Assistant Secretary for Export Enforcement Matthew S. Axelrod Delivers Remarks at the Practising Law Institute’s Coping with U.S. Export Controls and Sanctions Conference

Washington, D.C.

December 9, 2024

Remarks as Prepared for Delivery

            Every morning, as I drive my car into the Commerce Department parking lot, I pass under a stone relief sculpted on the outside of the building. The relief, which depicts a life preserver on top of an anchor, bears the year 1838 and the inscription “Steamboat Inspection.” Back in 1838, steamboat disasters were common. From boiler explosions to collisions, traveling by steamboat had significant safety risks. To help mitigate those risks, Congress created the Steamboat Inspection Service, tasking it with protecting the safety of steamship crews and passengers. The Inspection Service examined the hulls and machinery of steam vessels and administered laws requiring those vessels to carry life-saving equipment. In 1903, Congress transferred the Service to the Commerce Department, then called the Department of Commerce and Labor. And until the end of World War II, when its functions were eventually transferred to the U.S. Coast Guard, steamboat inspection work was among the Department’s core functions.

            Seeing that stone relief each day reminds me just how drastically the Commerce Department’s mission has changed since the early 1900s. Today, instead of steamboats powering the American economy, it’s semiconductors. And instead of worrying about safety risks for individual steamboat crewmembers and passengers, we’re focused on national security risks shared by every American. At the Bureau of Industry and Security (BIS), my team is responsible for preventing nation-state adversaries from obtaining sensitive U.S. technologies to modernize their militaries, enable human rights abuses, and advance their weapons-of-mass-destruction (WMD) programs. We work to keep our country’s most sensitive technologies out of the world’s most dangerous hands. That world looks a lot different today than it did when the Commerce Department was first created. And so does the Department’s place in it, with BIS now playing a critical role in protecting our country’s national security. 

*          *          *

            I started at Commerce in December 2021, just two months before Russia’s full-scale invasion of Ukraine. And what I said to my team that first day rings just as true three years later: Export Enforcement, now more than ever before, is the tip of the spear when it comes to preventing sensitive U.S. technologies from being put to malign purposes by our adversaries. 

            Our enforcement authorities under the Export Control Reform Act are mighty. We have the power to investigate export violations and impose administrative and, with the support of the Department of Justice, criminal penalties. We also have the regulatory ability to impose broad controls on entities of national security or foreign policy concern.

            But our budget – aptly described by Secretary Gina Raimondo as still less than “the cost of a few fighter jets” – has not kept pace with those authorities or with the heightened importance of our mission. There were more than 32 million exports of dual-use items in 2021, the year I came on board. And we have approximately 150 enforcement agents and 40 analysts to detect and investigate exports that violate our rules. You do the math. There’s just no possible way we can protect U.S. technology through investigation alone. 

            That’s why, on my very first day, I told everyone in Export Enforcement that we needed to be strategic and intentional about how we maximize our finite resources to best meet this critical national security moment. I told them that, during my tenure, we were going to focus on three “Ps” – prioritized enforcement, profile, and partnerships. By prioritizing our enforcement, enhancing our profile, and strengthening our partnerships, I said, we can ensure that we are putting the resources we do have to their highest and best use. Those three “Ps” were our focus areas for the last three years. So, let’s take a look at how well we did executing on them.

Prioritized enforcement

            I’ll start with how we’ve prioritized our enforcement efforts. We don’t have the resources to monitor every export or investigate every potential violation. That means every investigation we choose to do actually carries with it an implicit choice not to do others. Because our resources are limited, it’s a zero-sum game. Accordingly, we’ve needed to be relentless in our thinking about how to use our finite resources to have the biggest national security impact. 

            That’s why, in February 2022, we launched the Disruptive Technology Strike Force with the Department of Justice to protect a prioritized group of advanced technologies – such as quantum computing, advanced semiconductors, and hypersonics – from illegal acquisition and use by nation-state adversaries like Russia, China, and Iran. The Strike Force brings together experienced prosecutors and agents from BIS, the Federal Bureau of Investigation (FBI), Homeland Security Investigations (HSI), and the Defense Criminal Investigative Service (DCIS) to form operational cells in seventeen different locations across the country. These agents and prosecutors are supported by an interagency analytical effort organized out of the agencies’ headquarters here in Washington, D.C. 

            Since its inception, the Strike Force has publicly charged 25 criminal cases, a 50 percent increase in such actions when compared to the prior two years. The cases charged so far range from Russian procurement networks acquiring military-grade technology, to the theft of blueprints for sophisticated missile-detection technology in support of the People’s Republic of China (PRC), to the smuggling of U.S.-origin items used in the production of unmanned aerial vehicles (UAVs) and ballistic missile systems to Iran. Just last month, for example, the work of the Strike Force led to charges against a Virginia company and two of its top executives for allegedly shipping sensitive U.S. electronics to Russia.

            The Strike Force has employed an all-tools approach. In addition to our criminal cases, we imposed a nearly $6 million administrative penalty on a Pennsylvania company for shipping items to parties tied to China’s hypersonics, UAV, and military electronics programs. We issued Temporary Denial Orders against nearly 30 entities (including airlines, freight forwarders, defense companies, and others) to cut off their access to controlled U.S. items. We worked with Treasury to add parties to their Specially Designated Nationals (SDN) list. And we nominated over 20 parties to the Entity List for their participation in the PRC’s artificial intelligence (AI) and quantum technology programs.

            At BIS, we’ve been laser-focused on countering the PRC’s efforts to leverage advanced technologies for military modernization purposes. Last month, we imposed a half-million dollar administrative penalty on a New York company for shipping semiconductor materials to an Entity-Listed Chinese company. In October, a Chinese national pleaded guilty to illegally exporting semiconductor manufacturing equipment to company placed on the Entity List for its ties to the Chinese military. Over the past few years, we’ve brought numerous enforcement actions against Chinese procurement networks, including arresting a defendant in connection with an alleged plan to steal proprietary information related to AI technology from Google and obtaining a guilty plea from a NASA contractor who secretly funneled sensitive aeronautics software to an Entity-Listed Chinese university. In another case, we charged a Belgian national with crimes related to a years-long scheme to unlawfully export sensitive, military-grade technology to the PRC. 

            Our work has similarly led to the dismantling of over a dozen separate illicit Russian procurement networks, including one led by Maxim Marchenko, a Russian national who used several Hong Kong-based shell companies to obtain large quantities of sensitive, military-grade microelectronics. Marchenko was sentenced in July to three years in prison. We’ve also targeted Iranian procurement networks, including, most recently, arresting a dual U.S.-Iranian national charged with exporting U.S.-manufactured aircraft components to Iran and, separately, indicting a father-son duo who are alleged to have exported aerospace equipment to Iran.  

            To further hone our prioritization efforts, we changed the categories of what we measure internally. More specifically, last fiscal year, we launched a new metrics initiative to track our investigative and analytic work, that is, to measure how close the fit is between our highest priorities and how we are spending most of our time. Now, for the first time ever, the annual performance plans for all of our managers include a component on how well their field office’s investigations, or leads generated by their analysts, connect to our highest-priority areas. More specifically, we’ve internally identified items of greatest concern – like the disruptive technologies the Strike Force prioritizes; end users of greatest concern – like adversarial military, intelligence, and security agencies; and end uses of greatest concern – like WMD, military modernization efforts, and human rights abuses. We now track how many of our leads and cases are tied to one or more of these highest-priority areas. This way, we can better ensure that our agents and analysts are spending the bulk of their time where it can have the biggest impact. And it’s working. Last year, we increased the percentage of our cases that involve a prioritized technology, end user, or end use from 70% to more than 85%, with over 95% of our leads tying to one or more of these categories as well.

            We also strengthened our administrative enforcement program. We changed our procedures – to make our charging letters public when filed, to eliminate “no admit, no deny” settlements, and to raise the penalty amounts for serious violations. We clarified our voluntary self-disclosure policy to specify that if a company knows of a significant potential violation and affirmatively decides not to tell us, then that lack of disclosure will be an aggravating factor in any subsequent penalty calculation. A few months ago, we amended our administrative penalty and voluntary self-disclosure regulations to institutionalize these changes, and to give us more discretion in determining appropriate penalties for export control violations more broadly. We hired a first-ever Chief of Corporate Enforcement, to help advance our significant corporate investigations. And we made changes to our antiboycott enforcement program, where we re-ordered the regulatory penalty tiers, raised penalty amounts, eliminated “no admit, no deny” settlements, and announced an enhanced focus on foreign subsidiaries of U.S. companies. 

            These program and policy changes – designed to maximize our overall enforcement efforts – are bearing fruit. Over the last two years, we’ve had the agency’s highest number ever of convictions, months of imprisonment, Temporary Denial Orders, end-use checks, and post-conviction denial orders. Last year, we imposed our largest standalone administrative penalty ever, $300 million, against Seagate for their shipment of millions of hard disk drives to Huawei. We also participated in the disruption of what is believed to be the world’s largest-ever botnet, which infected over 19 million IP addresses and facilitated cyber-attacks, export violations, and billions of dollars of fraud.

            But it’s not just the arrests, indictments, and administrative penalties. We’ve also publicly listed, for the first time ever, nearly 200 aircraft from Russia, Belarus, and Iran that have flown in violation of our controls and thus triggered General Prohibition 10 restrictions, which prohibit refueling, maintaining, or repairing those planes. And we’ve issued a record number of TDOs against the biggest airlines in Russia, Belarus, and Iran. Alongside DOJ, we seized a $13 million plane owned and operated for the benefit of Nicolás Maduro Moros and his regime in Venezuela. Our work also led to the forfeiture of a U.S.-manufactured Boeing 747 cargo plane, previously owned by Mahan Air, a sanctioned Iranian airline affiliated with the Islamic Revolutionary Guard Corps-Qods Force, a designated Foreign Terrorist Organization. 

            And that’s not all. Beyond our casework, we’ve taken further prioritized actions. In the last three years, nominations from my team in Export Enforcement have resulted in over 900 parties from Russia, China, Iran, and elsewhere being added to the Entity List. This past fiscal year, for example, the team was responsible for adding over 320 parties to the Entity List and nearly 40 parties to the Unverified List. This represents an all-time high for Export Enforcement. We also – for the first time ever – placed 16 addresses in Hong Kong and Turkey on the Entity List for “housing” hundreds of shell companies responsible for more than $130 million in high-priority items being diverted to Russia. And we’ve also ensured that, under new regulations, persons blocked under certain OFAC sanctions programs are automatically subject to our controls as well.

            Over the past three years, our aggressive and prioritized enforcement posture has become business as usual. It’s our basic operating level. And I anticipate that you’ll continue to see significant enforcement announcements in the weeks, months, and years to come.    

Profile

            Next, let me address our profile. I told the team on that first all-hands call that I would be a tireless champion for Export Enforcement and the work we do. Not just so that our agents, analysts, and Export Control Officers get the recognition they deserve, although that’s important.  But also because raising the profile of Export Enforcement out in the world has a strategic purpose. It acts as a force multiplier. Because we have such limited resources to meet such significant national security threats, we can’t succeed by end-use checks and investigations alone. Those are essential, but they’re not enough. We also need deterrence. We need to have industry fully committed to investing in robust compliance programs. And, my view, from the first day of my tenure, has been that one way to help make that happen is to continually evangelize about our work, including through speeches, interviews, conferences, and press releases. The goal is to let industry know that we want to partner with them to make sure they follow our rules (and also to let them know that there are meaningful consequences when they don’t). By continuing to raise Export Enforcement’s profile, we hope to convince companies to invest more heavily in compliance and prevention.

            That’s why I’ve agreed to speak at so many external events, including giving this keynote here today. Through webinars, podcasts, and conferences, I’ve spoken to thousands of trade practitioners and compliance professionals, C-Suite leaders, in-house and outside counsel, and trade associations. I’ve participated in panel discussions at forums as varied as the Munich Security Conference, the American Bar Association’s White-Collar Crime Institute, and the American Bankers Association Financial Crimes Enforcement Conference. This speech marks the eighteenth formal speech that I’ve delivered to audiences around the globe – from New York to Singapore, from Texas to Toronto – about our national security mission and the critical importance of our work. 

            And, of course, I haven’t been the only government official out there speaking on this topic. The Secretary of Commerce, Gina Raimondo, has repeatedly emphasized the importance of export controls, explaining that, in the wrong hands, the most cutting-edge technology, like supercomputers or AI chips, can ultimately prove as deadly as any weapon. National Security Advisor Jake Sullivan has highlighted export controls’ national security role, noting their centrality in helping the United States to maintain as large a scientific and technological lead as possible over our adversaries. Deputy Attorney General Lisa Monaco and other Department of Justice leaders have focused time and again on sanctions and export enforcement in their speeches, including by declaring sanctions and export enforcement a top Department of Justice corporate enforcement priority and noting how national security concerns must rise to the top of corporate compliance risk charts.    

            Three years after I told my team that we wanted to raise their profile, I submit that we’ve successfully done it. Industry and trade practitioners understand that we’re now in a new era for export enforcement. Companies are evaluating their compliance programs to ensure they are robust and effective, lest they face multimillion dollar penalties for violating our rules. Word is out that export violations can no longer be considered just the cost of doing business. Instead, violations now present enterprise risk, which means that investment in compliance is crucial. The enhanced profile, combined with our voluntary self-disclosure policy changes, has led to a sharp rise in the number of significant disclosures we’re receiving – an increase of nearly 70% when comparing the 18 month-period before and after the policy announcement.

            I’ve heard several times at my speaking engagements over the past three years that I was the first speaker they ever had from the Commerce Department. I’ll tell you how I responded: I may be the first, but I won’t be the last. Export enforcement is now at the red-hot center of protecting our national security. Given our current geopolitical environment, that’s likely to remain true for the foreseeable future. And so is our heightened profile.

Partnerships

            Which leads me to the third and final “P” – partnerships: how we’re working with our interagency partners to pool resources and authorities to bring enforcement actions; with our international counterparts to multilateralize our efforts; and with the private sector to help ensure compliance with our rules.

1.      Interagency partnerships

            While the Disruptive Technology Strike Force is the highest-profile example of our interagency partnerships, it’s certainly not the only one. We’ve also developed a close relationship with the Treasury Department, working with their Financial Crimes Enforcement Network (FinCEN) to publish – for the first time ever – a joint alert that created a new key term for financial institutions to use when filing Suspicious Activity Reports (SARs) for suspected Russian diversion. We then published two additional alerts together, creating a key term for export control evasion globally. To date, our analysts have reviewed over 1,400 SARs that contain one of these key terms, and we have been able to action more than 160 of those filings – either by sending a new lead to our enforcement agents, advancing an existing case, or developing an Entity List package. We’ve also built a close relationship with Treasury’s Office of Foreign Assets Control (OFAC), with whose Director I have a standing biweekly coordination call. Last year, we signed an MOU formalizing our enhanced coordination and partnership. And, last April, we imposed a combined $3.3 million civil penalty against Microsoft to jointly resolve alleged violations of U.S. export controls and sanctions laws. You can expect to see additional coordinated enforcement actions from us in the near future.

            In addition to DOJ and Treasury, we’ve also worked with the interagency more broadly to publish an unprecedented number of advisory notes, guidance documents, and alerts. From the applicability of our controls to non-U.S. persons, to Iran’s UAV-related activities, to the need for the transportation industry to “know their cargo,” it’s hard to find a topic where we haven’t published something. It’s unheard of for the government to release so many multi-agency guidance documents in such a short amount of time. That’s a testament to our partners at the Departments of Justice, State, Homeland Security, and Treasury. And it reflects our core belief that we would much rather help industry understand and comply with our rules on the front end than pursue violations of them on the back end. When we’re pursuing violations on the back end, it typically means the sensitive technology has already gone where it shouldn’t and the national security harm has already happened.

            Most recently, we partnered with the National Security Agency to build and deploy the Commerce Screening System (CSS), a brand-new game-changing information technology tool. Through the CSS, we are now able to screen every foreign party to a license application against certain intelligence holdings. Prior to the CSS, such screening was done manually, which meant that we were only able to screen about 800 license applications a year. Now, thanks to our new automated system, we’ll be able to screen all of the approximately 40,000 applications that BIS receives annually. While the CSS just went live in October, it’s already demonstrating real results. After two months of operation, this tool has enabled us to screen over 7,300 license applications and identify over 420 unique licenses where the intelligence holdings needed further review by a licensing officer prior to the licensing decision being made.

2.      International partnerships

            On the international front, while export controls have long been coordinated multilaterally on the policy side, there have not been any corresponding multilateral coordination mechanisms when it comes to enforcement. Thanks to our leadership efforts, and those of our allies and partners, I’m proud to say that’s no longer the case. We’ve established – for the first time ever – three different enforcement coordination mechanisms.

            First, we worked with the G7 to create a Sub-Working Group on Export Control Enforcement. The Sub-Working Group, established last year, provides the G7 countries and the European Commission a forum for exchanging information and operational results, discussing trends in research and analysis, and sharing best practices for enforcement. A few months ago, the G7 countries and the European Commission published, for the first time ever, joint guidance for industry on preventing evasion of the export controls and sanctions imposed on Russia.

             Second, we established the Disruptive Technology Protection Network (DTPN) with the governments of Japan and South Korea, to expand information sharing and the exchange of best practices across the three countries’ enforcement agencies. This past April, we held a high-level summit here in D.C. to formally launch the initiative, after it was first announced at the Trilateral Leaders’ Summit at Camp David last summer. Since then, our teams have met regularly to exchange information, including just last week. 

            And, third, we established the Export Enforcement Five, or E5, with the governments of Australia, Canada, New Zealand, and the United Kingdom. The E5 works with industry, including by publishing novel guidance, to harden supply chains of the items that Russia needs to sustain its unlawful full-scale invasion of Ukraine. The E5 also works to identify entities that have violated our coordinated export controls and to share investigative information for coordinated enforcement actions against them. 

            In addition to these unprecedented multilateral efforts, we’ve signed individual bilateral agreements for the first time with the European Anti-Fraud Office and with the Australian, Japanese, South Korean, and Swiss governments, to facilitate law enforcement cooperation and information sharing. We’ve also expanded our international footprint to better collaborate with partner governments across the globe. We now have 11 Export Control Officers in nine locations abroad, including two newly stationed in Taiwan and Finland. And, for the first time ever, we placed an enforcement analyst outside the United States, in Ottawa.

3.      Private sector partnerships

            Last but certainly not least, we’ve enhanced our partnerships with industry and academia. Over the past three years, we’ve conducted outreaches to nearly 6,000 companies, an all-time high, to ensure they’re aware of regulatory changes and to warn them against illicit procurement attempts. We’ve issued supplier list and red flag letters, along with a guide explaining the difference between the two. In addition to our numerous multi-agency guidance documents, we also published BIS-specific recommendations for exporters on Russian evasion typologies, high-priority Harmonized System (HS) codes, and evasion red flags. Expanding beyond our more traditional stakeholders, we also recently published new BIS guidance for freight forwarders and for financial institutions containing best practice recommendations on how to avoid liability for export violations. 

