Alerts

Current State of BIS Export Controls in Response to the Russian Federation's Invasion of Ukraine

Alerts / October 26, 2022

UPDATE – Effective September 15, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) implemented a new rule that expanded, revised, corrected and clarified certain provisions of the Export Administration Regulations (EAR) with respect to exports, reexports, and transfers (in-country) involving the Russian Federation and Belarus. Key revisions included:

  • Significant expansion of the industry sector controls which apply to EAR99 items, including by:
    • Extending applicability of certain industry sector controls to Belarus; 
    • Addition of controls on certain chemicals, biologics, fentanyl and its precursors, and related equipment; these Items are listed in a new Supplement to Part 746 of the EAR, Supplement 6
    • Addition of controls on quantum computing and advanced manufacturing equipment that may help Russia develop advanced production and development capabilities; these are also listed in Supplement 6; and
    • Addition of 57 items new items, including industrial machinery and equipment, to Supplement 4.
  • An expansion of the military end-user controls to cover specified entities outside of Russia or Belarus, and corresponding expansion of the military-intelligence end-user controls. 
    • In doing so, six existing Entity List entities have now been subsequently designated as Russian military end users, subjecting them to additional Russian and Belarusian military end use foreign direct product rules. 

In addition, effective September 30, BIS added 57 more entities to Entity List for acting contrary to the U.S. national security or foreign policy interests. Fifty-six (56) entities are listed under the destination of Russia and remaining entity is listed under the destination of the Crimea Region of Ukraine. The additions announced on September 30 bring the number of entities added to the BIS Entity List for activities related to Russia’s invasion of Ukraine to 392.

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Since February 24, 2022, BIS has implemented numerous new export control restrictions in response to the invasion of Ukraine by the Russian Federation (Russia). These restrictions, which significantly curtail exports, reexports, and transfers (in-country) of technology, commodities, and software (collectively “Items”) destined to or transiting Russia or Belarus as well as to certain persons affiliated with Russia and Belarus, can be found in the Export Administration Regulations 15 C.F.R. Parts 730-774 (EAR). Although many of the amendments to the EAR were the subject of prior detailed Alerts, the following summary provides an overview of the key export controls currently in place, including controls implemented by the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC). This Alert is not intended to be and is not a detailed summary of the export controls implemented as a result of the invasion of Ukraine. Rather, it is a tool to help businesses, both U.S. and foreign, identify whether their transactions with Russia, Belarus, or Ukraine may now require a license, or be prohibited, under the wide-ranging export controls that have been imposed. Review of the regulations will be necessary to determine specific licensing requirements.

An overview of the sanctions imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), which apply in addition to the export controls summarized here, will be provided in a separate Alert.

I. Executive Summary

A. BIS License Requirements Relating to Russia

Exports (direct or indirect), reexports (from one third country to another), and transfers (in-country) (any transfer within any third country) of the following Items are subject to license requirements:

  • All Items on the EAR’s Commerce Control List;
  • Luxury Goods (EAR99) listed in Supplement 5 to Part 746 of the EAR;
  • Sector Specific Items listed in Section 746.5 and Supplements 2, 4 and 6 to Part 746 of the EAR;
  • Any Items subject to the EAR going to a military end-use or end-user or a military-intelligence end-use or end-user, regardless of whether located in or outside of Russia (note that slightly different due diligence standards apply for exports to end-users outside of Russia; please consult Section 744.21 of the EAR);
  • Foreign-produced Items that are subject to the EAR under the foreign-direct product rules, including the specific Russia/Belarus rules in Section 746.8 and Sections 734.9(f) and (g) of the EAR; and
  • Any Item subject to the EAR if a person on the BIS Entity List or Denied Persons List or other sanctioned persons list is involved in the transaction.

For a detailed summary of each of these requirements, see Part II below.

B. BIS License Requirements Relating to Belarus

Exports, reexports, and transfers (in-country) of the following Items are subject to license requirements:

  • All Items on the EAR’s Commerce Control List;
  • Luxury Goods (EAR99) listed in Supplement 5 to Part 746 of the EAR;
  • Sector Specific Items listed in Section 746.5 and Supplements 2, 4 and 6 to Part 746 of the EAR (noting that Section 746.5(a)(1)(i) and Supplement 2 apply only to use in arctic offshore locations or shale formations in Belarus);
  • Any Items subject to the EAR going to a military end-use or end-user or a military-intelligence end-use or end-user, regardless of whether located in or outside of Belarus (note that slightly different due diligence standards apply for exports to end-users outside of Russia; please consult Section 744.21 of the EAR);
  • Foreign-produced Items that are subject to the EAR under the foreign-direct product rules, including the specific Russia/Belarus rules in Section 746.8 and Sections 734.9(f) and (g) of the EAR; and
  • Any Item subject to the EAR if a person on the BIS Entity List or Denied Persons List or other sanctioned persons list is involved in the transaction.

