Careers

Diversity

With 18 offices, from New York to Los Angeles and Seattle to Orlando, we live and work in communities all over the U.S., collaborating across locations, disciplines and even borders. Our experienced, highly ranked lawyers serve businesses wherever they are and wherever they want to go.

Offices

About Us

Pages

Professionals

Thought leadership: blogs, podcasts, videos, publications, events and news

Insights

Services

Pro Bono

Am Law 100 firm with practices in Business, Digital Assets and Data Management, Intellectual Property, Labor & Employment, Litigation and Tax.

Home | BakerHostetler

A New Era for the Stablecoin Industry: The GENIUS Act

Lynn Sessions Speaks on Webinar Regarding Protected Health Information

BakerHosts

FDA-Regulated Products Supply Chain Disruptions: Industry Perspective

Analysis of Opportunity Zone and Related Tax Credit Changes Under the 2025 Tax Legislation

In response to Russia’s invasion of Ukraine, the U.S. government has deployed a whole-of-government approach to impose sanctions and tighter export controls on Russia. This alert summarizes the key export restrictions currently in place, including those imposed by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and by the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC). These controls significantly curtail exports, reexports and transfers (in country) of technology, commodities, and software (collectively, the “items”) destined for or transiting Russia or Belarus and items intended for certain persons affiliated with Russia or Belarus. The BIS restrictions are described in the Export Administration Regulations (EAR), which are set forth in 15 C.F.R. Parts 730-774. This website provides an overview of the key export controls currently in place.

core/paragraph

This alert is not intended to be and is not a detailed summary of the export controls implemented in response to the invasion of Ukraine. Rather, it is a tool to help businesses, both American and foreign, identify whether their transactions with Russia, Belarus or Ukraine may now require a license or be prohibited under the wide-ranging controls that have been imposed. A 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 in this alert, can be viewed&nbsp;here.

Executive Summary of Changes Since March 4, 2024

Since March 4, 2024, BIS has imposed additional export controls on end users designated on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), expanded the scope of EAR items subject to a BIS license under the Foreign Direct Product Rules for Russia, Belarus, Iran, and the Covered Regions of Ukraine, and eased export controls related to medical devices destined for Russia, Belarus and the occupied and Covered Regions of Ukraine (i.e., Crimea, Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine) by adding a new license exception for medical devices used to fulfill humanitarian needs.

Effective March 21, 2024, Section 744.8 of the EAR was amended to require a license for all items subject to the EAR involving persons blocked (SDNs) under 14 OFAC sanctions programs, including some related to narcotics trafficking, organized crime, terrorism, and proliferation of weapons of mass destruction. This license requirement applies when there is not a corresponding license requirement under the applicable OFAC regulations. At this time, it appears that the EAR license requirement will only apply to the persons or entities listed on OFAC’s SDN List and will not apply to entities owned 50% or more by the SDN. The sanctions programs relating to Russia and Belarus covered by the new requirement are:

core/list

core/list-item

Effective April 18, 2024, BIS added 39 additional HTS -6-digit codes to Supplement No. 7 to Part 746 of the EAR, resulting in the expansion of the Russia/Belarus/Temporarily occupied Crimea region of Ukraine Foreign Direct Product Rule (FDPR) and the Iran FDPR found in Sections 734.9(f) and 734.9(j) of the EAR. The HTS codes are as follows:

core/freeform

Effective April 29, 2024, BIS added a new license exception, MED, for EAR99 medical devices and certain related parts, components, accessories, and attachments for use in or with medical devices in <a>Russia, Belarus and the occupied and Covered Regions of Ukraine (i.e., Crimea, Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine)</a>. Medical devices, even EAR99, are generally subject to a license requirement for export, reexport or transfer in-country to the respective countries and regions. BIS estimates that the new license exception will reduce the need for licenses by approximately 4000 licenses per year.&nbsp; Users of License Exception MED must verify that their distribution systems ensure compliance with the license conditions. Consistent with BIS’s broad export controls on Russia and Belarus, License Exception MED does not authorize the export, reexport or transfer to or for the following:

I. Overview of BIS Export Controls Relating to Russia and Belarus

core/heading

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 (CCL).

Luxury goods (EAR99) listed in Supplement No. 5 to Part 746 of the EAR.

