In conjunction with the opening of the G7 Summit held in Japan, on May 19, 2023, the U.S. imposed a new round of sanctions and export controls targeting Russia in response to its invasion of Ukraine. According to the G7 Leaders' Statement, these actions are intended "to increase the costs to Russia and those who are supporting its war effort." Implementing the new sanctions package, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), the U.S. Department of State, and the U.S. Department of Commerce's Bureau of Industry and Security (BIS) all announced additional restrictions on dealings with Russia. New sanctions measures include new designation authorities and prohibitions affecting a variety of Russian economic sectors, new reporting requirements related to blocked property of certain Russian entities, and over 300 new designations and blocked property identifications. View our alert discussing the sanctions measures announced by OFAC and the U.S. Department of State here.

Separately, BIS announced two major rules expanding the export controls-related restrictions on Russia and Belarus in response to its military invasion of Ukraine. In its announcement and summary, BIS indicated that the aim of these new measures is to "cut off Russia's access to any items of potential military significance" and "expand the economic impact of controls denying Russia additional resources it needs to continue waging war." Additionally, BIS notes that the changes simplify and align U.S. export controls imposed in response to Russia's invasion of Ukraine with other U.S. allies' and partners' controls. 

This alert discusses the new export controls measures announced by BIS. 

Wider Scope of Items Subject to an Export License Requirement under the Export Administration Regulations (EAR)

In a new rule, BIS significantly widened the scope of items now subject to a license requirement when exported, reexported, or transferred (in-country) to end users in Russia or Belarus. These include a large number of generally non-dual-use items classified under U.S. export controls as EAR99 which previously would not have required a license when exported to Russia or Belarus. 

• Supplement No. 4 to Part 746 of the EAR, which identifies industry-related items subject to the EAR that require a license for export, reexport, or transfer (in-country) to or within Russia or Belarus under § 746.5(a)(1)(ii) of the EAR has been vastly expanded. It now includes a total of 1,224 additional Harmonized Tariff Schedule (HTS)-6 Code entries corresponding to 1,224 types of industrial items. The new license requirements cover a variety of electronics, instruments, and advanced fibers for the reinforcement of composite materials, including carbon fibers, and notably covers all items classified under Chapters 84, 85, and 90 of the HTS. The rule also makes clear that 131 of the HTS-6 Codes now listed in Supplement No. 4 are also included in Supplement No. 5 to part 746 of the EAR, which lists the "luxury goods" items subject to a license requirement under § 746.10 of the EAR. 
• Supplement No. 6 to Part 746 of the EAR, which lists certain chemicals and related equipment subject to the EAR that require a license for export, reexport, or transfer (in-country) to or within Russia or Belarus under § 746.5(a)(1)(iii) of the EAR, has been expanded slightly to add four additional chemicals: lithium chloride (CAS 7447-41-8), lithium chloride hydrate (CAS 85144-11-2), lithium chloride monohydrate (CAS 16712-20-2), and lithium carbonate (CAS 554-13-2). 
• Supplement No. 7 to Part 746 of the EAR, which identifies items subject to the EAR that require a license for export, reexport, or transfer (in-country) under § 746.7 of the EAR when destined for Iran, and under § 746.8 of the EAR when destined to Russia or Belarus, has been expanded to add one HTS-6 Code entry, 854800, which covers "a variety of electrical parts of machinery or apparatus, NESOI" (Not Elsewhere Specified Or Included). Notably, these items have been described in various BIS announcements and enforcement guidance published in connection with the new restrictions as "items of concern" given that they consist of items and components used in various Russian weapons systems, including unmanned aerial vehicles (UAVs). BIS has indicated that the change is "intended to further undermine Iran's ability to support the Russian and Belarusian industrial bases and their ability to continue to support Russia's military aggression in Ukraine." Supplement No. 7 has also been modified to reflect that the license requirements under § 746.6 of the EAR also apply when the item is destined for the "temporarily occupied Crimea region of Ukraine."  
• The Russia/Belarus Foreign Direct Product (FDP) Rule (§ 734.9(f) of the EAR) has also been expanded to include the Crimea Region of Ukraine and is being renamed the Russia/Belarus/temporarily occupied Crimea region of Ukraine FDP rule. This means that certain items produced abroad using U.S.-origin technology or software that meets the product scope criteria under § 734.9(f) of the EAR will require a license when destined for Russia, Belarus, or the Crimea region of Ukraine. 
• An exclusion to the de minimis rules has been implemented through a clarification noting that items identified in supplements nos. 2, 4, and 6 to Part 746 of the EAR destined for the countries identified in supplement no. 3 to part 746 of the EAR are subject to a de minimis exclusion noted in § 746.8(a)(5) of the EAR. 

New Entity List Designations

In a separate rule, BIS announced the addition of 71 entities to its Entity List, stating these additions are aimed "to prevent Russia from accessing goods it needs for the battlefield." As a result, a license is required for the export, reexport, or transfer (in-country) of items subject to the EAR to these entities. According to BIS, 69 of these entities were added "for providing support to Russia's military and defense sector" and are considered Russian or Belarusian "military end users" under § 744.21 (g) of the EAR, meaning they will have a footnote 3 designation in the Entity List and be subjected to the restrictions imposed under the Russia/Belarus-Military End User FDP Rule (§ 746.8(a)(3) of the EAR), which represent "some of the most severe restrictions available under the EAR."

