As the year winds down, regulatory activity continues.  Most are rules that renew, formalize, or build on earlier actions, plus a small expansion of controls on items destined for Pakistan related to non-proliferation concerns.

Department of State: DDTC / ITAR

Temporary Modification of USML Category VIII(h)(1)

On November 26, 2024, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a final rule (89 FR 93170) which extends the temporary modification of United States Munitions List (USML) Category VIII (aircraft).

VIII(h)(1) currently controls “Parts, components, accessories, and attachments specially designed for the following U.S.-origin aircraft: The B-1B, B-2, B-21, F-15SE, F/A-18 E/F, EA-18G, F-22, F-35, and future variants thereof; or the F-117 or U.S. Government technology demonstrators.”

The temporary modification allows Category VIII(h)(1) to continue to control specially designed parts, components, accessories, and attachments for listed aircraft if also used in the KF-21 aircraft. Without this note, use of a part for one of the listed aircraft on the KF-21 would have released it form ITAR control.

Registration Fee Increase

On December 10, 2024, DDTC issued a final rule (89 FR 99081) which, effective January 9, 2025 will increase registration fees for manufacturers, exporters, and brokers.

Originally proposed in April, the new fee structure will be as follows:

• Tier 1: $3000
  • New registrants and registrants with no authorization approvals
  • Increase from $2250
• Tier 2: $4000
  • Registrants with five or fewer approvals
  • Increase from $2750
  • Previous threshold was ten approvals
• Tier 3: $4000 + $1100 for each approval after the first five
  • Registrants with more than five approvals
  • Increase from $2750 + $250 for each approval after the first ten

Brokering registration fees remain tied to Tier 1, regardless of the number of brokering authorizations submitted or approved.  No additional fee is required for brokers already registered as manufacturers or exporters.  Limited discounts are available.

Department of Commerce: BIS / EAR & CCL

Commerce Increases Controls on Pakistan

On November 26, 2024, the Department of Commerce, Bureau of Industry and Security (BIS) published a rule (89 FR 93164) adding export controls for certain items destined for Pakistan.

Effective immediately, the new rule adds a license requirement for items listed on the Commerce Control List under Export Control Classification Numbers (ECCNs) 1B999, 2A992, 2B999,1 3A992, 3A999, and 6A996, including:

• Particle accelerators
• Certain stainless or alloy pipes and valves
• Certain pumps and welders
• Oscilloscopes
• Chromatographs and spectrometers
• Magnetometers

The primary concern is whether items may be used in nuclear or missile activities, or may be diverted to any of the currently 162 Entity List members located in Pakistan.  Based on these concerns, the availability of license exceptions is also limited.

BIS also issued a press release on the new rule, which also notes the existence of specific Pakistan Due Diligence Guidance on the BIS website.

Advance Computing Foreign Direct Product Rule

On December 5, 2024, BIS issued an interim final rule (89 FR 96790) expanding the Foreign Direct Product (FDP) rules for advanced computing and semiconductor manufacturing items.  Effective December 2, 2024, comments will be accepted through January 31, 2025.

ICTS Supply Chain Rule

On December 6, 2024, BIS issued a final rule (89 FR 96872) on Securing the Information and Communications Technology and Services (ICTS) Supply Chain.  This follows an interim final rule published in 2021 and will be effective February 4, 2025.

The original rule was intended to provide a process to review information and communications technology and services (ICTS) supply chain transactions, “similar to the process by which entities may inform the Committee on Foreign Investment in the United States (CFIUS) of investments in U.S. businesses” and requested comments.  The new rule “responds to public comments on the interim final rule and finalizes the practices guiding review of ICTS Transactions, amending and, in some cases, removing terms or concepts which experience has shown to be unnecessary, inefficient, or ineffective.”

In addition to recent proposals and changes for space-related export controls, here’s a wrap-up of other recent export-related actions.

Department of State: DDTC / ITAR

AUKUS Authorized Users Available         

As required for the new AUKUS Exemption at International Traffic in Arms Regulations (ITAR) § 126.7, the list of “authorized users” in Australia and the United Kingdom is now available in the Department of State, Directorate of Defense Trade Controls (DDTC)’s DECCS.  Currently including 87 entities, the authorized users are approved by their respective governments and the list is subject to change.

