On Feb. 24, 2023, the first anniversary of Russia’s invasion of Ukraine, the Bureau of Industry and Security (BIS) imposed further export controls on Russia and Belarus by expanding the scope of EAR99 items, including luxury goods, and foreign-produced items subject to license requirements under the Export Administration Regulations (EAR) when destined for Russia or Belarus. BIS also added 86 entities to the Entity List, thereby imposing a license requirement on all items subject to the EAR when the listed entity is a party to the transaction. BIS did not relax any controls. Thus, all other restrictions remain in effect.

A summary of the key changes that became effective Feb. 24, 2023, is provided below: 

• Supplement No. 2 to Part 746, which lists certain items subject to sector controls under Section 746.5(a)(1)(i) of the EAR applicable for use or possible use in exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet) or Arctic offshore locations or shale formations in Russia or Belarus, was amended as follows:
  • Now uses six-digit Harmonized Tariff Schedule (HTS) codes and descriptions to identify the listed items instead of Schedule B codes and descriptions.
  • Clarifies that items classified under an eight-digit or 10-digit HTS code that begins with an identified six-digit HTS code are also subject to the license requirements in Section 746.5(a)(1)(i) of the EAR.
  • Subjects “components,” “parts,” “accessories” and “attachments” to license requirements, even if the items are not specifically identified by HTS code or description.
• Supplement No. 3 to Part 746, which contains the list of countries not subject to certain license requirements for foreign-produced items, was amended to include Taiwan, as it has imposed controls on exports to Russia and Belarus similar to those imposed under the EAR.
• Supplement No. 4 to Part 746, which lists numerous items subject to sector controls under Section 746.5(a)(1)(ii) for export to Russia or Belarus, was amended as follows:
  • Now also uses six-digit HTS codes and descriptions to identify the listed items instead of Schedule B codes and descriptions.
  • Clarifies that items classified under an eight-digit or 10-digit HTS code that begins with an identified six-digit HTS code are also subject to the license requirements.
  • Adds 322 new items to the list; most of the newly added items are covered in Chapters 72, 76, 84, 85 and 90 of the HTS.
• Supplement No. 5 to Part 746, which lists items subject to “Luxury Goods” controls for export to Russia or Belarus and remains based on Schedule B codes and descriptions, was amended as follows:
  • Adds 276 new EAR99 items, including consumer electronics and household appliances such as dishwashers, radios, smartphones, vacuums, toasters and keyboards.

• Supplement No. 6 to Part 746, which lists items subject to industry sector controls on chemical and biological precursors and related items pursuant to Section 746.5(a)(1)(iii) of the EAR, was amended as follows:
  • Clarifies and expands the scope of items listed, including by adding quantum computing items, cryogenic refrigeration systems, additive manufacturing equipment, microscopes and several other items.
•  A new Supplement No. 7 to Part 746 was added to list EAR99 parts and components of Iranian UAVs being used by Russia in Ukraine. This new supplement:  
  • Identifies the covered EAR99 items by HTS-6 Code.
  • Lists 12 items, including certain aircraft engines and parts therefor, and certain electronic integrated circuits.
• Other amendments to the EAR, which are the subject of a separate alert, amend Section 734.9 to add a new Iran foreign direct product rule (FDPR) and expand the existing Russia/Belarus FDPR in Section 734.9(f).
• BIS added 86 entities to its Entity List under Section 744.11 of the EAR under the destinations Russia, China, Canada, France, Luxembourg and the Netherlands. 76 of the 86 entities were designated as Footnote 3 (FN3) military end users. Entities with an FN3 designation are subject to the Russia and Belarus Military End User FDPR in EAR Section 734.9(g). 
  • Many of the entities were added due to their involvement in activities contrary to U.S. national security and foreign policy interests, including supporting Russia’s covert operations in Ukraine and contributing to Russia’s military and/or defense industrial base by procuring restricted items.

For more information on the Feb. 24 actions, please refer to the BIS press release, which contains links to the new rules.

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I. Executive Summary

Since Feb. 24, 2022, BIS has implemented numerous new export control restrictions in response to the invasion of Ukraine by the Russian Federation (Russia). These restrictions, which significantly curtail exports, reexports and transfers (in country) of technology, commodities and software (collectively, the “items”) destined to or transiting Russia or Belarus, as well as to certain persons affiliated with Russia and Belarus, can be found in the EAR 15 C.F.R. Parts 730-774. Although many of the amendments to the EAR were the subject of prior detailed alerts, the following summary provides an overview of the key export controls currently in place, including controls implemented by the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC). This alert is not intended to be and is not a detailed summary of the export controls implemented in response to the invasion of Ukraine. Rather, it is a tool to help businesses, both American and foreign, identify whether their transactions with Russia, Belarus or Ukraine may now require a license, or be prohibited, under the wide-ranging export controls that have been imposed. Review of the regulations will be necessary to determine specific licensing requirements.

