The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced March 4, 2022, the imposition of further export controls in response to Russia’s invasion of Ukraine. BIS issued two rules, which took effect March 3, 2022.
The first rule built on existing BIS restrictions first imposed in 2014 on items used in the Russian deepwater oil and gas exploration and extraction industries by stating a policy of denial on such items and applying stringent restrictions on a wide variety of items necessary for refining oil. The rule is scheduled to be published March 8, 2022.
The second rule adds 91 new parties in 10 countries to the Entity List based on their involvement in, contributions to, or other support of the Russian security services, military and defense sectors, and military and/or defense research and development efforts. The unpublished version of this rule and full list of entities by country can be found here, and is scheduled for publication March 9, 2022.
New General Prohibition Applying to Items Related to the Russian Oil Sector
BIS’s new rule expands the scope of the Russian sectoral sanctions found in section 746.5(a) of the Export Administration Regulations (EAR). Prior to this rule, this general prohibition applied to the export, reexport, or transfer (in-country) of certain items in situations where a person knew that the item would be used directly or indirectly in Russia’s energy sector for the exploration or production from deepwater, Arctic offshore, or shale projects in Russia that have potential to produce oil or gas, or where a person was unable to determine whether the item would be used in such projects in Russia. The items that are used for such projects and subject to these restrictions are found in Supplement No. 2 to part 746, including, but not limited to, drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Arctic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing, high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers.
New paragraph (a)(1)(ii) expands the scope of the general prohibition under section 746.5 by imposing an additional license requirement for exports, reexports, or transfers (in-country) of any item subject to the EAR listed in the new Supplement No. 4 to part 746 to and within Russia. New Supplement No. 4 includes other oil and gas field wire line and downhole equipment, gas separation equipment, and other materials (e.g., alkylation and isomerization units, delayed cokers, flexicoking units, hydrogen generation technology, refinery fuel gas treatment and sulphur recovery technology, thermal cracking units, etc.). Unlike the prior prohibition, the new prohibition does not include a “knowledge” requirement, nor is it limited by the type of project for which the item will be used. BIS has also added new Supplement No. 4 to part 746, which identifies these items by HTS code and Schedule B number.
The new rule also adds a new paragraph (a)(1)(iii) to provide cross-references to other EAR license requirements for Russia and guidance for submitting license applications required pursuant to this section.
Policy of Denial for License Applications for Items Related to Russian Oil Sector
BIS is establishing a policy of denial for applications for the export, reexport, and (in-country) transfer of items subject to the licensing requirements described above. This rule changes the license review presumption of denial to the more restrictive policy of denial for items subject to the requirements of § 746.5(a)(1)(i) of the EAR and adds a policy of denial applicable to license applications falling within the scope of § 746.5(a)(1)(ii).
There will be case-by-case review of license applications for export, reexport, or transfer (in-country) of items that may be necessary for health and safety reasons. Additionally, license applicants may request emergency processing of license applications by following the procedures found in § 748.4(h) of the EAR.
Addition of 91 Entities to the Entity List
BIS added 91 new entities to the Entity List under the destinations of Belize, Estonia, Kazakhstan, Latvia, Malta, Russia, Singapore, Slovakia, Spain, and the United Kingdom. (Note that there are 96 entries in total as some entities operate in multiple countries.) The U.S. Government determined that these 91 entities have been involved in, contributed to, or otherwise supported the Russian security services, military and defense sectors, and military and/or defense research and development efforts. Further, the U.S. Government determined that these entities have acted contrary to the foreign policy or national security interests of the United States.
For 86 of the 91 entities, BIS will review license applications under a policy of denial. For 5 of the 91 entities, BIS will review license applications involving all items subject to the EAR under a policy of denial, except on a case-by-case basis for U.S. Government-supported space programs. The license review policy for each listed entity is identified in the “License Review Policy” column on the Entity List. No license exceptions are available for exports, reexports, or transfers (in-country) to the entities being added to the Entity List in this rule.
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Companies that engage in business dealings with the Russian oil sector should review the new general prohibition and license requirements for exporting, reexporting, or transferring items listed in Supplement No. 4 to part 746 of the EAR. Furthermore, companies should always assess whether any parties with which they are conducting business are on the Entity List.
The sanctions and restrictions described above supplement sanctions announced in recent weeks by the U.S. government. U.S. sanctions and export controls with respect to Russia, Ukraine, and Belarus are expected to change in the coming days and weeks. Contact us if you have questions about these developments or their potential impact on your business.