U.S. Moves to Further Restrict Exports to Russia, Belarus and Diverting Countries

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Mar. 7, 2023
By: Marvin E. McPherson

Last week, U.S. Department of Commerce’s Bureau of Industry and Security (BIS) moved to further restrict exports to Russia and diverting countries, and in a first, BIS, the Department of the Treasury’s Office of Foreign Asset Control (OFAC), and the Department of Justice (DOJ) collectively gave warning to the private sector on areas of enforcement and provide guidance on compliance with U.S. sanctions and export laws.

BIS published a new rule restricting the movement of dual use items to Russia, Belarus and intermediate countries, expanded the definition of “luxury goods” and amended supplement No. 2 to Part 746 to include “components,” “parts,” “accessories,” and “attachments” to items currently listed as prohibited from export without a license. These new restrictions are set out to further restrict items from reaching Russia and intermediate countries for use in the ongoing aggression against Ukraine.

BIS expanded the scope of the “Luxury Goods” by adding additional items to supplement no. 5 to part 746 that will require a license under § 746.10. The changes in “Luxury Goods” adds 276 additional entries that will require a license for export or reexport to or transfers within Russia or Belarus and for designated Russian and Belarusian oligarchs and malign actors worldwide under § 746.10(a)(1) and (2). A full list of “Luxury Goods” can be found here. Additionally, the BIS document amends 746.10(a)(1) to add the exclusions for items classified in 5A992 and 5D992 to ensure that the luxury goods license requirements do not undermine the policy behind those exclusions. The luxury goods license requirements, therefore, should not impose a separate license requirement that was excluded by § 746.8.

Further, BIS amends supplement no. 2 to part 746 to remove references to Schedule B numbers and Schedule B descriptions and replaces them with references to the applicable HTS-6 codes and HTS descriptions. The additions to supplement no. 4 to part 746 adds 322 additional HTS-6 Code entries corresponding to 322 industrial items that will require a license for export or reexport to or transfer within Russia or Belarus under § 746.5(a)(1)(ii).

Additionally, BIS expands the scope of the items listed in supplement no. 2 to part 746 to ensure that that the items captured includes any modified or designed “components,” “parts,” “accessories,” and “attachments” therefor, regardless of their HTS Code or HTS Description.” In many cases these “components,” “parts,” “accessories,” and “attachments” are not specifically identified by HTS Code or HTS Description. Paragraph (a) also specifies that the expansion does not include any “part” or minor “component” that is a fastener (e.g., screw, bolt, nut, nut plate, stud, insert, clip, rivet, pin), washer, spacer, insulator, grommet, bushing, spring, wire, or solder).

Separate, but not apart from BIS’ new rule, three collective agencies (BIS, OFAC, and DOJ) published a compliance note of trending areas of enforcement and provided guidance on compliance with U.S. sanctions and export laws for the private sector. The note highlights different trends used to evade Russia-related sanctions and export controls which include:

1.      Using third-party intermediaries or transshipment points to circumvent restrictions;

2.      Disguise the involvement of Specially Designated Nationals (SDNs) or parties on the Entity List in transactions; and

3.      Obscure the true identities of end users.

The overall conclusion from the joint note is simple “it is incumbent upon industry to maintain effective, risk-based compliance programs. BIS, in coordination with our partners, including at OFAC and the Department of Justice, will continue to use all tools at our disposal to prevent bad actors from circumventing the comprehensive export controls put in place to deter Russian aggression.”

As we have noted in prior updates, A Zealous Commerce to Come in 2023, heed the collective agency note, ensure your risk-based compliance programs are up to date with the ever changing complex export regulations. If you have any questions regarding export or sanctions compliance, do not hesitate to contact any attorney at Barnes, Richardson & Colburn, LLP.