United States: BIS Signals Aggressive Enforcement Approach To Russia-Related EAR Violations

On March 18, 2022, the U.S. Department of Commerce's Bureau of Industry and Security ("BIS")  publicly identified certain commercial and private aircraft that have entered Russia in likely violation of the Export Administration Regulations ("EAR").  BIS provided an initial listing of nearly 100 Boeing aircraft owned and/or operated by Aeroflot, AirBridgeCargo, Aviastar-TU, Azur Air, Nordwind, and Utair (in addition to one Gulfstream G650ER owned by Roman Abramovich).  Secretary of Commerce Gina M. Raimondo was quoted in the press release as stating:  "We are publishing this list to put the world on notice—we will not allow Russian and Belarusian companies and oligarchs to travel with impunity in violation of our laws."  Importantly, BIS indicated in the press release that the list of aircraft is not exhaustive and may be "updated as circumstances warrant."

The BIS press release highlights a relatively little understood but powerful provision of the EAR—General Prohibition Ten.  See 15 C.F.R. § 736.2(b)(1); § 764.2(e).  General Prohibition Ten prohibits any person from taking virtually any action with respect to any item, software, or technology, in whole or in part, that is "subject to the EAR" if that person has "knowledge" that a violation has occurred or will occur.  Specifically, General Prohibition 10 provides, in part:

You may not sell, transfer, export, reexport, finance, order, buy, remove, conceal, store, use, loan, dispose of, transport, forward, or otherwise service, in whole or in part, any item subject to the EAR and exported or to be exported with knowledge that a violation of the Export Administration Regulations, the Export Administration Act or any order, license, License Exception, or other authorization issued thereunder has occurred, is about to occur, or is intended to occur in connection with the item.

The EAR definition of "knowledge" is broad enough that it can encompass a "conscious disregard of facts known to a person and is also inferred from a person's willful avoidance of facts."  General Prohibition Ten can put companies who have knowledge of a previous violation in a difficult position between choosing to further violate the EAR or choosing to make a voluntary self-disclosure to BIS.  No License Exception or pre-existing license may be relied upon with respect to the aircraft BIS named on March 18, 2022.

The potential for violations of General Prohibition Ten related to the aircraft named by BIS arose in a  March 2, 2022 Final Rule.  That Final Rule eliminated License Exception Aircraft, Vessels, and Spacecraft ("AVS") for use with respect to aircraft registered in, owned, or controlled by, or under charter or lease by Russia or a national of Russia ("Russian-Controlled Aircraft") (although AVS paragraphs (a) and (b) remain available for use with respect to non-Russian Controlled Aircraft in Russia and Belarus).  Beginning March 2, 2022 (or March 3, 2022 in reliance on the savings clause), once a Russian-Controlled Aircraft "subject to the EAR" entered Russia, an EAR violation occurred and all subsequent transactions or activities of virtually any kind with respect to those Russian-Controlled Aircraft became prohibited under General Prohibition Ten when there is EAR-defined "knowledge" of that violation.  Such transactions might include refueling, maintenance, repair, or the provision of spare parts or services.  In addition to the basic maintenance of Russian-Controlled Aircraft "subject to the EAR" that have violated the EAR by entering Russia since March 2, 2022, all persons in and outside the U.S. are prohibited from conducting any financial transactions, to include refunds or repayment of monies collected in advance.  It is important to note that while BIS has publicly released the tail numbers and serial numbers of these aircraft, BIS does not have to make a public announcement for General Prohibition Ten to apply to an item, software, or technology previously involved in a violation.

Bottom Line...

Aviation industry manufacturers, maintenance facilities, parts resellers, and others must vigorously conduct due diligence on all transactions that may potentially involve Russian-Controlled Aircraft "subject to the EAR" or subassemblies, parts, and components originating therefrom.  Vigorous enforcement of BIS' new Russia-related export controls is ongoing and the penalties for violations are severe.

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