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March 25, 2024

Commerce Department Issues Rule Imposing New and Expanded End-User Controls on Sanctioned Parties

Advisory

On March 20, 2024, the U.S. Department of Commerce Bureau of Industry and Security (BIS) implemented a final rule to add, expand, and reorganize certain end-user controls for people identified on the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals and Blocked Persons (SDN) List.

The primary effects of this rule are (1) to impose on non-U.S. persons not otherwise subject to OFAC restrictions an obligation not to provide to sanctioned persons items subject to the Export Administration Regulations (EAR) including goods, software, and technology and (2) for any U.S. persons who provide items subject to the EAR to OFAC-designated persons, such a transaction would risk violating both the OFAC and EAR provisions in the same transaction.

Under the rule, BIS is implementing additional license requirements to export, reexport, or transfer any items subject to the EAR when a person blocked under 14 OFAC sanctions programs is a party to the transaction. (Prior to the rule, only certain persons designated on the SDN List were subject to license requirements for any item subject to the EAR, whereas others were subject to such requirements for only certain items.) Unless the export, reexport, or transfer (in-country) is authorized under an OFAC specific or general license or exempted under OFAC’s regulations, a license is now required for the export, reexport, or transfer (in-country) of all items subject to the EAR when a person who is designated on OFAC’s SDN List is a party to the transaction, including for items located outside of the United States.

Persons blocked under the following 14 OFAC sanctions programs will be subject to export controls under the EAR:

  • Belarus Sanctions Regulations, 31 CFR part 548; Executive Order 13405
  • Executive Order 14038
  • Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587; Executive Order 14024
  • Executive Order 13660
  • Executive Order 13661
  • Executive Order 13662
  • Executive Order 13685
  • Foreign Terrorist Organizations Sanctions Regulations, 31 CFR part 597
  • Global Terrorism Sanctions Regulations, 31 CFR part 594
  • Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 CFR part 544
  • Executive Order 14059
  • Narcotics Trafficking Sanctions Regulations, 31 CFR part 536
  • Foreign Narcotics Kingpin Sanctions Regulations, 31 CFR part 598
  • Transnational Criminal Organizations Sanctions Regulations, 31 CFR part 590; Executive Order 13581

Under the new rule, no license exceptions are available when individuals blocked under any of the 14 sanctions programs is a party to the transaction, except for license exceptions specified on the Entity List. License applications under these new restrictions will also be subject to a presumption of denial during review.

This rule will impose additional restrictions on transactions that were outside OFAC’s primary sanctions jurisdiction where U.S. persons were not involved. In particular, this will allow BIS to restrict reexport and in-country transfer transactions that relate to sanctioned persons occurring outside of the United States without the involvement of U.S. persons. It should also be noted that OFAC will continue to have secondary sanctions authority to impose blocking sanctions on persons who provide material support to an SDN, even if such activities do not involve any U.S. nexus.

For questions about this BIS final rule or other export controls matters, contact the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations or Export Control & Sanctions practice groups.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.