Export Controls to Russia

The export controls on products destined for Russia have been expanded. These controls present an enforcement challenge for three reasons:

They now cover an extraordinary number of products which are not on the Commerce Control List but instead are identified by Harmonized Tariff Schedule number.
The controls are coordinated with other countries which now require licenses for exports and reexports classified in the same HTS classifications, and which are adopting mutual enforcement measures.
The Bureau of Industry and Security is anticipating increased circumvention efforts and is taking measures to identify such attempts.

Watch as George Thompson, international trade attorney, discusses the implications of the expanded controls and recommended actions for exporters.

Thompson & Associates, PLLC provides representation in all aspects of customs laws and regulations, specializing in export and import regulations and international business counseling. We can be reached at 202-772-2039 or online.

Transcript of “Export or Reexport Controls to Russia – It’s Not Just the CCL Any More”

Hello. This is George Thompson, and today I’d like to discuss the expansion of export controls on products destined to Russia. I’ve already covered Russian export control sanctions a couple of times, but there have been a number of developments since then which I think warrant another review.

These controls present an enforcement challenge for three reasons. First, they now cover an extraordinary number of products which are not on the Commerce Control List but instead are identified by Harmonized Tariff Schedule number. Included are many mundane items which had accounted for a substantial amount of trade by volume and value.

Second, the controls are coordinated with other countries which now require export licenses for exports and reexports classified in the same HTS classifications and are adopting mutual enforcement measures.

Third, as a result of the first two points there reportedly are widespread circumvention efforts by Russia, which are expected to grow in the future.

Put together, these three developments pose a substantial compliance challenge for U.S. exporters and their foreign customers. They must now identify as controlled a much larger list of products than those on the CCL and take account of more aggressive enforcement activity by the U.S. and other countries, all the while looking out for potentially violative transactions which masquerade as permissible ones.

Let’s look at these in more detail.

The United States, as well as Australia, Canada, New Zealand and the United Kingdom, have adopted controls on a panoply of products for export to Russia. These are set forth in the Common High Priority Items List. The covered items are identified by HTS subheading. They include various types of integrated circuits, capacitors, radio and telecommunications equipment, diodes and transistors, to name just a few. A link to the full list will be provided in the written version of this video’s script to be posted on my firm’s website.

Although some of these newly-controlled articles are found on the Commerce Control List as well, most are not. This means that U.S. exporters must identify the HTS classifications of products they know or at least have reason to know, are going to Russia to prevent such shipments. The same applies to foreign buyers and resellers of covered items from the United States. They have to exercise due diligence in determining the final destinations of their products, and may even have to break sales contracts to comply with the expanded controls. Because of the sheer volume of products involved, I see this as an even greater challenge than complying with the prohibitions on unlicensed exports to Russia of all items on the Commerce Control List.

Next, the multilateral nature of the expanded controls has two broad consequences. All five participating countries have adopted the same HTS list. I expect this limit on supplies to Russia will provide a broader impetus for circumvention than would be found if only unilateral controls were involved.

Additionally, there will be five countries participating in the enforcement efforts and coordinating their efforts to thwart circumvention. I expect this will result in a larger number of enforcement cases involving both deliberate and inadvertent violations.

And this leads to the third point. The Bureau of Industry and Security is well aware that circumvention attempts are likely. As the agency stated, “Exporters are strongly encouraged to conduct additional due diligence when encountering one of the listed HS codes to ensure end user legitimacy and mitigate attempts to evade” the controls.

To that end, BIS has helpfully provided exporters with due diligence guidance for both old and new customers. Suggestions include determining the date of incorporation of new customers, end use end user reviews and monitoring of increased purchase volumes.

BIS also identified numerous red flags which may be indicative of a customer attempting to evade the controls. Again, I won’t rattle them off here, but I highly recommend you review them at the link provided on my firm’s website.

Given the scope and complexity of these product controls and their multilateral character, as well as the anticipated ramping up of circumvention activity, these Russia controls warrant particularized attention. My suggestion is that U.S. exporters and their foreign customers incorporate the BIS guidance into their current compliance programs. The guidelines may not be mandatory, but they do seem well-suited to help avoid violations. Moreover, if a potential violation does occur, you can bet that BIS will be looking at whether the parties involved took the guidelines into account.

You don’t need to take my word for it. As BIS noted, “Failure to comply with these recommendations can result in reputational harm, future business relationship challenges, fines, and/or criminal charges. Know the laws and your obligations.”

So, to sum up, a word to the wise should be sufficient. If your company trades in any of the listed HTS items, you really need to adopt appropriate compliance measures.

Thank you for listening.