The U.S. government recently has taken several actions targeting Iran and Iranian entities for contributing to Russia’s military and defense industrial base to address Russia’s use of Iranian unmanned aerial vehicles (UAVs) in its ongoing war in Ukraine. These actions, together with the joint compliance note issued on March 2, serve as a warning to other countries and entities involved in supporting the Russian war in Ukraine. Most recently, on March 22, the U.S. Department of Justice announced indictments of various individuals and entities, which were intended to demonstrate the U.S. “determination to hold those who attempt to circumvent U.S. export laws and sanctions accountable.” In coordination with this announcement, on March 21, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated four entities and three individuals for their support of Iran’s UAV and weapons programs. On Jan. 31, seven Iranian drone manufacturers were added to the Entity List, and were thereby cut off from items subject to the Export Administration Regulations (EAR), whether foreign produced or of U.S. origin. In addition, on Feb. 24, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) amended the U.S. export control regulations governing commercial and dual-use items to subject more foreign-produced goods to the EAR’s jurisdiction when exported to Iran (Iran UAV Rule) and to impose license requirements for items used in Iranian UAVs. For other final rules targeting Russian aggression in Ukraine issued by BIS on Feb. 24, see BakerHostetler’s Ukraine-Russia Conflict Resource Center.

Key changes to the EAR as a result of the Iran UAV Rule include:

• Creating a Supplement No. 7 to Part 746 of the EAR to capture EAR99 parts and components, namely certain aircraft engines and parts therefor, and certain electronic integrated circuits, used in Iranian UAVs being supplied to Russia.
• Creating a new foreign direct product rule, the “Iran Foreign Direct Product Rule,” for items in the newly added Supplement 7 and certain Commerce Control List (CCL) categories.
• Subjecting the Supplement 7 items to the existing Russia/Belarus Foreign Direct Product Rule in Section 734.9(f) of the EAR.
• Imposing EAR license requirements on low-level EAR99 items, even when no U.S. person is involved in the transaction.

The Iran UAV Rule expanded the scope of the EAR in several ways.

First, the Iran UAV Rule creates a new Supplement No. 7 to Part 746 of the EAR (the Iran UAV Supplement), which lists 12 items that are used in Iran’s UAV program, including but not limited to EAR99 items, certain aircraft engines and parts thereof, and certain electronic integrated circuits. These items are identified by specific Harmonized Tariff Schedule (HTS) codes at the six-digit level and by related descriptions. The scope of items covered by Supplement No. 7 includes “any modified or designed ‘components’, ‘parts’, ‘accessories’, and ‘attachments’” (with certain limited exceptions, such as fasteners) of the items listed in the supplement. Further, Supplement No. 7 covers items classified under any eight-digit or 10-digit HTS code beginning with the six-digit HTS codes listed in Supplement No. 7. The new Iran UAV Supplement is an integral part of both the new foreign direct product rule and the new license requirements, as further described below.

The new foreign direct product (FDP) rule added by the Iran UAV Rule, the Iran FDP rule, may be found in Section 734.9(j) of the EAR. The Iran FDP rule, generally modeled after the Russia/Belarus FDP rule in Section 734.9(f) of the EAR, subjects foreign-produced items listed in Supplement No. 7 (including EAR99 items) or Categories 3 (Electronics Design Development and Production), 4 (Computers), 5 (Telecommunications and Information Security) or 7 (Navigation and Avionics) of the CCL to EAR controls. The controls apply when such items are the direct product of technology or software listed in Category 3, 4, 5 or 7 of the CCL, or are produced by a plant or major component of a plant that itself is the direct product of such technology or software, and are destined for Iran or will be incorporated into or used in connection with production or development of any item listed in the new Iran UAV Supplement or specified in Category 3, 4, 5 or 7 of the CCL, if such item is located in or destined for Iran. It is expected that the list of controlled items will be updated as additional intelligence is gained and Russia continues to source other items that support its military and defense industrial base.

The Iran UAV rule also made changes to the Russia/Belarus FDP rule to incorporate items listed in the new Iran UAV Supplement in the product scope of the rule.

Furthermore, the rule imposes license requirements on items listed on Supplement No. 7 or subject to the EAR under the new Iran FDP rule when exported or reexported to or from Iran, including EAR99 items listed on Supplement No. 7, even when no U.S. person is involved.

As set forth in Section 746.7(a)(1)(iv) of the EAR, certain reexports and exports from abroad involving countries described in Supplement No. 3 of the EAR are exempt from the new licensing requirements, and, as a general rule, OFAC will remain the primary licensing agency for exports and reexports to Iran.

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