On September 15, 2022, the US Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a final rule (the “Final Rule”) to expand the existing sanctions against Russia and Belarus under the Export Administration Regulations (“EAR”). The purpose of the Final Rule is to “protect U.S. national security and foreign policy interests by further restricting Russia’s access to items that it needs to support its military capabilities.” The Final Rule took effect on September 15. Below is an overview of the new measures implemented in the Final Rule.
Expansion of the Russian Industry Sector Sanctions
- Expansion of Items subject to the Russian Industry Sector Sanctions
Under the Russian industry sector sanctions, all items identified in Supplement No. 4 to EAR Part 746 (“Supp. No. 4”) that are subject to the EAR would trigger a licensing requirement when they are exported, reexported, or transferred (in-country) to or within Russia. The items in Supp. No. 4 are classified as EAR99 and would not otherwise require authorization for export, reexport, or transfer to or within Russia. Please see here for our prior blog post related to the Russia industry sector sanctions.
The Final Rule expands the scope of the Russian industry sector sanctions to add lower-level items that are potentially useful for Russia’s chemical and biological weapons production and development capabilities, including discrete chemicals, biologics, fentanyl and its precursors, and related equipment. In addition, the Russian industry sector sanctions now target quantum computing and advanced manufacturing items that are important for Russia’s production and development capabilities to enable advanced manufacturing across a number of industries. These controls are imposed by BIS in parallel with OFAC’s prohibition on the exportation, reexportation, sale, or supply of quantum computing services to Russia pursuant to Executive Order (“EO”) 14071 announced on the same day. The new items targeted by the Russian industry sector sanctions are identified in a new Supplement No. 6 to EAR Part 746.
Further, the Final Rule adds 57 additional items to the existing Supp. No. 4, including a variety of industrial machinery and equipment, for purposes of further undermining the Russian industrial base. A list of all the additional items covered under the expanded controls is available here.
- Expansion of Controls on Belarus
In addition to the expansion of covered items, the Final Rule also adds Belarus to the scope of the industry sector sanctions that have only applied to Russia, imposing on Belarus the same controls as those applicable to Russia. BIS stated this expansion of controls to Belarus is due to the concerns of diversion of items subject to the industry sector sanctions from Belarus to Russia.
- License Exception CCD
The Final Rule adds License Exception CCD eligibility for the Russian industry sector sanctions to meet the US policy of ensuring the free flow of information. The availability of License Exception CCD is expected to ease compliance burden for exporting certain consumer communications devices captured by these restrictions.
Refinements to the Export Ban on Luxury Goods
The Final Rule refines certain existing controls with respect to items designated as “luxury goods” in Supplement No. 5 to EAR Part 746 (“Supp. No. 5”) to more closely align with the requirements implemented by US allies. Please see here for our prior blog post related to this export ban on luxury goods.
- Addition of Dollar Value Exclusion Thresholds for Luxury Goods
When the luxury goods controls were initially added, the only luxury goods that included a dollar value exclusion were clothing and shoes entries, which were assigned a dollar value exclusion of $1,000 per unit wholesale price in the United States. This Final Rule adds additional dollar value exclusion thresholds for certain luxury goods to better align with the thresholds for luxury goods controls used by US allies. These revisions should be taken into account by US Persons trying to comply with the luxury goods ban under EO 14068, given that the scope of OFAC’s luxury goods ban relies on Supp. No. 5. If warranted, BIS may make further revisions or additions to the thresholds.
- Adoption of Case-by-Case Licensing Review Policy for Items for Humanitarian Needs
Further, the Final Rule adds an exception to the licensing policy of denial for luxury goods to specify that items for humanitarian needs will be reviewed on a case-by-case basis. For instance, contact lens solutions are captured under Supp. No. 5 as a luxury good. Because these solutions may be necessary for the maintenance of eye health for certain patients, the case-by-case policy will allow BIS to assess whether a license application for such items should be approved to meet humanitarian needs while considering US national security and foreign policy interests.
- License Exception CCD
As with the Russian industry sector sanctions, the Final Rule adds License Exception CCD eligibility for the export ban on luxury goods. This change is expected to ease compliance burden for exporting certain consumer communications devices captured by the luxury goods ban, such as laptops.
Expansion of the Military End User and Military-Intelligence End User Controls
The Final Rule broadens the military end user (“MEU”) and military-intelligence end user (“MIEU”) controls under the EAR to improve the overall effectiveness of these controls.