            For academia, we launched the Academic Outreach Initiative to help universities protect their sensitive research from nation-state adversaries who seek to acquire it. The open and collaborative nature of our research institutions is fundamental to their success as science and technology leaders – but at the same time presents an inviting target for foreign adversaries who wish to exploit that environment and misappropriate those institutions’ research. Over the last few years, we’ve doubled our reach – expanding the initiative from an initial 20 research institutions to 40, with 11 added this past October. For each of the 40 institutions, we’ve assigned a dedicated “Outreach Agent,” a specific agent from their local BIS field office who meets with the institution regularly and serves as a resource and point of contact. We’ve also conducted webinars on identifying red flags for academia and other topics. And we published – for the first time ever – a compendium of resources to help universities comply with our export rules and an analysis of voluntary self-disclosure trends to help them identify high-risk areas. 

            We’ve developed similar innovations to help industry comply with our antiboycott rules. We implemented a new data field to collect the names of foreign parties making boycott requests and then used that data to create – for the first time – a public list of such foreign parties. This innovative boycott Requester List now lets U.S. companies know which foreign parties have made boycott requests in the past – so that if they’re dealing with those parties, they know to scrutinize transaction paperwork closely for reportable boycott requests. Beyond that, the Requester List has driven foreign parties to change their behavior by eliminating boycott language from their transaction documents, thus reducing boycott requests at their source. To date, over 20 companies have removed boycott-related language from their transaction documents. That benefits both U.S. companies and U.S. foreign policy interests.

            As intended, these partnerships have worked as force multipliers. They’ve allowed us to galvanize resources across the interagency, across industry, and across the world to help protect sensitive technology from being misappropriated by our adversaries. The national security challenge we face is massive. Through prioritized enforcement efforts, an enhanced profile, and expanded partnerships, we’re doing everything in our power to meet it.

*          *          *

            So, I began my remarks by telling you about the “Steamboat Inspection” carving I see every day as I enter the Commerce Department. I want to close by telling you about a different part of what has been my daily commute for the past three years. Just before I arrive at work each morning, I drive down 14^th Street through the National Mall. Each day, I take the conscious action of looking to my left, at the Washington Monument, and then to my right, at the United States Capitol. I do this intentionally to remind myself of the immense privilege I have been given – the privilege of serving the people of the United States, the privilege of waking up every day and driving to a job where the mission is to protect our national security by bringing to justice those who would transfer our country’s most sensitive technology to our country’s most serious adversaries.

            It’s been my deep and profound honor to serve as the Assistant Secretary for Export Enforcement these past three years. When this Administration began, I never could have predicted that this role would be the one I was asked to fill. But I am beyond fortunate to have had the opportunity to serve in it. The commitment, dedication, and impact of the men and women in Export Enforcement are second to none. It has been humbling to lead them and to learn from them. And while the time is rapidly approaching when I will no longer have the responsibility of leading them, I can’t wait to see what they accomplish next.

Thank you.

Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler Delivers Remarks at the WorldECR Forum

London, United Kingdom

December 3, 2024

Remarks as Prepared for Delivery

Introduction

Thank you to WorldECR and editor Tom Blass for including me in this terrific event, focused on trade control law and regulations, policy, and practice.  I’m particularly glad to participate in the London version of this conference – my time as Assistant Secretary of Commerce for Export Administration in the Biden-Harris Administration has been marked by extensive cooperation and collaboration with my United Kingdom counterparts, so it’s especially fitting that I’m here this week for my last international outreach during my tenure. 

For three years now, I have led the part of the U.S. Commerce Department’s Bureau of Industry and Security (BIS) that designs policy to control the proliferation of “dual-use” items.  We are in a time of increasingly rapid evolution of both technologies and national security threats.  This requires our team to even more nimbly identify technologies for which guardrails are necessary and amend our controls as appropriate.

Even as we conduct the traditional work of screening transactions and adjudicating license applications, our ever-changing environment places new demands on our ability to assess technical performance; review available intelligence on destinations, end users, and risk of diversion; and scrutinize end uses.  

I am proud of what our team has accomplished during my tenure, and the creativity they have brought to their work in a resource constrained environment to protect U.S. national security and safeguard global peace and stability.  

Biden-Harris Administration Export Controls Achievements

When I took on this role almost exactly three years ago, we established three clear priorities that have not wavered:

1. Degrade Russia’s military capabilities and thwart Russia’s unjustifiable invasion of Ukraine;
2. Impede the People’s Republic of China’s (PRC’s) ability to modernize its military, a threat that is exacerbated by the Chinese Communist Party’s Military-Civil Fusion (MCF) strategy; and
3. Deepen our export control relationships and coordination with our allies and partners.

Degrading Russia’s Military  

Russia has been at the forefront of the Biden-Harris Administration’s policy decisions, and that is reflected in how I spent my first weeks on the job – and at least part of each week since then.  Using our authorities, since February 2022, we increasingly ramped up our controls on Russia, its enablers in Belarus and Iran, and the DPRK. We published nearly fifty rules imposing a range of restrictions on Russia, controlling not just all items on our Commerce Control List but also around 2,500 lower-level (EAR99) technologies based on Harmonized Tariff Schedule (HTS) code.  And we added over one thousand organizations in Russia and those who supply Russia to our Entity List.  This is what was expected of us in export controls, classic controls on items and entities. 

It’s an axiom in our field that export controls are only effective when other manufacturers of the same technology implement comparable controls – it's the premise underlying our four multilateral regimes and the plurilateral arrangements we’ve built in this Administration.  In contrast, controls applied to items widely available from foreign sources generally are less effective.  We know there are situations in which unilateral controls are necessary, especially when our values are at stake.  But unilateral controls not only do not accomplish our national security goals, they also create an unlevel business environment for companies operating in – or in our case, for companies that produce technology in – the country that imposes the controls.  

We confirmed the truth of this axiom as we crafted – and iterated – our response to Russia’s invasion of Ukraine.  We established closer than ever export control relationships with the UK, Japan, and the European Union.  And we built on those relationships to form with 38 partners the Global Export Control Coalition that continues to coordinate controls targeting Russia. 

It is because we reinvigorated our international partnerships that we created the possibility of even more effective controls.  I'm continually impressed by how far the word has spread about our “Common High Priority List” (CHPL) for Russia, which comprises fifty Harmonized Tariff Schedule (HTS) codes at the six-digit level – the international language of trade.  The CHPL was developed through careful analysis of the items Russia depends on for its military, including components recovered from the battlefield.  If the United States had acted alone to create and disseminate this list, we might have convinced a number of partners to join us in extra controls on these items.  It is because we worked with our partners that the list has worldwide recognition – not just by Customs services, but to the point that it has been adopted into the law of several partners. 

Notably, HTS codes are Export Control Classification Number (ECCN) agnostic.  Items like microelectronics, which top the CHPL, are controlled for Russia whether they fall under our advanced computing controls or are EAR99, commercial-grade legacy chips.  This is a new approach to export controls, enabled only by our global approach.  And we’re grateful to our partners who share our concerns – consider, for example, Armenia, which adopted a law specifically requiring export licenses for these items going to Russia last year.  Customs data shows that the average of CHPL exports from Armenia to Russia has fallen around 70 percent compared to the same period last year, and the latest data reported shows the lowest monthly total in exports to Russia since May 2021.

Thanks to this partnership, our coalition restricts thousands of items to Russia, and has cut off trade with much of the procurement network that feeds Russia's defense industrial base.

While we have pursued these government-to-government measures, we have also increased outreach efforts with U.S. industry to map out supply chains, assisting our efforts to completely cut Russia off from U.S.-origin and U.S.-branded components.  The effectiveness of export controls, of course, hinges on the compliance efforts of industry.  As you and our industry partners know, Russia continues to build sophisticated procurement networks to illicitly access U.S.-origin and branded components.  And so, we continue to work with the private sector to ensure they know who the end users of their items – especially microelectronics – are, which helps industry strengthen its compliance and due diligence activities.

In this area, too, our team identified a creative way forward – we began adding addresses to our Entity List.  This allowed us to specifically target corporate secretaries and shell companies, putting all parts of Russia’s global procurement networks on notice.  Our partnership with industry, combined with information sharing with our government partners, results in increased visibility into Russia’s procurement network that influences our rulemaking.

We have seen the impact of our actions on Russia, evidenced by Russia’s frustration over its military ambitions due to increasing costs, delays, and reduction in equipment quality.  And prices are driven up by the cost of establishing and re-establishing illicit procurement networks as we continue to disrupt them. Customs data shows that:

•  
  • Russia was forced to pay over 135% more on average for microelectronics after the invasion than it did in the preceding years, based on average cost by weight.[1]
  • Russia was forced to pay prices inflated by more than 320% to procure advanced coalition origin machine tools via the PRC and Türkiye.[2]
  • Russia was forced to pay over 210% more to smuggle critical U.S.-origin items through third countries.[3]
  • Our team – in close cooperation with our BIS law enforcement colleagues and partners throughout the U.S. and partner governments – constantly analyzes potential new avenues for Russia to evade our controls so that we can act swiftly to cut them off.  Our partnerships with industry and coordination with partners and allies have, and will continue to be, essential in achieving that end.

We haven’t just learned valuable lessons from our response to Russia, we’ve built new institutional muscle.

Impeding PRC Military Modernization

Principal Deputy Assistant Secretary for Strategic Trade and Economic Security Matt Borman has said that we spend “100% of our time on Russia, 100% on China, and 100% on everything else.”  It’s true – we have a tremendous team, working at a backbreaking pace.  This is doubly clear when we look at this Administration’s actions in impeding PRC military modernization.

BIS has worked tirelessly to comprehensively restrict the PRC’s access to tools and technologies for leading edge indigenous semiconductor production capabilities.  This includes our “October rules” in 2022 and 2023, the April 2024 clarification rule, and the controls we announced yesterday on semiconductor manufacturing equipment.

I want to start by taking a step back to answer why all of these controls are necessary.

First, remember that we are operating in an environment in which the PRC’s military-civil fusion (MCF) strategy is a whole-of-government, at-all-costs approach.  Its goal is to ensure that innovations in the “civilian” sector advance PRC military capabilities.  Together there, the strategy involves eliminating barriers between the PRC’s (1) civilian research and commercial sectors, and (2) military and defense industrial sectors.  To meet its objectives, the PRC has mandated and incentivized relevant domestic firms to dedicate significant resources sourcing foreign technologies that are relevant to military modernization with the goal of indigenizing their production in the PRC. 

In the semiconductor context, the PRC is making every attempt to indigenize production of leading-edge chips.  PRC leadership at the highest levels has focused on building an indigenous and self-sufficient semiconductor ecosystem, referring to integrated circuits in particular as critical to PRC national security strategy.  Reporting from PRC state-owned media outlets has even referred to integrated circuits as the “main battlefield” of the PRC’s MCF strategy.  The PRC views its semiconductor dependence on the United States and U.S. allies as a major threat to PRC efforts towards military modernization, WMD development, and technologically-enabled human rights abuses.

We know semiconductors are the foundation of the world’s economy – every device with an on/off switch has a semiconductor in it.  In the national security context, though, it is the advanced compute integrated circuits that present the greatest threat to the United States, and our allies and partners.  This is because those chips feed artificial intelligence (AI) capabilities.

U.S. and partner country semiconductor manufacturing equipment is used to manufacture advanced compute chips.  Those chips are clustered together, enabling never-before seen advances in military capability.   In fact, we know that the PRC is making investments in AI in weapons systems.  Here is one example, based on publicly-available information:

• The PRC is reported to be the world’s leading exporter of combat drones. 
  • These military drones are reportedly used by the People’s Liberation Army to patrol the PRC-India border, the Taiwan Strait, and Tibet.  Earlier this year, they were reported to have deployed in the East China Sea, approaching Japan.
  • And the PRC is reportedly collaborating with Russian firms to advance the two countries’ military drone technology.
• Now think of what is possible with drones enhanced by AI – AI built on the back of U.S. and partner semiconductor advanced chips or with advanced chips manufactured with U.S. and partner equipment.
• Most software is basically built out of if-then statements: if this, then that; if this, then that. For traditional software, you want chips that are good at taking many of these logical steps really fast, one after another. 
• In contrast, an AI model works more like a human brain: it can take in rich inputs – audio and visual signals, for example – and make sense of them, and even recommend or take appropriate actions. AI chips can do many operations in parallel. 
• Using AI-accelerator chips, those unmanned combat drones become autonomous.  They can intelligently swarm independently, and navigate, select targets, and fire, without human instruction.
• Their lethality increases by leaps and bounds, and that lethality can be targeted precisely where the PLA and its partners are already deploying these systems.

This is just one example of AI-enhanced military modernization, which can be applied across all areas of military weapons systems – including hypersonic missiles, cyberweapons, and chemical, biological, radiological, and nuclear (CBRN) weapons of mass destruction – command and control, and logistics.  The key developer of China’s hypersonics program is publicly reported to have used a supercomputer to model and aid in military aircraft design; with more AI capacity would come more military capability.  It’s exactly what we’re trying to forestall with our export controls. 

Our goal from the beginning has been to protect our collective security by impeding the PRC’s ability to indigenize the most advanced technologies, without unduly interfering with the continuing trade and development of technology.

Our response has been four iterations of controls on certain advanced computing items, supercomputers, and semiconductor manufacturing equipment. Because we started these actions in 2022, before ChatGPT and the hype around generative AI, we have had time to iterate on our approach and counter PRC attempts at diversion.

The update we announced yesterday adjusts our controls in several critical ways:

• We're adding new controls on many types of semiconductor manufacturing equipment, software tools for developing or producing semiconductors, and high-bandwidth memory (HBM), which is used in almost all AI data center chips.

• We’re also making several changes that build on the effectiveness of our controls, including new red flag guidance that will work to address compliance and diversion concerns, and a significant number of Entity List additions that span PRC tool manufacturers, semiconductor fabs, and investment companies involved in executing the PRC government’s furtherance of PRC military modernization.

This set of actions underscores the central role BIS has taken in this Administration for U.S. national security strategy – there is no Administration that has been tougher on the PRC, and that legacy will live on.

As a result of our controls, despite tens of billions of dollars in subsidies and a whole-of-government focus on semiconductor technology transfer, the PRC has only limited chipmaking capabilities at the 7nm node, which is itself more than 5 years behind the current leading edge.

As this technology gap continues to grow, the PRC will struggle increasingly to develop AI supercomputers capable of pushing the frontiers of weapons modeling, surveillance, and military modernization.

Cooperating with Allies and Partners

Through all of these measures, whether against the PRC or Russia, or any of the other myriad export control actions we’ve taken in this Administration, one thing is crystal clear:  we must work with our allies.  For the most part, the diligence this requires doesn't show up in our published regulations.  We may put a photo of a meeting on our website here and there, but we don’t tend to crow about the regularized efforts to ensure our allies and partners understand what we’re doing and why we’re doing it. 

I have spoken extensively with foreign counterparts about the U.S. technology ecosystem and how they can align their export controls so that once our technology is exported, we have confidence it will be protected the same way it would be protected in the United States. When countries align their controls with ours, they reap the benefits of superior U.S. technology.

This isn’t just theoretical.  

In April, we updated our regulations to foster technological innovation with the UK and Australia, streamline defense and dual-use trade, and realize the goals of AUKUS, the security partnership with the United Kingdom and Australia. We: (1) removed license requirements for the export/reexport to the UK and Australia of a host of items including munitions, missile technology, and section engine technologies; (2) increased the availability of license exceptions for reexport; and (3) removed restrictions on the export of high-speed and thermal imaging cameras to armed forces or for the production of military equipment.

In August, we published controls on quantum computing, with a carveout for countries that have similar controls, including Canada, Denmark, France, Finland, Germany, Japan, Netherlands, Spain, and the UK, and we understand that additional countries will follow suit. This action strengthens our trade and diplomatic relationships with like-minded countries and ensures that U.S. export controls keep pace with rapidly advancing technologies that pose serious threats to our national security when in the wrong hands.

In October, we provided additional license-free treatment for certain space-related exports to the UK and other allied countries. Specifically, we no longer require a license for the export of certain remote sensing or space-based logistics, assembly, and servicing satellites/spacecraft to some of our closest allies.

I previously mentioned our Global Export Control Coalition – I can’t help but mention it again here as a glaring success story of countries coming together, driven by shared a national security perspective, to take coordinated and direct action to impede Russia from using U.S. technology on the battlefield in Ukraine.

Finally, we're working to apply these principles in the AI context, as well. In September, we expanded our Validated End User (VEU) program to include AI data centers. This action moves us in the same direction as our allies, in a way that pulls in individual companies. Our update contributes to the development of a trusted ecosystem for the responsible use of AI – an element of the Biden-Harris Administration’s broader strategy to ensure the United States leads the way in responsible AI innovation and development. When companies demonstrate that they have high standards for physical security and cybersecurity measures, they unlock predictable and reliable flows of controlled data center technology.

Technology moves fast, and sometimes our governments are slow in our response. By creating trusted technology ecosystems through these examples, we create an environment with our allies and partners in which we have confidence that they will ensure our dual-use technologies are used in an aligned manner.

Only in collaboration with our allies can we address today’s technology proliferation threats.

Conclusion

Our actions set the next Administration up to conduct sophisticated assessment of technology-based national security threats, and to take on strategic and targeted actions to protect our national security, together with our allies.

Dual-use export controls work has never been more timely, more relevant, or more effective, and our relationships have never been stronger. I am extraordinarily proud of our export control accomplishments, and want to close by expressing my thanks to all of my partners in this endeavor:  the unparalleled team in BIS’s Export Administration, whose hard work and passionate commitment to export controls make all of these efforts possible; Biden-Harris Administration leadership, especially Commerce Secretary Gina Raimondo, for their focus on export controls as a primary tool in national security policy; the foreign government counterparts who are deeply engaged in using export controls to enhance global peace and security; and the private sector actors who recognize their role on the front lines of export control compliance and enable the effectiveness of our regulations.

Thank you and I welcome your questions.

Assistant Secretary for Export Enforcement Matthew S. Axelrod Delivers Remarks at the Federal Law Enforcement Training Centers (FLETC) Graduation

Glynco, Georgia

July 24, 2024

Remarks as Delivered

Thank you, Deputy Assistant Director Reese, for inviting me today.  I’m deeply honored to be here. 