For a detailed summary of each of these requirements, see Part III below.

C. License Requirements Relating to the Covered Regions of Ukraine

Exports, reexports, and transfers (in-country) of the following Items are subject to license requirements:

  • All Items subject to the EAR, including EAR99 Items.

The Covered Regions of Ukraine are Crimea and the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.

For a detailed summary of each of these requirements, see Part IV below.

D. DDTC License Requirements

The following requirements apply to U.S. Munitions List (USML) items:

  • All defense articles and defense services on the USML contained in the International Traffic in Arms Regulations (ITAR) require licenses for export to Belarus and applications for such licenses have long been subject to a policy of denial.
  • All defense articles and defense services on the USML require licenses for export to Russia and applications for such licenses are subject to a policy of denial, except for license applications related to government space cooperation, which will be considered on a case-by-case basis.

For a detailed summary of each of these requirements, see Part V below.

In addition to the information provided in Parts II through V regarding BIS export controls applicable to Russia, Belarus, and the Covered Regions of Ukraine and ITAR controls applicable to Russia and Belarus, further information on BIS list-based controls and compliance tips may be found in Parts VI and VII below.

II. License Requirements Relating to Russia

Items subject to the jurisdiction of BIS under the EAR include most Items exported from the United States, U.S.-origin Items, wherever located, and foreign-produced Items subject to the EAR under the De Minimis Rule or any of the applicable Foreign-Direct Product Rules. The EAR’s jurisdiction is based upon the Item; both U.S. and foreign persons must comply with the EAR – including the EAR’s General Prohibition 10, which prohibits any transaction related to an Item that has been exported in violation of the EAR. For example, BIS has issued several public notices of Russian-owned aircraft that are subject to these prohibitions.

All Items on the EAR’s Commerce Control List (“CCL”) require a BIS license for export (direct and indirect), reexportation (one third country to another), or transfer (in-country) (any transfer within any third country) (15 C.F.R. Section 746.8(a)(1)) if the intended end-user is in Russia or the Item will transit Russia

As of April 8, any Item listed in any of the ten CCL categories requires a BIS license when destined for Russia, regardless of the end-use or end-user. The license requirements for Items in Categories 3-9 of the CCL were imposed February 24, 2022, and the license requirements for Items in Categories 0-2 of the CCL were imposed on April 8. The permitted uses of license exceptions are very limited, although, for example, certain carve-outs for some mass market Items classified under ECCNs 5A992 or 5D992 may apply.

Deemed exports and deemed reexports are not subject to these license requirements.

Items, including EAR99 Items, subject to Russian Industry Sector Sanctions require a BIS license (15 CFR Section 746.5)

A BIS license is required for the export, reexport, or transfer (in-country) to or within Russia of Items subject to the ECCNs listed in Section 746.5(a)(1)(i) or any of the 52 Items listed in Section 746.5, Supplement 2 to Part 746 of the EAR (for certain deep water oil and gas related end-uses), and for the export, reexport, or transfer (in-country) to or within Russia or Belarus of such Items (for certain Arctic offshore or shale formation oil and gas related end-uses). In addition, a BIS license is required for the export, reexport, or transfer (in-country) to or within Russia or Belarus, of Items, listed in Supplement 4 to Part 746 of the EAR, or in the newly created Supplement 6 to Part 746 of the EAR.

As of October 24, 2022, there were over 544 Items listed in Supplement 4. The Items listed in Supplement 4 are identified by Schedule B number, Schedule B description, Harmonized Tariff Schedule (HTS) code, and HTS description. The license requirement is based upon the HTS description. This means that Items covered more generally by the HTS Codes or Schedule B numbers in Supplement 4 are not subject to the Section 746.5(a)(1)(ii) license requirement unless described in the “HTS Description” column of Supplement 4. Notably, Supplement 4 now includes most components, parts, accessories and attachments for the listed Items.

Over 125 Items are listed in Supplement 6. The items in Supplement 6 include discrete chemicals, biologics, fentanyl and its precursors, and related equipment. The chemicals are specified based on their Chemical Abstract Numbers (CAS) in certain concentrations by weighted percentage. The license requirement is based on product description and CAS in distinct concentrations. Supplement 6 also includes quantum computing items, cryogenic refrigeration systems, additive manufacturing equipment, microscopes, and several other items.

