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Our Take on International Trade

| 1 minute read

U.S. Commerce Department Implements End-User Controls to Coordinate with Treasury Department Sanctions

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.

“Export controls and financial sanctions have long been complementary, and today’s rule will serve as a force multiplier in their overall effectiveness,” said Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler. “In the context of our response to Russia’s horrific invasion of Ukraine, we have seen just how important close coordination in applying both export controls and financial sanctions is to undermine the ability of foreign adversaries to fund their destabilizing activities and obtain the items they seek to carry out those activities.”