On March 21, 2024, the US Commerce Department’s Bureau of Industry and Security (“BIS”) published a final rule (“Final Rule”) revising and expanding the end-user controls under Part 744 of the Export Administration Regulations (“EAR”). Specifically, the Final Rule expanded end-user controls applicable to certain persons identified on the List of Specially Designated Nationals and Blocked Persons (“SDN List”) maintained by the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) under various sanctions programs.
The new EAR restrictions involving the OFAC-administered sanctions programs allow BIS to control activities over which OFAC does not exercise jurisdiction to complement existing OFAC blocking sanctions. OFAC sanctions prohibit all transactions by US Persons involving any property or interests in property of sanctioned persons, but do not always restrict the supply to SDNS of goods, software, or technology (“items”) subject to the EAR.
In summary, the Final Rule:
- Expanded the end-user controls under EAR Part 744 to impose a new license requirement for exports, reexports, or transfers (in-country) of all items subject to the EAR involving a person designated as an SDN under one of the eleven OFAC sanctions programs.
- Consolidated into a single section, at EAR § 744.8, the contents of three previously separate Part 744 SDN-related end-user sections and the eleven new SDN-related restrictions, such that all of the SDN-related end-user controls in Part 744 are now in the same section.
- Removed from the EAR two end-user control sections: one section involving an obsolete OFAC sanctions program (i.e., [SDT]) and another section involving the [IRAQ2] sanctions program that does not address current policy concerns under the EAR.
- Expansion of SDN-Related End-User Controls under the EAR
To complement the SDN designations made by OFAC, the Final Rule amended the EAR to impose a license requirement under a revised § 744.8 for exports, reexports, or transfers (in-country) of all items subject to the EAR when a person who is designated on the SDN List with any of the following OFAC sanctions program identifiers is a “party” (e.g., purchaser, intermediate consignee, ultimate consignee, or end-user) to the transaction:
- [BELARUS-EO14038]*
- [BELARUS]*
- [RUSSIA-EO14024]*
- [UKRAINE-EO13660]*
- [UKRAINE-EO13661]*
- [UKRAINE-EO13662]*
- [UKRAINE-EO13685]*
- [FTO]
- [SDGT]
- [NPWMD]
- [ILLICIT DRUGS-EO14059]
- [SDNT]*
- [SDNTK]*
- [TCO]
Among the 14 OFAC sanctions programs listed above:
- The two bolded OFAC sanctions programs were not previously subject to restrictions under the EAR.
- The nine OFAC sanctions programs with an asterisk (*) were previously subject to other EAR license requirements or restrictions but are now subject to the expanded end-user controls under EAR § 744.8. For example, prior to this Final Rule, SDNs under these OFAC sanctions programs targeting Russia and Belarus were subject to the license restrictions under EAR § 746.10(a)(2) on exports, reexports, and transfers (in-country) of “luxury goods” identified in Supplement No. 5 to Part 746 of the EAR. But, the Final Rule now expanded the licensing requirements to all items subject to the EAR.
- The three italicized OFAC sanctions programs denote the OFAC sanctions programs that already required a license for all items subject to the EAR under separate sections in EAR Part 744 prior to the Final Rule, but are now all being consolidated into EAR § 744.8.
In this Final Rule, BIS also removed two OFAC sanctions programs, [SDT] and [IRAQ2], which were previously listed in EAR §§ 744.13 and 744.18 respectively, from the Part 744 license requirements. BIS explained that the [SDT] program is no longer used by OFAC and the vast majority of SDNs designated under the [IRAQ2] program are either dead or no longer in existence.
Interplay with OFAC Regulations
To avoid imposing duplicative licensing requirements, no additional BIS authorization is required under EAR § 744.8 if transactions or activities involving items subject to the EAR are authorized under an OFAC specific or general license or are otherwise exempted under OFAC’s regulations. The same is true if transactions or activities involving items subject to the EAR would be authorized pursuant to an OFAC general license if OFAC’s jurisdiction applied (e.g., if the only US nexus were items subject to the EAR).
License Requirements, Exceptions, and Review Policy under EAR § 744.8
In particular, these new license requirements under EAR § 744.8 will apply to transactions that are not subject to regulation by OFAC, such as reexports and in-country transfers not involving a US bank or other US Persons. No license exception shall overcome the EAR § 744.8 license requirements, and a presumption of denial review policy shall apply to license applications required by EAR § 744.8.
The requirements under EAR § 744.8 may apply differently when the transaction involves an applicable SDN that is also identified on the Entity List in Supplement No. 4 to EAR Part 744. If an SDN designated under an applicable OFAC sanctions program is also identified on the Entity List, the license requirements and review policies under the Entity List restrictions would take precedence over the requirements set forth in EAR § 744.8.
Further, it is our understanding that OFAC’s “50 Percent Rule”, which is often applied by OFAC to its sanctions programs, does not apply to the SDN-related end-user controls under EAR § 744.8.
- Removal of Two End-User Control Sections under EAR Part 744
The Final Rule removed EAR § 744.10 (Restrictions on certain entities in Russia) and EAR § 744.20 (License requirements that apply to certain sanctioned entities). BIS determined that these two provisions are no longer needed because of the existence of a broader end-user control in EAR § 744.11 that allows BIS to impose restrictions on entities acting contrary to the national security or foreign policy interests of the United States, as well as other provisions in EAR Parts 744 and 746.
