More Russia-Related Export Control Guidance Needed, Law Firm Says
A lack of guidance from the Bureau of Industry and Security on its recent Russia-related foreign direct product rules is creating compliance “chaos” for companies operating in the region (see 2203070039), Torres Trade Law said in an April alert. The firm said businesses have been “left to fend” for themselves “when it comes to compliance with the new FDP rules,” partly because BIS hasn’t yet published any enforcement actions or settlements for either rule.
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Because companies aren’t yet sure how BIS will handle violations and impose penalties, many large, multinational companies have turned to the “conservative option” of suspending all sales to Russia, Torres Law said. The firm specifically pointed to lead chip producer Taiwan Semiconductor Manufacturing Company, which has suspended all direct sales to Russia and to third parties known to supply products to Russia.
“If you are a non-U.S. company and are not certain that your foreign-produced items are not the product of U.S.-controlled software or technology,” the firm said, “it is safer simply to not sell them to Russia or Belarus.” A BIS spokesperson didn’t comment.
Although this “extreme” option may avoid risk, it also “cuts off what could be a major revenue source for some companies,” Torres Law said. But when companies weigh their revenue loss against potential enforcement actions from BIS or other agencies -- including criminal penalties, denial of export privileges and secondary sanctions -- Torres law said, the revenue dip “may simply be a cost that companies have to eat if they wish to remain compliant as long as the sanctions remain in place.”
Companies may instead decide to “conduct as thorough of an audit as possible” of its supply chain and business partners to figure out if it’s dealing in U.S.-origin technology. It may be “relatively easy” for some non-U.S. companies to audit their operations, but for others “whose supply chains are inextricably global,” it may be more difficult, Torres Law said. Those companies may want to ask suppliers to certify in statements that their products are free from U.S. software or technology, the firm said.
“This is not a perfect solution, and may require taking suppliers’ words at face value,” Torres Law said. “However, in the absence of any other insight into business partners’ supply chains, it is one possible piece of evidence documenting due diligence in compliance with applicable laws and regulations.” The firm said BIS likely would consider that step as a mitigating factor in any enforcement action or penalty.
But the firm also said it’s “difficult to say how much consideration will be given to supply chain due diligence” in a potential settlement given that BIS hasn’t published any settlements related to its FDP rules. “Having a robust compliance program in place is always a good recommendation when it comes to dealing with BIS export regulations,” Torres Law said.