Precision Castparts Consent Agreement

DDTC announced a Consent Agreement with Precision Castparts:

Precision Castparts Corp. settled allegations that it violated the International Traffic in Arms Regulations (ITAR) in connection with unauthorized exports of technical data to foreign-person employees from Bhutan, Burundi, El Salvador, Honduras, Mexico, and Peru pertaining to tools (specifically, wax pattern and core dies) and wax patterns consumed in the subsequent production of casting blades used in gas turbine engines.

This is the third Consent Agreement from DDTC this year, following The Boeing Company and RTX Corporation.

Cyprus

Cyprus remains in the unique situation of being found in the ITAR § 126.1 list of proscribed destinations, but with an annually suspended status.   Under 89 FR 79140 (September 27, 2024), the Republic of Cyprus’ status as a proscribed destination is suspended from October 1, 2024, through September 30, 2025.

Department of Commerce: BIS / EAR & CCL

Data Center Validated End User Authorization

The Department of Commerce, Bureau of Industry and Security (BIS) expanded the Validated End User Authorization (VEU) at Export Administration Regulations (EAR) § 748.15 to include data centers.

• 89 FR 80080, published & effective October 2, 2024

Connected Vehicles Supply Chain

Notice of Proposed Rulemaking (NPRM) would “prohibit transactions involving Vehicle Connectivity System (VCS) hardware and covered software designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the People’s Republic of China, including the Hong Kong Special Administrative Region (PRC), or the Russian Federation (Russia).”

• Part of effort to secure the information and communications technology and services supply chain
• 89 FR 79088, September 26, 2024
• Press release

Implemented Export Controls (IEC)

At EAR § 740.24 License Exception Implemented Export Controls (IEC) authorizes exports, reexports, and transfers (in-country) of eligible items to, among, or within specified destinations.

• Eligible ECCNs and destinations can be found on the BIS website at https://www.bis.gov/iec
• 89 FR 72926, September 6, 2024
• 89 FR 83427, October 16, 2024 (revision)

Best Practices for Financial Institutions

BIS Issues Guidance to Financial Institutions on Best Practices for Compliance with the Export Administration Regulations

• Recommendations include due diligence best practices, red flags, and a real-time screening.
• Press Release, October 9, 2024

Department of Defense

Cybersecurity Maturity Model Certification (CMMC) Program

Under development since 2010, the CMMC Program is intended “to verify contractors have implemented required security measures necessary to safeguard Federal Contract Information (FCI) and Controlled Unclassified Information (CUI).”

• Tiered model based on the type and sensitivity of relevant information.
• Levels include self-assessment, third party assessment, and government assessment.
• Phased implementation, with four phases over three years.

• 89 FR 83092, October 15, 2024
• Effective December 16, 2024

Department of the Treasury: OFAC

 Recordkeeping Requirements Extended to Ten Years

 The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has extended recordkeeping requirements for sanctions-related transactions from five years to ten years to match the related statute of limitations.

• Statute of limitations for civil and criminal violations of the International Emergency Economic Powers Act (IEEPA), and the Trading with the Enemy Act, (TWEA) was extended from five to ten years in April 2024.
• Includes transactions authorized under general or specific licenses after April 24, 2019
• Effective March 12, 2025
• 89 FR 74832, September 13, 2024

Maritime Shipping Industry Sanctions Guidance

OFAC issued scenario-based guidance to the maritime shipping industry.

• Scenarios identifying new or common fact patterns include deceptive shipping practices, Specially Designated Nationals (SDNs) on trade documentation, obscured or complex ownership structures, and mid-voyage notification of sanctions risk.

Press Release, October 31, 2024

Since our last update, more U.S. Government actions have taken place that may affect your business’s export compliance efforts.  Ranging from a five-agency “know your cargo” advisory to revisions of the Commerce Control List (CCL) and inflation adjustments for export-related penalties, we have the highlights below.