EAR99 Luxury Goods require a BIS license (15 CFR Section 746.10)

Effective March 11, 2022, a BIS license was required for exports, reexports, and transfers to or within Russia of certain luxury goods subject to the EAR as well as to designated Russian oligarchs or other persons, regardless of their location.

The approximately 400 luxury goods are listed in Supplement 5 to Part 746 of the EAR; they include certain spirits, tobacco products, clothing items, jewelry, leather items, plastic items, vehicles, antiques, sporting goods, and other goods. They are identified by Schedule B number, the 2-digit Schedule B chapter heading, and a 10-digit commodity description.  In certain cases, value thresholds apply.  With the September 15 rule, value thresholds have been added or amended to align with controls imposed by allied countries (although not all Items have been assigned value thresholds, and, in many cases, the value thresholds have been reduced effective as of September 15). It is important to check the value thresholds to determine whether identified luxury goods will be subject to the licensing requirements of Supplement 5 to Part 746 of the EAR.

License applications for luxury goods in Supplement 5 will be reviewed on a case-by-case basis for those goods that meet humanitarian needs.

EAR99 Items to Military End-Uses and End-Users require a BIS license (15 C.F.R. Sections 744.21 and 744.22)

A BIS license is required for the export, reexport, or transfer to or within Russia and Belarus of all Items subject to the EAR (i.e., including foreign-produced Items subject to the EAR as well as U.S.-origin Items) to military end-uses and end-users (MEU) or military intelligence end-uses and end-users (MIEU), located anywhere in the world. Conducting due diligence to verify whether an entity qualifies as an MEU or MIEU remains essential but the Russian and Belarusian MEUs and MIEUS that are located outside of Russia or Belarus are on the BIS Entity List in Supplement 4 to Part 744 of the EAR.  The terms “military end-use” and “military end-user” as well as “military intelligence end-use” and “military intelligence end-user” are broadly defined in the EAR.

As of September 30, BIS has designated over 260 Russian and Belarusian entities/individuals as military end-users. They now are on the BIS Entity List. No license exceptions, except for limited use of License Exception GOV, are available to overcome this license requirement.

Use of License Exceptions has been Severely Limited

The availability of license exceptions has been severely limited for transactions involving Russia. Even when a license exception is available, the terms and conditions of its use are very restrictive. It is important to review each specific control carefully as the availability and scope of license exceptions differs among the various controls.

Certain Foreign-Produced Items Require a BIS License

There are two ways that foreign produced Items (commodities, technology, and software) can be subject to the EAR – i.e., under the De Minimis Rule or under the Foreign-Direct Product Rules (“FDPRs”). These complex rules are summarized below; the applicable regulations should be consulted to determine whether the rules may apply to a specific foreign-produced Item. If a foreign-produced Item is subject to the EAR, it may be subject to the same export license requirements as if the Item was exported from the United States.  Note:  The FDPRs discussed below are the FDPRs targeted at Russia and Belarus; for a complete list of FDPRs, please consult EAR Section 734.9).

  • De Minimis Rule (15 C.F.R. Section 734.4). The De Minimis Rule provides that a foreign-produced Item that derives more than 25 percent of its value from controlled U.S.-origin Items is subject to the EAR. As of April 8, for Items destined to Russia, any U.S.-origin Item on the EAR’s CCL would qualify as controlled content for the purpose of calculating whether more than 25 percent of the foreign made Item’s value is derived from controlled Items under the De Minimis Rule.  (To date, the lower de minimis level of 10 percent or more applicable to shipments to Country Group E:1 countries (Iran, Syria, Sudan, and North Korea) have not been applied to Russia or Belarus.
  • Foreign-Direct Product Rules (“FDPRs”) (15 C.F.R. Sections 746.8 and 734.9). Under the FDPRs, if the foreign-produced Item is the “direct product” of certain U.S.-origin controlled technology or software, then it can be subject to the EAR. There are two specific FDPRs that subject a broad range of foreign-produced Items to the EAR when destined for Russia or Belarus. The first one applies to any end-user in Russia or Belarus and the second one, which is more restrictive, relates to military end-users and end-uses.
  • Russia/Belarus Foreign-Direct Product Rule: See 15 CFR Section 746.8(a)(2) and Section 734.9(f). Foreign-produced Items subject to the EAR under this FDPR include any foreign-produced Item that is a direct product of U.S.-origin technology or software classified under any ECCN on the CCL (or produced by a plant or “major component” of a plant that is itself a direct product of such U.S. technologies and software) and is identified in Supplement 6 to Part 746 or has an export classification other than EAR99.
  • Russia-Belarus Military End User Foreign Direct Product Rule: See 15 CFR Section 746.8(a)(3) and Section 734.9(g). This FDPR is applicable when there is knowledge that the foreign-produced Item is a direct product of any technology or software on the CCL (or produced by a plant or “major component” of a plant that is itself a direct product of such U.S. technologies and software) and “will be incorporated into, or used in the ‘production’ or ‘development’ of any ‘part,’ ‘component,’ or ‘equipment’ produced, purchased, or ordered by an entity” that is designated as a Russian military end-user per a footnote 3 designation on the Entity List is a party to the transaction.
  • Exception: As of the date hereof, there are 37 countries excluded from the application of the Russia/Belarus FDPRs. These countries are excluded due to their participation in the global coalition standing with Ukrainian people against the Russian invasion and Belarusian complicity. They include the 27 states of the European Union, as well as Australia, Canada, Iceland, Japan, Liechtenstein, New Zealand, Norway, Switzerland, South Korea, and the United Kingdom.

