In a recent report, the Department of Commerce’s Office of Inspector General concluded that the Bureau of Industry and Security’s export license approval process was adequate in reducing the risk of controlled items being inappropriately approved for export to China for potential use to support China’s military advancement. However, the report also found that BIS has not minimized the risk of the unauthorized release of controlled technologies and software to China.
According to the report, China’s military-civilian fusion strategy aims to develop the most technologically advanced military in the world by 2049. China is implementing this strategy by developing and acquiring key technologies, including quantum information sciences, robotics, semiconductors, aerospace technologies, biotechnology, and artificial intelligence, many of which have military and civilian applications. China uses imports, foreign investments, commercial joint ventures, mergers and acquisitions, and industrial and technical espionage to achieve its military modernization goals.
The OIG found that BIS licensing officers’ actions during the license approval process were adequate in reducing the risk of controlled items being inappropriately approved for export to China. OIG reviewed 76 of the 17,801 license applications approved between Oct. 1, 2017, and Sept. 30, 2022, for items exported to China and found that none of them were approved contrary to the Export Administration Regulations.
However, effective Oct. 7, 2022, BIS and other agencies implemented a policy excluding certain deemed exports and reexports from certain licensing requirements, meaning U.S. companies are not required to obtain an export license before releasing technologies and software source code related to U.S.-controlled advanced computing and semiconductor manufacturing items to Chinese nationals in the U.S. According to the report, the agencies based that exclusion on their conclusions that U.S. companies’ innovation and technological leadership could be impaired if they were subjected to deemed export licensing requirements and that companies have an incentive to establish internal controls because an unauthorized release could impair their viability and lead to criminal or administrative enforcement actions.
OIG states that while it did not take issue with the exclusion decision itself, that decision does not change BIS’ responsibility to enforce the prohibition against unauthorized release of controlled technologies and software to China. However, BIS has declined to act on a previous OIG recommendation to develop a mitigation plan to help minimize this risk, apparently on the belief that companies’ internal controls and the agency’s outreach and education efforts are sufficient. Noting that BIS “does not have a program that assesses the effectiveness of the companies’ internal processes” or any other “assurance that U.S. companies’ internal control programs are in place and working effectively,” OIG is reiterating its recommendation and requesting that BIS respond within 60 days with a related action plan.
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