Multi-Agency Actions

Know Your Cargo Advisory

• Departments of Justice, Commerce, Homeland Security, State and Treasury issue an advisory highlighting common tactics deployed by malign actors in the maritime and other transportation industries as well as recent enforcement actions taken in response to alleged violations.
• Summarizes recent compliance actions, including criminal prosecutions and civil enforcement actions.
• Relevant items range from shipping red flags to compliance best practices.
• The Department of Commerce indicated it anticipates updating freight forwarder guidance in the near future.
• Department of Justice, December 11, 2023.

Department of State: DDTC / ITAR

Russia Business Advisory

• Bureau of European and Eurasian Affairs publishes “Risks and Considerations for Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine”
• Details legal, financial, and reputational risks of doing business in the Russian Federation and in Russian-occupied territories of Ukraine.
• Highlights existing sanctions, export controls, import prohibitions, money laundering and corruption concerns, human rights, etc.
• Russia remains an ITAR prohibited destination under § 126.1(l).
• Public Release, February 23, 2024.

Department of Commerce: BIS / EAR & CCL

BIS Proposes Updates to License Exception Strategic Trade Authorization (STA)

• Proposed changes intended to encourage additional use of License Exception STA.
• 88 FR 85734, December 8, 2023.

Commerce to Reestablish President’s Export Council Subcommittee on Export Administration (PECSEA)

• The PECSEA will advise the Secretary of Commerce or the Secretary’s designee on matters pertinent to the Export Control Reform Act of 2018 (ECRA), the International Emergency Economic Powers Act (IEEPA), and other relevant laws and regulations administered by the Bureau of Industry and Security (BIS).
• 89 FR 1064, January 9, 2024.

Commerce Control List: Revisions to Australia Group and Crime Control and Detection Controls

• Removes Proliferation of Chemical and Biological Weapons (CB) controls on specified pathogens and toxins destined for Australia Group member countries.
• Affects ECCNs 1C351, 1C353, 1C354, 1E001, and 1E351.
• Removes Crime Control and Detection (CC) controls on such items destined for Austria, Finland, Ireland, Liechtenstein, South Korea, Sweden, and Switzerland.
• 88 FR 85479, December 8, 2023.

Commerce Control List: MTCR Amendments

• EAR amended to reflect changes to the Missile Technology Control Regime (MTCR) Annex that were agreed to by MTCR member countries at the Technical Experts Meetings in 2018, 2019, and 2021.
• Expands eligibility for the use of license exceptions for MT-controlled items.
• Affects ECCNs 1C111, 2A101, 2B119, 6A107, 9A101, 9E515
• 88 FR 85487, December 8, 2023.

Commerce Control List: License Requirements for Certain Cameras, Systems, or Related Components

• New ECCN 6A293 controls certain cameras not already controlled under ECCNs 6A003 or 6A203.
• Revises related control and review policies.
• 89 FR 13590, February 23, 2024

BIS Publishes “Export Enforcement: 2023 Year in Review”

• Summarizes export enforcement efforts in 2023, including the “Disruptive Technology Strike Force,” related penalties and charges, voluntary self-disclosure (VSD) policy, end-use checks, guidance, and more.
• Click here for the BIS release.

2024 Inflation Adjustments for Commerce, State, and OFAC Penalties

Department of State

• § 127.10(a)(1)(i) change from $1,200,000 to $1,238,892 (or the amount that is twice the value of the transaction that is the basis of the violation, whichever is greater)
• § 127.10(a)(1)(ii) increase from $996,685 to $1,028,998 (or five times the amount of the prohibited payment, whichever is greater)
• § 127.10(a)(1)(iii) increase from $1,186,338 to $1,224,787.
• 89 FR 700, January 5, 2024

Department of Commerce

• International Emergency Economic Powers Act (2007) increase from $356,579 to $368,136
• Export Controls Act of 2018 (2018) increase from $353,534 to $364,992
• 88 FR 89300, December 27, 2023

Office of Foreign Assets Control (OFAC)

• Trading With the Enemy Act increase from $105,083 to $108,489
• International Emergency Economic Powers Act (2007) increase from $356,579 to $368,136
• 89 FR 2139, January 12, 2024

As always, if you need more information or assistance in any of these areas, ECS is here to help!

Since our last post, U.S. export control agencies have continued take actions that may impact your business.  Ranging from the huge multi-agency settlement agreement raising supply chain issues to tweaks to the USML to updated guidance and reports, we have the highlights below.

