With one full year gone by since Russia invaded Ukraine, a lot has been written in the history books of U.S. economic sanctions and export controls. Marking this first anniversary, the Department of Commerce’s Bureau of Industry and Security (“BIS”), the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), and the U.S. Department of State have all imposed additional and substantial sanctions and export controls. Whether such measures will dampen Russia’s war efforts and hopefully put a stop to it before the two-year mark is a topic of much deliberation by think tanks and politicians. However, as a sanctions and export controls attorney I am more adept to focus on the legal and compliance implications of these actions. So, without further ado, here is a recap of BIS’s new export control measures on Russia and Belarus, and certain compliance considerations for U.S. businesses. 

In short, BIS has significantly expanded the list of items requiring license authorization for export, reexport, or transfer (in-country) to Russia or Belarus that are subject to its industry sector and “luxury goods” sanctions. The agency has also added more than 86 entities located in either Russia and/or elsewhere to its Entity List.

For the sake of space and time, OFAC and State’s respective actions aren’t covered in this post, nor are BIS’s new export controls measures on Iran under the Export Administration Regulations (“EAR”) that are intended to address Iranian Unmanned Aerial Vehicles (“UAV”) and their use by Russia in Ukraine—which have previously been found with U.S.-branded parts and components—in a separate but related rule making action by BIS. 

New Special Controls on Russia and Belarus

Since Russia’s February 2022 invasion in February, BIS has imposed extensive export controls—resembling sanctions—on Russia and Belarus, as codified in the EAR, predominately in 15 C.F.R. Part 746 (Embargoes and Other Special Controls). In brief summary, and in pertinent part, Part 746 imposes a licensing requirement—in addition to those specified elsewhere in the EAR (including parts 742 and 744)—on the export, reexport, or transfer (in-country) of items subject to the EAR (i.e. because of their “U.S.-origin or nexus) that are: 

• 15 C.F.R. § 746.8 (sanctions against Russia/Belarus)—classified in any Export Control Classification Number (“ECCN”) on the EAR’s Commerce Control List (“CCL”), subject to certain exclusions and various renditions of the Foreign-Produced Direct Product (“FDP”) rule, to or within Russia or Belarus. Certain key exclusions from this licensing requirement is when the export/reexport of covered items under the applicable FDP rule in subparagraphs (a)(2) or (3), or de minimis rule for U.S.-origin controlled content as detailed in subparagraph (a)(5), is from a country listed in supplement no. 3 to Part 746 (subject to certain specified limitations), which are countries considered by the U.S. government to have substantially similar domestic export control laws.

• 15 C.F.R. § 746.5 (industry sector sanctions)—listed in supplements nos. 4 and 6 to Part 746 to or within Russia; or, supplement no. 2 of Part 746 and items specified in ECCNs 0A998, 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, and 8D999, that are to be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet) or Arctic offshore locations or shale formations in Russia or Belarus, or if you are unable to determine whether the item will be used in such projects.
• 15 C.F.R. § 746.10 (“luxury goods” sanctions)—identified in supplement no. 5 to Part 746, either to or within Russia, or to any Russian or Belarusian oligarch or malign actor, regardless of location, who are designated on OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List under certain specified program designations or in situations in which such persons are the purchaser, intermediate/ultimate consignee, or end-user. 

Effective February 24, 2023, the agency has significantly expanded the scope of controlled items under the foregoing existing controls of Part 746 of the EAR, and made various related corrections and clarifications. Many of these expansions and changes were done to better align the controls with those imposed by U.S. allies and partners.  The relevant expansion and changes to Part 746 include the following: 

15 C.F.R. § 746.5 (industry sector sanctions)

• Changing the methodology for identifying controlled items in supplements nos. 2 and 4 to Part 746 by removing columns for “Schedule B” and “Schedule B description” and adding their place columns to identify the same set of items by using the Harmonized Tariff Schedule (HTS)-6 Code and HTS Description that comes from the U.S. International Trade Commission (“USITC’s) Harmonized Taffic Schedule of the United States (2023). 
• Expansion and clarification of supplement no. 2 by specifying that any modified or designed “parts,” “components,” “accessories,” and “attachments” for the items identified in the table are also included, regardless of their HTS Code or HTS Description.
• Expansion of the controls in § 746.5 by adding 322 new items to supplement no. 4 with corresponding HTS-6 Codes.
• Adding numerous additional items in supplement no. 6 to Part 746 and making other changes to render the relevant controls stronger but easier to understand.

15 C.F.R. § 746.10 (“luxury goods” sanctions)

• Adding 276 additional entries to supplement no. 5 that will require a license under § 746.10(a) of the EAR. This includes many types of electrical and nuclear-related items. 
• Clarifying that the exclusion for items controlled under ECCN 5A992 or 5D992 under § 746.8 also now applies to § 746.10(a)(1). 

15 C.F.R. § 746.8 (sanctions against Russia/Belarus)

• Adding Taiwan to supplement no. 3 of Part 746, which lists countries to which the licensing requirements pertaining to applicable FDP rules in § 746.8, and the de minimis rule also specified in that section for determining U.S.-origin controlled content therein, are excluded. 

Entity List Additions 

Since the invasion, BIS has also added numerous Russian entities to its Entity List, or in third-counties that have assisted the Russian military. Effective February 24, 2022, BIS also added 86 entities under 89 entries (due to some entities operating in multiple countries, but mostly in Russia) to the Entity List pursuant to Part 744 of the EAR for various reasons related to their activities in support of Russia’s defense-industrial sector and war effort. 76 such entities were also designated as “Russian/Belarusian Military End Users” pursuant to § 744.21, which means they have a footnote 3 designation in their Entity List entry that also subjects them to the Russia/Belarus-Military End User FDP Rule under §§ 746.8(a)(3) and 734.9(g). 

A license is generally required for the export, reexport, or transfer (in-country) of all items subject to the EAR to entities identified on the Entity List, including EAR99 items. These specific BIS actions can be found here, and here. 

Business Compliance Considerations

With the expansion of export controls on Russia and Belarus, it is important for businesses to continue to assess their risk exposure to these destinations. In addition, businesses engaging in international commerce generally have a higher risk of dealing with a restricted party subject to various U.S. government lists, including BIS’s Entity List and the various OFAC sanctions lists that were substantially updated as a result of additional designations on the one-year anniversary of Russia’s invasion of Ukraine. Where such risks are present, especially in consideration of the foregoing export controls actions by BIS, businesses should consider the existence and adequacy of relevant internal-controls, including for example the following: 

1. ECCN Classification—are procedures in place to accurately classify the ECCN or EAR99 status of items subject to the EAR? What steps do you take to prevent their unauthorized export/reexport to Russia or Belarus?

2. Classification of items against supplement nos. 2, 4, 5, and/or 6 of Part 746 of the EAR—have you reviewed these supplements to determine whether your business deals in them? And if yes, how do you prevent their unauthorized export/reexport to Russia or Belarus?

3. Restricted Party Screening—are all relevant U.S. government lists screened against prior to doing business with a customer or counterparty?

4. End-user validation—should you be using end-user statements to help prevent the unauthorized diversion of items to persons in Russia or Belarus?

5. Export Compliance Training—are employees and third-party agents sufficiently trained on relevant Russia and Belarus-related export controls, including relevant prohibitions, requirements, risks, and red-flags?

The author of this blog post is Kian Meshkat, an attorney specializing in U.S. economic sanctions and export controls matters. If you have any questions please contact him at [email protected].