U.S. Imposes New Export Controls on Russia’s Energy Sector and Adds Russian Shipbuilder to Entity List

On 1 August, Under Secretary of Commerce for Industry and Security, Eric L. Hirschhorn, signed a rule amending the Export Administration Regulations (EAR) to “impose additional sanctions implementing U.S. policy toward Russia,” and address the ongoing developments in Ukraine.  Under the rule, the Bureau of Industry and Security (BIS) imposes export controls on items used in Russia’s energy sector, including exploration and production from deepwater, Artic offshore, and shale projects.  The rule also adds state-owned shipbuilder, United Shipbuilding Corporation, to the Entity List.  On 31 July, the Office of Foreign Assets Control (OFAC) added United Shipbuilding Corporation, to the Specially Designated Nationals and Blocked Persons (SDN) List.

The new rule adds 15 CFR § 746.5 to the EAR, “Russian Industry Sector Sanctions,” and imposes export, reexport, and transfer controls on items classified under the following Export Control Commodity Numbers (ECCNs): 0A998 (Oil/gas exploration equipment, software, and data ), 1C992 (Commercial charges and devices containing energetic materials ), 3A229 (Firing sets and equivalent high-current generators), 3A231 (Neutron generator systems), 3A232 (Detonators and multipoint initiation systems), 6A991 (Marine or terrestrial acoustic equipment ), 8A992 (Vessels, marine systems or equipment, “specially designed” “parts” and “components” therefor), and 8D999 (“Software” “specially designed” for operation of unmanned submersible vehicles used in oil/gas industry).  These new controls apply “when the exporter, reexporter or transferor knows or is informed that the items will be used directly or indirectly in Russia’s energy sector” for exploration and production from deepwater (more than 500 feet depth), Artic offshore, and shale oil/gas projects.  The rule goes on to identify, without limitation, examples of items that are specifically covered by the new Russian Industry Sector Sanctions, as follows: drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Artic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing (“fracking”), high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers.  The rule makes clear that “[n]o license exceptions may overcome the licensing requirements under new § 746.5,” except for license exception GOV, and that the license review policy is a presumption of denial.

The rule also adds Supplement No. 2 to Part 746, Russian Industry Sector Sanctions List.  This new supplement includes the ECCNs referenced above, but also includes more than 50 “Schedule B” numbers.  Schedule B numbers are a commodity classification number used for exports, administered by the U.S. Census Bureau and used for reporting foreign trade data.  The following main Schedule B numbers and items are listed: 7304, 7305, and 7306 (line pipe, drill pipe, casing), 8207 (rock drilling or earth boring tools and bits), 8413 (oil well pumps and elevators), 8421 (industrial gas cleaning and separation equipment), 8430 (offshore drilling and production platforms and boring/sinking machinery), 8431 (oil/gas field machinery parts), 8479 (oil/gas field wire line and downhole equipment), 8705 (mobile drilling derricks), and 8905 (floating or submersible drilling or production platforms and floating docks).

For U.S. companies and foreign companies that are subject to U.S. export controls and the jurisdiction of BIS, these new Russian energy sector sanctions pose new compliance challenges and risks.  As with any economic sanctions and export controls, but particularly with the progressing multilateral Ukraine-related sanctions, companies are urged to exercise enhanced due diligence in their compliance efforts.  U.S. and foreign companies that currently export, reexport, or transfer commodities, technology, and software covered by the ECCNs and Schedule B, should be alerted to this new rule and its compliance requirements.  U.S. companies and foreign companies that are subject to U.S. export controls that might only sell or transfer such items domestically should also undertake additional due diligence and not “self-blind” on determining whether Russia is the ultimate destination of the items.

The new rule can be found at this link, http://1.usa.gov/1okGBSH.

For assistance with understanding and complying with this new BIS rule, Ukraine-related and other economic sanctions laws, regulations, and Executive Orders, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.269.5138 (mobile).

Navigating Economic Sanctions Successfully: Yormick will Present Upcoming FCIB Webinar

On April 23, international trade and business attorney, Jon Yormick, will present a webinar on Navigating Economic Sanctions Successfully for The Finance, Credit & International Business Association (FCIB). The 1-hour webinar begins at 11:00 am EST and is open to FCIB members and non-members.

In his presentation, Yormick will provide an update on the recent economic sanctions relating to events in Ukraine, discuss key U.S. economic sanctions regimes, discuss recent OFAC General Licenses and TSRA licenses that give companies certain business opportunities within the U.S. sanctions regimes for Iran and other countries subject to U.S. sanctions, and emphasize economic sanctions compliance, including lessons learned from recent OFAC and BIS civil penalty cases.

