On August 7, 2015, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule adding the Yuzhno-Kirinskoye Field, a Russian oil and gas field located in the Sea of Okhotsk, to its Entity List, a restricted party list maintained by BIS which identifies foreign persons that engage in activities contrary to U.S. national security and/or foreign policy interests. Consequently, exports, reexports and transfers (in-country) of all items subject to the Export Administration Regulations (EAR) to this Russian field require a license from BIS. Furthermore, BIS will consider such license requests with a presumption of denial.
This prohibition means that foreign persons, as well as U.S. persons, must apply for a license from BIS to export any of the following items to the Yuzhno-Kirinskoye Field: U.S.-origin items (wherever located), certain foreign-origin items incorporating more than a de minimis amount of U.S. content or that are the direct product of certain U.S. technology or software, and items located in or moving intransit through the United States.
According to the final rule released by BIS,“[t]he Yuzhno-Kirinskoye Field is being added to the Entity List because it is reported to contain substantial reserves of oil.” In particular, the U.S. government determined that “exports, reexports, and transfers (in-country) of all items subject to the EAR” to the oil field present “an unacceptable risk of use in, or diversion to” deepwater (greater than 500 feet) oil and gas exploration or production activities in Russia—activities that are targeted by sectoral sanctions maintained by BIS and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) directed at Russia’s energy sector. Importantly, unlike other sanctions targeting Russia’s energy sector, the restrictions on the Yuzhno-Kirinskoye Field apply to all transactions involving items subject to the EAR, not just when the exporter knows or is unable to determine that the items will be used for deepwater, Arctic offshore or shale projects.
This latest action by BIS highlights the importance of screening all transactions involving Russia and Crimea to ensure that they do not involve restricted locations, end-users, end-uses or restricted persons. Furthermore, companies should expect that any exports of sensitive items or technology to Russia, particularly those related to oil or gas exploration or production, will receive high scrutiny from the U.S. government to ensure that they do not violate sectoral sanctions targeting Russia’s energy sector.