Assistant Secretary for Export Enforcement Matthew Axelrod announced four new Enforcement Initiatives at the 2024 Update Conference on Export Controls and Policy.
In his plenary address, Mr. Axelrod introduced new guidance for the Freight Forwarder community, an updated compendium of enforcement examples, an antiboycott blacklist, and enhanced outreach to manufacturers and distributors of restricted good discovered on the battlefield in Ukraine.
[remarks edited for brevity]
"Today, I’m announcing four new updates and policies to help further drive front-end compliance with our rules.
First, this morning, we published updated Freight Forwarder Guidance and Best Practices on our website. Over the past year, we met with trade associations, consolidators, and others within the global supply chain to discuss issues specific to the freight forwarding and express carrier communities. The updated guidance provides an overview of the roles, responsibilities, and best practices for freight forwarders in export transactions. It includes red flags specific to freight forwarders and exporters, as well as a discussion of how the antiboycott regulations apply. [11973]
Second, we’ve published on the new BIS website an updated version of “Don’t Let This Happen to You,”our compendium of case examples highlighting our criminal and administrative enforcement efforts. Don’t Let This Happen to You was last updated in October 2022, and as I just mentioned, we’ve had a number of significant enforcement actions since then. As its title implies, the publication provides useful illustrations of what not to do, of the type of conduct that gets companies in trouble. [11974]
Third, we modified the boycott reporting form last year and now require those reporting boycott requests to list not just the requesting country but also the identity of the actual requesting party. With this modification to the form, we’ve been able to compile a list of entities who have been identified in these reports as having made a boycott-related request.
Today, we are publishing that list on our website as a resource for companies, financial institutions, freight forwarders, and others. We want to help you comply with our antiboycott regulations. By publishing this list, we aim to raise awareness of the sources of past boycott requests, facilitate fulfillment of the antiboycott reporting requirements, and deter foreign parties from imposing – and U.S. parties from acquiescing to – boycott-related requests and conditions. We encourage you to diligently review transaction documents from all sources, but especially transaction documents with these parties, given that they’ve been identified by others as a source of boycott requests. [11967]
And fourth, we’re taking additional steps to help combat the shipment of Western components into Russia, where they’re being used in missiles and drones. Last year, we initiated an effort to identify customers of U.S. companies and distributors within supply chains that were continuing to ship high-priority items to Russia.
We then sent the U.S. companies “red flag” letters identifying specific customers of theirs who had been identified in customs data as continuing to export to Russia. We encouraged the companies receiving those letters 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.
We’ve now gone further and are sending information from these commercially available 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. The datasets list parties in third countries that have continued to sell dual-use items to Russia.
In the last several weeks, we’ve sent letters to more than 20 American companies, each containing a list of more than 600 foreign parties identified in the datasets. In those letters, we’ve requested that the American companies voluntarily stop shipping to these parties due to the high risk of transshipment to Russia. That’s in addition to the work our Under Secretary has been doing with his counterparts from the Departments of State and the Treasury – reaching out directly to senior leaders at U.S. companies to discuss further steps they can take to help prevent their products from ending up inside Russian weapons.
"Taking a shortcut to finalize a sale is also not worth it. Profit cannot be the sole consideration. We need industry to prioritize compliance with our export rules – because the stakes have never been higher.
"Effective compliance is the first component of effective enforcement. It’s the compliance programs that you build that identify and manage risk with new or existing customers, suppliers, and distributors. It’s the time, money, and effort that you put into your compliance programs that stop sensitive U.S. technology from going to our adversaries.
"Our goal is to encourage and incentivize investment in compliance on the front end, while also emphasizing the financial and reputational cost of facing an enforcement action on the back end. Sometimes, for companies to be convinced that it’s worth it to invest in compliance on the front end, they need a reminder of the potential consequences of what can happen to them on the back end when they fail to make that investment and they’re then facing a significant enforcement action.
Starting with front end compliance, we’ve conducted extensive outreach to educate industry and academia about our policies and procedures, as well as the trends we’re seeing. With regard to Russia, for example, we’ve published best practice guidance, including a sample end-use certification form, for exporters to use to help prevent diversion of high-priority “battlefield items,” like microelectronics and ball bearings, to the Russian war machine. We’ve also conducted over 800 outreaches to the exporting community about the new restrictions.
More broadly, we’ve issued more than a dozen advisory notes, guidance documents, and alerts in coordination with other government agencies like the Departments of Justice, the Treasury, Homeland Security, and State.
Just a few weeks ago, for example, we published a tri-seal advisory with the Departments of Justice and the Treasury on the applicability of our respective controls and laws to non-U.S. entities. The advisory makes clear that parties outside the United States are not exempt from U.S. export controls or BIS enforcement when it comes to reexporting items subject to our regulations.
We have also published multi-agency sealed documents on voluntary self-disclosures, the transfer of goods in the maritime environment, Russian evasion tactics, and Iran’s unmanned aerial vehicle-related (UAV) activities.
In addition, we’ve issued joint alerts with the Financial Crimes Enforcement Network, or FinCEN, identifying evasion red flags and urging financial institutions to be vigilant against efforts by those who seek to evade export controls.