Multi-Agency Actions

3D Systems Corporation Multi-Agency Settlement

• New consent agreement and settlements highlight supply chain concerns (February 27, 2023)
• Violations by Quickparts subsidiary:
  • Exports of controlled data to China and Taiwan for sourcing on-demand manufacturing services (some related to NASA & DOD contracts)
  • Controlled data on German server
  • Unlicensed access by Foreign Person Employees
  • Inadequate recordkeeping
• Additional issues:
  • No formal compliance program or employees until 2017
  • No written export compliance procedures
  • No export compliance training
  • No export compliance strategy for IT
  • No document retention policy
• Department of State (AECA/ITAR)
  • $20 million civil penalty
  • Special Compliance Officer (SCO)
  • 2 external audits
• Department of Commerce (IEEPA/EAR)
  • $2.77 million civil penalty
  • 2 external audits
• Department of Justice (False Claims Act)
  • Up to $4.54 million civil penalty

Guidance to Industry on Iran’s UAV-Related Activities

• Describes key items sought by Iranian UAV programs and relevant controls and sanctions.
• OFAC website, June 9, 2023

Department of State: DDTC / ITAR

ITAR Amendment expands scope of Canadian Exemption, Australia Treaty, and UK Treaty:

• Supplement No. 1 to part 126 amended to expand the list of eligible defense articles and defense services that may be exported.
• Changes relate to torpedoes, submarine combat control system mounting racks and cabinets, underwater acoustic decoy countermeasures, and Category IV and XII defense services.
• 88 FR 21910, April 12, 2023

Interim final rule removes certain high-energy storage capacitors removed from USML Category XI:

• Adds a voltage rating of one hundred twenty-five volts (125 V) criterion to XI(c)(5) (high-energy storage capacitors), formalizing a temporary suspension from 2022.
• Requests comments on the implementation practical effects of the new threshold, as well as potential alternatives.
• 88 FR 25488, April 27, 2023

Open General License Nos. 1 and 2 updated and extended:

• Cover qualifying retransfers within and reexports among Australia, Canada, and the United Kingdom
• Validity extended by 3 years, plus clarifying edits
• 88 FR 35992, June 1, 2023

Blue Lantern and Golden Sentry Reports Released

• Blue Lantern report (direct commercial sales)
• Golden Sentry report (FMS)

Department of Commerce: BIS / EAR & CCL

Voluntary Self-Disclosure (VSD) Policy

• Intended to incentivize submission of VSDs by highlighting potential costs of not filing and encouraging disclosures about the conduct of others.
• BIS website, April 18, 2023

As always, if you need more information or assistance in any of these areas, ECS is here to help!

In December 2022, the U.S. Department of State’s Directorate of Defense Trade Controls issued updated Compliance Program Guidelines. These Guidelines are an overview of an effective ITAR Compliance Program (ICP) and an introduction to defense trade controls.

The Guidelines are divided into eight sections:

1. Management Commitment
2. DDTC Registration, Jurisdiction & Classification, Authorizations, & Other ITAR Activities
3. Recordkeeping
4. Detecting, Reporting, & Disclosing Violations
5. ITAR Training
6. Risk Assessment
7. Audits & Compliance Monitoring
8. ITAR Compliance Manual

This article will focus on the first four sections: Management Commitment,

DDTC Registration, Jurisdiction & Classification, Authorizations, & Other ITAR Activities, Recordkeeping, and Detecting, Reporting, & Disclosing Violations.

This guidance is not an official part of the International Traffic in Arms Regulations. Instead, it serves as a way for the Directorate of Defense Trade Controls to express their expectations for export compliance. DDTC also understands that different companies have unique levels of ITAR activity and may need different approaches.

Management Commitment

Management commitment to export compliance sets the tone for the entire organization.  Management commitment can be expressed through communications to employees, as well as integration into performance evaluations, including both rewards and disciplinary actions. It can also be expressed through the maintenance of the ICP and its management commitment statement, as well as sufficient and well-organized staff who are given thorough training (to be discussed in our next article). Empowered Officials must be truly empowered. They must also be sufficiently trained to understand and perform their compliance responsibilities.