First off, congratulations to all of you on your graduation.  We are so excited to have you as our newest Special Agents.  And while most of my words today will be directed to you, let me begin by speaking to your families and loved ones.  Thank you.  Your support, love, and dedication helped build the foundation upon which these new Special Agents stand today.  Over the past three months, you’ve sacrificed your time with them so that they could do this.  That sacrifice, of course, does not end with today’s graduation.  In many ways, it’s just the beginning.  You’re the ones who will bear the brunt of the irregular hours, the all-consuming nature of the job, the inability to know exactly what they’re working on.  And you’re the ones who will worry every time your loved one walks out the door until the minute they come back home safe.  It’s your support, love, and sacrifice that will inspire these graduates as they embark on this new chapter as federal law enforcement officers.  So, on behalf of a grateful citizenry, thank you for sharing them with us.

*          *          *

A few blocks behind Capitol Hill, there’s a place called Eastern Market that’s filled with food stalls and crafts vendors.  A flea market even used to pop up there on the weekends, where you could buy anything from used furniture to old record albums.  While there one day, I came across a man selling an assortment of framed U.S. postage stamps.  Two stamps in particular caught my eye.  One depicted a smiling policeman walking alongside a child, with the words “law and order” written down the stamp’s right-hand side.  The other, commemorating the 175^th anniversary of the Bill of Rights, pictured a gloved hand knocking on a barrier inscribed with the words “the rights of the people shall not be violated.”  I stood there for a bit, trying to decide which of the two stamps to buy.  Should I purchase a symbol of the law and order that ensures our country’s stability and safety or an emblem of the rights we are all promised as Americans?  Which of the two is more important?  The answer, of course, is both – because they’re inextricably tied together.  The work of law enforcement helps protect the safety and security of our country, while our constitutional rights help ensure that law enforcement’s work is fair and just.  Law and order without rights would be autocracy.  And rights without law and order would be chaos.  For our society to function, we need both.  So, you can probably guess how the story ends.  I bought both stamps.  And both are currently displayed, side by side, on my desk at the Commerce Department. 

As a federal law enforcement officer, it will be your duty to safeguard the freedoms guaranteed by the Bill of Rights while upholding the rule of law.  It’s your duty to balance the scales of justice, to protect and serve with integrity.  To bring to bear not just what you’ve learned over the last three months here at FLETC, but what you’ve learned over the course of your career, and even over the course of your life. 

Whether you’re protecting sensitive technologies from going to our adversaries, like we do at the Bureau of Industry and Security, or protecting the integrity of the Medicare trust fund, like at HHS-OIG, your mission, at its core, is the same: to promote justice and to ensure public safety.  To be the ones who resolutely ensure law and order, while at the same time, being the ones who vigorously embrace the Bill of Rights.

*          *          *

Graduation speeches generally contain advice.  So, while I’ve never been a Special Agent myself, I’d like to share some thoughts about one part of your job I do know firsthand: working with federal prosecutors.  It doesn’t matter if you’re with the Bureau of Indian Affairs, or Army-Counterintelligence, or the U.S. Forestry Service – at some point, you will work with federal prosecutors. 

I began my law enforcement career as an Assistant United States Attorney, or AUSA, in Miami.    As a prosecutor there, I had the opportunity to work with, learn from, and hopefully assist some of the busiest and best agents in the country.  As you can imagine, if there’s a federal crime, someone is likely committing it in Miami. 

Knowing that I’d be speaking with you today, I reached out to some of my former colleagues who are still prosecuting cases there.  Combined, these prosecutors have over one hundred years of experience working federal cases, over one hundred years working with agents.  They’ve pretty much seen it all.  So I asked them: if you were speaking to a graduating class of new federal law enforcement agents, what would you want them to know?

Like all good courtroom lawyers, they came back with a numbered list.  So here are their four pieces of advice.

First, talk early and often with your AUSA.  Collaborating at the front end of your investigation will pay dividends on the back end.  Bringing a case to a successful resolution – be it a guilty verdict or plea – rests on the work done from the very beginning.  You know your investigation better than anyone.  But if you bring the AUSA in at the start, they’ll end up knowing it almost as well as you do.  And together you’ll have likely identified any potential weak spots or gaps that could be exploited in court.  By partnering closely, you’ll understand why the prosecutor is asking for certain investigative steps to be taken and what it takes to build a case that will hold up at trial.

Second, the best way to prepare for trial, or to learn about trials in general, is to watch them.  If you can, sit in the back and watch another agent’s case get tried.  It’s an education that you can’t find in a textbook or in a classroom, only in a courtroom.  If you sit through a trial or two, you’ll have a better understanding of how the evidence you’re collecting actually gets used in court, which in the future will impact how you collect that evidence.  And you’ll see how testifying agents comport themselves on the witness stand.  The best ones appear calm and confident, a confidence that comes from knowing the facts and being prepared. 

Third, while AUSAs are invaluable partners, it is essential to remember that witnesses are not part of your team in the same way.  That’s especially true with confidential informants and cooperating defendants.  They are not law enforcement, and they are not your friends, so don’t get too close.  

Fourth and finally, when you make a mistake – and we all do – own up to it.  The worst thing you can do is try to hide or bury a mistake.  The longer you go without flagging what happened, the more difficult it will be to fix.  Know that even if the AUSA doesn’t find out, the defense team will, and your lack of candor will crater both the case and your reputation. 

*          *          *

When I think about those two stamps on my desk, the one honoring those who maintain law and order and the other celebrating the Bill of Rights, I think about what you’ll face when you walk out of here.  Law enforcement is often criticized from both ends of the spectrum.  Accused by some of not doing enough to protect the Bill of Rights, and by others of not doing enough to maintain law and order.  And that type of criticism is part of what makes this country so special – the ability to criticize our government and ask it to do better.  Federal law enforcement isn’t perfect.  We want feedback on where we’re falling short so that we can seek to improve.  We wield awesome power over people’s lives, including over their liberty.  It's understandable that our actions provoke strong reactions by the public.  They should.

But the criticism that has arisen in recent years is of a different and more pernicious type.  Instead of criticizing federal law enforcement’s performance, too many have unfairly begun federal law enforcement’s motives.  There’s been an increase of mistrust lately, of incendiary rhetoric targeted at entire federal law enforcement institutions and those who work within them, accusing law enforcement professionals of acting out of partisan bias – of making investigative or prosecutorial decisions based not on the facts and the law but on politics.

That’s just flat out wrong.  But even more than wrong, it’s dangerous.  Let me spend a minute on each – why it’s wrong and, then, why it’s dangerous.

It’s wrong because partisanship is anathema to federal law enforcement.  Whether it’s at DOJ, or Commerce, or CBP-OPR, the mantra is the same – we do our work based on the facts and the law, free from political influence or considerations.  Apolitical law enforcement is a core value.  It’s in the very marrow of our institutions and the people who work there.  Through my over fifteen years in federal law enforcement, in both Republican and Democratic administrations, as both a line prosecutor and one of the most senior officials at the Departments of Justice and Commerce, I’ve worked with hundreds of prosecutors and agents in dozens of cities around the country.  I have no idea what their politics are.  What I do know is that they are among the finest people I’ve ever had the privilege to work with.  Honorable men and women who are dedicated to making a difference and to making this country a safer place.  Time after time, they aim to do the right thing in the right way.  That doesn’t mean they always get the results right.  They’re human after all, not infallible.  But their motives aren’t political.

It's dangerous because attacks on the motives of federal law enforcement have a destabilizing effect.  When confidence in the integrity of law enforcement is undermined, it isn’t just undermined for high-profile politically charged cases, it’s undermined for all cases.  It’s essential that the public have trust and confidence in their law enforcement officers – it’s that trust and confidence that leads tipsters to warn law enforcement of imminent terrorist attacks, reassures witnesses when they decide to cooperate against deadly Mexican drug cartels, and ensures that juries don’t automatically discredit agent testimony in public corruption trials.  Federal law enforcement agents, and the institutions they work for, are responsible for upholding the rule of law and keeping our country and its people safe.  Those who wrongly accuse these agents and institutions of acting with improper political motives weaken their ability to succeed in that vitally important task, and, as a result, weaken our collective safety and security.

Beyond that, criticism that uses incendiary rhetoric, that casts federal law enforcement as a rogue element that needs to be curtailed poses the very real risk of physical harm.  In 2022, the latest year for which FBI data is available, over 1,100 federal law enforcement officers were either killed or assaulted while performing their duties.  Among the incidents that year, a man fired a nail gun into the FBI Cincinnati field office after posting online about his desire to kill FBI agents because of his political disagreement with their law enforcement actions.  Just last month, a Texas man was arrested after threatening to murder FBI agents, including those who worked on a high-profile investigation.  And those of you who are joining the U.S. Capitol Police certainly don’t need me to tell you how incendiary rhetoric can precede actual violence.

This needs to stop.  Attempts to delegitimize our governing institutions, including our federal law enforcement agencies, cause tangible harm.  For law enforcement to be legitimate, it needs to be apolitical – and it is, steadfastly so.  But it also needs to be perceived as apolitical and that’s where the damage is now being done.  Unwarranted accusations that our federal law enforcement agencies are biased have severe long-term consequences – a weakening of trust in the institutions that keep us safe from terrorism, protect our kids from online predators, and put fraudsters in jail.

You all now have a role to play in protecting the integrity and reputation of these institutions.  The way you conduct yourselves in your new roles will impact the way the public views not just you, but federal law enforcement as a whole.  So please remember how important it is not just that your work be apolitical, but that you not do anything that could lead to your actions being misperceived.

*          *          *

Today, you join the ranks of federal law enforcement agents, ranks that, more than most, understand the necessity of duty, obligation, and sacrifice.  As you embark on your federal law enforcement career, I urge you to remember the importance of maintaining law and order while at the same time upholding the freedoms guaranteed in the Bill of Rights.  I hope that, whatever your agency, you’ll work closely and effectively with the AUSAs in your district.  And, finally, I trust that you’ll all serve as yet another set of living, breathing examples of how law enforcement actually does its work – based on the facts and the law, without fear or favor, and without regard to politics.

Congratulations on your graduation.

Assistant Secretary for Export Enforcement Matthew S. Axelrod Delivers Remarks at the Semiconductor Summit in Los Angeles, California

May 8, 2024

Remarks as Prepared for Delivery 

Thank you to Martin, Izzy, and Tara for putting together today’s summit and for inviting me along.  Your U.S. Attorney’s Offices are on the leading edge of technology protection efforts, and I’m thrilled to get to partner with you in this work.   

Unlike my three DOJ colleagues, I work at the Department of Commerce, where I lead a dedicated cadre of law enforcement agents and analysts who work all day every day to keep our country’s most sensitive technologies out of the world’s most dangerous hands.   

And no technology is a higher priority for us than semiconductors.  As our Secretary of Commerce, Gina Raimondo, recently put it, “If you think about national security today in 2024, it’s not just tanks and missiles; it’s technology.  It’s semiconductors.”  It’s semiconductors.  Your industry is at the heart of one of our nation’s most pressing national security challenges:  preventing foreign governments from using our advanced technologies – your advanced technologies – against us and our allies. 

Semiconductors are at the very center of my team’s work.  For the most advanced, cutting-edge chips, we strictly control the ability of the People’s Republic of China to obtain them.  Put simply, we won’t permit the Chinese government to use our most sophisticated chips to advance their military modernization efforts or enable human rights abuses.  My team works with our federal law enforcement partners, here in California and across the country, to make sure our advanced semiconductor restrictions are followed and that any violations are detected and punished. 

Our efforts to degrade Russia’s ability to wage war in Ukraine are also heavily semiconductor-focused.  I traveled to Kyiv last year with DOJ and FBI officials to meet with our Ukrainian government counterparts.  We visited a Ukrainian forensic lab, where they examine the insides of downed missiles and drones.  The components we saw at the lab told a powerful and distressing story.  Russia is using Western electronics, semiconductors in particular, to power their missiles, unmanned aerial vehicles, and other weapons systems used to target and kill Ukrainians.  We are partnering closely with the Ukrainian government to disrupt the procurement networks that get these chips from the U.S. to Russia. 

This centrality of semiconductors to national security is among the reasons we stood up the Disruptive Technology Strike Force last year with the Department of Justice.  The Strike Force, a powerful partnership between Commerce, Justice, FBI, HSI, and the Defense Criminal Investigative Service, aims to prevent nation-state actors – like Russia, the PRC, and Iran – from acquiring our most sensitive technologies and using them for malign purposes.  To date, the Strike Force has brought 16 criminal indictments against 26 defendants.  Fourteen of those defendants have been charged with crimes related to their procurement of electronic components, including semiconductors.  Just last week, a Brooklyn resident pleaded guilty for his role in shipping a quarter of a million dollars’ worth of semiconductors and other electronic components from the United States to companies affiliated with the Russian military.   

But even this impactful coordinated effort across government enforcement agencies is, by itself, insufficient to meet the national security moment we’re facing.  We need industry’s help.  We need your help.  You don’t want your product found on the battlefield in Ukraine or your technology used by an authoritarian government to repress its population (both all too common real-world examples).  We’re doing all we can to incentivize compliance, including conducting extensive outreach, publishing advisories and best practices documents, and updating our enforcement policies, to help drive compliance.  We even published a sample end-use certification form, to help companies prevent diversion of high-priority battlefield items, like semiconductors, to the Russian war machine.   

But, frankly, we need everyone to do more.  Last year, we sent U.S. microelectronics companies “red flag” letters identifying specific customers of theirs who had been identified in customs data as continuing to ship semiconductors and other microelectronics to Russia.  We’ve since gone further.  We’ve now identified a list of over 600 foreign parties who continue to ship these high-priority items to Russia and have sent this list to U.S. manufacturers and distributors who make and sell products – like semiconductors – that continue to be found in recovered missiles and drones inside Ukraine.  We’ve asked the American companies to stop shipping to these 600 foreign parties due to the high risk of transshipment to Russia.   

As I saw firsthand in Kyiv, the full-scale Russian invasion poses an existential threat to the people of Ukraine.  We need to work together to meet the urgent challenge of degrading Russia’s ability to wage war against the Ukrainian people.  And we need to work together to meet the urgent challenge of preventing the PRC from using our cutting-edge chips – your cutting-edge chips – to modernize their military capabilities or restrict human rights. 

The world has changed.  And we must change with it.  Your products are now so powerful that they stand at the core of our country’s national security efforts.  Together, we must do even more to ensure that they remain protected from abuse by those who would do us and our allies harm. 

Thank you. 

Washington, D.C.

April 25, 2024

Remarks as Prepared for Delivery

Thank you all for joining us today to kick off the Disruptive Technology Protection Network, as first envisioned by the leadership of our three countries at Camp David this past summer.

Our gathering together here in this Great Hall – and the formal launch of this joint effort – couldn’t come at a more important time.

As you just heard from Deputy Attorney General Monaco and Assistant Attorney General Olsen, the world is at an inflection point.  Powerful new technologies, like generative AI, are greatly increasing the risk of future asymmetric threats to our collective national security.

As Assistant Secretary for Export Enforcement at the Department of Commerce, I lead a team of law enforcement agents and analysts who work all day every day to keep our country’s most sensitive technologies out of the world’s most dangerous hands.

But we don’t do that work alone.  Last year, we partnered with DOJ to stand up the Disruptive Technology Strike Force, which brings together agents, analysts, and prosecutors in 17 locations across the United States to disrupt foreign actors who are trying to obtain advanced U.S. technology. 

The Strike Force uses an all-tools approach to disruption, from bringing criminal indictments to adding parties to the Commerce Department’s Entity List.  The Strike Force harnesses the authorities of each partner agency – DOJ, Commerce, FBI, Homeland Security Investigations, and the Defense Criminal Investigative Service – both to prevent bad actors from acquiring our highest-priority technologies and to hold them accountable if they do.  We’re more impactful when we work together. 

And that impact is undeniable.  Over the last year, the Strike Force has charged 16 cases against Russian, Chinese, and Iranian procurement networks for the transfer of sensitive information, goods, and military-grade technology.  Last month, in two different cases, the Strike Force indicted three people accused of stealing advanced trade secrets related to electric vehicles and artificial intelligence. The Strike Force’s work has also led to Temporary Denial Orders against nearly 30 entities and the addition of multiple parties to the Entity List.

But as much as we’ve been able to accomplish here in the United States, more needs to be done to meet the moment the world currently faces.  Our actions alone are insufficient to match the threat posed by our adversaries.  That’s exactly why our collective leadership – President Biden, Prime Minister Kishida, and President Yoon – agreed last year to expand our collaboration on technology protection measures.  It’s why they charged all of us with creating and implementing the Disruptive Technology Protection Network, a partnership that brings our technology protection teams together.  Through this network, which we’re formalizing today with the signing of the two Memoranda of Intent, we will expand our information sharing and exchange of best practices across enforcement agencies of our three countries.  In so doing, we will strengthen our collective ability to protect our advanced technology.

I thank you again for joining us today, but even more so, for joining in this critically important endeavor.  I can’t wait to see what we are able to accomplish together through the Disruptive Technology Protection Network.

Assistant Secretary of Commerce for Export Administration
Thea D. Rozman Kendler
BIS’s 2024 Update Conference on Export Controls and Policy
Washington, D.C.

Remarks as Prepared for Delivery

March 28, 2024

Introduction

Good morning. It’s a joy to join you all here at Update. One of the tremendous highlights of this job for me has been the opportunity to meet and collaborate with this export control community. Thank you to everyone who made this conference come together: my team, in particular the Office of Exporter Services, our volunteers, the team at the Marriott Marquis, and everyone present in the room that came from all over the world.

Over the next few minutes, I will share my thoughts on the Bureau of Industry and Security’s (BIS) regulatory focus and how we are positioning Export Administration (EA) to tackle geopolitical challenges associated with advanced and emerging technology.

General Regulatory Focus

We have heard a great deal the past two days regarding national security and the political threats posed by the People’s Republic of China’s (PRC) military modernization and Russia’s hegemonic efforts. It should be no surprise that our top priority is using export controls to proactively address these concerns. Russia and the PRC were at forefront of BIS’s policy decisions last year and will likely continue to be for years to come.

Our most substantial rules of the past year addressed: PRC efforts to use advanced computing and semiconductor manufacturing equipment to advance its military modernization and Russia’s desire to obtain U.S. goods to shore up its attacks on the innocent people of Ukraine. You can anticipate that we’ll shortly publish proposed rules implementing NDAA authority related to export controls on militaries, intelligence organizations, and security services, on which we welcome your comments. 

Still, our increasing focus on preventing adversaries from harnessing the potential of emerging technologies like artificial intelligence to advance their military capabilities and malign activities has not distracted from our traditional nonproliferation focus. Even as we expanded advanced computing controls on the PRC, we also expanded nuclear nonproliferation controls to ensure that deuterium, graphite, and other nuclear-related items are only being used in the PRC for peaceful activities such as commercial nuclear power generation, medical developments, and non-military industries.

