U.S. Readies Export Controls Against Russia

Key Takeaways

• The Biden Administration is preparing new export controls that it may impose on Russia if tensions escalate further between Russia and Ukraine. 
• The measures under consideration reportedly would expand the application of the Foreign Direct Product Rule (“FDPR”) to limit Russia’s access to global electronic supplies, especially semiconductors, similar to the way in which the Administration targeted Chinese telecommunications equipment companies. 
• The measures could include export controls on various types of advanced technology and be part of a suite of economic sanctions currently being considered by the Administration and Congress. 

Background 

As concerns continue to build between Russia and the West over the situation in Ukraine, the United States, the European Union, and the United Kingdom are preparing measures that could be utilized if diplomacy is unsuccessful.  Congress is working on a sweeping sanctions bill (which we wrote about here), supported by the White House.  At the same time, the White House is readying export control measures designed to strike Russian industry.  

The Targets 

In particular, the United States is considering imposing restrictions on exports to Russia of semiconductor chips and related equipment.  Semiconductor chips are a focus because semiconductor chips cannot easily be replaced from non-U.S. sources.

The U.S. Commerce Department, Bureau of Industry and Security, has many options and threatened to use every tool as reported in press interviews.  For example, export bans could include new technologies such as artificial intelligence and quantum computing and exports to industry sectors, such as aerospace, automotive, maritime, and defense.  

The Mechanism

The Biden administration is considering the use of the FDPR to restrict the export to Russia not only of items made in the United States, but also of items (such as semiconductor chips and related equipment) that are manufactured outside of the United States using U.S.-origin technology or equipment.  This could include a chip made in Taiwan using U.S.-origin technology.  Any company wishing to sell export controlled items to Russia would require a license from the Commerce Department.  The Commerce Department used the FDPR to restrict exports of semiconductor-related items to certain Chinese telecommunications companies and is considering doing the same for Russia.    

The controls could be implemented by putting companies on the Entity List and/or issuing a regulation targeting broad sectors.  U.S. officials have said that export controls would be focused on denying Russia access to components and other downstream products that Russia cannot replace domestically or through non-U.S. suppliers.

Export controls are a powerful tool where violations can trigger criminal and/or administrative penalties, including imprisonment and substantial monetary fines.

Implementing the FDPR and other export control restrictions against Russia could be impactful, especially if other countries joined the U.S. in imposing controls.  Companies should continue to keep abreast of legal developments with respect to the potential commercial impact of sanctions and export controls. As always, Dechert is available to advise on any measures imposed on or by Russia.