In the wake of Russia’s invasion of Ukraine, the U.S. has implemented unprecedented measures to impose severe economic costs on Russia. Since February, the landscape of export controls and sanctions on Russia has changed rapidly, posing a compliance challenge for businesses around the world, including smaller U.S. businesses. These new sanctions present compliance challenges for businesses of every size in virtually every industry sector. In a global digital economy where talent is sourced from around the world and investors reach across national boundaries, U.S. companies need to exercise due diligence and implement compliance review procedures to screen for any potential problems.  

These new trade controls present challenges in two areas: trade control and financial sanctions imposed by the Office of Foreign Assets Control (OFAC) and new Commerce Department export controls, which significantly restrict the export or transfer of products and technology to Russian end-users.

With limited exceptions, under new Commerce Department export controls, any item that has an Export Control Classification Number (“ECCN”) now requires a license for export to Russia. In addition, depending on the end-user or potential end-use, many goods not assigned an ECCN (so-called EAR 99 items) now require a license to be exported to Russia. License applications for such items will be reviewed under a “policy of denial,” with very limited categories available for export on a case-by-case review basis.

The new export control rules under the Commerce Department’s Export Administration Regulations (EAR) have multiple prongs:

• Expanded export licensing requirements applicable to many categories of dual-use goods, software, or technology to any Russian recipient.
• Expansion of the EAR’s “foreign direct product rule” to prohibit the export to Russia of certain foreign manufactured goods or components using U.S.-origin controlled technology or software.
• Expansion of export controls to Russian military or government entity end-users and military end-uses to cover all U.S.-origin goods, with limited exceptions such as food and medicine destined for non-military/government end users.

Now, all items listed in Categories 3 through 9 of the Commerce Control List (CCL) require a license to be exported to Russia. This significantly expands the scope of items that require a license to be exported to Russia, including many less sensitive products or technologies that were not previously subject to control. With respect to “military end-uses” and “military end-users,” all U.S. origin items must be licensed for export or re-export to Russia. The EAR defines “military end user” expansively to include even civilian entities that do business with Russian military or government end users, including researchers and research institutions.

These licensing restrictions also extend to Russian nationals working for U.S. companies. Allowing a Russian national employee access to controlled technology or software, even if they are working in the United States, is considered a “deemed export” and is subject to the same licensing requirements as other exports.

OFAC sanctions first imposed on Russian following the 2014 Russian invasion of the Crimean region of Ukraine now target a rapidly expanding list of banks, state-owned enterprises, and defense companies, as well as individual political, military, or economic actors. The latest sanctions against Russia are more comprehensive, targeting numerous individuals who have been designated as “key enablers” of the invasion, including oligarchs with investments across the globe, and a recent unprecedented expansion of authority to include energy, aerospace, marine, and electronics sectors.  

OFAC publishes lists of entities and individuals who are “blocked” from dealings with U.S. persons (i.e., the Specially Designated Nationals List and the Sectoral Sanctions Identification List). In general, transactions by U.S. nationals or by anyone within the United States with entities on either list are blocked. Further, many dealings by U.S. persons with entities that are 50% or more owned by a party designated on either the SDN List or the SSIL are similarly blocked or prohibited. This imposes a substantial due diligence burden on companies and significantly expands the compliance challenge associated with international trade transactions.

To avoid inadvertent violations of these new sanctions, U.S. businesses that engage in international transactions should implement an export compliance program, and screening of all parties in a transaction against these various Restricted Parties Lists is one key element of an effective compliance program. Due Diligence in international transactions – Who is the end-user? What is the end-use? – is even more important in this era of increased reliance on trade sanctions as an instrument of foreign policy. An effective export compliance program is the best defense against an inadvertent violation, and it can be a key mitigating consideration by the agencies should an inadvertent violation occur.  

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