- Expansion of the MEU and MIEU Controls Worldwide
EAR § 744.21 imposes restrictions on certain MEUs in Belarus, Burma, Cambodia, the People’s Republic of China (“PRC”), Russia, and Venezuela, whereas EAR § 744.22 imposes restrictions on certain MIEUs in the same countries plus E:1 and E:2 countries (i.e., Cuba, Iran, North Korea, Syria). The Final Rule expands the scope of both the MEU and MIEU controls under EAR § 744.21 and EAR § 744.22, respectively.
Specifically, it revises EAR § 744.21 to allow BIS to designate Belarusian, Burmese, Cambodian, Chinese, Russian, or Venezuelan MEUs located anywhere in the world, as opposed to only those present in the six countries specified in EAR § 744.21. BIS states that the change is implemented in recognition that “neither MEUs nor international development and production activities are limited to the home countries of designated [MEUs].”
Notably, in light of the compliance burden with the expansion of these controls worldwide, Burmese, Cambodian, Chinese, or Venezuelan MEUs located outside of Burma, Cambodia, China, or Venezuela would be limited to entities specifically identified on the MEU List. Belarusian and Russian MEUs located outside of Russia and Belarus would be limited to entities specifically identified on the Entity List under Supplement No. 4 to EAR Part 744 with a footnote 3 designation. In sum, MEUs located outside the specified countries in EAR § 744.21 would be exhaustively identified in either the MEU List or the Entity List.
The Final Rule also expands the scope of EAR § 744.22 to mirror the changes described above. It expands the MIEU controls to Belarusian, Burmese, Cambodian, Chinese, Russian, and Venezuelan MIEUs or MIEUs of E:1 or E:2 countries, wherever located. Similarly, the MIEUs located outside of the identified countries in EAR § 744.22 are limited to the entities specifically identified under EAR § 744.22(f)(2).
- Expansion of the “is informed” provisions under EAR § 744.11
The Final Rule expands the scope of the “is informed” provisions under EAR § 744.11 by specifying that
the Deputy Assistant Secretary for Export Administration (“DAS/EA”) may provide specific notice that the export, reexport, or transfer of specified items to an entity requires a license when there is reasonable cause to believe that the entity has been involved, is involved, or poses a significant risk of being or becoming involved in activities contrary to US national security or foreign policy interests or that an entity is acting on behalf of such entity. In sums, this would allow the DAS/EA to provide specific notice about parties that are not currently on the Entity List, but are engaging in activities that are contrary to US national security or foreign policy interests, such as MEU or MIEU activities.
The notice provided by the DAS/EA will include the license requirement, eligibility for license exceptions eligibility, and license review policy for any entity identified in such notice. Further, once a specific notice is provided, BIS may subsequently add the entity to the Entity List to inform all exporters, reexporters, and transferors of these requirements.
- Revisions to the Entity List
The Final Rule revises the Entity List to designate six entities originally added to the Entity List under the designations of China, Lithuania, Russia, the United Kingdom, Uzbekistan, and Vietnam as Russian MEUs.
Revisions to Products Eligible for License Exception CCD
The Final Rule updates the list of consumer communications devices eligible for License Exception CCD to reflect technology advancements since 2009, the year that License Exception CCD was added to the EAR. For example, EAR § 740.19(b)(1) for consumer computers has been revised to now include tablets and peripherals, such as microphones, speakers, and headphones that are EAR99 or classified under Export Control Classification Numbers 5A992.c or 4A994.b.
Corrections and Clarifications to Existing Controls on Russia and Belarus
In addition to the above, the Final Rule has made various other corrections and clarifications to existing controls on Russia and Belarus to more effectively achieve US policy objectives. These revisions include, among others:
- Excluding the transfers of any item within Russia or Belarus for reexports (i.e., return) to the United States or a country in Country Group A:5 or A:6 from the licensing requirements under EAR § 746.8(a)(1) and (2)
- Adding Russia and Belarus to the news media authorization under License Exception TMP.
Savings Clause
For transactions affected by the new controls imposed by the Final Rule, there is includes a savings clause for exports, reexports, and in –country transfers that were an route aboard a carrier to a port of export, reexport, or in-country transfer, on September 15, 2022, pursuant to actual orders for shipments to or within Russia or Belarus, as applicable. Such shipments may proceed under the previous eligibility for a License Exception or without a license (NLR), as applicable prior to the Final Rule, provided such shipments are completed no later than on November 14, 2022.