EA had a very busy 2023. We processed nearly 40,000 license applications with an average processing time of 32 days, not including applications for the PRC. The Operating Committee heard 614 applications, the Advisory Committee for Export Policy reviewed 45, and no cases were elevated to the Export Advisory Review Board. We published 45 rules, with thousands of pages, as you know, and added 466 entities to the Entity List. The EA team also traveled the globe, putting all of our energy behind the development of multilateral and plurilateral controls, as well as the many critical government dialogues we maintain – Brussels, the Hague, Ankara, Seoul, Tokyo, Kuala Lumpur, Delhi and Abu Dhabi, just to name a few. 

Organizational Repositioning

We are also making some internal changes in EA in light of our substantially growing responsibilities. Primarily, we’re implementing a new EA leadership framework to ensure we can continue to effectively protect national security and appropriately manage policy engagement and implementation.

Internal review recognized two main channels of activity in EA. First, Strategic Trade – this is our licensing functions, outreach, and training mission. Second, Technology Security – this is our DIB responsibilities, as well as all of the analysis we do – whether on licensing and trade data, industry research, or intelligence – and our 232 work. And so, we formally created two Deputy Assistant Secretary (DAS) roles to lead this work – a DAS for Strategic Trade, and a DAS for Technology Security. Above them, is the Principal Deputy Assistant Secretary, a position to which we’ve elevated national treasure Matt Borman.

In office organizational terms, the DAS for Strategic Trade will oversee the Office of National Security and Technology Transfer Controls, Office of Nonproliferation and Treaty Compliance, and the Office of Exporter Services. The new DAS for Technology Security will be responsible for Office of Strategic Industries and Economic Security and the Office of Technology Evaluation. Those are the topline changes.

You should have pretty good understanding of the Strategic Trade mission already – so I’ll spend an extra minute on what to expect from the Technology Security side of the EA house. Export Control Reform Act Section 1758 charges us with identifying and implementing appropriate controls on emerging and foundational technologies essential to national security.  This is a critical part of our mission that demands dedicated resources and attention. This work, as well as foreign technology analysis and other research efforts designed to help assess the effectiveness of our export controls, will be formalized under the DAS for Technology Security.

In past year, the Office of Technology Evaluation under Kevin Coyne has led the bureau’s Section 1758 work, including through proactive research, analysis, collaboration, and consultation with interagency partners and key industry and academic stakeholders, as well as supporting engagements with allies and partners at the regimes. And our nonproliferation experts, notably in the Chemical and Biological Controls Division have provided critical leadership in this space, through proposed rules on new technologies like peptide synthesizers.

Formalizing a Technology Security branch of EA is essential for moving BIS from its historic focus on export control regulations towards a holistic approach of assessing the intersection of tech ecosystems, export control authorities, and national security and foreign policy goals.

Related to these new branches, we moved the Munitions Control Division to the Office of National Security and Technology Transfer Controls under the DAS for Strategic Trade.

As some of you know, these changes required congressional approval. In the course of taking that on, we took the opportunity to rethink the names of some of our offices and divisions. All will be announced on new website by the end of this week.

We know you rely on our website to reflect the current state of BIS. Our Office of the Chief Information Officer (OCIO) has been working diligently on our new site, rolled out officially last Friday, for the better part of a year now. Thank you to Michael Palmer and our OCIO for your efforts to make us look so good – check it out and share thoughts with them today.

Before I get back into policy, I have one more EA development to address – under our new PDAS, we formed an International Policy Office (IPO). Our vision for EA requires consistent and proactive engagement with our allies and partners to achieve mutual goals, as well as increased focus on the activities and plans of nations that challenge global peace and security. IPO leads EA’s increasing focus on engaging on a plurilateral and bilateral basis to address evolving threats, helps institutionalize the many plurilateral and bilateral relationships we’ve developed over the last 2 years, and enables country-specific analysis not necessarily tied to a specific technology or multilateral regime.

Trusted Tech Ecosystem

Over the past year, we’ve doubled down on efforts to bring friends on side with our approach to advanced technology. You saw some of our efforts in rules published last year removing license requirements for certain items and making it easier to use license exceptions for exports to close partners. Related to that, you can expect a final Strategic Trade Authorization rule this summer. These rules facilitate innovation with trusted partners and free up licensing resources to focus on higher-risk transactions.

To compliment the work that the State Department is doing to implement the Australia-U.S.-UK enhanced security partnership, or “AUKUS,” Defense Trade Cooperation pursuant to the Fiscal Year 24 NDAA, we’re also working on incorporating the premise of AUKUS into dual-use export controls. Last year, the UK Parliament passed the National Security Act to enhance protections of defense-related information, and Australia’s Parliament just passed the Defence Trade Controls Amendment Act, imposing new reexport controls as well as deemed export controls. In light of the AUKUS partnership and these new tech protection measures our allies have implemented, we are considering what we can do to streamline trade controls with the UK and Australia.

What’s been harder to see publicly is our extensive engagements to bring friends into our advanced technology fold. We’ve learned from you that U.S. and multinational companies are seeking new locations for their advanced tech operations. We’ve learned from governments around the world that they view advanced U.S. tech as unparalleled. Accordingly, we’re looking for ways to make it easier for industry to work with international partners that embrace the principles of export controls. 

Traditionally, we would have thought about this kind of partnership through the lens of co-development. Increasingly, we’re thinking about ensuring that the items subject to our controls are readily accessible in countries eager to join the United States in using advanced technology responsibly.

Many of your companies already maintain operations in countries that don’t have export control laws and regulations in place. We thank you for bringing your compliance programs and due diligence practices with you. Whether you’re friendshoring, diversifying, or derisking, you’re leading the way in expanding a trusted tech ecosystem.

This is a new look at our advanced technology partners of the 21^st century – who they are now, and who we anticipate they may be in the future. So for those of you with multinational operations, consider the example of a Validated End User, or “VEU,” operating in India. As a VEU, this company is eligible to receive advanced tech exports without waiting for suppliers to obtain a license from BIS.

The VEU process allows for more certainty and reliability regarding the receipt of items subject to the EAR that are include in their VEU authorization. It does not have an expiration date like a license, and can be made available to re-exporters. We are working through different scenarios to see how authorization VEU could be further utilized around the world. We welcome your feedback on this.

Multilateralism

In EA – Export Enforcement (EE) as well, although they will tell their own story – we are adopting creative approaches to our international efforts, which are fundamental to modernizing export controls and maximizing their effectiveness. Technology supply chains span across borders, and technological expertise is dispersed throughout the world. The best way to truly keep potentially dangerous technologies and know-how out of the hands of bad actors is to work together. Coordinated controls reduce instances of evasion or backfill by other suppliers from other countries, ensuring that our controls remain effective over the long term.

This is the approach we have adopted in building the Global Export Control Coalition, focused on using all aspects of export controls to degrade Russia’s military capabilities, as well as those of enablers such as Belarus and Iran. This coalition – led by the EC, Japan, UK and the U.S. – enabled us to drive new approaches to lower-level commodity controls on Russia and its partners, using Harmonized Systems (HS) codes to parse EAR99 items. Our Russia team covered the Common High Priority List, based on HS codes, yesterday. That's another excellent – and globally effective – result of our coalition’s work.

It’s also the approach we’ve applied to Russia’s efforts to stymie Wassenaar Arrangement (WA) progress. For two years now, Russia has stood in the way of new multilateral controls being adopted through the WA.  And so – through the efforts of our State Department colleagues and leading international partners – we have been creative with our workarounds. You’ll see us publish new plurilateral controls stemming from 2022 and 2023 WA discussions in the near term. 

Industry

Rapid advancements in science and technology mandate that we – and our friends – become more nimble as we develop strategies more suited to those technological advancements, as well as the global geopolitical context we face. I spoke about our government to government partnerships, but let’s be clear – we rely on our close partnership with industry to protect global peace and security as well. Companies inside and outside the United States are striving to keep pace with the rapid changes to the national security landscape.

As always, we want to hear from you on the impact you see from our regulations, on the challenges you face in implementing export controls, and on the ramifications of our rules.  We ask that you continue providing feedback on our effectiveness of our regulations, and that you continue to amplify our message about the national security rationale for our controls.

Thank you and your companies for your efforts to shore up export control compliance in the face of these challenges.

Increased Emphasis on Data

The new structure of EA and our foreign government and industry engagements, reflect the data-driven nature of our mission. That ties directly into the next part of our plenary session this morning. I’d like to leave you with a better understanding of how we in EA use intel, and how the work of the intelligence community furthers our mission, making dual-use export controls as effective as possible.

EA’s licensing officers, along with our interagency and EE colleagues, cannot adjudicate license applications without intelligence. To fully evaluate parties to a transaction, end uses, and the risks of diversion requires open-sourced information and intelligence. 

I hope you understand that we at Commerce don’t rely on State, Defense, or Energy to find derogatory information for us.  Our licensing officers assess applications based on their familiarity with technology, industry, and regional issues, as well as intel. To this end, we in EA are putting resources into improving our access to intel and collaboration with the intelligence community.

Take our advance chip and SME rules – our licensing officers, many of whom are highly-trained engineers – worked with the intelligence community to understand the threat posed by the PRC’s access to advanced integrated circuits. With an understanding of the threat, in partnership with the intelligence community, our engineers mapped out the key technologies that are made by the U.S. and its allies on which the PRC is dependent. This information became the building blocks for the Advanced Computing rule that now limits the PRC’s ability to obtain advanced computing chips and semiconductor manufacturing equipment.

We also rely on the intelligence community to help us make the case to our allies that the technology we care about will contribute to programs that harm our national security. This isn’t dissimilar from how we brought the Global Export Control Coalition – 39 partners from North America to Europe to the Indo-Pacific – together to impose substantially similar export controls on Russia/Belarus. Our intelligence sharing helped to clarify the threat, which helped to focus our allies on the reality we were facing.

The more we can share intelligence about technology risks with our close partners, the more we can bring them on board with our technology control proposals. 

Conclusion

With that, I hope I provided a good snapshot of where EA is and where we’re going. We’re focused on emerging technology and forging deeper international partnerships around common export control approaches.

I recognize the importance of engaging with our export control community – you – to ensure EA’s actions are tailored to fully address national security concerns while also ensuring the advancement of U.S. technological leadership.

Thank you.

Under Secretary of Commerce for Industry and Security
Alan F. Estevez
Keynote Remarks
BIS Update Conference 2024

As prepared for delivery

Good morning and welcome to the 2024 BIS Update Conference on Export Controls and Policy. I’m thrilled to be here once again to kick off this three-day event with you all.

Before diving into things, I want to thank Karen Nies-Vogel and the Office of Exporter Services for pulling everything together for this event. This is our first time hosting entirely in person since the COVID-19 pandemic, and although it’s certainly refreshing to feel like we’re somewhat back to normalcy, I know it required a lot more from Karen and the team—so thank you.

Our last Update Conference was in June of 2022. A lot has happened in the export control space since then.

I want to briefly thank all of the members of the BIS team for their hard work—the volume and tempo of our work have been incredibly high, and we’re able to sustain those efforts only because of the dedicated professionals of the Bureau.

Today, I will touch on the current export controls context, review some of the major work we’ve undertaken since the last Update Conference in 2022 and share some insights on where things are headed.

Export Controls Evolution

As those of you in this room know, BIS has operated for decades at the nexus of national security, technology, and commerce. 

The growth in the importance of export controls as a national security tool mirrors the dynamic of militarily useful technology. This transition has been going on since before the Berlin Wall came down. Through the 1980s, military dollars largely drove research and development in the United States. Even when you look specifically at the semiconductor space, originally, the Department of Defense was the main buyer of semiconductors. Of course, that has reversed; the defense industry ecosystem now looks to the commercial sector for innovations that are useful. Technology and commercial research and development from the private sector are the driving forces behind the innovation ecosystem.

Especially given the rapid state of technological progress, export controls cannot be static. There is no magic single control that we can put in place that will forever stop our adversaries. Export controls are about impeding access, increasing costs, and countering efforts to evade our controls. We have to continually evaluate the global security context and the technological landscape, and we need to update controls accordingly.

As is often the case, things happen gradually—then seemingly all at once.

That is the story of the past few years.

Over the past two plus years, we have taken significant actions to respond to Russia’s full-scale invasion of Ukraine and to counter the threat from the People’s Republic of China’s (PRC) military modernization efforts.

We have worked closely with international and interagency partners to strengthen our multilateral ties both to counter these threats and to help shape more secure supply chains. The United States is the world’s most powerful economy, but we aren’t the only ones engaged in global trade—so our controls are most effective when we work together with other countries.

We have also worked incredibly hard to enhance our enforcement efforts. As Assistant Secretary Axelrod has repeatedly pointed out, our colleagues at Homeland Security Investigations have more agents in Tampa, Florida than he has in the entire world, and I am proud of our enforcement team’s steadfast efforts to meet quickly growing demands.

From policy changes to greater collaboration with interagency and international colleagues, we are doing everything we can to leverage our resources with those of others in order to maximize our impact. Much of that work has occurred in just the last two years.

Russia/Ukraine

BIS has taken aggressive actions, in concert with 38 other allies and partners, to impose extensive export controls in response to Russia’s full-scale invasion of Ukraine. This multilateral approach was critical, as the U.S.-Russia volume of trade was relatively small at the start of the invasion.

We continue to act aggressively to prevent Russia’s access to the technology needed for its weapons. From February 24, 2022, to December 31, 2023, the Office of Export Enforcement (OEE) detained 559 shipments that were destined to Russia, valued at over $284 million. We also stood up a Disruptive Technology Strike Force to prioritize investigations involving diversions to Russia, China, and Iran. Many of these Strike Force cases involve Russian schemes to purchase critical dual-use technology, including military-grade components that could be used in missiles and UAVs.

BIS has also used the Entity List vigorously to restrict not only Russian and Belarusian entities’ ability to obtain items to support their war effort but also entities in a variety of third countries. Since March 2022, more than 900 entries have been added to the Entity List, with 636 in Russia, 29 in Belarus, and nearly 250 in more than 30 third countries.

Many of these entities have also been added with a footnote 3 designation, which, through one of the Foreign Direct Product Rules, effectively cuts them off from being able to obtain additional foreign-produced items with U.S.-origin components or made using U.S. technology subject to the Export Administration Regulations.

Our actions have imposed increased costs on Russia. They have forced Russia to rely on pariah states, such as Iran and North Korea, for weapons. And they have forced Russia to expend resources to create networks to evade our controls. In response, we have implemented new controls targeting Iran and entities throughout the world who are violating our restrictions. We have also acted strongly with allies and partners to detect and disrupt those networks. We will continue working with our international partners to align on and enforce our controls. 

We are also working with industry to enhance due diligence to detect efforts to evade our controls. No one wants American-designed items turning up in Iranian drones or weapons used by Russia to kill civilians in Ukraine or attack Ukraine’s critical infrastructure. But it’s happening. This is a global challenge, and we all need to do more and think creatively.

So, right now, we are partnering with the Departments of State and the Treasury to engage with the private sector to further restrict Russia’s access to U.S. semiconductors. We are actively working with companies and other relevant stakeholders to ensure information about bad actors in the broader semiconductor distribution chains is disseminated so that these pathways to Russia can be shut down.

We are asking the private sector to step up more than it has, and even if you have not heard from us directly, we need you to be part of the solution. Traditional due diligence is not sufficient—especially if your company or your clients have complicated distribution networks. Government and industry both need to show a commitment at the highest levels and continue to devote resources to detecting red flags, vetting intermediaries, tracking controlled product, and sharing information and best practices.

While all of our efforts related to export controls are important, I want to be clear: The most important step the United States can take right now to help Ukraine is to provide funding to support the fight against Russia’s invasion. New funding, along with other tools in our toolkit, will continue to impose costs on Russia and those who seek to support Putin’s unjustifiable actions.

As I noted in my Congressional testimony last week—China is watching our actions and our willingness to stand up against illegal aggression. Helping Ukraine is also about China.

PRC

As the Administration’s National Security Strategy and the Intelligence Community’s Annual Threat Assessment make clear, the PRC represents the most significant challenge to U.S. values and security interests.

However, our relationships with Russia and the PRC are very different—so are the relationships between the PRC and many of our close allies and partners. There is a substantial amount of trade between the United States and the PRC that does not present national security concerns, and it is in our interest to continue to engage where we can.   

I want to be clear: Export controls are a national security tool, not an economic protectionist tool. BIS has been called upon to apply export controls on items that the PRC is seeking to obtain in order to advance its military modernization and its human rights abuses.

We have long maintained controls on the PRC for military, spacecraft, and multilaterally-controlled dual-use items, as well as certain predominantly commercial items if used by military end users or in military end uses. As critical and emerging technologies have continued to advance, we have strived to keep pace. Military advantage is now being sought through advanced computing power—supercomputers that can manage and manipulate vast amounts of data, artificial intelligence (AI) that speeds military decision-making, and a host of other activities that rely on certain advanced chips and the ability to make or obtain them.

So, in October of 2022, we began implementing sweeping, strategic, country-wide controls on key types of critical and emerging technologies. These technologies include advanced computing chips needed to power military AI and supercomputing applications, as well as semiconductor manufacturing equipment essential to producing advanced chips. We then refined and expanded these controls in October of 2023. We will continue working to assess their impact and effectiveness, and we intend to revisit them regularly to protect U.S. national security and foreign policy interests, as appropriate.

This country-wide approach is important because we are identifying strategic sectors and items and setting clear lines based on technological capabilities. This is a more durable and effective approach than focusing solely on particular entities and case-by-case license reviews. We have already seen reports of constraints to the PRC’s high-performance computing capacity and other areas that suggest our controls are having an impact.

However, in the case of our rules from October 2022 and 2023, we also understand that acting unilaterally minimizes effectiveness and creates an unlevel playing field for U.S. companies and can thus undermine U.S. technology leadership. History has shown that the United States often needs to lead, but this Administration places the highest priority on working with our allies to make sure we are not alone. This remains an important priority as we continue to assess these technology-based restrictions.     

In addition to our countrywide controls, we continue to add PRC parties to our Entity List. In fact, we have added more than 300 entities during this Administration. These actions help to backstop our technology-based controls by denying PRC entities access to predominantly commercial items that could be used for military applications or human rights abuses. Over 100 of these entities have also been added for supporting Russia’s military industrial base since the start of its war against Ukraine, and we will continue to use the Entity List to send a clear message to entities in the PRC and elsewhere that we will not tolerate engaging in activities contrary to U.S. national security and foreign policy interests.

We are also working hard to ensure that there are teeth to our controls through enforcement efforts.

BIS remains laser-focused on preventing sensitive U.S. technologies and goods from being used for malign purposes. In 2023, we issued our largest standalone civil penalty in history—$300,000,000—for Seagate’s alleged violations of U.S. export controls related to selling hard disk drives to Huawei even after Seagate’s only two competitors had stopped sales because of the Foreign Direct Product Rule.

