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Enforcement Edge
February 7, 2024

Industry on the Front Lines of National Security: A Unique Opportunity To Shape U.S. Policy

Enforcement Edge: Shining Light on Government Enforcement

On January 9, the Department of Commerce (Commerce) declared that it would be releasing its first ever department-wide national security strategy. The announcement by Commerce Deputy Secretary Don Graves echoes a trend in the Biden administration’s national security policy: the government is recruiting the private sector in its fight against economic and technological threats to national security.

The U.S. government is no longer singularly equipped to identify and thwart threats to U.S. national security. From supply chain vulnerabilities exposed by the pandemic to technological competition over semiconductors, the private sector now plays an essential role in the modern landscape of national security threats. Because developers and exporters of novel technology have superior knowledge and visibility of the threats posed by their products, they are often in the best position to identify key vulnerabilities.

The Department of Commerce is inviting developers and exporters to help the government identify security risks — including those posed by their own technology. Grave’s remarks therefore stressed that part of the department’s forthcoming strategy is to seek public-private partnership on areas such as critical and emerging technologies, cybersecurity and data privacy, defense industrial base, supply chains, and environmental security. To further close the information gap, Graves announced that Commerce will host a supply chain data and analytics summit later this year. Graves branded this summit a “unique opportunity” to bring representatives of the private and public sectors together to identify data-sharing opportunities and gather expert input on supply chain risk assessment tools.

Grave’s announcements also make clear that the U.S. government will continue to use export controls as a tool to ensure U.S. technological leadership. The U.S. government has increasingly relied on export controls to restrict the flow of advanced technology to foreign countries of concern, including through China-focused semiconductor-related export controls. The Department of Commerce seeks to increase private-public engagement in this space through the revival of the President’s Export Council Subcommittee on Export Administration (PECSEA). This panel of outside experts will furnish advice on how to administer export controls to advance national security interests, foster U.S. foreign policy goals, safeguard commodities in short supply, and maintain technological primacy.

The announcement of the new strategy and summit marks the federal government’s latest efforts to engage and incentivize the private sector in export controls enforcement. In the past year, Commerce updated its rules around voluntary self-disclosures to encourage companies to come forward with violations of export controls regulations — either their own or those of others. The government simultaneously imposed unprecedented penalties on violators of those regulations. Commerce’s Bureau of Industry and Security fined Seagate Technology US$300 million for shipping millions of hard drives to China’s Huawei, the largest standalone administrative penalty in bureau history. Forecasting even stiffer penalties for future violations, Assistant Secretary for Export Enforcement Matthew S. Axelrod suggested that this unprecedented fine would amount to a mere down payment on future enforcement actions and warned of more to come in 2024.

The new national security strategy can be expected to expand on this carrots-and-sticks approach to export controls enforcement, creating further incentives to work with government to identify violations while intensifying the penalties for noncompliance. Through the data and analytics summit and the revival of PECSEA, the government also is forging more direct avenues for private sector engagement on export controls administration and other national security issues. The new strategy will distill the architecture and priorities of the new export controls regime and clarify the government’s expectations of the private sector.

Companies soon will need to choose how they wish to posture themselves vis-à-vis the government. Some may proactively engage with the government on key national security issues, while others may elect to wait and see how their peers and competitors react. Either way, companies should anticipate the release of the strategy, as it will clarify this administration’s approach to the new national security paradigm.

For any questions about the forthcoming strategy or other export control issues, please contact the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations or Export Control and Sanctions practice groups.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This blog post 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.