An overview of the sanctions imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), which apply in addition to the export controls summarized here, has been provided in a separate alert.

A. BIS License Requirements Relating to Russia

Exports (direct or indirect), reexports (from one third country to another) and transfers (in country; any transfer within any third country) of the following items are subject to license requirements:

• All items on the EAR’s Commerce Control List (CCL).
• Luxury goods (EAR99) listed in Supplement 5 to Part 746 of the EAR.
• Sector-specific items listed in Section 746.5 and Supplements 2, 4 and 6 to Part 746 of the EAR.
• Any items subject to the EAR going to a military end use or end user (MEU) or a military intelligence end use or end user (MIEU), regardless of whether located in or outside Russia (note that slightly different due diligence standards apply for exports to end users outside Russia; please consult Section 744.21 of the EAR).
• Foreign-produced items that are subject to the EAR under the FDPRs, including the specific Russia/Belarus rules in Sections 746.8 and 734.9(f) and (g) of the EAR.
• Any item subject to the EAR if a person on the BIS Entity List or Denied Persons List or another sanctioned persons list is involved in the transaction.

For a detailed summary of each of these requirements, see Part II below.

B. BIS License Requirements Relating to Belarus

Exports, reexports and transfers (in country) of the following items are subject to license requirements:

• All items on the EAR’s CCL.
• Luxury goods (EAR99) listed in Supplement 5 to Part 746 of the EAR.
• Sector-specific items listed in Section 746.5 and Supplements 2, 4 and 6 to Part 746 of the EAR (noting that Section 746.5(a)(1)(i) and Supplement 2 apply only to use in Arctic offshore locations or shale formations in Belarus).
• Any items subject to the EAR going to an MEU or MIEU, regardless of whether located in or outside Belarus (note that slightly different due diligence standards apply for exports to end users outside of Russia; please consult Section 744.21 of the EAR).
• Foreign-produced items that are subject to the EAR under the FDPRs, including the specific Russia/Belarus rules in Sections 746.8 and 734.9(f) and (g) of the EAR.
• Any item subject to the EAR if a person on the BIS Entity List or Denied Persons List or another sanctioned persons list is involved in the transaction.

For a detailed summary of each of these requirements, see Part III below.

C. License Requirements Relating to the Covered Regions of Ukraine

Exports, reexports and transfers (in country) of the following items are subject to license requirements:

• All items subject to the EAR, including EAR99 items.
• The Covered Regions of Ukraine are Crimea and the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.

For a detailed summary of each of these requirements, see Part IV below.

D. DDTC License Requirements

The following requirements apply to U.S. Munitions List (USML) items:

• All defense articles and defense services on the USML contained in the International Traffic in Arms Regulations (ITAR) require licenses for export to Belarus, and applications for such licenses have long been subject to a policy of denial.
• All defense articles and defense services on the USML require licenses for export to Russia, and applications for such licenses are subject to a policy of denial, except for license applications related to government space cooperation, which will be considered on a case-by-case basis.

For a detailed summary of each of these requirements, see Part V below.

In addition to the information provided in Parts II through V regarding BIS export controls applicable to Russia, Belarus and the Covered Regions of Ukraine, as well as ITAR controls applicable to Russia and Belarus, further information on BIS list-based controls and compliance tips may be found in Parts VI and VII below.

II. License Requirements Relating to Russia

Items subject to the jurisdiction of BIS under the EAR include most items exported from the United States; U.S.-origin items, wherever located; and foreign-produced items subject to the EAR under the De Minimis Rule or any of the applicable FDPRs. The EAR’s jurisdiction is based on the item; both U.S. and foreign persons must comply with the EAR – including the EAR’s General Prohibition 10, which prohibits any transaction related to an Item that has been exported in violation of the EAR. For example, BIS has issued several public notices of Russian-owned aircraft that are subject to these prohibitions.

All items on the EAR’s CCL require a BIS license for export (direct and indirect), reexportation (from one third country to another) or transfer (in country; any transfer within any third country) (15 C.F.R. Section 746.8(a)(1)) if the intended end user is in Russia or the item will transit Russia.

