• Uncategorized

Commerce Department Promulgates New Rule Adopting Medical Device License Exception for EAR99 Exports to Russia, Belarus and Ukraine

On April 29, 2024, the U.S. Department of Commerce officially published a final rule in the Federal Register that formally incorporates a medical device license exception into the Export Administration Regulations (“EAR”) for certain commodities bound for the Russian Federation, Belarus, and occupied regions of Ukraine. 

New license exception MED—located at 15 C.F.R. Section 740.23—now authorizes the export, re-export, and transfer (in country) of certain EAR99 “medical devices” that were previously subject to the restrictive license application and review policies set forth in Sections 746.5, 746.6, and 746.10 of the EAR. For the purposes of the MED license exception, the term “medical device” bears the meaning contained in Section 201 of the Federal Food, Drug and Cosmetic Act, 21 U.S.C. Section 321, and generally encompasses “medical supplies, instruments, equipment, equipped ambulances, institutional washing machines for sterilization, and vehicles with medical testing equipment.” In addition to finished medical products, the MED exception also encompasses “parts,” “components,” “accessories” and “attachments” that are used exclusively in or with qualifying medical devices. 

While MED operates to more expeditiously facilitate the export of previously restricted commodities to the Russian Federation and adjoining areas, a number of important limitations apply—including but not limited to, a proscription that operates to forbid exporters from enhancing the Russian Federation’s military-industrial capabilities. Accordingly, EAR Section 740.23(b) collectively operates to prohibit the export, re-export, and transfer (in country) of medical devices to both “proscribed person[s]” (including military end-users) within the meaning of Section 772.1 of the EAR, and to production facilities on both a direct and indirect basis (e.g., where the exporter has “knowledge” that the commodities in question are intended to develop or produce other items). Importantly, however, the new rule clarifies that the mere assembly of a finished “medical device” in a hospital or other health care facility produced outside of Russia, Belarus, or occupied/covered regions of Ukraine for the sole purpose of utilizing the device at that facility is expressly excluded from the definition of “production” activity. 

Organizations leveraging MED to facilitate the export of medical commodities to the aforementioned geographies are obligated to undertake “verification” within the meaning of EAR Section 740.23(c). Under this procedure, the exporter of record is required to maintain a system of distribution that ensures that medical devices (as well as any parts, components, accessories and attachments) are not delivered to proscribed persons or entities engaged in the production of medical devices. The new rule additionally stipulates that the exporter maintain satisfactory evidence concerning the ongoing effectiveness of their distribution controls, which includes, but is not limited to, obtaining written affirmations from the consignee and conducting periodic “on-site spot-checks” to ensure that the commodities are being utilized as attested and that no diversion activity is occurring. Finally, the rule requires exporters to maintain records relating to the utilization of the MED exception for a period of five (5) years. 

The new license exception undoubtedly provides an accelerated pathway for medical device manufacturers and global distributors to resume exports of EAR99 commodities intended for civilian care to Russia and adjoining areas. Nonetheless, organizations availing themselves of the MED exception should continue to ensure that their due diligence processes are sufficient to mitigate the risk of conducting business, or otherwise associating with, a prohibited party, including potential military end-users and Russian Federation-based medical device production facilities. In this vein, medical device exporters must ensure that the organization’s screening process is capable of accounting for frequent changes to Entity List and other applicable sanctions list designations. As always, the utilization of end-user statements is another integral part of complying with the new MED rules, as is the inclusion of export compliance covenants, representations and warranties into any definitive agreements reached with healthcare facilities in the affected regions. Finally, organizations utilizing the new exception must also be prepared to conduct periodic on-site inspections to ensure that the activities of MED consignees conform to the letter and spirit of the new regulations.

You may also like...