On Friday, the U.S. Department of Commerce Bureau of Industry and Security (BIS) issued its latest set of export controls in response to Russia’s invasion of Ukraine. The broadest expansion of U.S. export controls on Russia since last fall, Friday’s actions are separate and distinct from the new sanctions regulations imposed by the U.S. Department of the Treasury Office of Foreign Assets Controls (OFAC). Both sets of controls are in coordination with the United States’ allies, resulting in the United Kingdom and Australia imposing their own controls, and the European Union’s control expected soon.
For companies still directly or indirectly dealing with Russia, robust rescreening compliance programs are essential to confirm that third parties with whom the company deals, and items proposed for export to Russia, are not caught by the new rules. This includes analyzing third parties in China that are likely to resell to Russia. The rule does include one notable benefit for U.S. companies, BIS has implemented measures to expedite the process of exiting from Russia.
A summary follows of major components of the new export controls:
- Entity List Designations: BIS designated 79 Russian entities, five Chinese entities, two Canadian entities, one French entity, one Luxembourg entity, and one Netherlands entity on the Entity List. All exports, reexports, and transfers to these persons of items subject to the EAR now require a license.
- Russia/Belarus Military End User FDP Rule: BIS also confirmed that the Russia/Belarus military end user foreign direct product rule applies to 66 (of the 79) Russian entities.
- Iran Foreign Direct Product Rule & Drone Restrictions: BIS created a new list of items identified by HTS listed in a new Supplement No. 7 to 15 C.F.R. § 746, comprised of items that are parts and components related to unmanned aerial vehicles (UAVs) that Iran has used in the drones it sells to Russia. Additionally, BIS created the Iran Foreign Direct Product Rule which applies to items listed in Supp. No. 7 or are in Categories 3, 4, 5, or 7 of the Commerce Control List, and that are the direct product of certain U.S. origin technology or software. BIS also modified the Russia/Belarus foreign direct product rules to include items listed in Supp. No. 7.
- Expansion of Russian/Belarussian Unconventional Oil and Gas Export Controls: BIS updated the list of parts controlled for export, reexport, or transfer to unconventional Russian/Belarussian oil and gas exploration and production to identify the items controlled using the HTS Code (as opposed to the Schedule B) and to note that items not listed by HTS code, but that are parts, components, accessories, or attachments (that are not minor, e.g., screws and bolts) for an item listed via HTS code, are also controlled.
- Expansion of Listed Items Controlled for Export to Russia and Belarus: BIS identified over 500 new items to include in Supplement Nos. 4, 5, and 6 to 15 C.F.R. § 746 that are now prohibited for export, reexport, or transfer to Russia. The items identified in Supplement No. 6 are also subject to the Russia/Belarus foreign direct product rules
- Taiwan Exemption: BIS added Taiwan to the list of the countries exempt from the Russia/Belarus regular and military end user foreign direct product rules, as well as certain of the de minimis requirements.
- Exiting Russia: Significantly, BIS changed its licensing posture for companies exiting Russia and will review license requests to dispose of items on a case-by-case basis (as opposed to the previous policy of denial), thereby potentially easing the licensing process for companies’ exiting from Russia. However, OFAC clarified in FAQ 1118 that any “exit tax” that Russia may impose on U.S. persons could require a license from OFAC if it is paid to Russian sanctioned persons.