We have also expanded our reach through partnerships. That is why we established the Disruptive Technology Strike Force in partnership with the Department of Justice last year. The Strike Force brings together experienced agents and prosecutors in seventeen locations across the country, supported by an interagency intelligence effort in Washington, DC, to aggressively pursue enforcement actions against illegal procurement networks and prevent nation-state actors from illicitly acquiring our most sensitive technology.

Recently, BIS agents and the FBI worked together on a case involving the theft of trade secrets, resulting in an indictment. The case involves a Chinese national who was employed by a large Silicon Valley company. During his employment, the defendant is alleged to have siphoned proprietary information related to AI while covertly working with two China-based companies seeking an edge in the AI technology race.

And in January 2024, four Chinese nationals were charged with various federal crimes related to a years-long conspiracy to unlawfully export and smuggle U.S.-origin electronic components from the United States to Iran that would ultimately benefit entities affiliated with Iran’s Islamic Revolutionary Guard Corps and the Ministry of Defense and Armed Forces Logistics, which supervises Iran’s production and development of weapons, missiles, and Unmanned Aerial Vehicles. 

Evolving National Security Approach

The challenges to peace and stability that Russia and China pose have forced a revitalization of export controls—as well as an evolution to our approach and the addition of new, non-export control tools to BIS’s toolbox.

How has BIS’s approach evolved?

First, we are looking at export controls from a strategic perspective. We ask ourselves a number of questions. What are the specific national security or foreign policy concerns we are trying to address? Will the proposed control achieve our objectives? What will the impact be on U.S. technological leadership? Will the control create additional collateral consequences? Will allies and partners act with us? And is the control enforceable? These and other questions inform our strategic approach, and they have helped us carefully scope many of our actions, including the AI chip and semiconductor manufacturing equipment controls.

Second, over the past few years, we have engaged vigorously with our international allies and partners, and as I already mentioned, this is a key part of our strategic analysis. We owe our allies and the exporting public clear articulations of our national security or foreign policy concerns when we act. In the case of our Russia controls, this was easy due to Putin’s unjustifiable invasion of Ukraine. In the case of new technology controls, this can be more difficult, especially when some of the technologies of concern are predominantly used for commercial applications. Having a shared threat perception is key to multilateral controls, as is effective enforcement of such controls by our partners, and we are continuing to prioritize these efforts.

While traditional multilateral export control regimes play a key role in ensuring international support for our actions, we must recognize that today’s geopolitical realities, today’s threats, and today’s pace of rapid technological change require creative thinking and greater flexibility to protect the national security of the United States and our allies. In this regard, it has been encouraging to see allies examine the legal authorities they need to implement new controls outside of the multilateral regimes and to adopt new controls proposed at the Wassenaar Arrangement that were blocked by Russia. We will continue working to bring others on board and further align our controls as we seek to address additional critical and emerging technologies.

Third, even while we take a strategic approach to applying controls, we are not ignoring the need to address individual actors and to be aggressive in our enforcement posture. There are now more than 800 PRC entities on the Entity List, including more than 300 in this Administration. There are more than 900 entities on the Entity List related to Russia’s invasion of Ukraine, including about 250 in countries outside of Russia and Belarus.

Fourth, we employ our other authorities—both old and new—alongside export controls to advance national security from other angles. We are using our survey authority under the Defense Production Act to provide critical insight into the use and sourcing of PRC-manufactured legacy chips in the supply chains of critical U.S. industries. To implement the President’s AI Executive Order, BIS is proposing first-of-its-kind reporting requirements on companies that training of large AI models that could pose a threat to national security.

Nowhere is BIS’s expanding set of national security equities more self-evident than in the Office of the new Information and Communications Technology and Services (ICTS) program. In 2022, BIS welcomed ICTS as a formal part of the BIS mission. The office of ICTS—or “OICTS”—is charged with protecting our nation’s information communications technology systems from foreign adversary threats. Authorized under the International Emergency Economic Powers Act (IEEPA), the program has the authority to review, regulate, and restrict ICTS transactions that involve entities associated with foreign adversaries.

We have been busy growing the program, hiring the program’s first Executive Director Liz Cannon, and initiating the program’s first set of regulatory actions. Last month, in response to the growing involvement of the PRC in the supply chain for connected vehicles, BIS issued an Advanced Notice of Proposed Rulemaking related to security risks from foreign adversary technology in connected vehicles. As national security threats evolve, so does BIS. Going forward, ICTS promises to be an important part of the BIS mission.

Finally, BIS is not acting alone to advance U.S. national security. The Department of Commerce employs an “offense/defense” approach—BIS’s work is the defense. The offense is the Department’s work, led by other bureaus, to implement the CHIPS and Science Act and a host of other laws, which will ensure that U.S. technological leadership continues to advance and that the benefits of this advancement are widely distributed across our nation. This is part of the Biden-Harris Administration’s whole-of-government approach to strategic competition with the PRC. By taking this approach to strengthening and enhancing our capabilities here at home and also working to coordinate with allies and partners, we are making it more likely that export controls will have an even greater strategic impact in the future.

Sustaining BIS’s Efforts for the Future

These actions are just the beginning of BIS’s ongoing efforts to protect national security, particularly as technology advances and we become an even more digital and connected society.

And as the technology landscape continues to evolve, BIS has been asked to do more in an era of strategic competition to address our national security and foreign policy concerns. We are proud of our recent accomplishments and the work we’re doing to advance U.S. national security, but there’s an opportunity to do so much more and to accelerate our impact. To meet this moment, there are a few realities that need to be confronted. Consider the following:

• When adjusted for inflation, BIS’s budget for core export control functions has remained essentially flat since 2010.
• Yet during the same period, total U.S. exports have increased approximately 62 percent, and exports subject to BIS license requirements have increased approximately 126 percent since 2014.
• Our licensing workload has doubled from approximately 20,000 per year in 2012 to over 40,000 per year.
• BIS’s law enforcement component employs only 150 agents to monitor the more than 30 million export transactions annually and counter the threat posed by nation state actors around the world.
• And our staff relies on antiquated systems, for both license adjudication and enforcement work, that were put in service in 2006 and 2008, respectively. 

BIS and the Department are working with Congress—including many of the Hill staff in this room—to put BIS on the right path for boosting our central work in this new era of strategic competition.

Given today’s threat environment, combined with rapid technological change, BIS’s vital tools are increasingly being leveraged to protect the national security and foreign policy interests of the United States and our allies and partners.  

We will continue to address the rapidly evolving pace of technological development and the threats posed by malign actors. Russia, China, North Korea, and Iran—as well as others—are desperately trying to obtain or produce advanced technologies for activities that present national security and foreign policy concerns.

BIS will continue working to be strategic in our actions and coordinated in our controls. We will relentlessly counter the threats of today and will adapt to address the challenges of tomorrow. And to that end, we look forward to working in partnership with you. Thank you for joining us.

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Remarks as Prepared for Delivery by Assistant Secretary for Export Enforcement Matthew S. Axelrod at BIS’s 2024 Update Conference on Export Controls and Policy

March 28, 2024

When I last spoke at Update – my first – I had been the Assistant Secretary for Export Enforcement for about six months.  During those six months, Russia had launched its full-scale invasion of Ukraine, and it felt like the pace and scope of changes to our export control rules were unrelenting.  Nearly two years later, it still feels that way.  Since I last spoke with you here, we’ve stood up the Disruptive Technology Strike Force, added hundreds of parties to the Entity List, strengthened our partnerships with our industry, interagency, and international counterparts, and brought charges against numerous illicit Russian, Chinese, and Iranian procurement networks.  Given the global threat environment we currently face, our enforcement efforts have never been more central to America’s national security strategy.

But it’s not just practitioners and trade professionals like you that I speak to.  A few months after speaking to all of you at the last Update, I returned to my hometown of Boston, Massachusetts, to speak to the current students at my former high school, Roxbury Latin.  Talking with the faculty and students there, it was clear to me that Roxbury Latin’s overarching philosophy has remain unchanged – that character education is just as important as an academically rigorous one.  The school, founded in 1645 and the oldest secondary school in continuous existence in North America, embraces distinct values and requires that its students live by them.  As one example, the school is explicit about honesty being expected in all dealings.  In fact, that’s the first fundamental standard listed in the school’s Handbook.  When I was a student, Roxbury Latin’s then-Head, Tony Jarvis, reminded us every exam period that no grade was ever worth the price of our reputations.  Cheating is not worth it. 

Of course, it’s not just Roxbury Latin where this principle holds true.  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.  According to the Annual Threat Assessment of the U.S. Intelligence Community released just a few weeks ago, “An ambitious but anxious China, a confrontational Russia, some regional powers, such as Iran, and more capable non-state actors are challenging longstanding rules of the international system as well as U.S. primacy within it.”  Our current geopolitical challenges, the increasingly rapid development of technology with the potential to provide asymmetric military advantage, and the countless ways in which the world is now interconnected have raised the prominence and impact of export enforcement in unprecedented ways.

But we simply can’t succeed in our enforcement mission without your help.  As Secretary Raimondo has put it, “We need the private sector, including business, labor, and universities, to work with us to ensure America’s long-term prosperity and security.”  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.  It’s the Roxbury Latin ethos, albeit in a slightly different context – it’s not worth prioritizing short-term profits over long-term reputational risk.  But the stakes here are much higher than those for cheating on a high-school exam.  Failure to prevent our adversaries from obtaining advanced U.S. technology carries not just significant reputational risk for individual companies but also serious consequences for our collective national security.

*          *          *

Since the last Update conference, we’ve announced a number of new policies and initiatives designed to incentivize compliance and to promote effective enforcement.  You’ll see this same two-pronged strategy at work in each of our various announcements today.  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.  In other words, we need to ensure that the export laws are followed – because when they’re not, our national security is harmed.  We’re committed to implementing new and innovative ways to help companies comply.  And we’re equally committed to implementing more aggressive and effective ways to hold companies that don’t comply accountable.  Because the truth is that front-end compliance and back-end enforcement are linked.  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.

Compliance on the front end

Let me tell you what we’ve done in the twenty-one months since the last Update conference.  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.  This unprecedented level of cooperation among different Cabinet agencies is designed to convey consistent and clear messaging about federal priorities on sanctions and export controls.  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.  All of these documents are available on our new and improved BIS website, and I encourage you to visit the site to review them. 

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.

Many of these guidance documents stem from your feedback – from our meetings with industry, academia, exporters, trade associations, and others, who have asked questions about particular policies or trends we’ve identified.  I’m sure we’ll get more questions, comments, and suggestions this week during Update.  This feedback loop is critical so we can ensure that we’re doing our best to help you comply with our rules.  Please keep the feedback coming.

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.  Each partner university has an assigned outreach agent who has been meeting with the university quarterly to talk about new regulations, updates, and enforcement actions relevant to academia.  We’ve also hosted webinars for the academic community on conducting open-source research, red flags specific to academia, and fundamental research. 

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. 

Enforcement on the back end

At the end of the day, it’s up to all of you to build strong compliance programs and promote a culture of compliance within your respective companies or academic institutions.  I’m hopeful our guidance documents, advisories, and best practices can help.  But if you instead choose not to invest in compliance, you significantly increase your risk that an item will be unlawfully exported and that we will aggressively enforce.  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.  We also announced the largest standalone administrative penalty in BIS history – a $300 million penalty against Seagate Technologies to resolve allegations that Seagate shipped millions of hard disk drives to Huawei without a license in violation of the Huawei foreign direct product rule, or FDPR.  We continue to use all of our tools – administrative, criminal, and regulatory – to hold violators accountable.  In 2023 alone, our nominations resulted in more than 465 parties from China, Russia, Iran, and elsewhere being added to the Entity List through the established interagency process. 

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.  The Strike Force brings together experienced agents and prosecutors in seventeen locations across the country.  These 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.  In just the last month, two defendants pleaded guilty in two separate cases for their respective roles in running illicit procurement networks to supply the Russian military with U.S. microelectronics and other sensitive technologies.  A few weeks ago, a Chinese national was indicted for allegedly trying to steal hundreds of confidential files containing artificial intelligence-related trade secrets from Google.  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.

We’ve also benefitted from our close relationships with our sister law enforcement agencies.  Earlier this week, we signed a Memorandum of Understanding with HSI that formalizes our close coordination and partnership.  We’re already lashed up tightly with HSI, given that we work nearly 40% of our major cases jointly with them.  This MOU will ensure that this strong cooperation endures.   

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.

At the same time, our agents are working directly with their international enforcement counterparts.  For example, our work with the Canadian authorities resulted in a criminal complaint unsealed in October charging three individuals in a multimillion-dollar global procurement scheme that sourced components used in UAVs and guided missile systems to sanctioned entities in Russia.  Just last month, one of those individuals pleaded guilty to money laundering charges for her role in the scheme.  Also last month, as a result of cooperation with the Latvian authorities, a Latvian national pleaded guilty in the District of Connecticut for attempting to smuggle a jig grinder, which has defense and nuclear applications, from Connecticut to Russia.  As part of that case, the Department of Justice transferred nearly $500,000 in forfeited Russian funds to Estonia, another crucial partner in the investigation, for the purpose of providing aid to Ukraine.  This transfer was the first of its kind from the United States to a foreign ally for the express purpose of assisting Ukraine.

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. 

These policy changes are bringing results.  In the last year, we imposed over $425,000 in penalties on companies for alleged violations of the antiboycott regulations, including over $283,000 against Regal Beloit FZE, a foreign subsidiary of Regal Beloit America, Inc., to resolve 84 violations related to antiboycott requests from a Saudi Arabian customer. 

As you can see, when things go sideways and items get wrongly exported, or when our antiboycott rules are violated, we will not hesitate to use all of our enforcement authorities.  We’re also working internally to ensure that we’re using those authorities strategically to achieve the most impactful national security outcomes.  At the start of the last fiscal year, we changed the categories of what we measure internally to help us better drive our prioritized enforcement efforts.  More specifically, we launched a new metrics initiative – how we track our investigative and analytic work – so that we can best evaluate how close the fit is between our highest priorities and how we are spending most of our time.  Now, for the first time, the annual performance plans for all of our managers include a component on how well their field office’s investigations or leads generated by their analysts connect to our highest-priority areas. 

*          *          *

Again, we would much rather you comply with the export control rules on the front end.  It’s better for you, since you don’t want your product found on the battlefield in Ukraine or your technology used by an authoritarian government to repress its population (both all too common real-world examples).  And it’s better for us, because we don’t want your technology or product being used that way either.

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.

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.  We put this guide out because we mean it – we want to help make sure you literally don’t let this happen to you.  The case examples span the globe, from Michigan to Singapore, as well as technology areas, from UAV and missile components to ghost guns.  

Third, as I mentioned earlier, 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.

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.  We heard directly from non-governmental organizations (NGOs), trade associations, and semiconductor companies that they wanted more information to help them identify Russian front companies in third countries.  So 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.

For the sake of the people of Ukraine and a world order that stands against nation-state aggressors, we must continue to work as closely as possible with industry, our interagency colleagues, and our international partners.  That way, we can both impede the Russian war machine and deter other would-be aggressors from following Putin’s path.

*          *          *

I mentioned at the outset that my high school, Roxbury Latin, was founded in 1645.  If you’re doing the math, that means my high school is older than our country.  A Roxbury Latin alumnus, General Joseph Warren, was actually the person responsible for sending Paul Revere and Samuel Dawes on their famous midnight ride to warn the colonists in Concord and Lexington that the British were coming.  Joseph Warren died two months later, killed in one of the most famous battles of the Revolutionary War, the Battle of Bunker Hill.  A statute in his honor stands on the Roxbury Latin campus.

In their own way, export controls played a role in the Revolutionary War as well.  Just a few months after the Boston Tea Party in December 1773, Joseph Warren and his fellow Boston Town Meeting members passed a resolution calling for an economic boycott of Great Britain in response to the British barricade of Boston Harbor.  Later that year, the first Continental Congress adopted the Articles of Association, which called for a trade boycott against not only British imports but also exports by the colonists.  It was understood, even then, just how critical economic sanctions and export controls are as a tool of foreign policy.  As the Boston Town Meeting resolution stated, if Great Britain were to continue its “exports and imports, there is high reason to fear that fraud, power, and the most odious oppression, will rise triumphant over right, justice, social happiness, and freedom.” 

Our policies and initiatives over the past few years, from the issuance of high-priority item supplier lists to updates to our voluntary self-disclosure procedures, have all been designed to promote compliance on the front end and, if that fails, strengthen enforcement on the back end.  We’re operating in a fundamentally different strategic environment from even a decade ago, let alone the 1700s.  The decisions you make today on where and how you undertake research, engage in trade, and make investment decisions will profoundly shape our economic and national security for decades to come.  While we no longer fear the arrival of the British (since they are now among our closest allies), we need to be more vigilant than ever against today’s adversaries, the ones who are now “coming” for us.  We need everyone – law enforcement, industry, and academia – working together to protect American technology from them.

Thank you.

January 16, 2024

Thank you, Joe, for that introduction and to the NYU School of Law’s Program on Corporate Compliance and Enforcement for hosting me.

I spent some time over the holidays with family, as I hope everyone here did.  We visited my wife’s parents in Florida, where my father-in-law played us a few records on the 1947 Rock-Ola jukebox he lovingly restored.  His Rock-Ola jukebox is brightly colored, with swirling lights and intricate grill work.  But it’s also the size of a cabinet, difficult to move anywhere, and plays a grand total of 20 songs.  That was state of the art in 1947.

Meanwhile, my daughters spent time during our vacation listening to their music on Spotify.  From handheld mobile phones, they are able to access Spotify’s library of over 100 million songs.  During my father-in-law’s lifetime, we’ve gone from 20 songs to over 100 million, from a large heavy object to an app that exists in the ether, accessible from anywhere.  That pace of technological development, of commercial ingenuity, is breathtaking.

Rock-Ola itself is an exemplar of commercial ingenuity, but in a way you might not expect.  In the early 1940s, during World War II, the country didn’t need jukeboxes – it needed rifles.  Rock-Ola answered the call and transformed its jukebox plant in Chicago to one that manufactured M1 carbines for the U.S. military.  The M1 carbine replaced the earlier (and heavier) M1 rifle, which was difficult for soldiers to carry and impacted their range of motion.  According to Rock-Ola’s website, until 1944, they were “one of only 11 contractors for these operations, delivering completed military rifles at a rate exceeding 10,000 per month.”  The work it took to pull this off was extraordinary.  The company had to “completely retool, recruit many hundreds of new employees, train them up and engineer numerous complex precision parts.”  They even took an old bunker underneath their factory parking lot and converted it into a shooting range.  When the war ended, Rock-Ola stopped making rifles and ramped up their production of jukeboxes.  Their first post-war jukebox came off the line in 1946.  My father-in-law’s was manufactured just one year later.