Sector-specific items listed in Section 746.5 and Supplement Nos. 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 (MEU) or a military intelligence end use or end user (MIEU), regardless of whether located in or outside Russia (note that slightly different due diligence standards apply for exports to end users outside Russia; please consult Section 744.21 of the EAR).

Any item subject to the EAR going to a person or entity designated on the SDN List under certain OFAC sanctions programs who is a party to the transaction if the transaction is not subject to OFAC jurisdiction.

Foreign-produced items that are subject to the EAR under the FDPRs, including the specific Russia/Belarus rules in Sections 746.8 and 734.9(f) and (g) of the EAR.

Any item subject to the EAR if a person on the BIS Entity List, BIS Denied Persons List or another 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

&nbsp;Exports, reexports and transfers (in country) of the following items are subject to license requirements:

Sector-specific items listed in Section 746.5 and Supplement Nos. 2, 4 and 6 to Part 746 of the EAR (noting that Section 746.5(a)(1)(i) and Supplement No. 2 apply only to use in Arctic offshore locations or shale formations in Belarus).

Any items subject to the EAR going to a MEU or MIEU, regardless of whether it is located in or outside Belarus (note that slightly different due diligence standards apply for exports to end users outside Russia; please consult Section 744.21 of the EAR).

Foreign-produced items that are subject to the EAR under the FDPR, including the specific Russia/Belarus rules in Sections 746.8 and 734.9(f) and (g) of the EAR.

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

C. License Requirements Relating to the Covered Regions of Ukraine

The “Covered Regions” of Ukraine are Crimea, the DNR, and the LNR. Exports and reexports to and transfers (in country) within each Covered Region of the following items are subject to license requirements:

All items subject to the EAR, including EAR99 items. 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 the BIS export controls applicable to Russia, Belarus and the Covered Regions of Ukraine, as well as ITAR controls applicable to Russia and Belarus, further information on the BIS Entity 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&nbsp;De Minimis&nbsp;Rule or any of the applicable FDPRs. The EAR’s jurisdiction is based on 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 regarding Russian-owned aircraft that are subject to these prohibitions.

All items on the EAR’s CCL require a BIS license for export (direct and indirect), reexportation (from one third country to another) or transfer (in country; any transfer within any third country)&nbsp;(15 C.F.R. Section 746.8(a)(1))&nbsp;if the intended end user is in Russia or the item will transit Russia.

As of April 8, 2022, any item listed in any of the 10 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&nbsp;imposed on February 24, 2022, and the license requirements for items in Categories 0-2 of the CCL were imposed on&nbsp;April 8, 2022. The permitted uses of license exceptions are very limited, though; for example, certain carve-outs for some mass market items classified under ECCNs 5A992 or 5D992 may apply.

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

Items, including EAR99 items, subject to&nbsp;Russian industry sector sanctions&nbsp;require a BIS license (15 C.F.R. 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 items listed in Section 746.5, Supplement No. 2 to Part 746 of the EAR (for certain deepwater oil-and-gas-related end uses), and for the export, reexport or transfer (in country) to or within Russia 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 of items listed in&nbsp;Supplement Nos. 4 and 6 to Part 746 of the EAR.

As of October 2, 2023, all items in Supplement Nos. 2 and 4 to Part 746 of the EAR were identified by a six-digit HTS code and description. The license requirement is based on the six-digit HTS code. This means that if an item is classified under the six-digit HTS code but does not correspond to the HTS description, the item is nonetheless covered and subject to licensing requirements. If any item is potentially described in more than one HTS description, the HTS code controls license determinations. Further, any item classified under an eight- or 10-digit HTS code that begins with a listed six-digit HTS code is also subject to license requirements.

As of February 21, 2024, there are over&nbsp;2,100 items listed in Supplement No. 4, a list of commercial and industrial items that require a license for export or reexport to or transfer within Russia or Belarus. Supplement No. 4 covers all items classified in Chapters 84, 85, 88 and 90 of the HTS.

As of October 2, 2023, Supplement No. 4 included modified or designed “components,” “parts,” “accessories,” and “attachments” for items listed in Supplement 4 regardless of the HTS code or HTS description of the “components,” “parts,” “accessories,” and “attachments.” The January 2024 Rule clarifies that while certain “parts” or minor “components” (i.e., fasteners, washers, spacers, insulators, grommets, bushings, springs, wires or solder) are excluded from the scope of Supplement No. 4 (as well as Supplement Nos. 2, 5 and 7 to Part 746 of the EAR, discussed above and below), the end use and end-user requirements of Part 744 of the EAR continue to apply to these items.

