Recently, the Biden Administration adopted additional sanctions in response to Russia’s attempts to annex parts of sovereign Ukrainian territory, including the designation of 14 persons in Russia’s military industrial complex, two international suppliers, several leaders of Russia’s financial infrastructure, family members of some senior Russian officials and 278 members of Russia’s legislature. The US Department of Commerce (Commerce) also issued expanded export control regulations targeting Russia.
A key warning embodied in US guidance is the prospect of heightened sanctions risks that third party actors outside of Russia will face for aiding the Russian defense sector. This warning was explicitly set out in a Frequently Asked Question (FAQ) issued by Commerce’s Bureau of Security and Industry (BIS), which emphasized that Commerce will apply Russia-related export controls against “any entities, both inside and outside of Russia, that seek to provide material support for Russia and Belarus’s military and industrial sectors, including to replenish (backfill) technologies and other items prohibited by the United States and the 37 allies and partners that have implemented substantially similar controls.”
The Commerce FAQ builds upon a BIS rule adopted on September 15, 2022, which, among other things, expanded the Export Administration Regulations (EAR) “military end user” controls to target more effectively military support for Russia and Belarus. Specifically, the expansion allows BIS to add to the Entity List entities in third countries that support “military end uses” (i.e., military end users) in Russia or Belarus (i.e., in Supplement no. 4 to EAR Part 744 with a “footnote 3” designation). Additionally, BIS may now designate entities in third countries that support “military end uses” in Burma, Cambodia, China, or Venezuela on the Military End User (MEU) List (in Supplement no. 7 to EAR Part 744). Entities added to the Entity List and MEU List are subject to heightened US export control restrictions, including a presumption of denial of many exports.
Designated third country entities also are subject to expanded controls on direct products of US technology.
Notably, exports or reexports to companies added to the Entity List due to their support for military end uses in Russia or Belarus (i.e., entities with a footnote 3 designation) are subject to expanded US jurisdictional scope under the “Russia Military End-User Foreign Direct Product Rule” (Russia-MEU FDP Rule)—effectively restricting their ability to export or reexport foreign produced item that are direct products of certain US technology. Specifically, the Russia-MEU FDP rule applies to all exports and reexports worldwide of foreign-produced items that are: (i) the direct product of any US software or technology, or (ii) produced by plants or major components of plants that are themselves the direct product of US software or technology.
In addition, under the Russia-MEU FDP Rule, a license is required if an entity with a “footnote 3” designation on the Entity List is a party to the transaction in any way, or if there is knowledge that the item will be incorporated into or used in the production or development of any part, component, or equipment produced, purchased, or ordered by a designated entity. These restrictions apply to all items, including those designated EAR99 (with certain exceptions for food and medicine).
In other words, once designated on the Entity List with a “footnote 3” designation, the entity will be ineligible to be a party to exports or reexports of any item that is the direct product of US software or technology. Moreover, a third-country exporter may not supply a part for incorporation into another item with knowledge that the item will be incorporated or used in the production or development of an item that is destined for such an entity.
Since US export controls attach based on the item’s development and production origins, rather than the nationality of the exporter, all companies worldwide are obliged to comply with these controls. In effect, third-country entities designated as MEUs, wherever located, will be frozen out of a wide range of high-tech global supply chains.
Updates to list of eligible consumer communications devices.
In the same rulemaking, BIS also revised the consumer communication devices (CCD) license exception provisions of the EAR, updating the list of eligible commodities and software to reflect the communication commodities and software that have come into common use since the CCD provisions became effective in 2009 and describe more accurately the types of commodities and software eligible under License Exception CCD.
For instance, BIS added commonly-used items like tablets and peripherals, including microphones, speakers, and headphones that are designated EAR99 or classified under ECCNs 5A992.c or 4A994.b. Other noteworthy revisions include removing input/output control units from the scope of eligible CCD items and adding a parenthetical phrase to the CCD list to clarify that digital cameras include webcams.
These revisions to the CCD licensing were incorporated also into the Russian- and now also Belarusian- industry sector sanctions and the “luxury goods” controls. The purpose of these changes were to meet the US Government's policy objectives of ensuring the free flow of information to and within Russia.
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