*    *    *

Just as music technology has leapt forward from jukeboxes to streaming services, military technology has come a long way from the days of the M1 carbine.  Instead of being limited to that rifle’s maximum effective range of 300 yards, weaponized drones can fly for hours, if not days, traveling thousands of miles.  And hypersonic missiles are even more advanced, traveling in excess of Mach 5, or over five times the speed of sound.  Disruptive technologies like supercomputers, artificial intelligence, and hypersonics may eventually be powerful enough to deliver overmatch to whichever country first fully develops their military capacity, with the potential to alter the balance of power in the world.

As stated in President Biden’s most recent National Security Strategy, “technology is central to today’s geopolitical competition and to the future of our national security, economy and democracy.”  In other words, a critical part of our overall national resilience now rests both on our ability to innovate new technologies and on our ability to protect these technologies from being used – or misused – by our adversaries.  That “protect” part is where my team comes in.

At the U.S. Department of Commerce, where I am the Assistant Secretary for Export Enforcement, our law enforcement agents and analysts are focused on a singularly important mission: keeping our country’s most sensitive technologies out of the world’s most dangerous hands.

It’s American companies and universities that are at the forefront of innovating advanced technologies – like the 3D modeling software developed by students in NYU’s Institute for Invention, Innovation, and Entrepreneurship – that will increase the security and prosperity of the American people.  It’s our job in Export Enforcement to help protect those technologies from adversaries who seek to obtain and misuse them to modernize their militaries, commit human rights abuses, or advance their weapons of mass destruction programs.

Our mission has changed significantly over the past decade.  As these technologies have grown exponentially more powerful, the importance of the role that export controls play in protecting them, and by extension our national security, has grown in parallel.  Export controls and their enforcement are at the forefront of our national security efforts like never before.  As I said in a post last year on PCCE’s Compliance and Enforcement blog, we’re in a new era of export enforcement.

But there’s a wrinkle.  Our budget – aptly described by Commerce Secretary Gina Raimondo as still less than “the cost of a few fighter jets” – has not kept pace with the heightened importance of our mission.  I have approximately 150 enforcement agents to cover the entire country.  By comparison, the Department of Homeland Security’s HSI has more agents than that in Tampa, Florida alone.  One direct consequence of this funding lag is that we are constantly aware of the need to strategically prioritize our finite resources so that we can best maximize our national security impact.  We are continuously looking for ways to ensure that we’re spending our time on the most consequential work.  And we’re continuously looking for partners to do it alongside us, thereby expanding our work’s reach and impact. 

That’s what led us to establish the Disruptive Technology Strike Force, which I co-lead with Matt Olsen, the Assistant Attorney General for National Security at the Department of Justice (DOJ).  The Strike Force works to protect a prioritized group of advanced technologies from illegal acquisition and use by nation-state adversaries like Russia, China, and Iran.  To do that, we’ve brought together experienced agents and prosecutors in fourteen locations across the country, including here in Manhattan and across the river in Brooklyn.  These agents and prosecutors are supported by an interagency analytical effort in Washington, D.C.  By partnering closely with other enforcement agencies, and by focusing our combined efforts on the technologies we’re most concerned about, we’re putting our finite resources to their highest and best use. 

This strategic effort to deploy our resources for maximum national security impact similarly led us to work with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to develop the first-ever “key terms” for banks to use when filing Suspicious Activity Reports (SARs) related to export control evasion.  Prior to our work with FinCEN, banks had no uniform way to code SARs related to export control evasion.  This meant that our analysts had to hunt through haystacks of SARs looking for the needles of SARs that were filed because the bank suspected a potential export violation.  Now, our analysts are able to simply review the SARs that contain either of the two new key terms – one for Russia evasion and one for evasion in the rest of the world.  Our partnership with FinCEN has allowed us to maximize our analysts’ time by focusing their efforts on evaluating the SARs most likely to yield actionable leads.  To date, we have reviewed over 500 of these SARs, and we have been able to action nearly twenty percent of those filings in various ways, including by cutting leads to our enforcement agents, advancing existing cases, and developing Entity List packages. 

In addition to working with partners to prioritize our efforts and maximize our impact, we’ve also made internal adjustments.  This past October, at the start of our fiscal year, we changed the categories of what we measure internally, to help us better drive our prioritized enforcement efforts.  More specifically, we launched a new metrics initiative – how we track our investigative and analytic work – so that we can best evaluate how close the fit is between our highest priorities and how we are spending most of our time.  Now, for the first time ever, the annual performance plans for all of our managers include a component on how well their field office’s investigations, or leads generated by their analysts, connect to our highest-priority areas.  More specifically, we are focusing on the items of most concern – like the disruptive technologies I mentioned earlier; the end users of greatest concern – like adversarial military, intelligence, and security agencies as well as transnational criminal organizations; and the end uses of greatest concern ¬– like WMD, destabilizing military modernization efforts, and human rights abuses.  With this enhanced focus, we can better ensure that our agents and analysts are spending their time where it can have the maximum impact. 

*    *    *

It’s not just the Strike Force, the new key terms with FinCEN, and our metrics initiative.  We made changes to our voluntary self-disclosure (VSD) program with the same goal in mind: to help prioritize our resources to best meet the most pressing national security threats.

First, in 2022, we amended how we process VSDs.  For those VSDs involving minor or technical infractions, we now resolve them on a “fast track” with a warning letter or no-action letter within 60 days of receipt of a final submission.  For those VSDs that indicate potentially more serious violations, however, we do a deeper dive to determine whether administrative or criminal enforcement action may be warranted, while at the same time ensuring that companies get significant credit when they come forward voluntarily.  By fast-tracking the minor violations while assigning agent and attorney resources to the more serious ones, we are using our finite resources more effectively while also allowing companies that submit minor or technical VSDs to receive a quicker response.

And last April, we clarified our VSD policies with the goal of driving additional disclosures of significant possible violations of the 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 give them cooperation credit for doing so.

Let me take each in turn.

When someone chooses to file a VSD, they get concrete benefits; when someone affirmatively chooses not to file a VSD, we want them to know that they risk incurring concrete costs.  In other words, when a company’s export compliance program uncovers a significant possible violation, we want company leadership to consider not only the risks of disclosing, but the risks of not disclosing.  And one of those risks is that we now consider the decision not to disclose as an aggravating factor under our guidelines.

Further, companies cannot sidestep the “should we or shouldn’t we disclose” decision by self-blinding and choosing not to do an internal investigation in the first place.  The existence, nature, and adequacy of a company’s compliance program, including its success at self-identifying and rectifying compliance gaps, is itself considered a “general factor” under our settlement guidelines.  This means, for example, that the presence or absence of an effective internal compliance program that uncovers export violations can either mitigate or aggravate a penalty.

For disclosures concerning the misconduct of others, we want to do everything in our power to encourage a level playing field.  But it’s impossible for us to punish violations we don’t know about.  We don’t want a company that’s complying with our rules and forgoing sales to suffer in silence while their competitors continue to book revenue.  We want them to reach out to us.  We will aggressively investigate and, when appropriate, take action.  And if we do take action, there’s something in it for the company that tipped us off.  If the tip results in enforcement action, we’ll consider it “exceptional cooperation,” which is a mitigating factor under our settlement guidelines.  In other words, the company that tipped us off gets credit in the bank with us if a future enforcement action, even for unrelated conduct, is ever brought against them.

*    *    *

Before I announce some further enhancements to our VSD program today, I want to give you a status report on the prior changes I just described.  I’m often asked if these changes are working.  The answer is yes – in at least three different ways.  First, we’re receiving more VSDs of potentially serious violations than ever before.  Second, we’re getting the minor or technical self-disclosures resolved more quickly than ever before.  And third, we’re seeing more disclosures about misconduct by others than ever before.

This past fiscal year, we saw an increase in VSDs that we marked as our highest priority – in other words, self-disclosures of potentially serious violations rose.  Specifically, we received nearly 80% more VSDs containing potentially serious violations in FY2023 than we did in FY2022.  This increase in the more significant VSDs occurred even as the number of overall VSDs remained relatively constant – at nearly 500 – from FY2022 to FY2023.

Second, we are resolving the minor or technical self-disclosures faster than ever before, which lets our agents focus more of their time on the more serious violations.  The average processing time for a minor or technical disclosure is well under the 60-day window provided by the policy.  As a result of our fast-track system, agents are able to resolve the smaller matters more quickly and focus their efforts on the most pressing cases.  This is a win for everyone – for minor or technical disclosures, companies get a faster response, while we can conserve our resources for the most serious violations.

Finally, we’re receiving more disclosures about misconduct by others than ever before.  Since last April’s policy announcement, we have received 33% more tips from industry than we did in the same time period – from April to December – the prior year.  And that’s in addition to the tips we’ve received this past year from the FinCEN whistleblower office, following FinCEN’s expansion of their whistleblower program to include violations of the International Emergency Economic Powers Act (IEEPA) and “related actions” including violations of the Export Control Reform Act (ECRA).

The bottom line here is that our policies are working.  The disclosure pattern over the past year – with the increases in serious disclosures and in tips about misconduct by others – has allowed us to focus our investigative resources on the matters most important to protecting our national security.  

*    *    *

All of that said, there is still more we can do to further this prioritization effort.  That’s why, this evening, I’m publicly announcing four new enhancements to our VSD program.  I told our workforce about these enhancements earlier today, through a policy memorandum that we’re also making public on our website.  And we’re also launching a newly revamped VSD webpage, which contains further specifics on the policy updates and is designed to help facilitate the submission of disclosures.

We recognize that it’s not just my team at Export Enforcement that has finite resources.  All of us – government, industry, and academia – live in a world of tight budgets.  We want to ensure that our policies are designed to drive the prioritization not just of our resources, but of yours too.  In other words, we want you spending most of your compliance dollars on preventing (and, if unsuccessful in preventing, then disclosing) the most serious export violations.  To help drive this behavior, we’re making some changes to reduce the administrative burden associated with submitting disclosures for more minor or technical violations, i.e., those without aggravating factors.

First, for minor or technical violations there is no longer any need to disclose them individually.  Instead, we are asking that such violations be bundled together to form a single overarching submission sent to us on a quarterly basis.  Our aim is to further streamline the process for these smaller infractions, which should help conserve company compliance resources for the more serious violations. At the same time, it will allow us to conserve enforcement resources and more easily fast-track responses.

Second, companies can now submit an abbreviated “narrative account” for minor or technical infractions.  Prior to today’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.  Now, we’ve made clear that, when it comes to minor or technical violations, we instead want companies to submit a succinct narrative account that focuses only on the most immediate violation.  This shorter narrative does not need to include a five-year lookback or the accompanying documentation outlined in our regulations, unless we request it in an individual case.  Our updated VSD webpage outlines the specific content required for this new abbreviated narrative account.  By simplifying the disclosure process for minor or technical violations, we’re encouraging companies to prioritize the more serious violations, where we continue to recommend a thorough review for the preceding five years.

Third, seeing as how it’s now 2024, we figured it was about time to enter the 21st century and urge everyone to submit their VSDs by email.  Electronic submissions will allow us to more effectively receive, monitor, and track disclosures.  The email address for submissions can be found on our updated VSD webpage.

Fourth and finally, we’ve clarified – and simplified – the process for how we handle requests to take corrective action for unlawfully exported items.  Parties who become aware that an item has been unlawfully exported often seek to take corrective action to get that item back into the lawful stream of commerce.  That’s something we want to encourage.  But the way our regulations work, once a party has knowledge that a violation has occurred in connection with the item, they are prohibited from taking further actions, such as transferring, storing, or disposing of the item.  In such situations, parties need to request special permission to engage in these otherwise prohibited activities.  Today, we’ve made some changes to help expedite these requests.  For those interested in the specifics, the details are available in the policy memorandum and on our updated VSD webpage.

Collectively, these changes should help further drive prioritization.  The prioritization of your time – and ours – so that it’s spent on the most significant threats to our national security.  

Just like with our metrics initiative, the new SAR key terms, and the Strike Force, we’re taking action to ensure we’re using our finite resources in the most impactful way.  We’re focusing our efforts on those export violations that cause the most harm to U.S. national security.  We want companies and universities to follow suit.  We want you to implement export compliance programs that identify and disclose potentially significant violations, not just minor or technical ones.  We want you to tell us when others have committed potentially significant violations so that we can take action and ensure a level playing field.  And we want to get illegally exported items back into the legal stream of commerce as quickly as possible to prevent further risks of diversion.  We want everyone, both the government and the private sector, focused on prioritizing their enforcement and compliance resources to best protect our national security.

*    *    *

I mentioned at the beginning of my remarks that my father-in-law’s jukebox is a 1947 Rock-Ola.  If you’re like me, maybe you assumed that whoever came up with the name “Rock-Ola” was playing off the type of music the jukeboxes became famous for – rock and roll.  Perhaps you even thought the name was a mash up of "rock and roll” and “Victrola,” one of the most popular record player manufacturers at the time.  Turns out, the origin of Rock-Ola is a much simpler story.  The man who founded the company back in 1927 (decades before the invention of rock and roll, by the way) was none other than David Rockola.  He named the company after himself, simply inserting a hyphen between “Rock” and “Ola” so that people would pronounce it correctly.

But David Rockola didn’t just start and run the company that bore his name.  He also had direct experience with the cost-benefit calculus tied to making self-disclosures and making disclosures about the misconduct of others.

In the 1920s, David Rockola was the supplier of slot machines to an illegal syndicate run by Chicago organized crime.  That is, until the authorities caught up with him.  He was criminally charged with corruption, then given immunity in exchange for his cooperation against the Irish mob, including characters like James “High Pockets” O’Brien and Edward “Spike” O’Donnell.  The evidence Rockola provided the prosecutors allowed them to indict 21 defendants for conspiracy, earning him a nickname himself – the “Crown Prince of the Slot Machine Syndicate.”  But when the time came for Rockola to testify at trial, he reversed course and refused to answer any questions.  He was held in contempt of court and sentenced to six months in jail.  Hat tip to the Made in Chicago Museum website for this piece of forgotten history.

Organized crime posed what seemed like an existential threat to the country in the 1920s.  The power and influence of the Mob was formidable, and law enforcement often found itself both metaphorically and literally outgunned.  Now, in the 2020s, the existential threat instead comes from nation-state actors, who are attempting to obtain our country’s most advanced technologies in order to develop military capacities that can overwhelm ours.  Just as we on the enforcement side have implemented policies and partnerships to ensure that our finite enforcement resources are best matched against these profound national security threats, we need companies to follow suit.  We want you spending your compliance dollars on efforts that bring the greatest return on investment – that best prevent significant violations of our rules and thereby best help protect our national security.

Thank you.

Remarks of Thea D. Rozman Kendler
Assistant Secretary of Commerce for Export Administration
Bureau of Industry and Security, U.S. Department of Commerce
As Prepared for Delivery

Geopolitics of Technology in East Asia - Stanford University - November 9, 2023

Introduction

Good morning. Thank you to Stanford University for hosting this conference on Geopolitics of Technology in East Asia, which could not come at a more relevant time. A particular thanks to Andrew Grotto for including me in this year’s iteration of this program. I appreciate your invitation because Stanford is so well positioned to bring together today’s audience – professors, students, who I see as future top researchers and innovators, Silicon Valley industry leaders, and U.S. and other government officials. I welcome the opportunity to speak with you today about the transformative moment we face in geopolitics.

For those of you who do not know me, I am Thea Rozman Kendler — Assistant Secretary of Commerce for Export Administration. Within Commerce, I lead the part of the Bureau of Industry and Security that designs policy to control the proliferation of goods, software, and technology with both civil and military applications — “dual-use” items. As technologies and national security threats evolve, we identify technologies for which guardrails are necessary and amend our controls as appropriate. We screen exports, reexports, and transfers within foreign countries of technologies subject to our regulations based on an assessment of technical performance, destination, end user, and end use. Inherent to our analysis is also a careful review of any risk of diversion to unauthorized activities.

I truly welcome the invitation to address you because the intersection of technology and East Asia is a key window into the changing world we face. My Bureau is at heart a collaborative agency. We collaborate with industry in designing export controls. We collaborate with the key U.S. agencies involved in dual-use export controls — the Departments of Defense, Energy, and State — as well as the agencies deeply engaged in sanctions and enforcement activities — Justice and Treasury. Most importantly for the topic at hand, we collaborate with Allies and partner countries because only by working together can export controls be effective.

Today, I want to focus on the challenge and opportunity we face as we collaborate with our regional partners in East Asia as part of a new geopolitics of shared responsibility for developing and safeguarding the advanced technology ecosystem.

Our National Security Setting

The Bureau of Industry and Security has long focused on the challenges of slowing as much as possible nuclear, chemical, and biological weapons proliferation and the military advancement of adversaries, including non-state actors that might use dual-use technologies for terrorism or to destabilize countries and regions. While export controls are never airtight, I think we have succeeded in minimizing the use of U.S. technology to undermine our national security.

We recognize, however, that China and Russia – both Pacific powers – present new national security challenges.

Under General Secretary and President Xi Jinping, the Chinese Communist Party has a goal of developing the People’s Liberation Army into a “world class military.” He has set out to overtake the United States and our allies by dominating certain advanced technology sectors, such as artificial intelligence (AI), semiconductors and microelectronics, quantum information sciences, and biotechnology.  As Commerce Secretary Gina Raimondo has observed, China poses growing challenges to our national security, including by “deploying its military in ways that undermine the security of our allies and partners and the free flow of global trade.”

To fulfill its vision, China is going to great lengths to obtain key advanced technologies that are critical to military modernization.  China is using all available means to modernize and advance its military with U.S. and partner country technology. It uses a military civil-fusion (MCF) strategy to deliberately blur lines between commercial sectors and military programs. This strategy is even more concerning where China’s Party and government structure gives leadership the power to demand information and assistance from companies that have little choice but to agree. MCF, combined with China’s governance system, has necessitated stronger export controls targeting certain commercial items that have critical military applications.

This is the challenge that my Bureau thinks about every day. We operate at the nexus of national security, technology, and global commerce. For decades, we have steadily crafted and implemented export controls, regulated our most critical dual-use items, and worked with international partners to protect our collective security.

Today, in part because of Russia’s war against Ukraine, but also because of the challenges that China’s actions and policies present, our work is more public. There was a time when we had difficulty even explaining our work to our parents, but now world leaders speak with fluency about our rulemaking.

Last month in Foreign Affairs, National Security Advisor (NSA) Jake Sullivan laid out clear principles for our relationship with China. He noted our “substantial trade and investment relationship” with China, while also describing China as a “competitor.” That’s the core of the complicated nature of our relationship. NSA Sullivan further shared that we do not seek to decouple, but rather to de-risk and diversify.

At the same time that we address these China challenges, Russia is bent on destroying global peace and security in its horrifying invasion of Ukraine. Relying on pariah states like North Korea and Iran for ammunition and drones, and increasingly turning to China for support, we see in Russia’s attacks on the innocent people of Ukraine how naked aggression destabilizes the entire world. Export controls and sanctions have been the primary non-kinetic tools available for us to disrupt Russia’s defense industry, and the challenge is even more complicated to slow China’s military fusion.