We even published an industry advisory co-authored by the governments of five different allied countries – Canada, the United Kingdom, Australia, New Zealand, and the United States – that together comprise the “Export Enforcement Five,” or “E5,” a partnership committed to formal coordination on export enforcement. This “quint-seal” advisory, the first of its kind, amplifies the importance of the high-priority items that Russia is using in its weapons systems, as well as the need for companies to apply a risk-based approach to export compliance.
For the academic community, we’ve gone a step beyond guidance documents. Over the last year, we expanded our Academic Outreach Initiative from 20 to 29 universities. The Initiative is designed to help academic institutions maintain an open, collaborative research environment in a way that also helps protect them from national security risk.
In addition, we’ve updated our enforcement policies to help drive compliance, including our policies on voluntary self-disclosures (VSDs). Last April, we clarified our VSD policies with the goal of driving additional disclosures of significant possible violations of the Export Administration Regulations (EAR).
When a company thinks about whether or not to disclose an apparent violation, we want them to consider two additional factors: first, that a deliberate non-disclosure of a significant possible violation of the EAR is now considered an aggravating factor under our penalty guidelines; and second, that if you don’t tell us yourself, your competitor might – because we now award them future cooperation credit for doing so.
These policies are working. Since their implementation, we’ve seen increases both in the number of VSDs involving potentially serious violations and in disclosures about the misconduct of others. Specifically, we received nearly 80% more VSDs containing potentially serious violations in FY2023 than we did in FY2022. And in the year since last April’s policy announcement, we’ve garnered approximately 20% more leads based on tips we received from industry than we did during the same time period for the preceding year.
More recently, in January, we reduced the administrative burden associated with submitting VSDs for more minor or technical violations. First, we encouraged companies to bundle minor or technical violations into a single overarching quarterly submission. Second, companies can now submit an abbreviated “narrative account” for minor or technical infractions. Prior to January’s updates, most companies were conducting and submitting a full review of apparent export violations over the prior five years as part of every self-disclosure. And they were submitting significant documentation to us as well. By simplifying the disclosure process for minor or technical violations, we’re encouraging companies to focus their resources on the more serious violations, where we continue to recommend a thorough review for the preceding five years.
Mitigating national security risk costs money, one way or the other. We’d much prefer that you spend that money investing in compliance on the front end rather than paying it in fines on the back end. That way, you minimize the likelihood of harm – both to your reputation and to our national security. But either way, it’s going to cost something.
Lest you be tempted to dismiss this as just “tough talk,” last year saw our highest number ever of convictions, temporary denial orders (TDOs), and post-conviction denial orders. And you can expect our rapid enforcement tempo to continue.
Since the last Update conference, we launched the Disruptive Technology Strike Force with the Department of Justice to protect a prioritized group of advanced technologies, such as artificial intelligence, from illegal acquisition and use by nation-state adversaries like Russia, China, and Iran. Strike Force agents and prosecutors are supported by an interagency analytical effort, comprised of analysts from BIS, FBI, HSI, and the Defense Criminal Investigative Service (DCIS).
In its first year, the Strike Force successfully charged 14 cases alleging sanctions and export control violations, smuggling conspiracies, and other offenses related to the unlawful transfer of sensitive technology to Russia, China, and Iran. Beyond the criminal cases, the Strike Force issued TDOs to cut off defendants’ access to controlled items and contributed to numerous parties being placed on the Entity List and the Treasury Department’s Specially Designated Nationals and Blocked Persons List.
Speaking of Treasury, our work has benefitted from leads generated out of Suspicious Activity Reports (SARs) filed with FinCEN. Whereas financial institutions previously had no systematic way to indicate suspected export control violations when filing SARs, FinCEN has now created two “key terms” for institutions to use – one for Russia diversion and one for export control evasion globally.
To date, we have reviewed over 700 filed SARs, and we have been able to action more than 100 of those filings in various ways, including by sending leads to our enforcement agents, advancing existing cases, and developing Entity List packages.
Internationally, our Export Control Officers continue their work to increase enforcement capacity across like-minded countries. We’ve enhanced collaboration with the Canada Border Services Agency by stationing a new Export Control Analyst in Ottawa and with the European Union’s (EU’s) Anti-Fraud Office, or OLAF, where our new data-sharing arrangement provides us visibility of how U.S. exports are moving through the 27 EU member states. From headquarters, we’re meeting monthly with our E5 and G7 partners to exchange information about Russian diversion tactics to identify end-use check targets and enforcement leads.
Since last Update, we’ve also enhanced our antiboycott enforcement efforts to ensure that U.S. companies are not used to support unsanctioned foreign boycotts, most notably the Arab League Boycott of Israel. In October 2022, we raised our penalties and instituted a requirement that companies entering into settlement agreements for antiboycott violations admit to a statement of facts outlining their conduct. Last July, we announced a renewed focus on foreign subsidiaries of U.S. companies and noted that we would explore additional ways to deter foreign parties from issuing or making boycott requests. We also modified the boycott reporting form to require submitters to indicate the identity of the requesting party.
Again, I'd much rather you comply with the export rules on the front. Better for you, since you don't want your product found on the battlefield and Ukraine or your technology used by an authoritarian government to repress its population. And it's better for us because we don't want your technology or product being used that way either.
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