On March 21, 2024, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) published a final rule (the “Rule”) to expand the end-user controls of the Export Administration Regulations (“EAR”) to cover certain individuals and entities designated on the Specially Designated Nationals and Blocked Persons List (“SDN List”) maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). The Rule is designed to complement OFAC’s blocking sanctions applicable to persons designated on the SDN List.
Under the Rule, persons blocked under any of fourteen OFAC sanctions programs – including those related to Russia’s invasion of Ukraine – will automatically be subject to stringent export, reexport, and in-country transfer controls under the EAR. Thus, a BIS license is required for the export, reexport, or in-country transfer of any item subject to the EAR in which a person blocked under any of the fourteen OFAC sanctions programs is a party to the transaction as a purchaser, intermediate consignee, ultimate consignee, or end-user.
The BIS licensing requirements under the Rule are designed to act as a backstop for activities over which OFAC may not always exercise jurisdiction, including deemed exports and deemed reexports, and for reexports and in-country transfers not involving U.S. persons. Under most OFAC sanctions programs, it is not clear whether the restrictions apply to transactions occurring entirely outside of the United States based solely on the fact that the transaction involves an item subject to U.S. export controls. On the other hand, the EAR expressly regulate all transfers of items subject to U.S. export controls wherever the transfer takes place and regardless of whether any U.S. persons are involved in the transaction.
This Rule will likely have the greatest impact on non-U.S. persons who deal in items subject to the EAR outside of the United States. These companies should now ensure that they conduct SDN List screening as part of their customer due diligence protocols.
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