US Commerce Department Highlights Export Control Enforcement Priorities
The Biden Administration’s national security priorities center on “out-competing China and constraining Russia” according to Matthew S. Axelrod, Assistant Secretary for Export Enforcement at the US Department of Commerce’s Bureau of Industry and Security (BIS), who recently spoke at an event hosted by the Society for International Affairs. He further stated BIS’s singular mission is “to enforce the nation’s export laws in order to prevent the most sensitive US technologies from falling into the hands of our adversaries.”
In his remarks, Assistant Secretary Axelrod laid out three criteria the Office of Export Enforcement (OEE) is using to track and prioritize enforcement cases in order to focus on the areas of highest national security concerns:
- Criticality of the technology: OEE is coordinating with licensing officers across the US government to determine the highest-priority items on the Commerce Control List (CCL) with a primary focus on technologies that could contribute to foreign advisory’s military outcompeting the United States. These efforts also look to identifying technologies with military applications or those that could facilitate human rights abuses.
- The end users of most concern: Enforcement actions are focused on military, intelligence and security end users in China, Russia, Iran, and other countries of concern.
- The end uses of most concern: OEE is focusing on the misuse of dual-use technology in nuclear weapons, missiles, chemical and biological weapons, advanced conventional weapons, and human rights abuses.
Assistant Secretary Axelrod also acknowledged the broader policy changes undertaken by BIS over the past year, including the export control restrictions imposed by the United States and its allies aimed at degrading Russia’s military capabilities, and the issuance of several Temporary Denial Orders (TDOs) against Russian, Belarussian and Iranian airlines, which are discussed in our previous Advisories. He also noted that BIS has a “significant number of ongoing investigations related to Russia.” As an example of such effort, he pointed to a recently unsealed indictment charging individuals and companies for violating US export controls laws by attempting to smuggle a jig grinder to Russia, which is discussed in our previous post. Assistant Secretary Axelrod also emphasized the new controls focused on restricting the use of US technology in China’s military modernization, such as the new controls on semiconductor and supercomputer items destined to China and the changes to the policy around the end-use checks and Entity List, which are also discussed in our prior Advisory.
Assistant Secretary Axelrod also highlighted the changes made to BIS’s administrative enforcement tools back in June 2022, which include:
- Imposition of higher penalties for more serious administrative violations: BIS is actively applying the mitigating and aggravating settlement guidelines found in Supplement No. 1 to Part 766 of the Export Administration Regulations (EAR) to categorize cases as “egregious,” opening the door for more severe penalties. BIS hopes to create a “level playing field” for companies with effective export controls compliance programs by aggressively imposing penalties on those that disregard the rules for an economic advantage.
- Elimination of “No Admit, No Deny” Settlements: In order for companies and individuals to take advantage of a reduced penalty in settlement actions, they must admit to the underlying factual conduct. Previously, companies and individuals could resolve allegations against them through settlements with BIS without admitting to their conduct. BIS expects this change will help companies “have a clear sense of what the company or individual did that got them into trouble” and “modify their own behavior accordingly.”
- Non-Monetary Settlement Agreements: BIS has been entering into non-monetary settlement agreements with companies and individuals when the relevant case rises above the level of a no-action letter or warning letter but is not considered “egregious.” For such cases, BIS is requiring remediation through “suspended denial order with certain conditions, such as training and compliance requirements.”
- Amended Voluntary Self-Disclosure (VSD) Process: BIS is fast-tracking VSDs with minor or technical infractions and issuing warning letters or no-action letters within 60 days of a company’s or individual’s final submission. Conversely, this allows BIS to more actively scrutinize VSDs with potentially more serious violations.
- Public Charging Letters: Pursuant to a final rule effective as of June 2, 2022, charging letters are made public once filed with an Administrative Law Judge rather than after the matter is resolved. Pre-charging letters remain private. This policy change furthers BIS’s intent to “give the export community—and the wider world—visibility into what types of violations we see occurring and what we’re doing about them.”
Based on these policy changes and continued use of export control restrictions, companies and individuals should take stock of BIS’s enforcement priorities.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.