BIS Previews Stronger Russia Export Controls, Seeing Mostly Compliance
The U.S. can take several steps to increase its export control pressure against Russia, including expanding certain restrictions to capture a wider range of end-users in Russia beyond the military, said Matt Borman, a senior official at the Bureau of Industry and Security. Borman also stressed that Chinese companies on the Entity List still have much to lose if they aid Russia, including a complete ban from U.S. exports, financing and other services.
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Borman’s comments came after the Biden administration said it’s preparing more Russia sanctions and export controls (see 2203290033), which have so far included two new foreign direct product rules, restrictions against Russian state-owned entities and military end-users, controls on oil refinery equipment and luxury goods and more (see 2202240069 and 2203110056).
BIS is specifically eyeing an expansion of existing license requirements for a broader range of items subject to the Export Administration Regulations, Borman told reporters during a call this week. “There are some categories of items that are currently only subject to restrictions if they’re going to named military end-users in Russia,” he said. “Those could be expanded to all end-users in Russia.”
Borman said the administration also is looking for more Russian companies to add to its restricted party lists, including its Entity List. BIS is reviewing entities supporting Russia’s defense industrial base, he said. “Certainly those are all possibilities,” Borman said.
He also cautioned companies on the Entity List, including Chinese firms already subject to strict licensing requirements, from thinking they have nothing to lose by helping Russia evade export controls or sanctions. The U.S. can “take actual enforcement action” against those companies, which could result in fines or jail time “if the party can be found subject to U.S. jurisdiction,” Borman said. If not, the U.S. can impose “essentially a complete ban on any kind of transactions” with that company.
“Right now, even with the foreign direct product rule or Entity List listings, there is the possibility that items could get approved through a U.S. government authorization. But if there was a violation, then that would all change,” Borman said. “It would really be a complete prohibition on not only trade, but related activities like financing and servicing.” He pointed to the U.S.’s penalties against Chinese telecommunications firm ZTE as an example; it just completed a five-year probationary period as part of a U.S. criminal case (see 2203240060).
The U.S. has discussed its Russia export controls with China’s commerce ministry, Beijing’s embassy in Washington and individual Chinese firms to explain the scope of the restrictions, Borman said. BIS also “just finished” a call alongside the U.S. Chamber of Commerce with companies in Singapore and Malaysia, which had nearly 900 participants, Borman said. “We’ve done an event with industry in China. We’ve done one with industry in [South] Korea,” he said. “We are doing significant industry outreach in the region.”
He also said the U.S. is reaching out to other countries in Asia that haven’t yet imposed strict Russia trade restrictions and that have “substantial production, testing, packaging in the electronics area” or that have “aircraft maintenance repair operation facilities.” He didn’t name specific nations.
“Countries that have those kinds of technical capabilities within their borders are among the ones that we’re continuing to discuss this issue with,” he said. “And of course, we welcome any country that can impose comparable controls.”
Although the administration is concerned China and others could help Russia evade U.S. export controls (see 2203220065), Borman said he hasn’t yet seen any evidence of industry non-compliance. “In fact,” he said, “we’ve seen the reverse.” He pointed to the hundreds of companies that have ceased operations in Russia since the sanctions were announced.
“Certainly a significant chunk of that is directly due to the restrictions,” he said. “But I think there’s also a fair amount of additional self-sanctioning, if you will, by multinational companies operating in Russia.” He said many of the world’s major businesses understand the “significant risk” they face from running afoul of U.S. and EU export controls.
He also said BIS has “quite a bit in the way of resources” to monitor compliance, including export control attaches stationed around the world conducting on-site inspections. The agency also receives tips from U.S. and foreign companies that are complying with the controls but find out their competitors aren’t.
“I think it will be relatively readily apparent if there is noncompliance, and then the task will be to sort of trace that back to its origin,” Borman said. “But so far, I think we’ve seen very substantial demonstrations of compliance.”