On June 29, 2022 through July 1, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) held its 35th Annual Update Conference on Export Controls and Policy (Update) in Washington, D.C. This important event featured keynote speeches by the Secretary of the Department of Commerce Raimondo, Director of National Intelligence Haines, and Commerce Department Deputy Secretary Graves as well participation by officials from the United Kingdom, European Union and Japan. Presentations detailed the increasing importance of export controls as a U.S. and global national security tool and their effectiveness in restricting Russia’s access to sensitive technologies and ability to support its military. The development of a global framework to monitor, implement, and enforce export controls against Russia and countries supporting Russia was another important theme stressed by the keynote speakers, the international delegation, and senior BIS officials. In addition to the policy updates, subject matter experts from BIS, the Department of the State, and the Department of Defense provided comprehensive updates on changes to export control regulations and licensing regimes as well as enforcement. Select highlights and takeaways from this annual conference are summarized below.
BIS 2022 Annual Update Conference: Select Highlights and Takeaways
Cooperation with Key Allies has Led to Significant Decline in Russia’s Access to Sensitive Technologies
The keynote speakers and senior BIS officials made clear that the Biden Administration remains intently focused on isolating the Russian government and military from access to U.S. and global technology and is working closely with 37 other nations towards this goal. The critical nature of strong and effective Russia-focused cooperation efforts between and among the United States, European Union (E.U.), United Kingdom (U.K.), Japan, and other key regional partner nations and their commitment to “monitor, implement and enforce the Russia sanctions” was repeatedly highlighted. BIS noted that the U.S. government estimates that shipments to Russia of critical technology semiconductor chips is down 90% compared to the previous year’s shipments due to cooperation among the E.U., U.K., Japan, and other key regional partners. Further, senior leaders from the Commerce Department repeatedly used words and phrases like “squeeze” and “isolate” Russia from any technology access and stated that BIS will “aggressively enforce” U.S. sanctions laws against Russia and Belarus. They also made clear that BIS will “err on the side of national security” when evaluating Russian access to U.S. technology and will vigorously enforce the laws against those who violate them.
BIS noted that as part of the effort to foster multilateral cooperation, U.S. government agencies, including the intelligence community, receive and provide key information to trusted countries (at both staff and senior leadership levels) around the world in Europe and Asia on the technology transfer threats posed by Russia and China. Businesses should be aware that the U.S. government may share export control information filed with BIS or another agency with allied national governments even though the information was submitted to the U.S. government as “business confidential” if BIS determines the sharing is warranted for national security purposes.
China Also Remains a Priority
While a significant portion of Update focused on Russia, BIS repeatedly stated that China remains a key concern of BIS and the U.S. government. The keynote speakers and BIS officials stated that China has demonstrated a clear intent to develop critical technologies that will allow it to become a near peer/peer nation of the United States, Europe, and Asian countries in technology capabilities. Speakers reported that China currently is seeking to further develop its semiconductor technology, quantum computing, and additive manufacturing capabilities, among others, and that China’s strong civil-military fusion is at the heart of its technology development.
Important Changes to Enforcement of the Export Administration Regulations
“Enforcement is essential to national security” was a repeated theme of BIS speakers. BIS export enforcement leadership spoke of their intention to be more “aggressive” (a term used numerous times) in the investigation and enforcement of U.S. export and anti-boycott regulations. As such, businesses should expect a stronger BIS enforcement regime in 2022 compared to previous years.
During Update, Assistant Secretary for Export Enforcement Axelrod announced four new policies and/or points of emphasis that are being implemented by the Office of Export Enforcement (OEE):
- OEE will focus additional attention and efforts on cases it considers to be egregious or “serious violations” and it will seek “serious penalties” for those matters.
- Failure to invest in an export compliance program is an aggravating factor that will result in stiffer penalties.
- OEE will no longer accept or approve “No Admit/No Deny” resolutions with companies settling cases with EE.
- Companies must now admit to the underlying conduct to receive the mitigating credit for settlement of the case.
