On March 20, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule implementing restrictions under the Export Administration Regulations (EAR) on persons who have been designated and placed on the Specially Designated Nationals (SDN) List maintained by the Department of the Treasury’s Office of Foreign Assets Control (OFAC). Under Secretary of Commerce for Industry and Security Alan Estevez stated that this “action will further our already strong coordination with the Treasury Department to prevent foreign actors from obtaining the items and financing they seek to conduct activities that threaten U.S. national security and foreign policy interests.”
The majority of the revisions and amendments to the EAR to implement this cross-coordination with OFAC sanctions regulations occur under 15 C.F.R. part 744 concerning end-user and end-use based export controls. Specifically, § 744.8 has been significantly revised to implement these new restrictions when certain persons designated on the list of SDN List are a party to the transaction. The final rule ensures that persons and entities blocked under the following 14 OFAC sanctions programs will also automatically be subject to the license requirements for items subject to the EAR and relevant export, reexport, and transfer (in-country) controls under the EAR if they are a party to the transaction:
- Seven Executive Orders (EO) related to Russia’s harmful foreign activities, including its aggression in Ukraine dating back to its 2014 annexation of Crimea as well as the recent further invasion in 2022 and the undermining of democratic processes or institutions in Belarus (EOs 13405, 13660, 13661, 13662, 13685, 14024, and 14038);
- Two programs related to terrorism (Foreign Terrorist Organizations Sanctions Regulations and Global Terrorism Sanctions Regulations);
- The Weapons of Mass Destruction Proliferators Sanctions Regulations; and
- Four programs related to narcotics trafficking and other criminal networks (EOs 13581 and 14059, the Narcotics Trafficking Sanctions Regulations, and the Foreign Narcotics Kingpin Sanctions Regulations).
BIS states that no license exceptions overcome these new license requirements. However, to avoid imposing a duplicative license requirement, the final rule notes that “transactions specified in [§ 744.8] do not require separate EAR authorization if the transactions are authorized under an OFAC specific or general license or are exempted under OFAC’s regulations” unless other parts of the EAR are implicated. With these revisions to § 744.8, it should be noted that Sections BIS has removed and reserved §§744.10, 744.12 through 744.14, 744.18, and 744.20 of the EAR.
According to the final rule, “The imposition of these EAR license requirements allows for the EAR controls to act as a backstop for activities over which OFAC does not exercise jurisdiction, including deemed exports and deemed reexports, and for reexports and transfers (in-country) that would otherwise not involve U.S. persons (e.g., U.S. financial institutions). Notably, the new license requirements allow for controls on items outside the United States, complementing the existing authority in many OFAC programs to impose blocking sanctions on persons who materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to or in support of, SDNs, even outside of U.S. jurisdiction.”