BIS and FinCEN's Joint Alert 

In addition to the new export control measures, BIS and U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) released a new publication, Supplemental Alert: FinCEN and the U.S. Department of Commerce's Bureau of Industry and Security Urge Continued Vigilance for Potential Russian Export Control Evasion Attempts (BIS-FinCEN Alert), which urges financial institutions "to be vigilant against efforts by individuals and entities to evade BIS export controls implemented in connection with the Russian Federation's (Russia) further invasion of Ukraine" and provides insight on various export controls evasion typologies, enforcement priorities, and evasion red flags. Please note:

• The BIS-FinCEN Alert emphasizes nine "High Priority" Harmonized System (HS) codes that should inform customer due diligence undertaken by financial institutions. According to the BIS-FinCEN Alert, the following "High Priority Items" (listed by HS Code) have been identified by BIS, "in partnership with the EU, the U.K., and Japan" as "covering critical U.S. components that Russia relies on for its weapons systems":
  • 8542.31: Electronic integrated circuits: Processors and controllers, such as microcontrollers 
  • 8542.32: Electronic integrated circuits: Memories, such as SRAM 
  • 8542.33: Electronic integrated circuits: Amplifiers, such as op amps 
  • 8542.39: Electronic integrated circuits: Other, such as FPGAs 
  • 8517.62: Machines for the reception, conversion and transmission or regeneration of voice, images, or other data, such as wireless transceiver modules 
  • 8526.91: Radio navigational aid apparatus, such as GNSS modules 
  • 8532.21: Tantalum capacitors 
  • 8532.24: Multilayer ceramic capacitors 
  • 8548.00: Electrical parts of machinery or apparatus, not specified or included elsewhere, such as EMI filters
• The BIS-FinCEN Alert urges financial institutions to conduct due diligence when encountering one of the HS Codes associated with these High Priority items (which are typically found on commercial invoices, packing slips, airways bills, sea bills, and other documents) "to identify possible third-party intermediaries and attempts at evasion of U.S. export controls."
• Building on a previous compliance note, the BIS-FinCEN Alert also flags several methods typically used to evade U.S. export controls, including: 
  • The use of front companies
  • Layering transactions to obfuscate the buyer and end user
  • The use of procurement agents and shell companies 

Export Controls Takeaways 

• Both U.S. and non-U.S. businesses should carefully examine the export and import classifications all of their products to determine whether and how expanded licensing requirements may affect any contemplated transactions involving Russia or Belarus. Because licensing requirements for shipments to Russia or Belarus have expanded substantially to include some of the lowest level commercial goods, all businesses (including non-U.S. businesses) dealing in U.S.-origin goods (or goods otherwise subject to the EAR) should examine how these expanded licensing requirements may affect any contemplated transactions involving Russia or Belarus. This can involve, among other things: 1) determining to what extent a business's items are considered "subject to the EAR"; 2) determining the export control classification number that applies to the item; 3) checking the HTS classifications and descriptions of the item against the various supplements to Part 746 of the EAR to see if which, if any items are require a license when destined for end users in Russia or Belarus; and 4) taking steps to secure a license if one is necessary or rejecting the transaction in the absence of a license. Our team regularly assists companies address and navigate the various customs and export controls-related questions that can arise when making these determinations. 
• The new restrictions and guidance provide insight into BIS's enforcement priorities. In both public statements and enforcement actions undertaken in partnership with the U.S. Department of Justice (DOJ), BIS has made clear that it intends to aggressively enforce export controls imposed on Russia. BIS has noted repeatedly that these measures are having a significant impact on Russia and, according to Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler, "have degraded Russia's ability to repair, replenish, and reconstitute the advanced weapons and platforms it needs to sustain its war machine."
• Given the public guidance and information about various export controls evasion typologies and the significantly expanded universe of items subject to a license requirement, we expect financial institutions to apply much more scrutiny when processing various payments related to exports of items, even when the exports do not appear destined for Russia. Notably, financial institutions are being encouraged to continue indicating in Suspicious Activity Reports (SARs) where a transaction appears to touch on sanctions evasion and to conduct additional due diligence when transactions mention or relate to the High Priority Items discussed above. Businesses would be wise to ensure due diligence documentation is easy to access so that it can address compliance questions from banking providers as well as other third parties.

For more information, please contact members of Miller & Chevalier's Sanctions and Export Controls and Customs Groups:

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Richard A. Mojica, rmojica@milchev.com, 202-626-1571

Manuel Levitt, mlevitt@milchev.com, 202-626-5921

Caroline J. Watson, cwatson@milchev.com, 202-626-6083

Samuel B. Cutler, scutler@milchev.com, 202-626-5551

Lara Hakki*

Christopher Stagg*

*Former Miller & Chevalier attorney

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