The U.S. security interests in our approach are clear, and we all understand that the United States cannot go it alone. The global fissures that developed over the past few years helped embolden authoritarians seeking to capitalize on external stresses. We cannot stand by and permit — let alone facilitate — disrupters of global peace and security to have access to advanced technologies that enable globally destabilizing behavior. The rise of AI and other advanced but value neutral dual-use technologies require a new global consensus to ensure their safe application.

Traditional Multilateral Controls and Partnerships

As I mentioned, for over seventy years, in one iteration or another, the Bureau of Industry and Security has worked closely with partners and allies to coordinate our policies to control the spread of weapons of mass destruction and conventional weapons. This global task has been steered through four multilateral regimes—the Wassenaar Arrangement, which focuses on conventional arms and sensitive dual-use items, the Australia Group, which focuses on chemical and biological weapons controls, the Nuclear Suppliers Group and the Missile Technology Control Regime, whose names identify their objectives.

Each regime has different membership, to include countries that have the technology and capacity to contribute to proliferation. These four regimes have formal mechanisms with set annual schedules for reviewing technologies with our export control partners. They generate common control lists and common export control strategies.

For most of the world, and for many of our partners, these regimes are so intrinsic to global export control systems that their own laws only account for controls adopted via multilateral mechanisms. In some countries, domestic rules have long barred the adoption of export controls on technologies that are not part of these four regimes. On the upside, without these four regimes, many U.S. allies, including in East Asia, would not have the domestic export control authorities and rules that they have today. On the downside, the regimes can be slow and are certainly complicated by the need for unanimity.

Let me be clear — The United States remains deeply engaged in these regimes, and we continue working through them to counter the national security concerns that they were designed to address. Yet we face a problem. China and Russia belong to the Nuclear Suppliers Group, and Russia belongs to Wassenaar and the Missile Technology Control Regime. For the topic at hand, in particular, Russia has hampered the updating of controls on emerging technologies through the Wassenaar Arrangement — the group designed to address most dual-use technologies.

Emerging Technology and an Expanded Plurilateral Focus

While we remain committed to these regimes, we also recognize that the world has changed dramatically since they were set up during and immediately after the Cold War. I do not need to explain to this audience how the digital revolution complicates strategies built around the regulation of tangible goods. Advancements in science and technology mandate that we become more nimble — and more flexible — as we develop strategies more suited to both the global geopolitical context we face, and the advanced technologies of our day.

Unlike some of our allies and partners, the United States is not constrained to act only within the four multilateral regimes. When Russia launched its all-out assault on Ukraine in February 2022, we were forced to work around the existing regime system because of Russia’s membership. BIS worked swiftly to bring together a group of like-minded allies and partners that includes thirty-nine major global economies. Key Pacific participants include Japan, Korea, Taiwan, Australia, and New Zealand. Together, this coalition is trying to impede Russia’s ability to wage war through essentially a blanket denial on the tools and technologies essential for reconstituting and sustaining its weapon systems.

We are collectively degrading Russia’s technological prowess, even while countries like North Korea try to undermine our efforts.

We understand that Russian efforts have been seriously hampered by our unprecedented level of coordinated export controls and sanctions. To be sure, Russia is desperate for workarounds. Yet it is also important that the technologies we — and our allies and partners — innovate are not being used to massacre Ukrainian civilians or to pursue imperial wars of aggression. Given that some of the products our companies make are digital and very small, and given that there are many legacy items — even recycled items — that are useful in Russia’s weapons and the drones Iran makes for Russia — the challenge of keeping our goods out of the Russia war effort is formidable.

Over time, particularly with the joint leadership of the European Union, Japan, the United Kingdom, and the United States, we have expanded the items we are denying to Russia and are working to stop the transshipment of goods that aid Russia’s war effort. This fall, we agreed on and publicly released a list of 45 Harmonized System codes covering the microelectronics and other items of military significance sought by Russia and Iran for missiles and drones. And we have jointly shared our “Common High Priority Goods List” with other countries, leveraging a shared concern around the world. Just two weeks ago in Kuala Lumpur on the sidelines of the Southeast Asian Forum on Export Controls, I shared the List in separate meetings with 14 governments, and my Japanese counterpart presented it during his plenary keynote address.

I mention our Russia wartime efforts because these international efforts – outside of the traditional export control regime environment – are fundamental to BIS’s approach to modernize export controls. Technology supply chains span across borders, and technological expertise is dispersed throughout the world. The best way to truly keep potentially dangerous technologies and know-how out of the hands of bad actors is to work together. Coordinated controls reduce instances of evasion or backfill by other suppliers from other countries, ensuring that our controls remain effective over the long term.

Of course, there are rare cases where the United States truly monopolizes production of a critical technology to the extent that unilateral controls can be effective. Those of you in industry know that these areas of unilateral dominance are fewer and far between than some policy makers may imagine. You also know that technology keeps leapfrogging ahead. We may be dominant today, but this does not mean that our technology will be dominant tomorrow. “Damming half the river” by imposing export controls when other manufacturing countries do not will not accomplish our national security objective.

Which brings us to another challenge: We cannot hinder U.S. exports only to create a market opportunity that firms based in other countries quickly fill. In this respect, unilateral export controls are most likely to result in an unlevel playing field for U.S. industry. So, while there is a place for unilateral controls, particularly when mandated by U.S. values, acting alone is not the preferred approach.

I should note that this understanding of limits of unilateral strategies goes back decades. We learned this lesson during the Cold War, and for over fifty years the Bureau of Industry and Security has been instructed by statute when we impose new controls to prioritize multilateral strategies and to consider whether an item is readily available from suppliers in other parts of the world.

In this difficult moment, we are fortunate to have vibrant export controls partnerships, particularly in East Asia. Under Japan’s leadership, in the May 2023, G7 Hiroshima Leaders’ Communiqué, leaders reaffirmed that export controls are “a fundamental policy tool to address the challenges posed by the diversion of technology critical to military applications as well as for other activities that threaten global, regional, and national security.” The leaders further noted the “importance of cooperation on export controls on critical and emerging technologies such as microelectronics and cyber surveillance systems to address the misuse of such technologies by malicious actors and inappropriate transfers of such technologies through research activities.” This statement demonstrated a seminal moment in strategic controls collaboration.

Applied to the China threat, these principles drive our calibrated and targeted approach. China has tried to characterize U.S. export controls on advanced semiconductor production, supercomputing, and artificial intelligence as an economic measure aimed at restraining its economic growth. Restraining technological development and growth is not our goal. Let me repeat: Our goal is not to decouple from China. Our goal is not to hinder China’s economic development. Our goal is to use a scalpel approach to hamper China’s military modernization efforts by restricting key, sensitive technologies.

The Bureau of Industry and Security’s placement in the Department of Commerce is by design. Commerce is especially sensitive about the need for U.S. technological leadership. We know that Silicon Valley — its industries and research centers — collaborates with international partners. And we know that U.S industry needs to take advantage of global scientific collaboration and global markets. This knowledge means that we need to carefully control the export of the most sensitive items to entities and activities that threaten our national security.  We need to impose controls intelligently, without unduly interfering with critical research or commercial trade that doesn’t undermine our national security.

Let me speak specifically about our export controls vis-à-vis China. We recognize that China’s efforts to develop and employ advanced artificial intelligence in its military modernization demanded a clear and proactive export controls strategy. Last year, and in updates just several weeks ago, the Bureau of Industry and Security released new controls restricting China’s access to critical advanced computing items and supercomputing capability. Our goal is to restrict access to advanced chips that can support critical artificial intelligence applications with a national security nexus, and semiconductor manufacturing equipment that can aid China’s advanced chip development.

I don’t think I need to explain to this audience just how important artificial intelligence is to military modernization. We’ve heard artificial intelligence described as the “quintessential” dual-use technology. The bottom line is that artificial intelligence capabilities—facilitated by supercomputing, built on advanced semiconductors—present U.S. national security concerns because of their ability to dramatically approve military capacity. Nevertheless, we know artificial intelligence also provides tremendous potential for civil applications, including lifesaving medicine.

These targeted controls are not multilateral. We do not yet have consensus for our advanced chip and semiconductor manufacturing equipment controls through a formal multilateral regime. Because we have a deep national security concern stemming from the misuse of an emerging technology, we could not wait. While we prefer to work multilaterally, we will not hesitate to act unilaterally to protect U.S. national security.

Other countries that produce the most advanced semiconductor manufacturing equipment have adopted similar controls under their national regulations. And we are working on multilateral or plurilateral controls to address advanced semiconductors. Even when fabricated outside the United States, such as in Taiwan, the advanced chips controlled under our regulations are the direct products of U.S. tooling and software. Accordingly, under our Foreign Direct Product rules, we have unique control over this technology even without other countries joining us for now.

We’re working hard to ensure that our unilateral controls do not have unintended spill-over effects. Along with our updates to the advanced chips and semiconductor manufacturing equipment controls last month, BIS also issued a rule updating our general authorizations for key Korean semiconductor firms—namely SK Hynix and Samsung—operating fabrication facilities in China that support these companies’ worldwide operations. Samsung’s and SK Hynix’s fabs in China are Validated End-Users (VEUs), a term in our regulations that is applied to specific facilities that have undergone a national security review and obtained approval from the U.S. government to receive certain items that otherwise would require licenses. Our action was critical for the ongoing prosperity of our global semiconductor supply chain and ensures that this supply chain remains as secure and transparent as possible.

Speaking of Korea, I have great hopes for the U.S.-Korea Supply Chain and Commercial Dialogue – SCCD —Dual-use Export Controls Group that I launched in Seoul one year ago. Building off of the work led by Secretary Raimondo and her Ministry of Trade, Industry and Energy (MOTIE) counterpart, we are using this Working Group to enhance collaboration and ensure that our use of export controls is consistent with the promotion of bilateral trade and the stability of the global supply chain in advanced manufacturing, as well as to share best practices and information and to increase stakeholder engagement and support across government, industry, and civil society.

Similarly, we maintain close contact with our counterparts in Japan through the JUCIP – the Japan-U.S. Commercial and Industrial Partnership. In the Second JUCIP Ministerial Joint Statement, released in May, we reaffirmed our commitment to aligning on Russia controls, including by addressing circumvention and backfill efforts, conducting capacity building and outreach within Southeast Asia and with other third countries, and implementing actionable recommendations received from the public.

Our partnerships with both Japan and Korea, which run quite a bit deeper than just these activities, are key to fostering trusted technology ecosystems, combatting economic coercion, and preventing the misuse of sensitive technologies to undermine our national security and the security of our partners and allies.

Our collaboration with Japan and Korea colleagues has also helped us navigate our relationships in Southeast Asia. This region is increasingly positioned as a reliable and responsible contributor to the development of the world’s most critical technologies. We hear from multinational corporations just how important Southeast Asia is to their diversification and de-risking plans.

In manufacturing, we are seeing countries including Vietnam, Malaysia, and Thailand emerging as key players in global technology supply chains. Malaysia, for example, has played a crucial role in the diversification of the global semiconductor supply chain, with international companies like Infineon, Intel, Texas Instruments, and others announcing plans to invest and expand across the country.

The Indo-Pacific Economic Framework for Prosperity (IPEF), as well as bilateral initiatives on critical and emerging technology, also present key opportunities in the region. While these activities and fora are not centered around export controls, their focus on transparent, diverse, secure, and sustainable supply chains complements our efforts to develop new strategic trade approaches.

We are transparent in identifying our national security concerns and their direct connection to our export controls. We make public our lists of controlled technology, entities that are barred from receiving technology without a license, and entities that are sanctioned for export controls violations. We also make public the policies that we in the government apply as we review license applications. The “small yard, high fence” approach – noted by NSA Sullivan in his article – requires us to be clear to all about what we are protecting behind our fence. We have been consistent: the same advanced technologies that receive extensive attention in export controls are the subject of the Outbound Investment Executive Order – semiconductors and microelectronics; quantum information technologies; and artificial intelligence. The Biden-Harris Administration recognizes that in the globalized advanced technology ecosystem we must have open and clear dialogue about the security threats we face, including those posed by China and Russia.

Conclusion

Trade and technology are poised to provide massive benefits to human progress and innovation, and we must maximize these collective benefits for governments, companies, workers, and citizens around the world. At the same time, these technological discoveries present adversaries and bad actors with new opportunities to improve their militaries and weapons systems. We cannot be naïve. Some technologies that can be used for good can also be weaponized in the wrong hands. This means that tools like export controls are more important than ever in balancing the risk and benefits of dual-use technology. New strategic trade control tools are essential to combatting the spread of software, technology, and knowhow that enable actors who would use them against us and our partners.

We are working through existing regimes and building new plurilateral and bilateral engagements with crucial partnerships. Our partnerships in the East Asia region are critical to the strategy’s success. Together, we face a need for new global approaches to strategic trade. We all have a role to play in ensuring that the fruits of advanced technologies are applied to our shared security and prosperity.

We believe in the power of multilateralism over unilateralism whenever and wherever possible. We believe that U.S. policy is more effective when it is crafted with input from industry involved in creating new technologies and developing new markets. U.S. export controls have and will always be most effective when deployed in conjunction with those of governments and firms that share our values. As technology evolves, we will have a stronger response if we are coordinated with our closest allies and as we continue to work towards a shared vision of global security.

Thank you.

Remarks as Prepared for Delivery by Assistant Secretary Kendler at the Women in Strategic Trade Conference: Promoting Gender Diversity in Your Organization

October 24, 2023

I am thrilled to be back here for a second year at the Women in Strategic Trade (WiST) Conference. It’s such a joy for me personally and professionally to meet others throughout the world who are devoting their talents to the important work of strategic trade controls. Thank you all for being here, and for sharing in this experience. In particular, thank you to the WIST Secretariat, and the Government of Malaysia for your hospitality.

This afternoon, I’ve been asked to talk to about the need for gender diversity in the strategic trade field and how we can foster it. To me, the need is straightforward.

The full participation of all people, including people of all genders — across all aspects of our society — is essential to the economic well-being, health, and security of a Nation and of the world. If you’ll allow me to generalize — I recognize that doing so loses a lot of individual nuance — women, in particular, tend to bring into policy conversations sensibilities that may be different from those of men. For example, based on lived experience, women may be more focused on the needs of vulnerable populations. This sensibility needs to be part of the conversation.

Our voice is especially important today, in our shared, digitally-driven future. The world is undergoing a fundamental digital transformation that is changing the way we live, work, and think. Emerging technologies such as artificial intelligence, machine learning, and the internet are shaping every aspect of modern society, including national security.

I know I’m not the only person in the room with personal and professional anxiety that — over the course of the next decade, during the course of my career — nations around the world will face a unique geopolitical environment framed by great power competition, extreme climate events, and accelerating technological disruption. I worry that wars will be fought on land, on the sea, in cyberspace, and potentially in outer space. I worry that machines may replace human soldiers in making targeting decisions and that autonomous weapons systems may be leveraged to overwhelm conventional weapons systems, replacing sound decision-making and the moral pause that humans making decisions instill into the heat of war. Military minds may be imagining the strategic advantages of these new technologies. I imagine the human costs.

In the strategic trade environment, just last week we issued new rules aimed at controlling artificial intelligence — a prime example of dual-use technological advancement that demonstrates my point. I’m amazed by the potential of AI to benefit civil society — curing disease, for example — but I’m also deeply worried about the use of AI to model new nuclear weapons and hypersonic missiles.

It is precisely because advanced technology brings both benefits and concerns that we need to broaden the set of problem solvers from all backgrounds. We need deep thinkers in our community who understand this complex scientific and technological landscape and who can be strong voices for restraint, balanced decision-making, social welfare, and peace.

President Biden encapsulated the importance of engaging all genders when he said: “Beyond the moral imperative to advancing gender equity and gender equality around the world; beyond principles of justice and fairness; beyond clear notions of right and wrong, it’s just basic math…. We know that everyone in a society does better when everyone participates. Economies grow. Poverty shrinks. Education rates and health outcomes improve. Political instability and extremism decline.”

Inclusion elevates voices that drive our global, strategic, and humanitarian successes.

Beyond the rationale for engaging all genders, our challenge lies in achieving gender diversity in the field of strategic trade.

We start with developing strong building blocks. We have an obligation to break down barriers for women looking to enter the industry. Getting more young women to pursue these careers is just the beginning. Our challenge also lies in helping them thrive in their careers.

The Brookings Institute says that “more than half of graduate students of international affairs are female… But this surge of talent is not reflected in the upper ranks.”

To drive this change, all of us must mentor women. Certainly, events like this wonderful WiST conference play an important role, and they are more important than ever. Special events for women in a male-dominated fields facilitate the exchange of ideas and provide a place to openly discuss — and receive support — on career decisions, managing workplace complexities, addressing family and social pressures, and on constructively intervening in forums dominated by men. We need to take this spirit home with us. Continue engaging in these conversations with your teams at home, to encourage future generations of strategic trade leaders.

During her visit to Nontraditional Employment for Women in NYC earlier this year, my boss, Commerce Secretary Gina Raimondo said, “Investing in women is not just a matter of fairness; we risk falling behind if we fail to support bringing more women into the workforce.”

As we pursue this goal, also keep in mind that we are pushing back against gendered assumptions. A Harvard Business Review study noted that women tend to be evaluated based on their performance while men tend to be evaluated based on their potential. This is one example of many gendered findings of the challenges women face in the workplace. Another finding is that women offer ideas, only to find that men repeat the idea and are then given the credit for the idea.

Gendered assumptions and behavior are difficult to change, but part of the answer is to have more women in senior leadership. And then once we are in senior leadership, we need to reverse these gendered behaviors. We need to stress the potential of women when we talk to other leaders, and make sure that for men performance matters as much as potential.

I intentionally bring women with me to the decision-making table, and I make sure that their voices are part of the conversation. I do this by—if necessary—serving as a traffic director that quiets domineering voices while making space, seeking out, praising, and giving credit to the ideas that women interject into the conversation. I play this role because I understand what it is like to be a woman in a room of men. My whole career, I have wanted a seat at the decision-making table. Now, I have this seat, and when I show up, I bring women with me.

Systems weren’t designed for women, so we need to work harder once they are at the table to keep them at the table.

I’ve taken the liberty of working with my team to draft an action plan. This isn’t the only way forward. We’re eager for you to take our ideas as a starting point and build on them.

1. First, we should be intentional in meeting people where they are.

Women, and people of other underrepresented genders, have had to face greater obstacles in the workplace than their male counterparts, from bias to harassment to simple logistics. When we support women as individuals and create an environment that they can thrive in, that’s when they can truly bring their full selves to our organizations.

