BIS Expands FDP Rule and Imposes Additional Restrictions on Exports

Washington, D.C. (September 13, 2024) - On August 23, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) announced new, stringent measures aimed at tightening controls over the export, reexport, and transfer of U.S.-origin and U.S.-branded items to Russia and Belarus. This action is part of continuing efforts to constrain Russia’s military capabilities amid the ongoing Russia-Ukraine conflict. Below is a summary of the key changes and guidance issued by BIS.

Key Actions and New Measures

1. Expansion of Control Rules

In a final rule, BIS expanded the scope of the existing Russia/Belarus Military End User (“MEU”) Foreign Direct Product (“FDP”) rule to cover “procurement entities”: “entit[ies] that pose[] a significant risk of involvement in the supply or diversion of items subject to the EAR to procurement networks for Russia's or Belarus's defense industry or intelligence services.” To reflect this change, the rule has been renamed the “Russia/Belarus-Military End User and Procurement FDP rule” (emphasis added). The expanded rule targets intermediaries that obtain items, whether U.S.-produced or U.S.-branded (even if foreign-produced), that ultimately support military production or use by Russia and Belarus. Additionally, the final rule adds controls on “software” for the operation of computer numerical control (“CNC”) machine tools, to limit the utility of such tools.

2. Entity List Additions

BIS also added 123 entities, covering 63 in Russia or Crimea, 42 in China (including Hong Kong), and 14 in Türkiye, Iran, and Cyprus, to the Entity List. These additions address violations of U.S. export controls and activities contrary to U.S. national security and foreign policy interests, and impose specific license requirements on exports, reexports or transfers (in-country) of items to listed entities.

3. New Restrictions on Shell Companies

BIS has further targeted shell companies by adding four addresses in Hong Kong and Türkiye to the Entity List. Transactions involving these addresses will now require a license. This action builds on earlier measures introduced on June 12, 2024, aimed at disrupting the diversion of sensitive items to Russia. (See our previous client alert for more information on the June 12, 2024 measures).

4. Guidance for Exporters

BIS has issued new guidance to assist U.S. exporters and foreign corporate service providers in compliance. The guidance suggests the following:

Contractual Language: Exporters are advised to include specific language in contracts and export documents to prevent the diversion of items to Russia and Belarus without BIS authorization. This guidance aligns with practices similar to the European Union’s “No re-export to Russia” clause.
Foreign Corporate Service Providers: BIS recommends that foreign corporate service providers, such as those in Hong Kong and Türkiye, implement robust screening procedures to avoid providing services to entities involved in the diversion of goods to restricted destinations.

Companies engaged in exporting or reexporting to or from Russia and Belarus should be aware of the expanded controls and additional licensing requirements. Such companies should ensure all transactions comply with the expanded MEU and FDP rules, check for any red flags as outlined in BIS’s guidance, and regularly consult the Entity List and related BIS publications to identify restricted parties and addresses to ensure compliance with U.S. export controls.

Lewis Brisbois’s attorneys are actively engaged in the wide range of legal issues in this area and are advising clients on managing legal and business risk as events continue to develop at an accelerated pace. For more information, contact the author or editor of this alert. Visit our Ukraine Conflict, International Trade, Export, Import and Investment Controls & National Security Practice page for additional alerts in this area.

Author:

George Leahy, Associate

Editor:

Andrew Pidgirsky, Partner and Chair of Ukraine Conflict, International Trade, Export, Import and Investment Controls & National Security Practice