- In certain non-serious cases, in lieu of imposition of a monetary penalty, OEE will focus settlements on ensuring remediation by imposing a suspended denial order with compliance conditions, which may include training, audits, and other compliance requirements.
- Significantly, failure to properly complete the remediation may result in implementation of the suspended denial order.
- BIS will fast track (60 day goal) resolution of “minor and technical” violations in which there has been a voluntary self-disclosure (VSD) and all other VSDs will be escalated in importance within OEE with assignment to an OEE Special Agent and an Office of Chief Counsel attorney and, where appropriate, to the Department of Justice, regardless of whether the matter has been voluntarily disclosed.
- This revised VSD policy signals to us that OEE will be issuing monetary and other penalties for more VSD matters and that monetary penalties will be higher. Further, Assistant Secretary Axelrod’s statement that referral of VSDs involving serious issues to the Department of Justice (DOJ) is clear evidence of OEE’s more aggressive enforcement posture.
- As a further note, Assistant Secretary Axelrod noted that to receive DOJ mitigation credit, the company must have submitted a VSD to the DOJ. Thus, companies should consider whether to submit a VSD to both OEE and the DOJ at the same time in instances of serious export control violations.
Assistant Secretary Axelrod also highlighted the June 2 EAR amendment mandating that all charging letters filed with an Administrative Law Judge will be made public upon filing. Assistant Secretary Axelrod did confirm that proposed charging letters will not become public upon issuance.
OEE representatives also noted that its personnel have recently visited over 500 U.S. companies regarding Russia and that it has also increased its outreach to U.S. academic research institutions on technology transfer concerns (largely China-focused). BIS leadership also reported that OEE has continued to increase its field office staffing resources in the U.S. and globally (e.g., additional export analyst resources are being sent to Asia, Europe and Canada), and OEE’s Phoenix field office is being upgraded to a full field office given the increased U.S. government focus on semiconductor technology security and the fact that the Phoenix area has a strong and growing semiconductor industry. BIS also noted that it is receiving intelligence on weapons captured in Ukraine, and in certain instances it may follow-up on the intelligence collected for export control diversion and/or violations (e.g., an example provided was that some semiconductor chips used in household appliances are being diverted for use in Russian weapon systems; and if true, BIS may contact the U.S. company that manufactured the chip to gather further information so OEE can better understand how the technology was diverted).
Updates from the Department of State’s Directorate of Defense Trade Controls
A senior official from the Department of State’s Directorate of Defense Trade Controls (DDTC) provided an in-depth update on developments related to DDTC and the International Traffic in Arms Regulations (ITAR). DDTC’s licensing volume is steady at over 23,000 licenses and over 150 Commodity Jurisdictions (CJs) in the past year and average processing times of 47 days. Also, 18% of license applications are Returned Without Action. DDTC announced that an “Open General License Pilot Program” to be released soon by Federal Register notice will be similar to the U.K. open general export license (OGEL) program under which exporters can self-certify and utilize an OGEL. This program will be available for exports to the United Kingdom, Australia, and Canada. DDTC also stated that a proposed rule moving all ITAR exemptions to one section will be coming out soon for comments, and that it is working through the comments revising the definition of U.S. Person for deemed export purposes and expects to release a final rule in the coming months. Additional announcements included discussion of the revised definition of defense service and a reminder of the September effective date of the reorganization of the definitions in part 120 of the ITAR.
Export controls have become an important and popular national security and foreign policy tool for the United States and our allies and we expect to see new controls continue to be implemented, monitored, and enforced in various areas, including related to Russia, China, newly controlled technologies, and military end-uses and end-users. We also expect to see an increase in cases being referred for criminal prosecution as well as a significant increase in administrative export enforcement cases. With the monetary penalty for an administrative violation of the EAR now over $330,000, the revised VSD policy, and the long-standing strict liability basis for administrative cases, it is clear that there has never been a more important time to comply with U.S. export controls and ensure that your company has a properly tailored written compliance program that is fully implemented.