BIS Expands and Consolidates EAR End-User Controls on Certain SDNs

March 22, 2024

On Thursday, March 21, 2024, the Bureau of Industry and Security (BIS) of the Department of Commerce made changes to the end-user controls of the Export Administration Regulations (EAR) to complement and strengthen the sanctions imposed by the Office of Foreign Assets Control (OFAC) of the Department of the Treasury on certain persons designated on the List of Specially Designated Nationals and Blocked Persons (SDN List). In addition to imposing further diligence requirements on US exporters, the additional licensing requirements imposed by the new rule will likely be of particular consequence to foreign persons dealing in items subject to the EAR.¹

The rule adds end-user controls, and in some cases expands existing end-user controls, on persons identified on the SDN List pursuant to fourteen sanctions programs, including those related to Russia's invasion of Ukraine, terrorism, weapons of mass destruction, and narcotics trafficking or other criminal networks. The rule requires a license for the export, reexport, or transfer (in-country) of any item subject to the EAR when such a person is a party to the transaction. To avoid duplicative licensing requirements, transactions falling within the scope of the new rule do not require separate EAR authorization if the transactions are authorized under an OFAC specific or general license or are exempted under OFAC's regulations. The rule also restricts the availability of license exceptions under the EAR and establishes a presumption of denial license review policy for such transactions.

Previously, the EAR contained end-user licensing restrictions for all items subject to the EAR as to a narrower set of SDN designations. It also imposed end-user based licensing requirements on SDNs designated pursuant to the Russia, Belarus, and Ukraine-related sanctions programs as to a subset of items subject to the EAR (specifically, luxury goods). These restrictions were found in a number of different sections within Part 744 under the EAR. This rule consolidates those into a single section, § 744.8, which should make it easier to identify SDNs as to which the EAR imposes independent licensing restrictions, but also significantly expands the reach of those licensing requirements.

The rule addresses a potential jurisdictional gap between US export controls and sanctions that could arise in certain transactions. US persons are already broadly prohibited from dealing with SDNs and other blocked persons, irrespective of whether items subject to the EAR are involved. And, with respect to Russia and Belarus, many items subject to the EAR already require an export license prior to export, re-export, or transfer. The new rule expands these existing licensing requirements to include exports, reexports, or transfers (in-country) of all items subject to the EAR where the transaction would not already have been prohibited under either OFAC regulations or the EAR. As noted, foreign persons in particular should take note of these expanded controls, especially in light of the recent publication of the Department of Commerce, Department of the Treasury, and Department of Justice Tri-Seal Compliance Note on the obligations of foreign-based persons to comply with US sanctions and export control laws, on which you can review Dentons' earlier alert here.²

1. Export Administration Regulations End-User Controls: Imposition of Restrictions on Certain Persons Identified on the List of Specially Designated Nationals and Blocked Persons (SDN List), 89 Fed. Reg. 20107 (Mar. 21, 2024), available at https://www.govinfo.gov/content/pkg/FR-2024-03-21/pdf/2024-06067.pdf. ↩
2. U.S. Dep't of Commerce, U.S. Dep't of the Treas., and U.S. Dep't of Justice, Tri-Seal Compliance Note: Obligations of foreign-based persons to comply with U.S. sanctions and export control laws (Mar. 6, 2024), available at https://ofac.treasury.gov/media/932746/download?inline. ↩