In the years since Russia’s 2022 invasion of Ukraine, the United States has implemented a series of stringent export controls targeting both Russia and Belarus. These measures, overseen by the Bureau of Industry and Security (BIS), aim to restrict the flow of critical technologies and goods that could support Russia’s military capabilities and its ongoing aggression.
Even though it’s been more than two years since the first controls were put in place, changes continue to be fluid, so it’s important to stay up-to-date, whether on your own or with the help of tools like Shipping Solutions Trade Compliance Software, which can help you run license checks and restricted party screening. Here, we outline the key elements of these enhanced export controls.
Expanded Export Administration Regulations (EAR) and Other Export Controls
New License Requirements
The EAR governs the export and re-export of most commercial items, including “dual-use” items and goods that are not controlled by other regulations. The Commerce Control List (CCL) is a detailed list of items, organized into 10 categories and five product groups, that are subject to the EAR. Effective April 8, 2022, BIS mandated that all items on the CCL require an export license when destined for Russia or Belarus. This includes previously uncontrolled items, significantly broadening the scope of regulated exports. Exporters must ensure that their products, even those not previously subject to strict controls, now comply with these new licensing requirements.
Reduction in License Exceptions
BIS is tightening the availability of license exceptions, particularly for lower-level graphics processing units and other consumer communication devices through license exception Consumer Communications Devices (CCD). If a license exception does apply to your product, the terms and conditions of its use are likely very restrictive. This move aims to further limit Russia’s and Belarus’s access to critical technologies.
In-Country Transfer Controls
The new rules also impose strict controls on the in-country transfer of items within Russia and Belarus. This measure ensures that controlled items cannot be moved freely within these countries without appropriate licenses.
Expanded Controls on Items
BIS has also expanded controls on items destined for Russia and Belarus beyond items controlled through the EAR. They’ve added controls to over 500 new Harmonized Tariff System (HTS) codes, bringing the total to cover 22 entire two-digit HTS chapters. This means more items are now restricted and may require a license.
you can try ours for freeTemporary Denial Orders
Temporary Denial Orders (TDOs) have been issued against entities and individuals found to be illicitly procuring sensitive U.S.-sourced microelectronics for Russian military applications. These orders prevent the involved parties from exporting or re-exporting items under the EAR.
Crackdown on Shell Companies
BIS is taking steps to crack down on shell companies. They’ve rolled out a new regulatory framework that targets high-risk addresses, making it harder for these shell companies to operate by simply changing their name. For example, eight addresses in Hong Kong have been added to the Entity List. This means any company using these addresses for transactions subject to the EAR will face significant restrictions.
Foreign-Produced Items May Require a BIS License
Under the De Minimis Rule or the Foreign Direct Product Rules (FDPRs), foreign-produced items may require a BIS license.
Foreign Direct Product (FDP) Rules
New FDP rules apply to foreign-produced items that are derived from U.S. technology or tooling, ensuring that critical technologies do not indirectly support Russia or Belarus through third-party countries. This expands the reach of U.S. export controls beyond direct shipments, addressing potential loopholes where U.S. technologies might be integrated into foreign products.
De Minimis Rules
The de minimis threshold has been lowered, meaning more foreign-produced items with minimal U.S. content are now subject to U.S. export controls. This change closes loopholes that previously allowed some items to bypass regulations, ensuring tighter control over global supply chains that might contribute to Russian and Belarusian military capabilities.
OFAC Sanctions
In addition to controls through BIS, the U.S. Department of the Treasury’s Office of Foreign Asset Control has imposed sanctions on Russia and Belarus. OFAC has expanded secondary sanctions for financial institutions, increasing risks for those transacting with sanctioned entities. More than 300 individuals and entities in 16 countries have been added to the Specially Designated Nationals (SDN) list, including key Russian financial and defense-related entities. General licenses were issued for winding down activities with certain entities.
Another big change is the prohibition of IT consulting and support services. U.S. persons are now prohibited from providing these services to anyone in Russia, effective September 12, 2024. This includes cloud-based services, so it’s crucial to review your IT infrastructure to ensure compliance.
Red Flags and Diversion Risk
BIS is also doing more to alert companies of potential violations, including red flag letters.
Recognizing Red Flags
Exporters need to be vigilant about potential red flags that indicate a risk of diversion to unauthorized end users or destinations. Some common red flags include:
- Unusual routing of shipments through multiple countries without a clear justification.
- Requests for items that seem inconsistent with the customer’s line of business.
- Vague or inconsistent answers to questions about end use or end users.
- The customer is reluctant to provide end-use information or documentation.
Mitigating Diversion Risks
To mitigate the risks of diversion, exporters should:
- Conduct thorough due diligence on all customers and intermediaries.
- Use the BIS Consolidated Screening List to check the status of potential partners.
- Require end-use and end-user certificates to verify the legitimacy of transactions.
- Stay informed about the latest regulatory changes and compliance best practices.
Reporting Suspicious Activities
Exporters are encouraged to report any suspicious inquiries or activities to BIS’s enforcement offices. This proactive approach helps identify and prevent potential violations.
Investing in Compliance
In a March 2024 speech to the BIS Update Conference on Export Controls and Policy, Assistant Secretary for Export Enforcement Matthew Axelrod made clear to attendees that ignoring increasing sanctions and growing enforcement efforts puts companies at growing risk. To put an exclamation point on his comments, BIS used this opportunity to release an updated version of its Don’t Let This Happen to You! guide with 77 pages of examples of enforcement actions BIS has taken against companies, institutions and individuals who have violated the regulations.
Axelrod’s message was clear; companies are expected to invest the resources necessary to understand the regulations, put processes in place that will ensure compliance with those regulations, and train employees on how to ensure compliance. Those efforts usually begin with creating and maintaining a company-wide Export Compliance Program, a written set of procedures that outlines what needs to be done, how efforts to comply should be documented, and how often they should be reviewed and updated.
Compliance Resources
If you have any lingering doubt about the seriousness of BIS’s enforcement stance, the statistics from 2023 should eliminate it. The year saw a record number of convictions obtained by the Department of Justice (DOJ) with support from BIS, as well as numerous temporary denial orders (TDOs) and post-conviction denial orders. Notably, the recently launched Disruptive Technology Strike Force, a partnership between BIS and the DOJ, has brought together seasoned agents and prosecutors in fourteen locations across the country.
Remember, this article is not a complete list of regulations and is meant to serve as an overview. To stay compliant with changing regulations, here are some resources:
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