In most cases, BIS will review license applications related to Items subject to these license requirements under a policy of denial.  Applications related to EAR99 food and medicine will be reviewed on a case-by-case basis.

III. License Requirements Relating to Belarus  

The license requirements and restrictions on use of license exceptions imposed on transactions involving Belarus largely mirror those imposed on Russia. For a summary of the license requirements and availability of license exceptions relating to Belarus, please see the above discussion of controls applicable to Russia.

IV. License Requirements Relating to Covered Regions of Ukraine

Export license requirements applicable to Crimea have been in place for several years (15 C.F.R. 746.6), as have related sanctions. As of February 21, 2022, these requirements were extended to cover all Items subject to the EAR (other than food and medicine designated as EAR99 and certain software and Internet-based personal communications) destined to the Donetsk or Luhansk People’s Republic of Ukraine (the DNR and LNR regions, respectively). That day, President Biden issued an Executive Order prohibiting U.S. persons from engaging in new investment in the DNR and LNR regions, as well as engaging in trade, including export, import, reexport, sale or supply, of goods, services or technology, with the DNR and LNR regions. U.S. persons, wherever located, are prohibited from approving, financing, facilitating, or guaranteeing transactions by foreign persons that cannot be performed by U.S. persons as a result of the Executive Order. Licenses from both BIS and OFAC may be required for any export, reexport, or transfer (in-country) involving the LNR or DNR regions.

V. DDTC License Requirements

All defense articles and defense services on the USML have long required licenses for export to Belarus and applications for such licenses remain subject to a policy of denial. Since March of 2021, all defense articles and defense services on the USML have been subject to license requirements for export to Russia and applications for such licenses are subject to a policy of denial, except for license applications related to government space cooperation, which will be considered on a case-by-case basis. 

Most license exemptions are not available for exports to Russia, although certain exemptions may be used in support of government space cooperation.

VI. The Entity List and Denied Persons List

As of September 30, BIS has added 392 Russian and Belarusian entities and individuals to its Entity List and more than 260 of those have been designated as military end-users.  A license must be obtained from BIS if a transaction involves an Item subject to the EAR and a listed entity.

Use of license exceptions is not permitted.  As a general rule, licenses applications will be approved only on an exceptional basis for transactions involving a person on the Denied Persons List or Entity List.

VII. Keys to Compliance

Three important steps for compliance are:

  • Determine the export control jurisdiction and USML category or CCL classification number (ECCN) of any technology, commodity, or software destined, directly or indirectly, for Russia or Belarus and determine license requirements and availability.
  • If the Item is not on the USML or EAR’s CCL, then verify its Schedule B number, Schedule B description, HTS code, Value Threshold, and HTS description, and review the relevant BIS supplements.
  • Conduct sanctioned person screening at the time of the order and prior to the export, reexport, or transfer (in-country) to verify that no party to a transaction is covered by any applicable sanctioned persons list, including BIS’s Denied Persons List or Entity List or OFAC’s List of Specially Designated Nationals and Blocked Persons.
     

Please do not hesitate to reach out to any member of our International Trade and National Security team or your BakerHostetler relationship partner with questions. BakerHostetler continues to closely monitor this rapidly changing situation.

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This Alert is a tool to help businesses, both U.S. and foreign, identify whether their business with Russia, Belarus or Ukraine may now be subject to U.S. export license requirements or involve newly sanctioned or blocked persons. This Alert cannot be relied upon as legal advice and provides only a high-level summary of the export controls applicable to Russia, Belarus, and the Covered Regions of Ukraine. The export controls and related sanctions are complex, detailed, and continuing to develop and legal counsel should be sought for guidance on specific transactions.


Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.