On December 28, 2015, the Commerce Department’s Bureau of Industry and Security (BIS) issued a rule clarifying the treatment of transactions involving Entity List designees listed with references to § 746.5 of the Export Administration Regulations (EAR) and adding more names to the Entity List, at Supplement No. 4 to Part 744 of the EAR.
This rule provides guidance on how exporters should treat the twenty entities currently on the Entity List with references to § 746.5 (Russian Industry Sector Sanctions). These include major entities such as Gazprom, Rosneft, Lukoil, Surgutneftegas, and several refineries. As we have previously advised, § 746.5 requires a license to export, reexport, or transfer (in-country) to Russia certain items listed in Supplement No. 2 to Part 746 or classified under certain Export Control Classification Numbers (ECCNs) if (a) the exporter knows the item will be used for exploration or production of oil or gas from deepwater, Arctic offshore, or shale reservoir projects in Russia, or (b) the exporter is unable to determine whether the item will be used in such projects. In addition, an export license application is required for any item subject to the EAR, including items classified as EAR 99, that is destined to certain Entity List designees that have a reference to § 746.5 in their listing when that item will be used in Arctic offshore, deepwater, or shale reservoir oil or gas exploration or production projects. Until BIS issued this rule, there was some uncertainty in the exporting community about exactly how § 746.5 applied in those Entity List situations.
As BIS now explains, there are nineteen Entity List entries that impose a license requirement “for all items subject to the EAR when used in projects specified in § 746.5 of the EAR,” along with a twentieth entry, for the Yuzhno-Kirinskoye Field in the Sea of Okhotsk, with a license requirement “for all items subject to the EAR (See §746.5 of the EAR).” BIS clarifies in this rule that this difference in language was intentional. As we have previously discussed in an advisory and on our blog, the August 7, 2015 rule adding the Yuzhno-Kirinskoye Field to the Entity List stated that the US Government had determined that transactions involving that field “present an unacceptable risk of use in, or diversion to, the activities specified in paragraph (a)(1) of § 746.5, namely exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet) locations. Therefore, a license requirement for all items subject to the EAR is warranted.” BIS has clarified that, unlike the other nineteen entries that reference § 746.5, for which the license requirement only applies if the item is destined for one of the three prohibited end uses specified in § 746.5, transactions involving the Yuzhno-Kirinskoye Field are “presumptively within the scope of § 746.5, meaning a license is required for any item subject to the EAR without regard to the item’s end use.”
This clarification is not a change in policy; it is consistent with the prevailing interpretation of these provisions, and BIS stated in the Federal Register notice that its purpose was “to assist the public’s understanding of these existing Entity List provisions.” BIS noted that it intends to incorporate this guidance into a new Frequently Asked Questions entry on its website.
In addition to this guidance, the BIS rule adds sixteen persons to the Entity List “for violating international law and fueling the conflict in eastern Ukraine.” These names are being added to the Entity List under the authority of Executive Orders 13661 (79 Fed. Reg. 15,533, March 16, 2014), for being linked to previously designated entities, and 13685 (79 Fed. Reg. 77,357, December 19, 2014), for operating in the Crimea region. The Treasury Department’s Office of Foreign Assets Control (OFAC) had already added these sixteen persons, along with several others, to the List of Specially Designated Nationals and Blocked Persons (SDNs) on December 22, 2015. This BIS action is meant to complement OFAC’s SDN designations. BIS is imposing a license requirement for all items subject to the EAR and a license review policy of presumptive denial for all exports, reexports, or transfers (in-country) in which any of the entities acts as purchaser, intermediate consignee, ultimate consignee or end-user, with no license exceptions available
The Treasury Department press release accompanying the related SDN designations states that their purpose was “to maintain the efficacy of existing sanctions . . . to counter attempts to circumvent these sanctions, to further align US measures with those of its international allies, and to provide additional information to assist the private sector with sanctions compliance.” That statement indicates that the designations are not intended to be a significant expansion of the scope of the existing US sanctions on Russia. Several of the entities newly designated by OFAC and BIS in these rules are linked to previously-designated SDNs Gennady Timchenko and Arkady and Boris Rotenberg. Others were designated for operating in the Crimea region, in sectors as diverse as air transportation, spirits and wine production, engineering, film production, and a health resort.
The Treasury Department press release states that these sanctions “will not begin to be rolled back until Russia fully implements its commitments under the Minsk Agreements, including the return to Ukraine of control of its side of the international border with Russia,” and that the US Government is maintaining its “policy of non-recognition with respect to Russia’s purported annexation of Crimea, and our intent to maintain Crimea-related sanctions until Russia ends its occupation of the peninsula.” These statements represent a continuation of the US Government’s existing policy towards Russia as it concerns Ukraine and the Crimea region.