and 73 FR 49311 (August 21, 2008) 
(final rule)). These two removals have been made within the established 
regulatory framework of the Entity List. If the rule were to be delayed 
to allow for public comment, U.S. exporters may face unnecessary 
economic losses as they turn away potential sales to the entities 
removed by this rule because the customer remained a listed person on 
the Entity List even after the ERC approved the removal pursuant to the 
regulatory process established by the rule published at 73 FR 49311 on 
August 21, 2008. By publishing without prior notice and comment, BIS 
allows the applicants to receive U.S. exports immediately because the 
applicants already have received approval by the ERC pursuant to 15 CFR 
part 744, Supplement No. 5, as noted in 15 CFR 744.16(b).
    Removals from the Entity List granted by the ERC involve 
interagency deliberation and result from review of public and non-
public sources, including sensitive law enforcement information and 
classified information, and the measurement of such information against 
the Entity List removal criteria. This information is extensively 
reviewed according to the criteria for evaluating removal requests from 
the Entity List, as set out in 15 CFR part 744, Supplement No. 5 and 15 
CFR 744.16(b). For reasons of national security, BIS is not at liberty 
to provide to the public the detailed information on which the ERC 
relied to make the decisions to remove these entities. In addition, the 
information included in the removal request is information exchanged 
between the applicant and the ERC, which by law (section 12(c) of the 
Export Administration Act of 1979), BIS is restricted from sharing with 
the public. Moreover, removal requests from the Entity List contain 
confidential business information, which is necessary for the extensive 
review conducted by the U.S. Government in assessing such removal 
requests.
    Additionally, section 553(d) of the APA generally provides that 
rules may not take effect earlier than thirty (30) days after they are 
published in the Federal Register. BIS finds good cause to waive the 
30-day delay in effectiveness under 5 U.S.C. 553(d)(1) because this 
rule is a substantive rule which relieves a restriction. This rule's 
removal of two persons from the Entity List removes requirements (the 
Entity-List-based license requirement and limitation on use of license 
exceptions) related to these two persons.
    No other law requires that a notice of proposed rulemaking and an 
opportunity for public comment be given for this final rule. Because a 
notice of proposed rulemaking and an opportunity for public comment are 
not required under the APA or by any other law, the analytical 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) 
are not applicable. As a result, no final regulatory flexibility 
analysis is required and none has been prepared.

List of Subjects in 15 CFR Part 744

    Exports, Reporting and recordkeeping requirements, Terrorism.

    Accordingly, part 744 of the Export Administration Regulations (15 
CFR parts 730-774) is amended as follows:

PART 744--[AMENDED]

0
1. The authority citation for 15 CFR part 744 is revised to read as 
follows:

    Authority: 50 U.S.C. 4601 et seq.; 50 U.S.C. 1701 et seq.; 22 
U.S.C. 3201 et seq.; 42 U.S.C. 2139a; 22 U.S.C. 7201 et seq.; 22 
U.S.C. 7210; E.O. 12058, 43 FR 20947, 3 CFR, 1978 Comp., p. 179; 
E.O. 12851, 58 FR 33181, 3 CFR, 1993 Comp., p. 608; E.O. 12938, 59 
FR 59099, 3 CFR, 1994 Comp., p. 950; E.O. 12947, 60 FR 5079, 3 CFR, 
1995 Comp., p. 356; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 
228; E.O. 13099, 63 FR 45167, 3 CFR, 1998 Comp., p. 208; E.O. 13222, 
66 FR 44025, 3 CFR, 2001 Comp., p. 783; E.O. 13224, 66 FR 49079, 3 
CFR, 2001 Comp., p. 786; Notice of August 4, 2016, 81 FR 52587 
(August 8, 2016); Notice of September 15, 2016, 81 FR 64343 
(September 19, 2016); Notice of November 8, 2016, 81 FR 79379 
(November 10, 2016); Notice of January 13, 2017, 82 FR 6165 (January 
18, 2017).

[[Page 15461]]

0
2. Supplement No. 4 to Part 744 is amended:
0
a. By removing, under China, two Chinese entities, ``Zhongxing 
Telecommunications Equipment (ZTE) Corporation, ZTE Plaza, Keji Road 
South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, China''; 
and ``ZTE Kangxun Telecommunications Ltd., 2/3 Floor, Suite A, ZTE 
Communication Mansion Keji (S) Road, Hi-New Shenzhen, 518057 China ''; 
and
0
b. By adding, under China, one Chinese entity.
    The addition reads as follows:

Supplement No. 4 to Part 744--Entity List

* * * * *

----------------------------------------------------------------------------------------------------------------
                                                            License         License review     Federal Register
             Country                    Entity            requirement           policy             citation
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
CHINA, PEOPLE'S REPUBLIC OF
 
                                                  * * * * * * *
                                  Shi Lirong,         For all items       Presumption of      82 FR [INSERT FR
                                   Yuanzhong Garden    subject to the      denial.             PAGE NUMBER];
                                   Tower A, Room       EAR. (See Sec.                          March 29, 2017.
                                   26A, Futian,        744.11 of the
                                   Shenzhen, China;    EAR).
                                   and Xinghai
                                   Mingcheng, 2nd
                                   Floor, Shenzhen,
                                   China.
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

Supplement No. 7 to Part 744--[Removed]

0
3. Remove Supplement No. 7 to Part 744.

    Dated: March 24, 2017.
Matthew S. Borman,
Deputy Assistant Secretary for Export Administration.
[FR Doc. 2017-06227 Filed 3-28-17; 8:45 am]
 BILLING CODE 3510-33-P