As of Apr. 8, 2022, any item listed in any of the 10 CCL categories requires a BIS license when destined for Russia, regardless of the end use or end user. The license requirements for items in Categories 3-9 of the CCL were imposed on Feb. 24, 2022, and the license requirements for items in Categories 0-2 of the CCL were imposed on Apr. 8, 2022. The permitted uses of license exceptions are very limited, though; for example, certain carve-outs for some mass market items classified under Export Control Classification Numbers (ECCNs) 5A992 or 5D992 may apply.

Deemed exports and reexports are not subject to these license requirements.

Items, including EAR99 items, subject to Russian Industry Sector Sanctions require a BIS license (15 C.F.R. Section 746.5).

A BIS license is required for the export, reexport or transfer (in country) to or within Russia of items subject to the ECCNs listed in Section 746.5(a)(1)(i) or any of the items listed in Section 746.5, Supplement No. 2 to Part 746 of the EAR (for certain deepwater oil and gas-related end uses), and for the export, reexport or transfer (in country) to or within Russia of such items (for certain Arctic offshore or shale formation oil and gas-related end uses). In addition, a BIS license is required for the export, reexport or transfer (in country) to or within Russia of items listed in Supplement Nos. 4 and 6 to Part 746 of the EAR.

As of Feb. 24, 2023, all items in Supplements No. 2 and 4 to Part 746 of the EAR are identified by a six-digit HTS code and description. The license requirement is based on the six-digit HTS code. This means that if an item is classified under the six-digit HTS code but does not correspond to the HTS description, the item is nonetheless covered and subject to licensing requirements. If any item is potentially described in more than one HTS description, the HTS code controls license determinations. Further, any item classified under an eight-digit or 10-digit HTS code that begins with a listed six-digit HTS code is subject to license requirements as well.

There are roughly 800 items listed in Supplement No. 4 as of Feb. 24, 2023. As of Feb. 24, 2023, Supplement No. 4 includes most “components,” “parts,” “accessories” and “attachments” for the listed items, regardless of HTS Code or HTS Description – apart from any “part” or minor “component” (i.e., fasteners, washers, spacers, insulators, grommets, bushings, springs, wires or solder) that is not controlled.

License applications for items in Supplements No. 2, 4 and 6 submitted by companies not headquartered in Country Groups D:1, D:5, E:1 or E:2 and intending to curtail or close all operations in Russia will be reviewed on a case-by-case basis to determine whether the disposition of the item will benefit the Russian government or military.

Over 125 items are listed in Supplement No. 6 as of Feb. 24, 2023. The items in Supplement No. 6 include discrete chemicals, biologics, fentanyl and its precursors, and related equipment. The chemicals are specified based on their Chemical Abstract Numbers (CAS) in certain concentrations by weighted percentage. The license requirement is based on product description and CAS in distinct concentrations. Supplement No. 6 also includes quantum computing items, cryogenic refrigeration systems, additive manufacturing equipment, microscopes and several other items.

EAR99 Luxury Goods Require a BIS license (15 C.F.R. Section 746.10).

Effective Mar. 11, 2022, a BIS license was required for exports, reexports and transfers to or within Russia of certain luxury goods subject to the EAR, as well as to designated Russian oligarchs or other persons, regardless of their location.

Over 600 luxury goods are listed in Supplement No. 5 to Part 746 of the EAR as of Feb. 24, 2023; they include household and department store items such as kitchen appliances, fans, radio/TV products, certain spirits, tobacco products, clothing items, jewelry, leather items, plastic items, vehicles, antiques, sporting goods and other goods. Unlike items listed on other Supplements to Part 746, the items in Supplement No. 5 are identified by a Schedule B number, the two-digit Schedule B chapter heading and a 10-digit commodity description. In certain cases, value thresholds apply, although in many cases, value thresholds have not been assigned, and in some cases, the value thresholds have changed over the course of the last year. Thus, it is important to check the value thresholds to determine whether identified luxury goods were or will be subject to the licensing requirements of Supplement No. 5 to Part 746 of the EAR.

License applications for luxury goods listed in Supplement No. 5 will be reviewed on a case-by-case basis for those goods that meet humanitarian needs. And as discussed above, license applications for disposition of items subject to the EAR under certain conditions will also be reviewed on a case-by-case basis.

EAR99 items to MEUs require a BIS license (15 C.F.R. Sections 744.21 and 744.22).

