On August 18, 2022, the US Commerce Department’s Bureau of Industry and Security (“BIS”) issued new FAQs addressing (i) certain red flags related to compliance concerns and potential evasion of the Russia- and Belarus-related export controls and sanctions, and (ii) key red flags that semiconductor foundries should consider when potentially dealing with parties on the Entity List. We summarize key points from these new FAQs below, the full text of which are available here and here. Please see here for our past blog related a tranche of Russia-related FAQs BIS issued on May 2, 2022.
FAQs on Russia and Belarus Red Flags
BIS identified certain commodities and their corresponding export control classification numbers (“ECCNs”) as being higher risk for unauthorized exports/reexports to Russia and Belarus because they can support the development of maritime technology, microelectronics, and other technologies that could be used to support Russia’s military and defense capabilities:
- Aircraft Parts and Equipment (ECCN 9A991)
- Antennas (ECCN 7A994)
- Breathing Systems (ECCN 8A992)
- Cameras (ECCN 6A993)
- GPS Systems (ECCN 7A994)
- Inertial Measurement Units (ECCN 7A994)
- Integrated Circuits (ECCN 3A001, 3A991, 5A991)
- Oil Field Equipment (ECCN EAR99)
- Sonar Systems (ECCN 6A991)
- Spectrophotometers (ECCN 3A999)
- Test Equipment (ECCN 3B992)
- Thrusters (Marine) (ECCN 8A992)
- Underwater Communications (ECCN 5A991)
- Vacuum Pumps (ECCN 2B999)
- Wafer Fabrication Equipment (ECCN 3B001, 3B991)
- Wafer Substrates (ECCN 3C001 through 3C006)
In addition, BIS identified the following countries as transshipment points through which restricted or controlled exports have been known to pass before reaching destinations in Russia or Belarus: Armenia, Brazil, China, Georgia, India, Israel, Kazakhstan, Kyrgyzstan, Mexico, Nicaragua, Serbia, Singapore, South Africa, Taiwan, Tajikistan, Turkey, United Arab Emirates, and Uzbekistan.
All commodities identified above require a license from BIS for Russia or Belarus. Companies that export or reexport the commodities identified above, or those use the jurisdictions identified above as a transshipment point, should be on notice that BIS has expressed concerns about such exports. Additional due diligence steps, such as conducting enhanced beneficial ownership screening of the parties involved, adding a second layer of a “Know Your Customer” review, and refreshing an export controls/sanctions review for the transaction before shipment, could be considered. The issuance of the FAQ suggests BIS may prioritize its enforcement resources on matters related to such transactions.
Finally, BIS provided a list of twenty-two red flags that may be indicative of attempts to evade the Russia and Belarus export controls and sanctions. The red flags include, among other things, transactions involving a change in shipments or payments that were previously scheduled to go to Russia or Belarus; rapid shifts to new purchasers in transactions involving restricted luxury goods; non-US parties that have shared owners or addresses with Russian state-owned entities or designated companies; and payments being made from entities located in third-party countries not otherwise involved with the transactions and known to be a potential transshipment point for exports to Russia and Belarus, per the list above.
FAQ on Semiconductor Foundries and Entity List Parties
This FAQ highlights red flags that semiconductor foundries should consider with regard to parties (e.g., integrated circuit designers) on the Entity List. In addition to the “Know Your Customer” guidance set out in Supplement No. 3 to Part 732 of the EAR, BIS has indicated that semiconductor foundries should consider the following issues:
- BIS advises that receipt of new design files from a new customer presents a red flag if similar designs have been received from a company on the Entity List in the past, and that foundries should consider screening any software design files (e.g., GDSII software files) they receive against their library of previously received design files to determine if any of these files approximate or match the designs they have on file from a party on the Entity List. Due to the enhanced export controls targeting Russia and Belarus, including the new foreign direct product rules specific to Russia and Belarus under the Export Administration Regulations (“EAR”), BIS notes that this is “especially important” for foundries located outside the United States if the Entity List party is located in Russia, Belarus, or if the semiconductor being manufactured, or the Entity List party in question, is subject to one of the foreign direct product rules under the EAR.
- BIS reminds US persons working at foundries outside the United States of the prohibition on the provision of support when there is knowledge that it is related to certain proliferation or military intelligence concerns, even when no items subject to the EAR are involved in that support activity.
- BIS advises that semiconductor foundries either refrain from transactions or submit a license application to BIS in circumstances where the foundry has knowledge that a party on the Entity List is using a third party to disguise its involvement in any particular transaction subject to the EAR.