Regulatory intelligence for US exporters

​​BIS Adds, Expands Export Controls on Parties Sanctioned by OFAC

The Bureau of Industry and Security is adding new export license requirements for people and entities designated under certain Treasury Department sanctions programs, a move it said will strengthen U.S. financial blocking measures and act as a “backstop” for activities that those restrictions don’t cover.

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In a final rule released March 20 and effective March 21, BIS said it now has in place license requirements, including end-user-based controls, for all items subject to the Export Administration Regulations when parties designated under 14 Treasury sanctions programs are party to a transaction involving the EAR item.

This will “serve as a force multiplier and complement” sanctions administered by the Office of Foreign Assets Control, BIS said, including by covering certain transactions "which OFAC does not exercise jurisdiction," including deemed exports and deemed reexports, which place license requirements on certain transfers that take place on U.S. soil. It will also cover reexports and in-country transfers "that would otherwise not involve U.S. financial institutions," BIS said.

The changes will "further our already strong coordination" with Treasury, said BIS Undersecretary Alan Estevez. Thea Kendler, assistant secretary for export administration, stressed the importance of "close coordination in applying both export controls and financial sanctions" to "undermine the ability of foreign adversaries to fund their destabilizing activities and obtain the items they seek to carry out those activities.”

In the rule, BIS also noted the new requirements will control “items outside the United States, complementing the existing authority in many OFAC programs to impose blocking sanctions on persons who materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to or in support of, [Specially Designated Nationals], even outside of U.S. jurisdiction.”

Although the rule formally makes 14 OFAC sanctions programs subject to license requirements for all items subject to the EAR, BIS noted that three of those programs were already subject to those license requirements. The agency also said parties designated under certain programs were already subject to “comprehensive” end-user based controls, while others were subject to license requirements for exports of certain luxury goods or restricted from benefiting from certain license exceptions.

The 14 sanctions programs are:

Related to Russia’s invasion of Ukraine:

  • Belarus Sanctions Regulations; Executive Order 13405
  • Executive Order 14038
  • Russian Harmful Foreign Activities Sanctions Regulations; Executive Order 14024
  • Executive Order 13660
  • Executive Order 13661
  • Executive Order 13662
  • Executive Order 13685.

Related to terrorism:

  • Foreign Terrorist Organizations Sanctions Regulations
  • Global Terrorism Sanctions Regulations.

Related to weapons of mass destruction:

  • Weapons of Mass Destruction Proliferators Sanctions Regulations.

Related to narcotics trafficking or other criminal networks:

  • Executive Order 14059
  • Narcotics Trafficking Sanctions Regulations
  • Foreign Narcotics Kingpin Sanctions Regulations
  • Transnational Criminal Organizations Sanctions Regulations, Executive Order 13581.

Before this rule, parties designated under just two of those sanctions programs -- EO 14059 and the Transnational Criminal Organizations Sanctions Regulations -- weren’t subject to EAR restrictions, BIS said. The other 12 programs were either already subject to end-user and end-use controls under part 744 of the EAR provisions “or under provisions in parts 740 or 746 of the EAR.” The final rule now expands and revises the EAR’s end-user controls to “feature a comprehensive, consolidated provision that references all fourteen OFAC-administered sanctions programs.”

The agency said it will “continue its regular coordination with OFAC to impose restrictions on persons designated under other OFAC blocking or sanctions programs in cases in which BIS determines that its export controls would be an effective tool to complement OFAC’s sanctions programs.” It said exporters and others can use the Consolidated Screening List as a “single-search portal” to find parties included on various Commerce, Treasury and State department lists.

BIS said the new requirements will “apply broadly to all items subject to the EAR.” It specifically said the new controls for the Russia-related sanctions programs will “apply to any reexport or transfer (in-country) transaction that is not subject to regulation by OFAC, including due to the fact that the transaction does not involve U.S. persons or the U.S. financial system, thereby ensuring that the U.S. Government can restrict such activity.”

BIS also will place a “prohibition on the use of any license exceptions” for parties designated under the Russia-related programs, although it will “take into account” OFAC general licenses and exemptions to “ensure consistency.” It also said, to “avoid duplication,” an exporter generally doesn’t need a BIS license if OFAC has already issued a general license or granted a specific license under its regulations. But a BIS license would still be needed for exports “that implicate other parts of the EAR.”

For those Russia-related sanctions programs, BIS will review applications under a presumption of denial for applications “involving these persons as parties to the transaction.” It expects the new controls will lead to another five license applications submitted to BIS annually.

Parties designated under Treasury’s narcotics trafficking or other criminal networks-related sanctions programs listed by BIS will face license exception restrictions and a presumption of denial review policy. The agency also said U.S. parties don’t need a separate BIS authorization to export any item subject to both the EAR and OFAC’s regulations “when a person identified in § 744.8 is a party to the transaction as defined in § 748.5(c) through (f).” BIS said it's expecting an additional 15 license applications annually from these controls.

BIS also said the final rule made “several structural and technical changes” to part 744 of the EAR, removed four end-user control provisions “that are either outdated or obsolete in light of changes made to other federal authorities,” consolidated export control restrictions from parts 740 and 746 under a new provision in part 744, and made other changes to the EAR.

All exports that now require a license as a result of this rule but were aboard a carrier to a port as of March 21 may proceed to their destinations under the previous eligibility as long as the export is “completed no later than” April 22.