License applications for items in Supplement Nos. 2, 4, and 6 submitted by companies not headquartered in Country Groups D:1, D:5, E:1 or E:2 and intending to curtail or close all operations in Russia will be reviewed on a case-by-case basis to determine whether any item to be disposed of will benefit the Russian government or military.

Over 130 items are listed in&nbsp;Supplement No. 6&nbsp;as of February 21, 2024. The items in Supplement No. 6 include discrete chemicals, biologics, fentanyl and its precursors, and related equipment. The chemicals are specified based on their Chemical Abstracts Service (CAS) Registry Numbers in certain concentrations by weighted percentage and include:

Triethylamine (CAS 121-44-8), trimethylamine (CAS 75-50-3), lithium chloride (CAS 7447-41-8), lithium chloride hydrate (CAS 85144-11-2), (44) lithium chloride monohydrate (CAS 16712-20-2) and lithium carbonate (CAS 554-13-2).

Assay kits and reagents for nucleotide or peptide isolation, extraction or purification, n.e.s.

Laboratory equipment, including “components,” “parts,” “accessories” and “consumable materials” for such equipment for the analysis or detection, destructive or nondestructive, of chemical substances, n.e.s.

The license requirement is based on product description and the CAS in distinct concentrations. Supplement No. 6 also includes quantum computing items, cryogenic refrigeration systems, additive manufacturing equipment, microscopes and several other items. The January 2024 Rule clarified that medicines as defined in Section 722.1 of the EAR are not included in Supplement No. 6 (i.e., medicines that meet the definition of “drug” in Section 201 of the Federal Food, Drug, and Cosmetic Act). However, it should be noted that certain medicines are on the CCL and thus subject to license requirements, as discussed above.

In the January 2024 Rule, BIS issued guidance on the order of review for determining whether a license is required and, if yes, whether a license exception applies for Section 746.5 and made a conforming change to Section 746.8. The clarifications were made because Supplement Nos. 4 and 6 to Part 746 contain both EAR items and items on the CCL, but the CCL items are subject to license requirements under Section 746.8.

Under Section 746.5,&nbsp;Russian and Belarusian Industry Sector Sanctions, if an item has an ECCN on the CCL, then you start with Section 746.8, which covers all items on the CCL. A license will be required to export, reexport, or transfer (in-country) to or within Russia or Belarus any items covered by Section 746.8. See below for limited availability for license exceptions. If the item is EAR99, then you should determine the HTS code and whether it is covered in Supplement 4 or 6 to Part 746, and if yes, then a license will be required under Section 746.5(a)(1)(ii) or (iii). Due to the complexity of the new order of review, it may require assistance from an expert in HTS codes, export classifications, and the EAR to determine whether a license is required.

EAR99 Luxury Goods Require a BIS License&nbsp;(15 C.F.R. Section 746.10)&nbsp;

Since March 11, 2022, a BIS license has been 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.

Over 600 luxury goods are listed in&nbsp;Supplement No. 5 to Part 746 of the EAR&nbsp;as of February 21; they include household and department store items such as kitchen appliances, fans, radio/TV products, certain spirits, tobacco products, clothing items, jewelry, leather items, plastic items, vehicles, antiques, sporting goods and other goods. Unlike items listed in other supplements to Part 746, the items in Supplement No. 5 are identified by a Schedule B number, the two-digit Schedule B chapter heading and a 10-digit commodity description. In certain cases, value thresholds apply, although in many cases, value thresholds have not been assigned, and in some cases, the value thresholds have changed over the course of the past year. Thus, it is important to check the value thresholds to determine whether identified luxury goods were or will be subject to the licensing requirements of Supplement No. 5 to Part 746 of the EAR.

The January 2024 Rule clarified the order of review for licensing determinations under Section 746.10 for luxury goods. If the item has an ECCN on the CCL, you should review the Section 746.8 license requirements first. If the item is EAR99, you should review Supplement 5 to Part 746 to determine whether a license is required under Section 746.10(a)(1), which applies to luxury goods destined for Russia or Belarus. If it concerns Russian or Belarussian oligarchs or maligned actors as defined in Section 746.10(a)(2), if it is an item with an ECCN on the CCL, then there is likely a license requirement under Section 746.8 and under the OFAC regulations. However, if it is an EAR99 item identified in Supplement 5 to Part 746 and is going to an oligarch or maligned actor anywhere in the world, a license will likely be required under Section 746.10(a)(2) and under the OFAC regulations.