Yormick is an experienced international business and trade attorney practicing in the areas Export Controls & Economic Sanctions, Customs & International Trade, and FCPA/Anticorruption. He represents U.S. and foreign clients before the U.S. Department of Commerce, Bureau of Industry and Security (BIS), the U.S. Customs and Border Protection (CBP), the U.S. Department of Homeland Security, Immigration and Customs Enforcement (ICE), the U.S. Department of State, Directorate of Defense Trade Controls (DDTC), the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC), and the U.S. International Trade Commission (ITC) on import and export laws and regulations, including the Export Administration Regulations (EAR), and the International Traffic in Arms Regulations (ITAR).  His clients include those in the advanced manufacturing, advanced materials, aerospace and defense, distribution, electronics, energy, medical device, oil/gas, pharmaceuticals, professional services, steel, textiles and apparel, and transportation/logistics sectors.

For more information about FCIB visit, www.fcibglobal.com, or use this link to register for the webinar, http://bit.ly/1kWK9Q4

New York Dental Supply Company “Acting with Knowledge” Settles Iranian Transactions Regulations Charge

Last month, a family-owned dental supply company in New York settled a civil penalty with the Department of Commerce, Bureau of Industry and Security (BIS).  The amount of the civil penalty settlement was rather minimal – $8,750 – but the case is noteworthy nonetheless.

BIS proposed charging the company with a single count of violating the Export Administration Regulations (EAR), specifically 15 CFR § 764.2(e) – acting with knowledge that a violation of the EAR was about to occur or was intended to occur.  The settlement agreement explained that in 2008, the company sold dental products for export to Iran, via the UAE, without the required authorization to do so from the Department of the Treasury’s Office of Foreign Assets Control (OFAC).  The dental supplies were valued at $12,950 and were EAR99 items, meaning they were subject to the EAR, but not on the Commerce Control List (CCL).  Products designated as EAR99 generally do not require an export license from the U.S. Government; however, a license is required to certain destinations and Iran is certainly one such destination.

For companies and their legal counsel who may not be well-versed in this complex area of export controls and economic sanctions law, it should be noted that although the shipment was to be delivered in the UAE, because the supplies were ultimately destined for Iran, the Iranian Transactions Regulations (ITR) control this export transaction and others like it.  As stated in the settlement agreement, “an export to a third country intended for transshipment to Iran is a transaction that requires OFAC authorization.”

The settlement agreement went on to explain a frequently heard scenario in which the company initially made contact with the Iranian buyer at a trade show in Dubai.  In this instance, the New York company subsequently began to complete an OFAC license application to obtain authorization to export the products to Iran.  However, the application was never completed and submitted, so the company never obtained an OFAC license.  The company’s VP for Sales and Marketing explained to BIS Office of Export Enforcement (OEE) agents that the “OFAC license application was too complicated and time consuming,” so it was decided to proceed with the sale and attempt to export the products without the license.  Intentionally abandoning the OFAC license application, knowing that a license was required, led BIS to propose charging the company with one count of “acting with knowledge” in this instance.  Wisely, the company resolved the case by agreeing to pay the civil penalty within 30 days.  No other sanctions were imposed under the settlement agreement.

This settlement offers some instructive points for U.S. exporters and exporting foreign companies with a U.S. nexus.  First, it is a violation of the EAR and the ITR to sell and export products to an Iranian party via a transshipment destination, whether the UAE, Singapore, or any other country.  Second, certain EAR99 products can be sold and exported to Iran, provided a license from OFAC is obtained and the terms of that license are followed carefully.  Under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), companies can export certain EAR99 agricultural commodities, medicines or medical devices to Iran.  While the specific dental supplies in this case are not listed, other dental supplies are provided in BIS guidance (implants, dentures, crowns, instruments).  This means that the potential sale would likely have qualified for a TSRA license from OFAC.  While somewhat time-consuming for SMEs, has this New York company followed-through on completing the license application and submitting it, the outcome in this case likely would have led to an export success, rather than becoming another BIS civil penalty settlement to read and comment upon.

For assistance with understanding and complying with the Export Administration Regulations, the Iranian Transactions Regulations, or other export controls and economic sanctions, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosure matters, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com  or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.

Yormick Selected as Instructor for International Trade Certification Program

International business and trade attorney, Jon Yormick, will be an instructor for the International Trade Certification Program being offered jointly by the World Trade Center Buffalo Niagara and Speed Global Services.  Business leaders completing the 10-week program will earn Advanced Certification in International Commerce & World Trade Center Trade Expert (TE) Accreditation.

Yormick will teach Module Two: Export Controls, Customs and Documentation.  This module will focus on federal laws and regulations governing the export and import of goods and technologies and doing business abroad, including the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), the Foreign Corrupt Practices Act (FCPA), the Customs Modernization Act (the Mod Act), and economic sanctions programs administered and enforced by the Office of Foreign Assets Control (OFAC).

The International Trade Certification Program runs from September 11 through November 13, 2012.  Classes will be held each Tuesday afternoon from 1:00 – 5:00 PM at Speed Global Services.  For more information and to register, please visit www.speedgs.com or www.wtcbn.com.

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