BIS Issues New FAQs on Entity List Due Diligence, Russia Sanctions Evasion

In one new FAQ, BIS said companies should turn away from a transaction if they suspect a firm or organization on the Entity List is using a third-party to disguise its involvement in the transaction. The agency said businesses and other companies should follow BIS’s know-your-customer guidelines and screen all parties to a transaction if it involves items or activities subject to the Export Administration Regulations. The business should also submit “all relevant information” about the transaction to BIS through a license application.

The agency said semiconductor foundries should be particularly mindful of this red flag, including any transactions in which a new customer sends design files similar to designs the foundry has received from a company on the Entity List in the past. Foundries should screen any software design files they receive “against their library of previously received design files to determine if any of these software files approximate or match the designs they have on file from a party on the Entity List,” BIS said.

This due diligence step is “especially important” for foreign foundries if the customer is located in Russia or Belarus, BIS said, or if the semiconductor being manufactured or the entity is subject to the agency's foreign direct product rules. BIS also stressed that U.S. persons working at a foreign foundry are subject to certain service restrictions “when you know it is related to certain proliferation or military intelligence concerns, even when no items subject to the EAR are involved in that support activity,” BIS said.

In another set of FAQs, BIS outlined a range of red flags relating to Russian sanctions evasion. One FAQ includes a list of commodities that are mostly likely to be illegally diverted to Russia or Belarus to aid their militaries. The items, covering more than 15 Export Control Classification Numbers, are of “special concern” because they “support the development of maritime technology, microelectronics, and other technologies that can be used to support Russia’s military and defense sector,” BIS said. Most of the items were “easily obtainable” by Russia before it became subject to strict export restrictions due to its invasion of Ukraine, BIS said, but are now subject to license requirements.

The list of items, which is not exhaustive but is based on “historical and current trends in Russia’s procurement efforts,” includes:

• Aircraft Parts and Equipment – ECCN 9A991
• Antennas – ECCN 7A994
• Breathing Systems – ECCN 8A992
• Cameras – ECCN 6A993
• GPS Systems – ECCN 7A994
• Inertial Measurement Units – ECCN 7A994
• Integrated Circuits – ECCN 3A001, 3A991, 5A991
• Oil Field Equipment – ECCN EAR99
• Sonar Systems – ECCN 6A991
• Spectrophotometers – ECCN 3A999
• Test Equipment – ECCN 3B992
• Thrusters (Marine) – ECCN 8A992
• Underwater Communications – ECCN 5A991
• Vacuum Pumps – ECCN 2B999
• Wafer Fabrication Equipment – ECCN 3B001, 3B991
• Wafer Substrates – ECCN 3C001 through 3C006.

BIS also described a number of red flags that may signal a Russian-sanctions evasion attempt. The agency said “illicit actors” usually try to buy EAR99 items -- goods that don’t generally require a license -- and will try to work with customs brokers or shippers to “obscure either the nature of the goods or their ultimate destinations, similar to procurement efforts involving other illicit goods.”

Companies should also be wary of transactions involving entities with “little to no web presence”; transactions involving a customer that ships controlled items through “possible transshipment points for export to Russia and Belarus”; customers that make last-minute changes to a transaction involving a “beneficiary” in Russia or Belarus; customers with addresses that “do not appear consistent with the business or are otherwise problematic”; transactions associated with “atypical shipping routes for a product and destination” and more.

Several countries are being used as “transshipment points” for export-controlled goods destined for Russia or Belarus, including Armenia, Brazil, China, Georgia, India, Israel, Kazakhstan, Kyrgyzstan, Mexico, Nicaragua, Serbia, Singapore, South Africa, Taiwan, Tajikistan, Turkey, the United Arab Emirates and Uzbekistan, BIS said. In some cases, the U.S. export-controlled items may be legally exported to these countries as inputs to produce other “finished goods,” BIS said. “However, further export to Russia or Belarus of those finished products and goods, potentially through additional transshipment points, may be prohibited.”