The January 2024 Rule clarified how to apply&nbsp;de minimis&nbsp;calculations for foreign-produced goods incorporating luxury good items identified in Supplement No. 5. The January 2024 Rule added a new subsection, 746.10(a)(3), to clarify that parties can exclude any U.S.-origin content if the item is identified in Supplement No. 5 and the foreign-made item will be exported from abroad or reexported from a country listed in Supplement 3 to Part 746, provided that the content is not excluded from the applicable scope column in Supplement No. 3. This aligns Section 746.10 with Sections 746.5 and 746.8. License applications for luxury goods listed in Supplement No. 5 are reviewed on a case-by-case basis for those goods that meet humanitarian needs. As discussed above, license applications for disposition of items subject to the EAR under certain conditions are reviewed on a case-by-case basis.

EAR99 Items to MEUs Require a BIS License&nbsp;(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 (including foreign-produced items subject to the EAR as well as U.S.-origin items) to MEUs or MIEUs 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 Russia or Belarus are on the BIS Entity List in Supplement No. 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 February 27, 2024, BIS has designated over 450 Russian and Belarusian entities/individuals as MEUs. They are now on the BIS Entity List. No license exceptions, other than for limited use of License Exception GOV, are available to overcome this license requirement.

“Common High Priority Items” Sought by Russia – High Risk of Diversion

In cooperation with its international partners, namely the European Union, Japan, and the United Kingdom, BIS&nbsp;issued a list of “common high priority items” that Russia is actively seeking to acquire for its weapon programs. As of February 23, 2024, 50 HTS codes were identified as high-priority codes. The HTS codes include both EAR99 items and CCL items (ECCNs 2A001, 2A101, 2A991, 2B001, 2B002, 2B003, 2B201, 2B991, 2B992, 2B993, 2B998, 3A001, 3A002, 3A090, 3A991, 3A992, 3B001, 3B991, 3B992, 5A001, 5A991, 6A002, 6A003, 6A993, 7A003, 7A994, and 9A991). There are 4 Tiers of high-priority items, with Tier 1 covering the items most crucial to Russia’s maintenance of its weapons program. The Tiers are:

Tier 1: Items of the highest concern due to their critical role in the production of advanced Russian precision-guided weapons systems, Russia’s lack of domestic production, and limited global manufacturers;

Tier 2: Additional electronics items for which Russia may have some domestic production capability but a preference to source from the United States and its partners and allies;

Tier 3.A: Further electronic components used in Russian weapons systems, with a broader range of suppliers;

Tier 3.B: Mechanical and other components utilized in Russian weapons systems.

Tier 4.A: Manufacturing, production and quality testing equipment for electric components, circuit boards and modules; and

Tier 4.B: Computer Numerically Controlled (CNC) machine tools and components.

As of February 23, 2024, the full list of Common High Priority Items can be viewed&nbsp;here.&nbsp;

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. However, to support Ukraine’s war efforts against Russia, the January 2024 Rule clarified that items destined to or transferred in Crimea, the DNR or the LNR for use by the Ukrainian military are not subject to the license requirements of EAR Section 746.6. Similarly, the January 2024 Rule clarified that firearms subject to the EAR previously exported, reexported, or transferred under a BIS or DDTC license to Ukraine can be temporarily imported for service and repair in the United States and sent back for use by the Ukrainian military, notwithstanding the exceptions to License Exceptions TMP and RPL related to Ukraine. In addition, effective April 29, 2024, a new license exception was implemented for medical devices and certain related parts, components, accessories, and attachments classified as EAR99, to serve humanitarian needs in Russia and Belarus. The new License Exception MED, found in 15 CFR Section 740.23, cannot be used to export, reexport, or transfer medical devices to a military end-user or any entity on the Entity List or for exports, reexports or transfers to a “production” “facility” as those terms are defined in 15 CFR Section 772.1 of if there is knowledge that the items will be used to produce items. Exporters relying on License Exception MED will be required to abide by certain verification requirements. It is important to review each specific control carefully, as the availability and scope of license exceptions differ 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 – under the&nbsp;De Minimis&nbsp;Rule or under the 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 were exported from the United States.&nbsp;It is important to evaluate and assess the scope of U.S. jurisdiction over export controls, as highlighted in a March 6, 2024, Tri-Seal Compliance Note regarding the obligation of foreign persons to comply with U.S. export controls (and sanctions).