DDTC Registration, Jurisdiction & Classification, Authorizations, & Other ITAR Activities

The Directorate of Defense Trade Controls provides an overview of registration requirements and processes. They also go over the need to determine jurisdiction and classification of products, and obtain authorizations when required.  A written ICP should provide an overview of each of these areas as they pertain to the specific organization.  Important reminders include:

• Timely renewal of DDTC registrations
• Informing DDTC of material changes to registration (within five days of the event, or in some cases, 60 days before)
• Determining jurisdiction and classification of any product manufactured, exported, temporarily imported, or brokered (including self-classifications and Commodity Jurisdiction requests)
• How to prepare for and obtain authorizations, including export licenses, Technical Assistance Agreements, Manufacturing License agreements, retransfer requests, and license exemptions
• Restricted party screening (ECS offers the ECScreening service, which expands on and provides additional features not found in the Consolidated Screening List) and screening for proscribed countries (ITAR 126.1).
• Registration and authorization requirements for brokering (ITAR Part 129)
• Recording and reporting political contributions, fees, and commissions (ITAR Part 130)

There is also guidance on cybersecurity. The ITAR does not require organizations to have specific cybersecurity measures such as encryption. However, organizations are expected to take steps to protect technical data. ITAR §120.54 does include some specific standards for how technical data can be stored and transmitted internationally without being considered an ITAR “export.”

Recordkeeping

The ITAR requires recordkeeping in §122.5, but how it is implemented is up to your organization. However, records must be:

• Reproducible in paper format, if digital;
• Legible and readable;
• Unaltered once recorded or, if altered, with any alterations properly recorded, including who made them and when;
• Readily accessible if digital images; and
• Maintained for a period of five years from the expiration of the license or other approval, to include exports using an exemption, or from the date of the transaction.

Records must be maintained for:

• Licenses or other approvals;
• Licenses exemptions (including the Australia and UK treaties);
• Technical data exports;
• Oral, visual, or electronic exports;
• Certain information related to special comprehensive export authorizations;
• Exemptions involving employees who are dual and third-country nationals;
• Voluntary disclosures;
• Brokering recordkeeping requirements; and
• Political contributions, fees, and commissions.

If your organization is using ITAR exemptions, internal recordkeeping is the only way to justify the use of an exemption. Recordkeeping is both a specific and general responsibility and may be subject to a Technology Control Plan (TCP). If you are unsure of where to start, the Guidelines include a list of recordkeeping suggestions.

Detecting, Reporting, & Disclosing Violations

While the major goal of a compliance program is to avoid violations, it is also important to detect violations when they happen, encourage reporting throughout the organization, and submit voluntary disclosures to DDTC when appropriate. The quality of the organization’s compliance program and efforts to report and contain violations are very important.  Management should communicate the seriousness of export violations by reminding employees of civil and criminal penalties and other potential consequences.  This should be balanced with the need to encourage reporting without retribution.

Additional detail on all of these elements is available in the Guidelines themselves.  Watch this space for our review of the remaining elements: ITAR training, risk assessment, audits and compliance monitoring, and the ITAR compliance manual.  Every element is crucial to the success of your export compliance program.

As always, if you need help with meeting, understanding, or tailoring any export compliance obligations, ECS is here to help!

Since our last post, there have been actions throughout the various export control agencies that may impact your business.  Ranging from the new Conventional Arms Transfer Policy to tweaks to the USML and CCL to CFIUS country policies to new sanctions, we have the highlights below.

White House: CAT Policy

The White House released an updated Conventional Arms Transfer (CAT) Policy on February 23, 2023.  Formalizing the administration’s current practice, the new policy covers ITAR-controlled defense articles as well as EAR-controlled 600-series items and commercial firearms.  It increases emphasis on human rights concerns while continuing to take in to account other considerations such as effects on partner capacity, regional stability, risk of diversion, and the defense industrial base.  The State Department also published a fact sheet on the CAT Policy.

Department of State: DDTC / ITAR

The Department of State, Directorate of Defense Trade Controls (DDTC) issued International Traffic in Arms Regulations (ITAR) Compliance Program Guidelines (pdf) on December 5, 2022.  See our newsletter for a summary!

