Medical device companies have a new regulatory pathway for
exporting certain U.S.-origin medical products to Russia, Belarus,
Crimea and other regions of Ukraine (i.e., the so-called Donetsk
People’s Republic and Luhansk People’s Republic ,
collectively “Russia, Belarus and the occupied regions of
Ukraine.”1 As of April 29, the Department of
Commerce’s Bureau of Industry and Security (“BIS”)
implemented a new License Exception “MED” for EAR99
medical devices and related parts, components, accessories and
attachments destined for Russia, Belarus and the occupied regions
of Ukraine.2 License Exception MED is billed as action
to authorize medical exports to these destinations that have
previously required BIS licenses but are being “regularly
approved” by the agency and “advance U.S. national
security and foreign policy interests.” However, a closer
examination of License Exception MED suggests that companies
seeking to avail themselves of this authorization will need to meet
heightened compliance thresholds, including those potentially
beyond what has been typically required in prior BIS export
licensing.
Background
Since Russia’s invasion of Ukraine in February 2022 and most
acutely since May 2023, the vast majority of medical devices
subject to U.S. export controls (both low-tech EAR99 items and more
advanced items described on the Commerce Control List) have
required a BIS license for export, reexport and in-country
transfers to Russia, Belarus and the occupied regions of
Ukraine.3 The licensing requirements were reportedly
grounded in BIS’ concerns over U.S. medical products being
diverted to support the Russian and Belarusian military and
Russia’s chemical and biological weapons programs. In contrast,
medicines, as opposed to medical devices, have remained outside of
these enhanced export licensing requirements, except to military
end users.
Under the May 2023 rules, unlike the general policy of denial
for Russia- and Belarus-related license applications, medical
devices that “meet humanitarian needs” receive licensing
review on “a case-by-case basis to determine whether the
transaction in question would benefit the Russian or Belarusian
government or defense sector.”4 BIS subsequently
issued detailed guidance outlining strict parameters for the types
of license applications it would consider, consistent with this
policy.5 In parallel, the U.S. Department of the
Treasury’s Office of Foreign Assets Control (“OFAC”)
has had in place since February 2022 a General License
(“GL”)—now in its third issuance, GL 6C—which
provides broad authorizations for the vast majority of humanitarian
trade to Russia, including with otherwise sanctioned entities.
Both BIS’ and OFAC’s policies in this regard have been
driven by long-standing, bipartisan policy to support humanitarian
trade pursuant to the Trade Sanctions Reform and Export Enhancement
Act of 2000 (“TSRA”).6 However, the increase
of BIS licensing requirements over the past year, while not
inconsistent with TSRA, appeared misaligned with OFAC’s
position.7 The practical result was that BIS was
inundated with license applications for medical devices, beyond the
number expected (approximately 4,0008 versus the 125
anticipated9), which appears to underlie the decision to
create License Exception MED.
License Exception MED: Requirements
The new License Exception MED authorizes the export, reexport or
in-country transfers of EAR99 (i.e., low-tech) medical
devices10 and parts, components, accessories and
attachments to Russia, Belarus and the occupied regions of Ukraine.
The parts, components, accessories and attachments themselves must
be EAR99 and used exclusively in or with such EAR99 medical
devices.
Importantly, License Exception MED may not be used to ship
medical devices and accompanying items as discussed above to a
“proscribed person” or to a “production”
“facility.”11 A “proscribed person”
is a person who is subject to EAR restrictions, such as military
end users, those on the Entity List or other denied
persons.12 Notably, guidance accompanying the rule
indicates that License Exception MED “may not be utilized to
help support the Russian industrial base”—including the
“Russian medical device industry”—or to
“enable ‘proscribed persons’ or entities to receive
eligible items.”13 License Exception MED cannot be
used for covered items destined for a production facility or in
cases where the exporter has “knowledge” that the items
are intended to develop or produce items, with a limited carveout
for assembling devices in a hospital or other health care facility
for the “sole purpose” of using that medical device
within that facility.14
License Exception MED calls for significant back-end
verification mechanisms for parties to avail themselves of its
conditions. While BIS does not mandate specific measures per
se, “illustrative examples” in the rule guidance
indicate that the obligations can be met by “obtaining
certain information from a consignee” such as
“affirmations or other documentation” or
“performing periodic on-site spot-checks…by staff
of the exporter, reexporter, or transferor; an internationally
accredited auditing firm; or an internationally recognized
non-governmental humanitarian organization.”15
Finally, the rule contains a record-keeping obligation for
activities undertaken under License Exception MED, including
“records of verification,” for five years and to make
them available to BIS for review or inspection upon request.