(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&nbsp;Rule&nbsp;(15 C.F.R. Section 734.4).&nbsp;The&nbsp;De Minimis&nbsp;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 January 23, 2024, there is&nbsp;no de minimis&nbsp;level for any foreign-produced item incorporating a U.S.-origin item that is on the EAR’s CCL classified as a 9×515 or 600 series .y item when destined for Russia or Belarus. For all other items, 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&nbsp;De Minimis&nbsp;Rule. (To date, the lower&nbsp;de minimis&nbsp;level of 10 percent or more applicable to shipments to Country Group E:1 countries (Iran, Syria, Sudan, and North Korea) has not been applied to Russia or Belarus.)

FDPRs&nbsp;(15 C.F.R. Sections 746.8 and 734.9).&nbsp;Under the FDPRs, if the foreign-produced item is the “direct product” of certain U.S.-origin-controlled technology or software, 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 MEUs.

Russia/Belarus FDPR: See&nbsp;15 C.F.R. Section 746.8(a)(2)&nbsp;and&nbsp;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 specified in any ECCN in product groups D or E of 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 specified in any ECCN on the CCL or identified in Supplement Nos. 6 or 7 to Part 746 of the EAR. A license will be required when there is reason to know the foreign-produced item meets the product scope and is destined for Russia, Belarus or the Crimea region of Ukraine or will be incorporated or used in the production or development of any part, component or equipment specified in any ECCN on the CCL or in Supplement Nos. 6 or 7 to Part 746 of the EAR and produced in or destined for Russia or Belarus.

Effective April 18, 2024, BIS added 39 additional HTS -6-digit codes to Supplement No. 7 to Part 746 of the EAR resulting in the expansion of the Russia/Belarus/Temporarily occupied Crimea region of Ukraine FDPR and the Iran FDPR found in Sections 734.9(f) and 734.9(j) of the EAR respectively. These additions were intended to staunch the supply of missiles, drones and other military items to Russia. Expansion of the Iran FDPR builds on previous steps taken to target Iran’s support for Russia’s war in Ukraine. The HTS codes are as follows:

Russia/Belarus MEU FDPR:&nbsp;See 15 C.F.R. Section 746.8(a)(3)&nbsp;and&nbsp;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” designated as a&nbsp;Russian MEU per a footnote 3 designation&nbsp;on the BIS Entity List that is a party to the transaction.

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 the 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 the Covered Regions of Ukraine

Export license requirements applicable to Crimea have been in place for several years&nbsp;(15 C.F.R. 746.6), as have related sanctions.&nbsp;Effective 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 for the DNR and LNR regions of Ukraine. That same day, the President issued an&nbsp;executive order&nbsp;prohibiting U.S. persons from engaging in new investment in the DNR and LNR regions or 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 because of the executive order. Licenses from both BIS and OFAC may be required for any export, reexport or transfer (in country) involving Crimea, the DNR, or the LNR regions.

V. DDTC License Requirements

All defense articles and 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 2021, all defense articles and 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.&nbsp;

Most license exemptions are not available for exports to Russia, although certain exemptions may be used in support of government space cooperation or when the U.S. government is the recipient.

VI. The BIS Entity List, Denied Persons List and Unverified List

As of May 15, 2024, BIS has added over 900 Russian, Belarusian and other third-country entities and individuals to its Entity List, and more than 450 of those have been designated as MEUs carrying a footnote 3 designation on the Entity List. BIS has been continually adding Russian and non-Russian entities to the Entity List for their support of Russia’s invasion and ongoing aggression against Ukraine. In the last few months of 2023 and early 2024, BIS has added over 85 Russian entities and 30 non-Russian entities for operating illicit procurement networks intended to supply the Russian military and other persons involved in activities deemed a threat to U.S. national security and foreign policy interest. These listings showcase the agency’s persistent effort to prevent the Russian military and industrial complex from obtaining vital items necessary to maintain Russia’s war efforts in Ukraine.