A BIS license is required for the export, reexport or transfer to or within Russia and Belarus of all items subject to the EAR (including foreign-produced items subject to the EAR, as well as U.S.-origin items) to MEUs or MIEUs located anywhere in the world. Conducting due diligence to verify whether an entity qualifies as an MEU or MIEU remains essential, but the Russian and Belarusian MEUs and MIEUs that are located outside Russia or Belarus are on the BIS Entity List in Supplement No. 4 to Part 744 of the EAR. The terms “military end use” and “military end user” as well as “military intelligence end use” and “military intelligence end user” are broadly defined in the EAR.

As of Feb. 24, 2023, BIS has designated over 315 Russian and Belarusian entities/individuals as MEUs. They are now on the BIS Entity List. No license exceptions, other than for limited use of License Exception GOV, are available to overcome this license requirement.

Use of License Exceptions Has Been Severely Limited

The availability of license exceptions has been severely limited for transactions involving Russia. Even when a license exception is available, the terms and conditions of its use are very restrictive. It is important to review each specific control carefully, as the availability and scope of license exceptions differ among the various controls.

Certain Foreign-Produced items Require a BIS License

There are two ways that foreign-produced items (commodities, technology and software) can be subject to the EAR – under the De Minimis Rule or under the FDPRs. These complex rules are summarized below; the applicable regulations should be consulted to determine whether the rules may apply to a specific foreign-produced item. If a foreign-produced item is subject to the EAR, it may be subject to the same export license requirements as if the item were exported from the United States. (Note: The FDPRs discussed below are the FDPRs targeted at Russia and Belarus; for a complete list of FDPRs, please consult EAR Section 734.9.)

• De Minimis Rule (15 C.F.R. Section 734.4). The De Minimis Rule provides that a foreign-produced item that derives more than 25 percent of its value from controlled U.S.-origin items is subject to the EAR. As of April 8, 2022, for items destined to Russia, any U.S.-origin item on the EAR’s CCL would qualify as controlled content for the purpose of calculating whether more than 25 percent of the foreign-made item’s value is derived from controlled items under the De Minimis Rule. (To date, the lower de minimis level of 10 percent or more applicable to shipments to Country Group E:1 countries (Iran, Syria, Sudan and North Korea) has not been applied to Russia or Belarus.)
• FDPRs (15 C.F.R. Sections 746.8 and 734.9). Under the FDPRs, if the foreign-produced item is the “direct product” of certain U.S.-origin controlled technology or software, it can be subject to the EAR. There are two specific FDPRs that subject a broad range of foreign-produced items to the EAR when destined for Russia or Belarus. The first one applies to any end user in Russia or Belarus, and the second one, which is more restrictive, relates to MEUs.
• Russia/Belarus FDPR: See 15 C.F.R. Section 746.8(a)(2) and Section 734.9(f). Foreign-produced items subject to the EAR under this FDPR include any foreign-produced item that is a direct product of U.S.-origin technology or software specified in any ECCN in product groups D or E of the CCL (or produced by a plant or “major component” of a plant that is itself a direct product of such U.S. technologies and software) and is specified in any ECCN on the CCL or identified in Supplement No. 6 or 7 to Part 746. A license will be required when there is reason to know the foreign-produced item meets the product scope and is destined to Russia or Belarus or will be incorporated or used in the production or development of any part, component or equipment specified in any ECCN on the CCL or in Supplement No. 6 or 7 to Part 746 of the EAR and produced in or destined to Russia or Belarus.
• Russia/Belarus MEU FDPR: See 15 C.F.R. Section 746.8(a)(3) and Section 734.9(g). This FDPR is applicable when there is knowledge that the foreign-produced item is a direct product of any technology or software on the CCL (or produced by a plant or major component of a plant that is itself a direct product of such U.S. technologies and software) and “will be incorporated into or used in the ‘production’ or ‘development’ of any ‘part,’ ‘component’ or ‘equipment’ produced, purchased or ordered by an entity” that is designated as a Russian MEU per a footnote 3 designation on the Entity List is a party to the transaction.
• Exception: As of the date hereof, there are 38 countries excluded from the application of the Russia/Belarus FDPRs. These countries are excluded due to their participation in the global coalition standing with the Ukrainian people against the Russian invasion and Belarusian complicity. They include the 27 member states of the European Union, as well as Australia, Canada, Iceland, Japan, Liechtenstein, New Zealand, Norway, Switzerland, South Korea, the United Kingdom and Taiwan.

In most cases, BIS will review license applications related to items subject to these license requirements under a policy of denial. Applications related to EAR99 food and medicine will be reviewed on a case-by-case basis.

