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BIS Expands Sweep of Foreign Direct Product Rule for Iran

Washington, D.C. (August 28, 2024) - On July 23, 2024, the US Commerce Department's Bureau of Industry and Security's (BIS) new rule became effective. The law expands the Export Administration Regulations’ (EAR) Foreign Direct Product rule for Iran, and applicable license requirements.

The law concerns the export of products, regardless of the country of origin, to Iran. This is an additional attempt to curtail the use of U.S. – derived technologies for export, reexport, and in-country transfer to Iran, in response to fears that such technology may be used for weapons systems, including drones, that could target U.S. interests and the interests of key U.S. allies.

The prior rule concerned only foreign-produced items when they were: (1) the direct product of U.S.-origin ‘‘software’’ or ‘‘technology’’ and specified in an EAR supplement, classified under an Export Control Classification Number (ECCN), or under the Commerce Control List (CCL); or (2) were produced by a plant or major component of a plant that is itself the direct product of such CCL-controlled ‘‘software’’ or ‘‘technology.’’

As of July 23, 2024 the rule has been modified as follows:

  1. Foreign Direct Products must comply with the EAR if those items meet either the destination and end-use scope in 15 C.F.R. 734.9 (j)(2) or they meet the criteria in the end-user scope ser forth in 15 C.F.R. 734.9 (j)(3).
     
  2. The range of CCL items has been expanded to include “technology” and “software” for Category 6; lasers and sensors for Category 8; Marine, Aerospace, and Propulsion for Category 8. The CCL is a list of items that are subject to the export licensing authority of the Bureau of Industry and Security, which is part of the Department of Commerce, and is a subcategory of the Export Adminstration Regulations.
     
  3. The end-user scope now also applies if there is ‘‘knowledge’’ that the Government of Iran is a party to any transaction involving the foreign-produced item, e.g., as a ‘‘purchaser,’’ ‘‘intermediate consignee,’’ ‘‘ultimate consignee,’’ or ‘‘end-user’’ as consistent with the language used in the Entity List FDP rule set forth in § 734.9(e) of the EAR.

The Rule also made changes to applicable licenses for exemptions to include in-country transfers of EAR-subject items. Finally, items that were not subject to EAR regulation prior to July 23, 2023, and are now subject to EAR regulations, have a grace period to comply with the new rule if the shipment was initiated by June 26, 2023.

Key Takeaway

Trading with Iran remains, regardless of the items’ country of origin, subject to complex sanction laws and regulations, with potential legal and criminal consequences to violators. 

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 editors 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:

Mamoun Mahayni, Associate

Editors:

Jane C. Luxton, Managing Partner - Washington, D.C.

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

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