On February 24, 2023, the Department of Commerce’s Bureau of Industry and Security (BIS) issued three Final Rules addressing Russia’s continued war against Ukraine. One rule expands existing industry sector sanctions and export controls already in place toward Russia and Belarus. The other two rules add Russian and third country entities to the Entity List due to actions “contrary to the national security or foreign policy interests of the United States,” sanctions evasion, and in support of Russia’s defense sector. A White House Fact Sheet notes that these listings “will prohibit the targeted companies from purchasing items, such as semiconductors, whether made in the U.S. or with certain U.S. technology or software abroad. Commerce will also take action alongside G7 partners and allies to align measures on industrial machinery, luxury goods, and other items, as well as issue new restrictions to prevent components found in Iranian drones from making their way onto the battlefield in Ukraine.”
The first Final Rule revises the Export Administration Regulations (EAR) to expand the scope of the existing industry sector sanctions and luxury goods sanctions against Russia and Belarus under 15 C.F.R. Part 746. This rule expands significantly items requiring a license for export to Russia and Belarus and listed on Supplement No. 4 (industrial items designated by HTS codes and Schedule B numbers), Supplement No. 5 (Luxury Goods), and Supplement No. 6 (Various chemicals, biologics and related equipment and quantum computing and advanced manufacturing). These revisions also specify that license applications under these sections of part 746 will continue to be reviewed under a “policy of denial” but does clarify that certain types of license applications will be reviewed on a case-by-case basis to determine whether the transaction in question would benefit the Russian or Belarusian government or defense sector.
Importantly, this Final Rule attempts to address issues facing many U.S. and multinational companies that are curtailing or closing their operations in Russia or Belarus. This rule adds a new case-by-case license review policy for applications for the disposition of items by such companies. BIS states the following:
Companies deciding to curtail or close all operations in Russia puts further pressure on the Russian government and on the Russian and Belarusian defense industrial base, as their departure will hollow out both countries’ industrial capacity and economy, which may lead to further degradation of their defense industrial base. BIS encourages companies to exit the Russian and Belarusian markets and is making these changes to facilitate such decisions. In curtailing or closing operations in Russia or Belarus, many companies and other entities have encountered difficulties, such as issues related to the disposition of items subject to the EAR that may be too large or cost-prohibitive to remove from Russia. The new case-by-case license review policy added by this rule will facilitate the orderly exit of companies and entities from Russia and Belarus in a manner consistent with U.S. national security and foreign policy interests. As discussed above, BIS will review such license application to determine whether the disposition of these items will benefit the Russian or Belarusian government or military.
In the second Final Rule, BIS adds 10 entities (under 13 entries) to the Entity List for acting contrary to the national security or foreign policy interests of the United States. These entities are listed on the Entity List under the destinations of Canada (2), China (5), France (1), Luxembourg (1), Netherlands (1), and Russia (3). These additions are based on information that these companies significantly contribute to Russia’s military and/or defense industrial base. For these entities, BIS has imposed a license requirement for all items subject to the EAR and will review license applications under a “presumption of denial.” In addition, each of these entities are also being placed under Footnote 3 of the Entity List. A footnote 3 designation subjects these entities to the Russia/Belarus-Military End User Foreign Direct Product (FDP) rule.
In the third Final Rule, BIS adds 76 new entities that are being designated as “Russian/Belarusian Military End Users,” which imposes some of BIS’s most severe export restrictions, and effectively prevents them from obtaining items subject to the Export Administration Regulations (EAR), including certain foreign-produced items. These companies have been added due to their support of Russian efforts in occupied areas of Ukraine, for acquiring and attempting to acquire U.S.-origin items in support of Russia’s military, and for other activities contrary to U.S. national security. For these entities, BIS has imposed a license requirement for all items subject to the EAR and will review license applications under a “presumption of denial.” In addition, 66 of the Russian entities qualify as military end users and are also being placed under Footnote 3 of the Entity List. A footnote 3 designation subjects these entities to the Russia/Belarus-Military End User Foreign Direct Product (FDP) rule.
All of these Final Rules are effective on February 24, 2023. However, shipments to any of the new designees on the Entity List that were en route aboard a carrier on February 24, 2023, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under the previous eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR).
For items newly added to the industry sector sanctions and controls, shipments that were en route aboard a carrier on February 24, 2023 may proceed so long as the transaction is completed no later than March 27, 2023.