III. License Requirements Relating to Belarus

The license requirements and restrictions on the use of license exceptions imposed on transactions involving Belarus largely mirror those imposed on Russia. For a summary of the license requirements and availability of license exceptions relating to Belarus, please see the above discussion of controls applicable to Russia.

IV. License Requirements Relating to the Covered Regions of Ukraine

Export license requirements applicable to Crimea have been in place for several years (15 C.F.R. 746.6), as have related sanctions. As of Feb. 21, 2022, these requirements were extended to cover all items subject to the EAR (other than food and medicine designated as EAR99 and certain software and Internet-based personal communications) destined to the DNR or LNR regions of Ukraine. That same day, the president issued an executive order prohibiting U.S. persons from engaging in new investment in the DNR and LNR regions, as well as engaging in trade, including export, import, reexport, sale or supply of goods, services or technology, with the DNR and LNR regions. U.S. persons, wherever located, are prohibited from approving, financing, facilitating or guaranteeing transactions by foreign persons that cannot be performed by U.S. persons as a result of the executive order. Licenses from both BIS and OFAC may be required for any export, reexport or transfer (in country) involving the DNR or LNR regions.

V. DDTC License Requirements

All defense articles and defense services on the USML have long required licenses for export to Belarus, and applications for such licenses remain subject to a policy of denial. Since March 2021, all defense articles and defense services on the USML have been subject to license requirements for export to Russia, and applications for such licenses are subject to a policy of denial, except for license applications related to government space cooperation, which will be considered on a case-by-case basis. 

Most license exemptions are not available for exports to Russia, although certain exemptions may be used in support of government space cooperation.

VI. The Entity List, Denied Persons List and Unverified List

As of Feb. 24, 2023, BIS has added over 450 Russian and Belarusian entities and individuals to its Entity List, and more than 315 of those have been designated as MEUs.

BIS has also added Russian individuals and related entities to the Denied Persons List, subjecting them to denial orders for violating the EAR or to prevent the occurrence of an imminent violation of the EAR. The most recent example of this is the Feb. 24, 2023, temporary denial order against a Russian entity and individual for unauthorized exports of controlled counterintelligence items to Russia and North Korea. Denial of export privileges is one of the most severe enforcement tools to address violations of U.S. export controls and to prevent imminent violations of the EAR. A denial order may be imposed by BIS even when there is no criminal component to the violations.

Also of importance is the Unverified List (UVL), which is composed of foreign parties involved in any transaction involving an item subject to the EAR where BIS has been unable to verify the bona fides of a transaction through a post-shipment verification or pre-license check. Under BIS’ policy, if 60 days passes following addition to the UVL and BIS still has not been able to successfully complete an end-use check, BIS may begin the process to have the foreign party moved to the Entity List. Given this policy, adopted in October 2022, U.S. exporters and foreign reexporters should pay particular attention to the UVL given the high risk that parties on this list may be added to the Entity List. The October 2022 policy and related Federal Register notice may be found here and here, respectively. A license (or, in the case of an entity on the UVL, a UVL statement as required by Section 744.15(b) of the EAR) must be obtained from BIS if a transaction involves an item subject to the EAR and a listed entity. Use of license exceptions is not permitted. As a general rule, license applications will be approved only on an exceptional basis for transactions involving a listed person.

VII. Keys to Compliance

Three important steps for compliance are:

• Determine the export control jurisdiction and USML category, or ECCN of any technology, commodity or software destined, directly or indirectly, for Russia or Belarus, and determine license requirements and availability.
• If the item is not on the USML or EAR’s CCL, verify its Schedule B number, Schedule B description, HTS code, Value Threshold and HTS description, and then review the relevant BIS supplements.
• Conduct sanctioned person screening at the time of the order and prior to the export, reexport or transfer (in country), to verify that no party to a transaction is covered by any applicable sanctioned persons list, including BIS’ UVL, Denied Persons List, or Entity List, or OFAC’s List of Specially Designated Nationals and Blocked Persons.

BakerHostetler continues to closely monitor this rapidly changing situation.

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This alert is a tool to help businesses, both U.S. and foreign, identify whether their business with Russia, Belarus or Ukraine may now be subject to U.S. export license requirements or involve newly sanctioned or blocked persons. This alert cannot be relied on as legal advice and provides only a high-level summary of the export controls applicable to Russia, Belarus and the Covered Regions of Ukraine. The export controls and related sanctions are complex, detailed and continuing to develop, and legal counsel should be sought for guidance on specific transactions.

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