Key Takeaways
While License Exception MED provides a path to ship medical
devices to Russia, Belarus and the occupied regions of Ukraine
without first obtaining a BIS export license, it contains complex
eligibility requirements to do so.
- First, companies will need to carefully consider whether their
items meet BIS’ definition of EAR99 “medical
devices.” Specifically, such items must be designed for
medical treatment or the practice of medicine and do not include
items for medical research.16 Similarly, the rule also
is highly prescriptive as to what types of parts, components,
accessories and attachments are eligible for License Exception MED,
including requiring that they be intended solely for the
replacement of broken or nonoperational items or such items
“necessary and ordinarily incident” to preventive
maintenance and not exceed the number of such items already in the
respective market. Complying with these requirements will require
appropriate controls and strong inventory management. - Second, companies will need to conduct due diligence to ensure
that parties who receive covered items do not fall within the
definition of a “proscribed person.” While the rule
explicitly prohibits the conveyance of medical devices to those on
the Entity List and Military End Users list, it also uses the
language “including but not limited to” in the context of
“military end users.” Given the opaqueness of ownership
structures and business relationships in Russia, Belarus and the
occupied regions of Ukraine, multilevel diligence screenings and
enhanced due diligence of parties may be necessary to ensure
compliance with these requirements. - Third, License Exception MED includes additional “know
your customer” requirements, prohibiting exporters,
reexporters or transferors from conveying covered items with the
“knowledge” that the item is intended to develop or
produce items. “Knowledge” of a circumstance occurs where
a company may have either positive knowledge that a circumstance
exists or an “awareness,” either actual or inferred,
“of a high probability of its existence or future
occurrence.”17 Given the broad definition of a
“production” “facility,” this “know or
reason to know” standard will require enhanced due diligence
of business partners to ensure items conveyed pursuant to License
Exception MED are not diverted for economic benefit to Russia,
Belarus and the occupied regions of Ukraine or for military use.
License Exception MED does have limited carveouts from this
prohibition, permitting assembly in a hospital or other health care
facility for the “sole purpose” of using that medical
device at the facility. Therefore, a company’s knowledge of the
activities of its business partners, either actual or inferred,
will be critical for compliance and for potential mitigation if
diversion were to occur. To build out a compliance program,
companies should consult BIS’ “Know Your Customer”
guidance.18 - Fourth, License Exception MED also provides key insights into
the expectations of BIS to prevent diversion of medical devices to
the prohibited end users and end uses outlined above. In fact, the
rule goes a step further by noting an affirmative obligation (i.e.,
“must maintain”) for exporters to have in place robust
back-end compliance systems and processes to be able to ensure that
the covered medical devices and accompanying items “are not
delivered to ‘proscribed persons’ or entities engaged in
the ‘production’ of any product.” As noted above,
these requirements are couched in an “illustrative” list
ranging from “affirmations and other documentation” from
business partners to “periodic on-site spot checks.” Were
an exporter to be faced with noncompliance in meeting the terms of
License Exception MED, it is challenging to determine what BIS
would ultimately find to constitute sufficient back-end compliance
measures. Apart from the basic logistical challenges of undertaking
some of these proposed measures in places like Russia, Belarus and
active war zones (which BIS has acknowledged), it is notable that
such verification requirements go beyond typical conditions in
specific licenses. - Finally, for those who may already have license applications in
process with BIS for export of medical devices to Russia, Belarus
and the occupied regions of Ukraine, we understand that there may
be two potential options. A company may continue with the license
application process, which, if it meets the conditions enumerated
in License Exception MED, would likely be approved. Second, a
company may also request a Return Without Action (“RWA”),
which means that the license application would be returned without
prejudice, allowing for utilization of License Exception
MED.19
A broader closing note here is that License Exception MED may
present a situation similar to what occurred previously with
License Exception Strategic Trade Authorization (“STA”),
which was created in the context of export control reform efforts
with the intent of similarly reducing BIS licensing requirements
for a whole host of high-tech items.20 In practice,
however, companies may not fully utilize License Exception STA as
intended due to its significant administrative and compliance
requirements.
