Senior officials with the Bureau of Industry and Security announced recently a number of enforcement, compliance, and regulatory changes that reflect the agency’s growing responsibilities, particularly with respect to keeping sensitive items out of the hands of China and Russia. For more information on how these changes may affect your business, please contact attorney Kristine Pirnia at (202) 730-4964 or via email.
Enforcement
Under Secretary of Commerce for Industry and Security Alan Estevez outlined a change in the nature of U.S. export controls that BIS initiated in October 2022 with “sweeping, strategic, country-wide controls on key types of critical and emerging technologies.” This approach identifies strategic sectors and items and sets clear lines based on technological capabilities, he said, which “is a more durable and effective approach than focusing solely on particular entities and case-by-case license reviews.” Early evidence suggests these controls are having an impact, particularly by imposing constraints on China’s high-performance computing capacity.
BIS is also evolving its approach to export controls more broadly and adding “new, non-export control tools to [its] toolbox,” Estevez said. For example, BIS is looking at export controls from a more strategic perspective by examining issues such as specific national security or foreign policy objectives, impacts on U.S. technological leadership, and enforceability. The agency is also engaging more with international allies and partners and prioritizing efforts to develop shared threat perceptions and improve export control enforcement. Finally, BIS is employing methods other than export controls “to advance national security from other angles,” such as using survey and reporting authorities to gather information on the use and sourcing of China-manufactured legacy chips in the supply chains of critical U.S. industries as well as the training of large artificial intelligence models.
Assistant Secretary for Export Enforcement Matthew Axelrod added that BIS is “committed to implementing more aggressive and effective ways to hold companies that don’t comply accountable.” For example, BIS increased the negative consequences of not filing voluntary self-disclosures, which Axelrod credited for a nearly 80 percent increase in the number of VSDs containing potentially serious violations that were submitted in 2023. BIS also registered in 2023 all-time highs in the number of convictions, temporary denial orders, and post-conviction denial orders.
Compliance
However, both Estevez and Axelrod said BIS is expecting more from exporters on the front end because “effective compliance is the first component of effective enforcement.” Stating that “traditional due diligence is not sufficient,” particularly for companies with complicated distribution networks, the officials said BIS is “asking the private sector to step up more than it has” by prioritizing compliance with export rules.
To aid in that effort, Axelrod said BIS is committed to implementing “new and innovative ways to help companies comply,” including the following.
- BIS has published on its website an updated guidance that provides an overview of the roles, responsibilities, and best practices for freight forwarders in export transactions, includes red flags specific to freight forwarders and exporters, and discusses how the antiboycott regulations apply.
- BIS has also published on its website an updated version of “Don’t Let This Happen to You,” a compendium of examples of the agency’s criminal and administrative enforcement efforts that “provides useful illustrations of … the type of conduct that gets companies in trouble.”
- BIS has modified the boycott reporting form to require identification of not just the requesting country but also the requesting party, which has allowed the agency to compile and publish a list of such entities to serve as a resource for companies, freight forwarders, financial institutions, and others.
- BIS has been sending U.S. companies “red flag” letters identifying specific customers of theirs who have been identified in customs data as continuing to export to Russia and is encouraging those companies both to use heightened due diligence for their identified customers and to further augment their export screening efforts by purchasing commercially available datasets of Russian imports and screening against them as well.
- BIS is sending information from those datasets directly to the U.S. manufacturers and distributors who make and sell products that continue to be found in recovered missiles and drones inside Ukraine and requesting that they voluntarily stop shipping to the identified parties.
Regulatory
Assistant Secretary of Commerce for Export Administration Thea Rozman Kendler said BIS’ top priority, both currently and likely for years to come, is “using export controls to proactively address” the threats posed by “China’s military modernization and Russia’s hegemonic efforts.” Toward that end BIS plans to publish soon proposed rules implementing statutory authority related to export controls on militaries, intelligence organizations, and security services.
BIS is also reorganizing internally to better enforce export controls. The agency has created, and is in the process of hiring individuals to fill, two new deputy assistant secretary positions – one for strategic trade (licensing functions, outreach, and training) and one for technology security (Section 232 proceedings, controls on emerging and foundational technologies, foreign technology analysis, and research efforts designed to help assess the effectiveness of U.S. export controls). A new principal deputy assistant secretary will oversee these positions as well as a new International Policy Office, which will lead an increasing focus on engaging with foreign partners to address evolving threats. Further, the Munitions Control Division has been moved to the Office of National Security and Technology Transfer Controls under the DAS for Strategic Trade.
In addition to making it tougher to export to countries of concern, BIS is working to make it easier to export to friendly nations. A final rule on license exception STA (strategic trade authorization), expected this summer, will facilitate innovation with trusted partners and free up licensing resources to focus on higher-risk transactions. BIS is also considering ways to streamline trade controls with the United Kingdom and Australia to reflect the tighter export controls and technology protection measures they have adopted as part of the Australia-U.S.-UK enhanced security partnership.
Moreover, BIS is “working through different scenarios” to see how to expand utilization of authorization VEU (validated end-user), which allows designated companies to receive advanced technology exports without waiting for suppliers to obtain a BIS license, does not have an expiration date, and can be made available to re-exporters. The VEU program is currently limited to India but Kendler suggested that expanding it could compliment ongoing “friendshoring, diversifying, or derisking” efforts by companies with multinational operations.
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