Earlier today, the Bureau of Industry and Security (BIS) published a Federal Register notice (79 Fed. Reg. 151, 45675-82) describing expanded export controls on Russia. BIS previously implemented severe restrictions on licensable items proposed for shipment to Russia. These new and expanded BIS controls are effective today. They also build on the existing Treasury Department, Office of Foreign Assets Control (OFAC) sanctions on financing and extended payment terms on sales transactions (among other prohibitions) already released in Executive Orders 13660-62 and in derivative sectoral sanctions.
All proposed exports of fracking and petrochemical equipment, software and technology to Russia should now be reviewed under the new OFAC and new BIS sanctions programs.
The new BIS Russia sanctions are part of a broader control regime under which a license is required to export, reexport, or transfer (in-country) an item if:
(1) the item is listed in 15 C.F.R. § 746.5 Supplement No. 2 or a specified Commerce Department Export Control Classification Number (ECCN); and
(2) the prospective exporter, reexporter, or transferor either:
(a) knows that the item will be used directly or indirectly in exploration for, or production of, oil or gas in (I) Russian deepwater (greater than 500 feet) or Arctic offshore locations, or (II) shale formations in Russia, or
(b) is unable to determine whether the item will be used in such projects.
Interestingly, the multitude of items listed in 15 C.F.R. § 746.5 Supplement No. 2 are designated by their Schedule B numbers, or the 10-digit commodity classification number the U.S. Census Bureau uses to generate foreign trade statistics.
The ECCNs made subject to these industry sector sanctions are 0A998, 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, and 8D999. Both 0A998 and 8D999 are new additions to the Commerce Control List. 0A998 will control specified oil and gas exploration equipment, software, and data, including hydraulic fracturing items. 8D999 controls software specially designed for the operation of unmanned submersible vehicles used in the oil and gas industry.
License applications related to the Russian sectoral sanctions regime are subject to a general policy of denial. License exceptions are only available in instances in which the exception is specifically listed in the license exceptions paragraph pertaining to Russia in part 746 of the EAR.
In addition to the above controls, today’s Federal Register notice also placed United Shipbuilding Corporation, along with four of its known aliases, on the BIS Entity List at 15 C.F.R. § 744 Supplement No. 4. Consequently, all export, reexport, and transfer transactions involving that entity and items subject to the EAR now require BIS licensing. That applies regardless of whether the entity is the purchaser, intermediate consignee, ultimate-consignee, or end-user in the transaction. As above, license applications related to that entity are subject to a policy of denial.
As the Russia sanctions and export control regulations continue to grow in volume and complexity, companies selling hydraulic fracturing and other oilfield equipment, chemicals, software or technology internationally will need to reevaluate and scrutinize all proposed transactions with Russia with these new rules in mind.