Cyprus temporarily removed from § 126.1:

• Republic of Cyprus’ status as a proscribed destination is suspended from October 1, 2022, through September 30, 2023
• 87 FR 71250, November 22, 2022

ITAR controls temporarily suspended for certain capacitors described in the U.S. Munitions List (USML) Category XI.

• Applies to capacitors that have a voltage rating of one hundred twenty-five volts (125 V) or less
• Effective November 21, 2022 to May 22, 2023
• 87 FR 74967, December 7, 2022

Proposed Amendment to the Definition of Activities That Are Not Exports, Reexports, Retransfers, or Temporary Imports

• “First, subject to certain conditions, the taking of defense articles outside a previously approved country by the armed forces of a foreign government or United Nations personnel on a deployment or training exercise is not an export, reexport, retransfer, or temporary import.”
• “Second, a foreign defense article that enters the United States, either permanently or temporarily, and that is subsequently exported from the United States pursuant to a license or other approval under this subchapter, is not subject to the reexport and retransfer requirements of this subchapter, provided it has not been modified, enhanced, upgraded, or otherwise altered or improved or had a U.S.-origin defense article integrated into it.”
• 87 FR 77046, December 16, 2022

Consolidation and Restructuring of Purposes and Definitions

• Finalizes 2022’s interim final rule reorganizing ITAR definitions
• Includes review of comments and minor changes
• 88 FR 12210, February 27, 2023

Department of Commerce: BIS / EAR & CCL

Pakistan Due Diligence Guidance

• BIS website, September 9, 2022

Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification

• New ECCNs 3A090 and 4A090
• Changes to license requirements, license exceptions, and foreign direct product rule
• New End-Use and End-User Control for “Supercomputers” Under § 744.23 of the EAR
• Additions to Entity List
• 87 FR 62186, October 13, 2022
• BIS background page, including press release, presentations, webcast, and FAQs
• Updated to apply to Macau (88 FR 2821, January 18, 2023)

Revisions to the Unverified List; Clarifications to Activities and Criteria That May Lead to Additions to the Entity List

• 87 FR 61971, October 13, 2022

Implementation of Australia Group Decisions From 2021 and 2022 Virtual Meetings: Controls on Marine Toxins, Plant Pathogens and Biological Equipment

• Affects ECCNs, 1C350, 1C351, 1C353, 1C354, 1E001, 2B352
• 88 FR 2507, January 17, 2023

Implementation of 2021 Wassenaar Arrangement Decisions

• Implements the remaining controls agreed to during the December 2021 WA Plenary meeting by revising the CCL, as well as certain EAR provisions, including License Exception Adjusted Peak Performance (APP). This final rule also makes corrections to align the scope of Significant Item (SI) license requirements throughout the EAR and makes a revision to License Exception Strategic Trade Authorization (STA).
• Affects ECCNs 0A988, 1A613, 1C006, 2E003, 3A001, 3A002, 4A003, 4D001, 4E001, 5A003, 6A005, 6A008, 6D003, 7D003, 9A004, 9B001, and 9E003.
• 88 FR 12108, February 24, 2023

Additional Sanctions on Russia, Belarus, and Iran

• Russia & Belarus: expands industry sector sanctions and luxury goods sanctions. Refines existing export controls on Russia and Belarus. (88 FR 12175, February 27, 2023)
• Iran: imposes license requirements for a subset of EAR99 items identified by HTS code that are destined to Iran, regardless of whether a U.S. person is involved in the transaction, due to potential use on Iranian Unmanned Aerial Vehicles (UAVs). The rule also adds a new foreign direct product (FDP) rule specific to Iran.  (88 FR 12150, February 27, 2023)

Committee on Foreign Investment in the United States (CFIUS)

Excepted Foreign States and Excepted Real Estate Foreign States now include Australia, Canada, New Zealand, and the United Kingdom

• Refer to Treasury’s Part 800 and Part 802 lists, last updated February 13, 2023.

