- Under the EAR § 746.5, exports, reexports, or in-country transfers of items subject to the EAR require a BIS license if the items are classified under eight (8) Export Control Classification Numbers listed on the Commerce Control List or fifty-three (53) Schedule B numbers listed in Supplement No. 2 to EAR Part 746 and if the exporter, reexporter, or transferor “knows” or “is unable to determine” whether the items will be used directly or indirectly in Targeted Energy Sector Activities.
- Separately, exports, reexports, or in-country transfers of any items subject to the EAR to five (5) Russian companies added to the EAR’s Entity List require a BIS license if the exporter, reexporter, or transferor “knows” or “is unable to determine” whether the items will be used directly or indirectly in Targeted Energy Sector Activities.
For more details about the Ukraine-related export control measures that apply to Targeted Energy Sector Activities as well as other export control measures in place, please see our previous blog posts. Issuance of New FAQs For a variety of reasons, the export controls measures that apply to Targeted Energy Sector Activities have been a source of confusion within the export community. BIS has provided limited informal advice on a number of relevant topics, but the issuance of these FAQs marks an important step in clarifying the scope and application of these export control measures. Clarification of the Scope of Licensing Requirements Targeting Shale Oil Activities One of the more vexing questions raised by these export controls has been the scope of licensing requirements provided under EAR § 746.5 and the Entity List that apply to the “exploration for, or production of, oil or gas in . . . shale formations.” Prior informal advice from BIS representatives suggested that the agency might interpret these licensing requirements to apply to any exploration or production activities that would “touch” shale. In FAQ #11, however, BIS has confirmed that these licensing requirements do not apply to exploration or production through shale to locate or extract crude oil or gas in reservoirs. Rather, these licensing requirements apply strictly to exploration for, or production of, oil or gas from a shale formation. It is also worth noting that, contemporaneously with BIS’s issuing these FAQs, OFAC issued a new FAQ on its website that provides an interpretation of the term “shale projects.” (The term “shale projects” is relevant to Directive 4 of OFAC’s Sectoral Sanctions. For more information about Directive 4, please see our previous blog post.) OFAC’s new FAQ is consistent with the position found in BIS’s FAQ #11 on the scope of US measures targeting shale-related activities. Other Key Clarifications Aside from explaining the scope of licensing requirements related to shale, some of the more significant FAQs include confirmation of the following points:
- EAR § 746.5’s licensing requirement does not apply to exports, reexports, or in-country transfers of items with Schedule B numbers that are similar (but not identical) to the 53 Schedule B numbers identified in Supplement No. 2 to EAR Part 746 (see Russia Sanctions FAQ #6);
- EAR § 746.5’s licensing requirement does apply to parts, components, accessories, and attachments for use in or with items classified under the 53 Schedule B numbers (see Russia Sanctions FAQ #7);
- EAR § 746.5’s licensing requirement does not apply to items that are transshipped through Russia if the items are intended for use in oil and gas activities in third countries (see Russia Sanctions FAQ #23); and
- For purposes of the de minimis calculation for items manufactured outside of the United States and intended for reexport to Russia, content that would require a license due to the end-use/end-user based provisions of EAR § 746.5 or the Entity List should not be considered “controlled” content (see Russia Sanctions FAQ #27).
The above points represent only a portion of the information provided in BIS’s 30 new FAQs, and these FAQs address a range of issues and scenarios. Accordingly, companies exporting, reexporting, or transferring items subject to the EAR to Russia should review these FAQs to confirm whether they impact the companies’ compliance obligations under the EAR. By Kerry B. Contini and Joseph A Schoorl This post was first published on Baker & McKenzie’s “Sanctions Update”