BIS Settlement Highlights Russia Export Control Risks For EAR99 Items And Third-Country Transactions

Key Takeaways

• EAR99 does not mean license-free. Items classified as EAR99 still require a BIS license for export to some destinations, end-users, and end-uses.
• Restricted-party screening is only part of export compliance. A clean screening result does not eliminate the need to evaluate destination-based and product-specific controls.
• Red flags must be resolved before a transaction proceeds. Bank warnings, changes to shipping documents, third-country payment arrangements, and requests to route transactions through intermediaries can create significant export control risk.

On August 24, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced a $1 million settlement with Ohio-based Container Manufacturing Ltd. (CML) to resolve allegations that the company exported restricted industrial parts to Russia without authorizations required under the Export Administration Regulations (EAR). According to BIS, the violations occurred between March 2023 and March 2025, and included parts valued at approximately $265,000. Notably, two of the shipments involved violations made with knowledge, which may explain a penalty amount nearly four times the value of the underlying transactions.

CML Exported Equipment and Parts to Russia

CML manufactures equipment and replacement parts used in the production of aluminum beverage cans. Before Russia’s invasion of Ukraine, CML had a relationship with the Russian subsidiary of a U.S. company. After that U.S. company exited Russia in 2022, a Russian company acquired the plant and equipment and became CML’s customer.

The settlement documents indicate that CML periodically screened its new Russian customer against the U.S. government’s prohibited and restricted parties lists, and those searches apparently did not produce any matches. As BIS makes clear, the absence of a screening list match did not mean that the transactions were authorized.

Among other restrictions that BIS implemented following Russia’s invasion of Ukraine in February 2022, BIS established a list of industrial goods that, based on their Harmonized Tariff Schedule (HTS) code, require a license for export, re-export, or transfer to or within Russia or Belarus. (The list is at Supplement No. 4 to Part 746 of the EAR.) Importantly, the list includes many items that are covered under the lightly-controlled export classification of EAR99.

Certain CML products covered under EAR99 also are covered by HTS codes that are included on the list and thus require a BIS license for export to Russia. As BIS itself explains in its guidance on classifying EAR99 items, as a general rule, EAR99 items can be exported or re-exported to most destinations and end-users without a license. That general rule does not apply to Russia.

CML Exported Parts to Russian Customer, Company Failed to Address Red Flags

Beginning in March 2023, CML exported replacement parts for aluminum-working machinery to its Russian customer without obtaining the required licenses. BIS alleged that the company made eight such exports through December 2024. This included four transactions routed through a distributor in the United Arab Emirates, though CML knew that the Russian company remained the ultimate recipient of the goods.

In December 2024, CML’s bank declined to process wire payments associated with the Russian customer. CML subsequently told the customer this was due to the “embargo on Russia.” In the settlement documents, BIS emphasizes that the bank’s action should have been viewed as a red flag that needed to be fully resolved before additional exports occurred.

Although CML contacted the bank and sought clarification from outside export control counsel, the company did not suspend transactions. Instead, in January 2025, CML asked its Russian customer whether it would re-issue orders in the name of one of the customer’s partners. A CML executive and controller were copied on the communication. CML proceeded with two additional shipments and subsequently received payment through a third-country distributor.

The shipping documentation also changed. Earlier transactions involving intermediaries had identified a third-country distributor as a “reseller.” For the two shipments in early 2025, shipping instructions identified a Turkish intermediary as the ultimate consignee and “direct consumer,” even though CML knew the Russian company remained the ultimate consignee and end user.

BIS Charged Certain Violations as Knowing Violations

BIS charged the 2025 transactions under Section 764.2(e) of the EAR for acting with knowledge of a violation. The EAR definition of knowledge goes beyond actual knowledge and includes awareness of a high probability that a circumstance exists or will occur. This is often referred to as “reason to know,” and may be inferred when a party consciously disregards or willfully avoids known facts.

BIS alleged that the bank warning, changes to the transaction structure, use of third-country intermediaries, and alterations to the shipping documentation collectively presented red flags that CML failed to satisfactorily resolve before proceeding. In total, BIS charged eight violations of Section 764.2(a) for engaging in prohibited conduct and two violations of Section 764.2(e) for acting with knowledge of a violation.

In announcing the settlement, BIS highlighted that CML fully cooperated with the investigation and subsequently strengthened its export compliance program, including its restricted-party and end-user screening, transaction review and escalation procedures, recordkeeping, and employee training. BIS emphasized these steps as factors that mitigated the penalty amount.

At the same time, it appears that CML did not voluntarily disclose this matter to BIS. Had it done so, it seems likely CML would have received a further reduced penalty given the incentives that the U.S. government explicitly offers to companies that make a disclosure. (For more information, see the 2023 Tri-Seal Compliance Note issued by the Departments of Commerce, Justice, and Treasury; and the March 2026 Department of Justice Corporate Enforcement Policy.)

Relatedly, the $1 million settlement is notable given that the underlying exports were valued at barely one-quarter of that amount. The settlement documents do not show how BIS calculated the penalty, but it seems likely that the violations committed with knowledge – which were the two largest dollar amount shipments – were penalized more severely than the other violations. In any event, the penalty is substantial, particularly for a small company.

Compliance Vigilance is Important Even When Exporting EAR99 Items, No Restricted Party Involvement

A few takeaways from the settlement.

First, EAR99 does not automatically mean “no license required.” Separate licensing requirements must be considered based on destination, end use, end user, or, as here, destination-specific controls tied to an item’s HTS classification.

Second, screening against restricted-party lists is necessary but not sufficient. CML periodically screened its Russian customer without finding a match, but that by itself was not adequate because the violations arose from restrictions on the goods themselves.

Finally, if doing business in and with restricted destinations such as Russia, each transaction needs to be reviewed on a case-by-case basis. The regulatory landscape is dynamic and complicated. One transaction permitted with a Russian customer may be permissible even if a similar transaction is not. Compliance processes need to marry restricted-party screening with product classification, destination analysis, end-user and end-use diligence, and licensing review.

The authors wish to thank Tris Sebesta for his contributions to this content.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.