2023 Inflation Adjustments for Commerce, State, and OFAC Penalties

Department of State

•  127.10(a)(1)(i) change from $1,272,251 to the greater of $1,200,000 or the amount that is twice the value of the transaction that is the basis of the violation
•  127.10(a)(1)(ii) increase from $925,041 or five times the amount of the prohibited payment, whichever is greater to $996,685, or five times the amount of the prohibited payment, whichever is greater.
•  127.10(a)(1)(iii) increase from $1,101,061 to $1,186,338.
• 88 FR 1505, January 11, 2023

Department of Commerce

• International Emergency Economic Powers Act (2007) increase from $330,947 to $356,579
• Export Controls Act of 2018 (2018) increase from $328,121 to $353,534
• 88 FR 3, January 3, 2023

Office of Foreign Assets Control (OFAC)

• Trading With the Enemy Act increase from $97,529 to $105,083
• International Emergency Economic Powers Act (2007) increase from $330,947 to $356,579
• 88 FR 2229, January 13, 2023

As always, if you need more information or assistance in any of these areas, ECS is here to help!

Blizzard of Sanctions Hits Russian Businesses: US Government Restrictions Continue to Expand

Following the Russian invasion of Ukraine in February, we saw a near-daily ratcheting-up of sanctions intended to target the Putin regime, Russian oligarchs, and others identified as supporters.  The highlights of this ever-changing effort are outlined below.

Two Crucial Takeaways

1. Continuous screening of customers and other business connections is a must-do.  Sanctions lists are subject to significant change on a daily basis.
2. For any transaction involving or destined for Russia or Belarus, very careful review and analysis is required.  If other countries are involved (particularly Canada, the UK, and the EU), additional sanctions programs may also apply.

Executive Orders

The White House released several executive orders, including investment and financing bans related to the Russian energy sector; import bans on Russian fish, seafood, alcoholic beverages, and non-industrial diamonds; export bans on luxury goods:

• Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts To Undermine the Sovereignty and Territorial Integrity of Ukraine (Executive Order 14066 of March 8, 2022)
• Executive Order on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression (Executive Order 14068 of March 11, 2022)

As of March 31, 2022, the Secretary of the Treasury, in consultation with the Secretary of State, has determined that the financial services sector and the aerospace, electronics, and marine sectors of the Russian economy to sectoral sanctions under Executive Order 14024 (April 15, 2021).

Department of the Treasury/OFAC

The Department of the Treasury, Office of Foreign Assets Control (OFAC) has implemented sanctions on specific Russian individuals and entities.  These affect transactions by U.S. persons anywhere in the world, any persons in the U.S., and others with a U.S. nexus (e.g., clearing transactions through a U.S. bank).

Countries affected include Russian Belarus, and Russian-controlled areas in Ukraine, as well as Russian-linked entities worldwide.  General licenses may be available, but are generally focused on wind-down and divestment.

For more information, refer to the following OFAC pages which contain comprehensive information on listings, regulations, and general licenses:

• Russian Harmful Foreign Activities Sanctions
• Belarus Sanctions
• Ukraine-/Russia-related Sanctions

Department of Commerce/BIS

The Department of Commerce, Bureau of Industry and Security (BIS) has been very actively implementing new sanctions related to the conflict through revisions to the Export Administration Regulations (EAR):

• §734.9 Revised Foreign Direct Product (FDP) Rule for Russia and Belarus.
  • 734.9(f) – Russia/Belarus FDP rule
  • 734.9(g) – Russia/Belarus-Military End User FDP rule

• For both rules, BIS is publishing a positive list of countries not subject to the rule because they have implemented substantially similar restrictions on their own.
• §744.21 Russia & Belarus Military End User rules – now cover all items subject to the EAR “other than food and medicine designated EAR99.”
• §746.5 Russian Industry Sector Sanctions: now include Russian oil refinery sector.
• §746.8 Sanctions Against Russia: Impose a license requirement for all items in Commerce Control List (CCL) Categories 3-9, with a presumption of denial.
• Moved forty-five Russian entities from the Military End-User (MEU) List to the Entity List with an expanded license requirement of all items subject to the EAR (including foreign-produced items subject to the Russia-MEU FDP rules).
• Added 91 entities to the Entity List, located in Belize, Estonia, Kazakhstan, Latvia, Malta, Russia, Singapore, Slovakia, Spain, and United Kingdom.
• New limits on license exceptions for Russia & Belarus
• Finally amended Supplement No. 1 to Part 740 Country Groups to add Russia to Country Group D:5.  This change was technically already in effect since the ITAR §126.1 listing February 2021.  Ethiopia is still missing, but technically part of Country Group D:5.