BIS has also added Russian individuals and related entities to its Denied Persons List, subjecting them to a denial order or temporary denial order (TDO) for violating the EAR or to prevent the occurrence of an imminent violation of the EAR. Many of the Russian airlines and associated foreign affiliates predominately operating out of Central Asia and Turkey remain subject to temporary denial orders issued in the early months of the conflict in Ukraine as a result of successive TDO renewals. The denial of export privileges is one of the most severe enforcement tools to address violations of U.S. export controls and to prevent imminent violations of the EAR, and it can be imposed even when there is no criminal component to the violation. Since BIS revised its TDO renewal policy in&nbsp;August 2023&nbsp;to the one-year standard, it is now a common occurrence that TDOs are renewed for a one-year period rather than the prior 180-day maximum.

Also of importance is the BIS Unverified List (UVL), which is composed of foreign parties involved in any transaction involving an item subject to the EAR where BIS has been unable to verify the bona fides of a transaction through a post-shipment verification or pre-license check. Under BIS policy, if 60 days pass following addition to its UVL and BIS still has not been able to successfully complete an end-use check, BIS may begin the process to have the foreign party moved to its Entity List. Given this policy, adopted in October 2022, U.S. exporters and foreign reexporters should pay particular attention to parties listed on the BIS UVL due to the high risk that parties on this list may be added to the BIS Entity List.

The October 2022 policy and related&nbsp;Federal Register&nbsp;notice may be found&nbsp;here&nbsp;and&nbsp;here, respectively. A BIS license (or, in the case of an entity on the BIS UVL, a BIS UVL statement as required by Section 744.15(b) of the EAR) must be obtained if a transaction involves an item subject to the EAR and a listed entity. Use of license exceptions is not permitted. Generally, license applications will be approved only on an exceptional basis for transactions involving a listed person.

VII. Diversion Risk: Red Flags for Identifying Transactions of Concern&nbsp;

As discussed in Section II above, BIS, in coordination with the United Kingdom, European Union and Japan, has identified a list of “common high-priority items” that are being actively sought by Russia for its weapons program. Attempts to acquire these items often involve a series of front companies or other illicit schemes to covertly acquire them for Russia. BIS and its sister agencies have issued several advisories and guidance documents highlighting red flags that companies should look for in any transaction, particularly with respect to one involving any of the high-priority HS codes. The red flag guidance includes:&nbsp;

22 Red Flags in&nbsp;June 2022 BIS-FinCEN Alert;

12 additional Red Flags in&nbsp;May 2023 BIS Alert;

13 Red Flags in the&nbsp;March 2, 2023 Tri Seal Notice;

9 Red Flags in the&nbsp;May 19, 2023 BIS Guidance on HS Codes of Priority; and

12 Red Flags from&nbsp;BIS KYC webpage&nbsp;(more general; not Russia-focused).

A small sampling of common red flags are:

Freight forwarding firm is listed as the product’s final destination;

Payments from entities located in third countries not otherwise involved with the transactions;

Removing government/military affiliation from website;&nbsp;

Consolidating shipments/shippers in the United States;

Transactions associated with atypical shipping routes for a product or destination;

The buyer never ordered high-priority items prior to February 24, 2022;

Declining customary installation, training or maintenance;

IP addresses that do not correspond to a customer’s reported location;&nbsp;

Use of personal emails instead of company emails.

VIII. Keys to Compliance

Determine the export control jurisdiction and USML category or 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 the EAR’s CCL, verify its Schedule B number, Schedule B description, HTS code, value threshold and HTS description, and then review the relevant EAR 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 UVL, Denied Persons List or Entity List, and OFAC’s List of Specially Designated Nationals and Blocked Persons and conduct robust Know Your Customer Diligence.

Be vigilant against efforts by persons attempting to evade U.S. export controls; look for and address red flags.

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

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 on 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.

BakerHostetler 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 on the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely on advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

core/separator

[1] As noted above, actions taken by OFAC are summarized in a separate alert.

[2] BIS also made additions to the Entity List effective February 27, 2024, but these Entity List designations were unrelated to BIS’s export controls concerning Russia. The entities were added for acquiring or attempting to acquire U.S.-origin items for a BIS Entity List entity or for supplying technology to the Government of Egypt for human rights abuse.

Current State of U.S. Export Controls in Response to the Russian Federation’s Invasion of Ukraine – May 2024

Featured Insights

Related Services

Featured Insights