Now Including the Kitchen Sink: Expansion of Export Controls on Russia Adds Restrictions on Low-Level Items and Software | Sheppard Mullin Richter & Hampton LLP

Last year, we published an update on BIS's push to ban the export of EAR99 items to Russia and Belarus. We noted (somewhat jokingly) that kitchen sinks might one day be included. Well, that day has come. The export of stainless steel kitchen sinks to Russia and Belarus is officially banned.

In our recent blog post on sanctions against Russia, we noted that the U.S. Office of Foreign Assets Control (OFAC) has tightened its sanctions against Russian financial infrastructure. On the same day, the Bureau of Industry and Security (BIS) also introduced its own draft regulations on Russia. These BIS regulations have now been implemented in the form of a final regulation published on June 18, 2024.

In summary, the new regulation tightens export controls for Russia and Belarus in the following ways:

  1. Adding additional EAR99 items whose export without a license is prohibited;
  2. Introducing a new software license requirement for certain EAR99 software;
  3. Limiting the scope of goods and software eligible for the Consumer Communications Device (CCD) license exception;
  4. Consolidation of sanctions against Russia and Belarus in a single section of the Export Administration Regulations (EAR); and
  5. Adding addresses to the entity list structure.

Below we'll discuss each of these important changes in more detail.

1. The “Kitchen Sink Rule”: Prohibition on the export of further EAR99 items without a license

The new rule adds 522 new six-digit Harmonized Tariff Schedule (HTS) codes to Supplement No. 4 to Part 746 of the EAR (including stainless steel kitchen sinks!) and certain riot control chemical warfare agents to Supplement No. 6 to Part 746. Other prohibited items include certain kitchen tables (HTS 7323.10, 7323.91, 7323.92, 7323.93, 7323.94, 7323.99) and feather dusters (HTS 9603.90). Under the new rule, Supplement No. 4 now includes 18 additional chapters of HTS codes. A license is now required for export or re-export of these items to Russia or Belarus, or for transfer (domestic) within those countries.

Because some of the banned items may go beyond what we would normally consider as support for the Russian military-industrial base, we encourage our readers to take the time to review the new additions.

The licensing requirement for these additional items will come into effect on June 12, 2024.

2. New controls for the EAR99 software

Effective September 16, 2024, the new rule extends the licensing requirement to certain EAR99 software (in the new paragraph EAR § 746.8(a)(8)). The following EAR99 software requires a license for export, re-export, or transfer to or within Russia and Belarus:

  • Enterprise Resource Planning (ERP);
  • Customer Relationship Management (CRM);
  • Business Intelligence (BI);
  • Supply chain management (SCM);
  • Enterprise Data Warehouse (EDW);
  • computerized maintenance management system (CMMS);
  • Project management software, product lifecycle management (PLM);
  • Building Information Modelling (BIM);
  • computer-aided design (CAD);
  • computer-aided manufacturing (CAM); and
  • Engineering to order (ETO)

The license requirement also includes software updates in the specified categories. Fortunately, BIS has created two exceptions where no license would be required:

if the EAR99 software is intended for companies “that operate exclusively in the agricultural or medical sectors”; and

if such EAR99 software and items covered by Export Control Classification Numbers (ECCNs) 5A991, 5A992.c, and 5D992.c are intended for certain types of civilian end users in Russia and Belarus, including, but not limited to, wholly owned subsidiaries, branches, or sales offices of U.S. companies or companies headquartered in A:5 and A:6 countries, and joint ventures of the same between U.S. companies and A:5 or A:6 companies.

3. Restriction of the scope of the CCD license exception

The EAR includes a license exception for certain consumer communications equipment and software for Cuba, Russia, and Belarus (known as License Exemption CCD). For Russia, this exception is limited to personal communications equipment and software for use by individual consumers (not business or corporate products). However, the exception can be used for export to commercial entities and businesses that are not owned or operated by the Russian government. See BIS Russia Export FAQs (May 2, 2022).

Effective June 12, 2024, the new rule will limit the CCD license exception for Russia and Belarus to restrict certain devices and software as follows:

4. Consolidation of sanctions against Russia and Belarus in a single EAR section

Prior to the new rule, licensing requirements for exports, re-exports, and transfers (domestic) to or within Russia and Belarus were found primarily in three sections of the EAR: Section 746.5 (for miscellaneous manufactured goods), Section 746.8 (primarily for items on the Commerce Control List and items covered by the Foreign Direct Products Related to Russia and Belarus regulations), and Section 746.10 (for luxury goods).

Now, all of these licensing requirements are consolidated into a revised and expanded Section 746.8. This is a welcome change that should make it easier for readers to navigate the regulations.

5. Changes in the entity list structure – addresses with high diversion risk

In addition to adding five companies to the Entity List, BIS has also added eight addresses, labelled Address 01, Address 02, etc. This is a change from the way BIS normally adds companies to the Entity List. With the new rule, exporters will need licenses for all companies that use the newly added addresses.

Normally, the involvement of a company located in the same location as a publicly traded company is a red flag in export transactions. But now the BIS is adding unique licensing requirements for addresses that are repeatedly used by companies that conduct activities that are contrary to U.S. national security or foreign policy interests. Therefore, exporters and practitioners should verify the names and addresses of the companies.

We will continue to monitor the new sanctions and export control regulations against Russia and their impact and will provide our updates here.

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