Most changes are reflected directly in the EAR, often with Federal Register Notices published with retroactive effective dates.  For additional background, notable Federal Register Notices and press releases include:

• U.S. Department of Commerce & Bureau of Industry and Security Russia and Belarus Rule Fact Sheet (Press Release) (February 24, 2022)
• Commerce Imposes Sweeping Export Restrictions on Belarus for Enabling Russia’s Further Invasion of Ukraine (Press Release) (March 2, 2022)
• Implementation of Sanctions Against Russia Under the Export Administration Regulations (EAR) (87 FR 12226) (March 3, 2022)
• Expansion of Sanctions Against the Russian Industry Sector Under the Export Administration Regulations (EAR) (87 FR 12856) (March 8, 2022)
• Imposition of Sanctions Against Belarus Under the Export Administration Regulations (EAR) (87 FR 13048) (March 8, 2022)
• Further Imposition of Sanctions Against Russia With the Addition of Certain Entities to the Entity List (87 FR 13141) (March 9, 2022)
• Commerce Restricts the Export of Luxury Goods to Russia and Belarus and to Russian and Belarusian Oligarchs and Malign Actors in Latest Response to Aggression Against Ukraine (Press Release) (March 11, 2022)
• Imposition of Sanctions on `Luxury Goods’ Destined for Russia and Belarus and for Russian and Belarusian Oligarchs and Malign Actors Under the Export Administration Regulations (EAR) (87 FR 14785) (March 11, 2022)
• Resources on Export Controls Implemented in Response to Russia’s Invasion of Ukraine (Webpage) (Updated March 18, 2022)

Department of State/DDTC

The Department of State, Directorate of Defense Trade Controls (DDTC) returned Russia to the International Traffic in Arms (ITAR) §126.1 prohibited destinations list in February 2021.  On February 25, 2022, DDTC announced that the areas of the “so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions of Ukraine” are also considered prohibited destinations.  Belarus was already a longstanding member of the §126.1 list.  Since the §126.1 listing amounts to a general prohibition on ITAR activity, we are watching for updates but not expecting significant changes.  No official policy has been announced for prioritizing license review for end-users in Ukraine.  Transactions should also be reviewed for risk of diversion to Russia or Russian-held areas.

On February 2, 2022, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a proposed rule (87 FR 5759) that would make multiple revisions to the International Traffic in Arms Regulations (ITAR).  The most significant of these revisions would scale back the longstanding approach toward determining the nationality of foreign persons, to an approach more in line with the Export Administration Regulations (EAR).

Currently, the ITAR definitions of export and reexport include the statement:

Any release… of technical data to a foreign person is deemed to be an [export or reexport] to all countries in which the foreign person has held or holds citizenship or holds permanent residency.

Under these definitions, current nationality is considered as well as any other nationality, even if no longer held.  The result of this is that foreign persons originally from a third country, particularly those from § 126.1 prohibited destinations, are either barred from ITAR work or require more complex authorizations.

The revised definitions state:

Any release… of technical data to a foreign person is deemed to be an export to all countries in which the foreign person holds citizenship or permanent residency.

It will remain possible for a foreign person to have multiple nationalities, but will not require consideration of former nationalities.

The proposed approach is much closer to the EAR definitions, which state:

Any release… is a deemed [export or reexport] to the foreign person’s most recent country of citizenship or permanent residency…

The proposed definition is also in line with the definition of U.S. person, which looks only at whether someone is a U.S. citizen, permanent resident, or one of a limited set of other immigration statuses.  A lawful permanent resident of the U.S. who once held another foreign nationality, including from a § 126.1 country, is unambiguously a U.S. person.

The proposed rule also makes a series of corrections and clarifications to:

• 126.5(b) (Canadian exemptions),
• 126.18(c)(2) (Exemptions regarding intra-company, intra-organization, and intra-governmental transfers to employees who are dual nationals or third-country nationals), and
• 127.12 (Voluntary disclosures).

For additional information and how to submit comments, please refer to the Federal Register Notice.  Comments will be accepted through April 4, 2022.  As it is a proposed rule, the changes will not take effect until a final rule is published.