This client alert provides a preliminary review of a complex
rule and addresses only limited aspects of the significant
restrictions that may be applicable to undertaking business
activities with Russia, Belarus and the occupied regions of
Ukraine. WilmerHale continues to monitor these developments closely
and is prepared to advise clients on how to respond.
Footnotes
1 Amendment to Existing Controls on Russia and Belarus
Under the Export Administration Regulations (EAR) Adding New
License Exception Medical Devices (MED); Corrections, 89 Fed. Reg.
33224 (April 29, 2024) (to be codified at 15 C.F.R. pts. 740, 744,
746, 762).
2 15 C.F.R. § 740.23.
3 See Implementation of Additional Sanctions
Against Russia and Belarus Under the Export Administration
Regulations (EAR) and Refinements to Existing Controls, 88 Fed.
Reg. 33422 (May 19, 2023) (to be codified at 15 C.F.R. pts. 734,
746, 750).
4 See id.
5 Russia, Belarus, and Occupied/Covered Regions of
Ukraine, Best Practices for License Applications for
Medical-related Items, Bureau of Industry and Security, Department
of Commerce (issued July 19, 2023) available at: https://www.bis.doc.gov/index.php/documents/product-guidance/3300-russia-medical-related-license-application-guidance-fpd-final-incorp-occ-and-3f-cmts-clean-071323/file.
6 See Trade Sanctions Reform and Export
Enhancement Act of 2000, 22 U.S.C. §§
7201-11.
7 See Joint Fact Sheet on Humanitarian
Assistance and Food Security: Understanding UK and U.S. Sanctions
and their Interconnection with Russia, Office of Foreign Assets
Control, U.S. Department of Treasury & Office of Financial
Sanctions Implementation, HM Treasury (June 28, 2023), available
at: https://ofac.treasury.gov/media/931946/download?inline;
OFAC Food Security Fact Sheet: Russia Sanctions and Agricultural
Trade, Office of Foreign Assets Control, U.S. Department of
Treasury (July 14, 2022), available at: https://ofac.treasury.gov/media/924341/download?inline;
Fact Sheet: Preserving Agricultural Trade, Access to Communication,
and Other Support to Those Impacted by Russia’s War Against
Ukraine, Office of Foreign Assets Control, U.S. Department of
Treasury (April 19, 2022), available at: https://ofac.treasury.gov/media/922206/download?inline.
8 Amendment to Existing Controls on Russia and Belarus,
supra note 1, at 33227 (estimating that the new License
Exception MED will result in a reduction of 3,900 license
applications being submitted to BIS annually).
9 Implementation of Additional Sanctions, supra
note 3, at 33423 (citing that the anticipated license applications
for certain items predominantly agricultural or medical in nature
will result in an estimated 125 additional license applications
submitted to BIS annually).
10 The rule applies to “medical devices” as
defined in section 201 of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 321), 15 C.F.R. § 772.1.
11 “Production” in this context is defined as
“all production stages, such as: product engineering,
manufacture, integration, assembly (mounting), inspection, testing,
quality assurance.” 15 C.F.R. § 772.1.
“Facilities” are defined as “a building or outdoor
area in which people use an item that is built, installed,
produced, or developed for a particular purpose.”
Id.
12 Id.
13 See Amendment to Existing Controls on Russia
and Belarus, supra note 1, at 33226.
14 Id.
15 Id. (emphases added).
16 15 C.F.R. at Supplement No. 3 to Part
774—Statements of Understanding, Notes to paragraph
(a).
17 15 C.F.R. § 772.1.
18 15 C.F.R. at Appendix Supplement No. 3 to Part
732—BIS’ “Know Your Customer” Guidance and Red
Flags.
19 See 15 C.F.R. § 712.8.
20 15 C.F.R. § 740.20.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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