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.