2. Second, be visible.

Women in positions of power open doors for other women. When women see other women in leadership roles, they have higher career aspirations. And the absence of women in leadership which can be demotivating. One of my new staff members told me that having a woman in a leadership role was a factor in deciding her most recent career moves. And I’m lucky to now have her contributing to my team at BIS.

3. Third, provide mentorship and inspire others to see themselves as mentors.

Studies have shown that when employees have a mentor, retention rates increase by up to 22% and mentees are promoted 5 times more often compared to those without a mentor. Organizations in the United States like the Society for Women Engineers work to drive up representation of women in technology positions, in part by facilitating mentorship programs at scale. In FY21, SWE had 2,709 mentees.

4. Fourth, publicly and loudly recognize good work by women.

We need to promote women at least the same rate as men. Recognition in the form of compliments and awards enhance the cause of pay equity, because it creates a credential of value in salary and promotion setting.

5. Fifth, create an environment that recognizes the career trajectory of women may be different than that of men.

Anne-Marie Slaughter – former Director of Policy Planning at the State Department, who now runs a major Washington, DC think tank, has written about how caregivers — who can be men but most often are women — need the space to be a caregiver without destroying their career. Caregiving periods end. We need to provide employees with flexible workplace policies that create space for caregiving when it is needed.

6. Sixth, create an ecosystem for success, and speak loudly and repeatedly about how this ecosystem requires gender diversity.

According to research conducted by McKinsey Global Institute on diversity within the STEM ecosystem, “gender parity uncovers the productive potential of half of the talent pool, and could add up to $28 trillion to annual GDP by 2025.” This calls to mind the quote from Secretary Raimondo that I shared earlier. If companies do not take advantage of women’s full economic potential, economies will suffer. In the age of the digital revolution, closing the gender gap in the technology sector is more than morally correct, it is strategic – more women means increased innovation and global cooperation.

The women that came before me paved the way for me personally to have a seat at the table. All of us in this room who are fortunate to be here today will pave the way for the next generation of women leaders in national security, international trade, science, technology, and engineering. That’s why the relationships we build are so important, so that we can build community and therefore a pipeline for women in our ever-changing world.

Everything that I just said in my action plan can be and should be done by both women and men in leadership positions. We all can lead by example, by speaking about the importance of gender diversity and the need to change the work-place environment. We each have the responsibility to educate ourselves about how gender plays a role in our own societies and workplaces, to end our indifference or even blindness to gender inequalities, and to transform gendered practices.

In our field particularly, this is an ethical imperative in our day and age. Where national security, technology, and international trade meet, we must be the leaders committed to building and sustaining inclusive workplaces. Strategic trade leadership must reflect the diversity of society, just as our controls affect all of society. Please join me in a commitment to use our leadership roles to promote these goals.

I look forward to collaborating with all of you over the course of this event and am excited to hear from our extraordinary panelists.

Thank you.

Remarks as Prepared for Delivery by Under Secretary Estevez: Mount Fuji Dialogue

October 21, 2023

Good morning and thank you for the warm introduction. I am thrilled to be here at the Mt. Fuji Dialogue, with friends and colleagues from the U.S. and Japan. Every year this summit helps to strengthen the relationship between our two nations. As we engage on a number of issues throughout this dialogue, I believe it is important to remember why we are here. The relationship between our two countries has been integral to ensuring global peace and security for our two nations, as well as for those in the broader Indo-Pacific region.

It is important to have friends during this time, as the world we live in remains a challenging place. One doesn’t have to look far to see these threats — Russia’s illegal war against Ukraine, the current crisis in the Middle East, and closer to where we stand, North Korea’s continued belligerent actions, or China’s threatening military modernization and economic coercion. These threats are further exacerbated by rapid changes in technology.

We cannot face these threats alone. It is important we rely on friends and allies to face these malign actors and make the world a safer place for the next generation.

Some of you may be wondering why an Under Secretary of Commerce in charge of export controls is speaking here today on these shared national security threats. Well, to explain that, let me quote US National Security Advisor Jake Sullivan, who noted that export controls, “if implemented, in a way that is robust, durable, and comprehensive, can be a new strategic asset in the U.S. and allied toolkit to impose costs on adversaries, and even over time degrade their battlefield capabilities.”

I’ll discuss how export controls are protecting our national security in a moment, but I think it is important to first look at the broader picture of how the United States is using both offensive and defensive tools to address this threat environment.

When I talk about offense, I’m not talking about military capabilities or our diplomatic efforts. Rather, on offense, we at the U.S. Department of Commerce are focused on securing and diversifying our supply chains. Since the COVID pandemic, it’s been clear that we cannot rely on sole source providers. So, we’re using the CHIPS and Science Act to help assure some level of semiconductor production is available to the United States in time of need. We’re also looking at the supply of rare earth minerals.

We cannot do this alone, and we are working with allies, including through dialogues with partners in Japan, Korea, Australia, and Europe, to develop secure supply chains free from economic coercion or adversarial action.

I now want to turn to our defense strategies, chief of which is the use of export controls. For almost two years, I have had the privilege of serving as an Under Secretary at the U.S. Department of Commerce, where I lead the Bureau of Industry and Security, or “BIS” for short.

BIS is responsible for administering and enforcing U.S. export controls of dual-use technologies, which include items that can have both military and commercial applications. We’ve long operated at the nexus of national security, technology, and global commerce. And we’ve been quietly doing this work for decades, writing and implementing export controls, regulating our most critical dual-use items, and working with international partners to ensure our collective safety.

And yet, up until recently, few had even heard of us. Now, all you have to do is open up a newspaper in the United States or Japan to see just how much times have changed. The reason for that is twofold — the pace of technological advancement has increased, and so have the threats related to the misuse of these technologies. In an increasingly fast-paced and ever-evolving technological landscape, export controls can be a differentiator to address our national security concerns.

The growth in the importance of export controls as a national security tool mirrors the dynamic of military useful technology. This transition has been going on since before the Berlin Wall came down. Through the 1980s, Military dollars largely drove research and development in the United States. Even when you look specifically at the semiconductor space, originally, the Department of Defense was the main buyer of semiconductors. Of course, that has reversed; the defense industry ecosystem now looks to the commercial sector for innovations that are useful. Technology and commercial research and development from the private sector is the driving force behind the innovation ecosystem.

If we are to face both the rapidly evolving pace of technological development and the actions of actors of concern like Russia, China, North Korea, or Iran, who are desperately trying to obtain advanced technologies, we must be strategic in our actions, coordinated in our controls, and make sure we react quickly to face challenges as they arise.

In addressing these challenges, I want to make clear that we are not using export controls for economic protectionism. We are laser focused on national security, and the controls we put in place are focused on select advanced technologies that have strategic applications. We are strictly adhering to the small yard, high fence concept in applying our export controls.

As examples of our strategic uses of export controls, I would like to highlight important national security issues that we have worked to address – Russia’s illegal and immoral invasion of Ukraine, and China’s military modernization and other destabilizing activities.

Russia’s actions in Ukraine have posed a significant threat to the world order and the physical security of the U.S. and its partners, not to mention the horrific impact on the people of Ukraine. Since the beginning of the invasion, Japan, the United States, and 37 other international partners came together in an unprecedented fashion to stand with the people of Ukraine. Japan has been a critical partner and valued member of our Global Export Controls Coalition, where we are impeding Russia’s ability to reconstitute and sustain its weapons systems, through essentially a blanket denial of the tools and technologies essential to their ability to wage war.

At this point, international enforcement of these controls is paramount to their success. Back in April, the Departments of Commerce and Treasury, along with our Japan counterparts, convened a meeting of the G7 countries to announce a new enforcement mechanism that would allow enhanced analytics of evasion strategies, information sharing on diversion through third countries, and best practices for compliance and enforcement. We are working diligently to tackle diversion networks.

Our goal has been to choke off exports of technologies and other items that support Russia’s defense industrial base and to degrade Russia’s military capabilities and ability to project power. The impact of our export controls will only increase over time as Russia is unable to repair, replace, and replenish its military hardware. We’ve already seen substantial impacts of our actions to date. And it is critical that the United States, Japan, and other like-minded countries continue to assess the effectiveness of our controls and our ability to prevent circumvention of the controls.

The blanket denial strategy we’re using against Russia is not a one-size fits-all strategy for dealing with every potential adversary. It’s important we take a targeted and nuanced approach with each scenario we encounter. This is very true for the way we address the challenges posed by the People’s Republic of China and its military modernization, fueled by its military-civil fusion strategy that obfuscates the actual end use of technology it imports.

We have long maintained export controls to address the use of U.S. technologies in military applications, weapons of mass destruction activities, and actions impacting human rights. However, in October of last year, we imposed new targeted controls to address the use of key, force-multiplying technologies related to semiconductor manufacturing and advanced computing semiconductors. These technologies are crucial to developing the next generation of advanced weapons systems and to integrate artificial intelligence into military decision making and planning.

Even with these new controls, we remained targeted in our approach. As I mentioned, our mentality is that of a small yard with a very high fence – where we focus on protecting the technologies that truly matter, which enable us to make sure the fence is strong and secure. And again, these controls were put in place to protect our national security and that of our allies. China remains one of our largest trading partners and we do not aim to impede economic growth. However, we must protect certain key technologies. Earlier this week, we updated last year’s advanced semiconductor controls to address technological advances in semiconductors and artificial intelligence as well as diversion tactics that can be used to circumvent our existing controls. Through these updates, we hope to ensure that our controls are better positioned to control advanced computing chips needed for supercomputing applications and the development of artificial intelligence large language models for military purposes or advanced surveillance capabilities.

We’re looking at updating these rules annually, as we execute our targeted strategy to control technology and impede modernization of the PRC military. This is our focus.

In closing, we must continue to work together to maintain effective multilateral processes to innovate, manage our supply chains, and protect technologies that could be used by our adversaries against us.

Japan continues to be one of our most important allies in controlling advanced technology. We look forward to continuing to work together on ensuring the security and safety of our two nations and our partners in this region.

The stronger our coordination and partnership, the higher chance we have for success.

Thank you for having me here this morning, it has been an honor to speak with you.

Remarks as Prepared for Delivery by Assistant Secretary for Export Enforcement Matthew S. Axelrod at the Federal Office for Economic Affairs and Export Control-Bureau of Industry and Security (BAFA-BIS) Export Control Forum

 

Sixty years ago, at the height of the Cold War, President John F. Kennedy famously spoke to a crowd of over 100,000 in West Berlin. At the time, West Berlin was a haven for democracy, for hope, and for freedom – hemmed in on all sides by the Soviet Union.

During his speech, President Kennedy declared, in his inimitable Boston Brahmin accent: Ich bin ein Berliner. I am a Berliner.

His message was straightforward and clear. In the face of repression by a ruthless autocracy, democracy and self-government will prevail. Together, we will stand for freedom.

While President Kennedy delivered this message back in 1963, it resonates still. Despite the Berlin Wall having fallen over thirty years ago, the fight between oppression and freedom continues. The world President Kennedy faced then – with rising tensions between democracies and autocracies amid an intensifying technological arms race – has stark echoes in our world today.

Advances in science and technology are poised to define the geopolitical landscape of the 21st century. Disruptive technologies like quantum computing, artificial intelligence, and hypersonics may eventually be powerful enough to deliver military overmatch, with the potential to alter the balance of power in the world. We need to work together, with like-minded partners and allies, to protect our sensitive technologies from being used by our adversaries to undermine our security, our rules-based governments, and our individual freedoms.

At no point in history have export controls been more central to our collective security than right now. To borrow another phrase from President Kennedy, “in an age where the instruments of war have far outpaced the instruments of peace,” we need to ensure that those instruments – and the technologies used to develop, build, and maintain them – are not used by our adversaries to advance their military capabilities or facilitate human rights abuses.

At the U.S. Department of Commerce, where I am the Assistant Secretary for Export Enforcement, our law enforcement agents and analysts are focused on a singularly important mission: keeping our country’s most sensitive technologies out of the world’s most dangerous hands. But no one country’s export controls can succeed without like-minded partners around the globe – partners from both government and industry. That’s why it’s so important and timely for BAFA to be hosting this forum. And why I’m so glad to have the opportunity to share a few thoughts with all of you.

 

* * *

 

Today, wir sind alle Ukrainer. We are all Ukrainians.

Russia’s brutal invasion of Ukraine has resulted in the deaths of thousands of Ukrainian men, women, and children. The Russian military has destroyed cities and towns, targeted schools, bombed hospitals, and relentlessly attacked critical infrastructure. Russia’s war has unleashed the worst global energy crisis since the 1970s, pushed global grain prices to record highs, and displaced thousands of people from their homes.

Much of this damage has been inflicted by one-way attack drones, also known as unmanned aerial vehicles or UAVs, supplied by Iran. While the specific Iranian drones being used by the Russian military are not the most sophisticated models, they are both effective and deadly. The drones’ navigation systems allow them to fly specific pre-programmed routes with the help of GPS technology. Once programmed, they are highly accurate. They go where the Russian military wants them to go.

In other words, when the attack drones hit Ukrainian schools, apartments, hospitals, and critical infrastructure, it’s not because they missed their intended target. To the contrary. These civilian structures were the intended targets. The Russian military is deliberately targeting civilian buildings. And not just any civilian buildings – those where schoolchildren go to learn and where sick and elderly patients go to receive medical care.

Since Russia attacked Ukraine on February 24 of last year, the Global Export Control Coalition, or GECC, has used export controls to help degrade Russia’s military capabilities. The Russian defense industrial base has critical dependencies on the West, from electronics to machine tools to aerospace technologies. The 39-government coalition, which includes both the United States and Germany, has put in place the most expansive export controls in history in order to deny Putin's war machine the critical supplies and spare parts it needs to replace its battlefield losses. Assistant Secretary Thea Kendler, who you heard from yesterday, was instrumental in bringing that coalition into existence and has been instrumental in its continued work.

The GECC’s work has demonstrated that technology export controls can be more than just a preventative tool. If implemented in a way that is robust, durable, and comprehensive, export controls can be a strategic way to impose costs on adversaries, and over time degrade their battlefield capabilities.

Global exports of semiconductors to Russia, for example, have seen a sustained decline since the invasion began, leaving Russian companies scrambling to obtain the electronics they need for weapons like precision guided missiles, UAVs, and tanks. The Russian military has been forced to rely on contraband chips, workarounds, and lower quality imports, which has undermined the effectiveness of their weapons systems.

As our collective controls have degraded their weapons stocks, Russia has turned to suppliers outside of the coalition. They’ve turned to pariah states – like North Korea and Iran – for attack drones, ammunition, and even airplane parts.

But it’s not just North Korea and Iran aiding the Russian war machine. Recent reporting suggests that Russia is being supplied by the People’s Republic of China (PRC) as well. A recent Telegraph investigation found that Russian defense firms have received thousands of shipments from the PRC since February 2022, including drones, helicopters, and aerospace technologies.

In addition, parts from Western countries are being diverted for use in Russian weapons. A recent Washington Post article catalogued the manufacturing process of attack drones within Russia, and the dependencies the Russian facility has on the West. According to the article, over ninety percent of the electronic components are produced from Western designs, including U.S. and European-branded chips. Other reporting on Russia’s drone production identifies dependencies on German machine tools and cables, Canadian antennas, and Swiss microcontrollers. These items typically aren’t being sourced directly from Western suppliers, but are instead being diverted through third countries like the PRC and the former Soviet republics.

In response, Western countries are taking action. In March, German enforcement officials arrested a German-Russian dual citizen on multiple counts of violating the Foreign Trade Act by exporting electronic components to a company in Russia involved in the production of military materiel and accessories. In order to circumvent EU sanctions, the defendant is alleged to have imported electronic components from abroad to Germany, and then exported those same products to a company in Russia that manufactures the Orlan-10 drone.

In the United States, we’ve taken numerous enforcement actions against those alleged to have violated our Russia controls. This past July, for example, a suspected Russian intelligence operative was extradited from Estonia to face charges in the United States for providing American-made electronics and ammunition to the Russian military. More recently, at the end of last month, the U.S. Departments of Commerce and Justice jointly announced the arrest in Cyprus of Arthur Petrov, a dual-Russian-German citizen, for diversion of microelectronics to Russian military manufacturers. At the same time, I imposed a Temporary Denial Order (TDO) against Petrov and six affiliated companies and co-conspirators for aiding this illegal scheme. And, just last week, we and DOJ jointly announced the unsealing of a complaint charging a Russian national, Maxim Marchenko, with running an illicit procurement network in Russia, Hong Kong, and elsewhere. As alleged, the procurement network fraudulently obtained large quantities of sensitive dual-use, military-grade microelectronics from U.S. distributors for Russian end-users. The network allegedly used shell companies and pass-throughs to transship the microelectronics to Russia through third countries, including Hong Kong and China. These microelectronics that Marchenko and his co-conspirators are alleged to have fraudulently procured have significant military applications, such as in rifle scopes, night-vision googles, thermal optics, and other weapons systems.

But beyond individual enforcement actions by individual countries, we need a coordinated international effort to prevent Russia from getting the materiel it needs to wage its brutal and unjust war. That effort must be twofold, comprising both a coordinated enforcement approach by allied governments and a robust partnership with industry.

 

* * *

 

On the government side, it’s essential that we work together to ensure aggressive and coordinated enforcement. The work the GECC has done to date to successfully impose parallel controls is a testament to the importance of partnership. Now, though, we must work to make sure that we are similarly coordinated in implementing and enforcing those controls.

It is helpful that we share the same objectives as our partners at BAFA, namely that exports should neither reinforce conflicts nor contribute to internal repression or other significant human rights violations. And we have a long-standing working relationship with our other German government colleagues, including the Ministry of Economy and the Customs Investigation Bureau (ZKA), through our Export Control Officers (ECOs) stationed right here in Frankfurt, who help ensure that our controlled technology and goods are safeguarded from diversion.

More broadly, in April, our Deputy Secretary, Don Graves, along with his counterparts from the U.S. Treasury Department and the Japanese Finance Ministry, convened a meeting of the G7 countries to announce a new enforcement coordination mechanism. The goal is to bolster coordinated international enforcement of the Russia controls among Canada, France, Italy, Japan, the United Kingdom, the European Commission, the U.S. and of course Germany. Just last week, we hosted the first meeting of the G7 sub-working group on export enforcement, where we analyzed Russian evasion strategies, shared information on diversion through third countries, and discussed best practices for compliance and enforcement, including coordinated outreach to industry. My participation here today is reflective of this important effort and our close working relationship with our G7 colleagues.

Additionally, in June, I was in Ottawa meeting with government representatives from Canada, the United Kingdom, Australia, and New Zealand. We announced a commitment to formally coordinate on export control enforcement. Similar to our G7 effort, we agreed to increase collaboration and information sharing across our respective enforcement teams to address evasion of export controls. We have since decided to use the nickname “E5” to refer to the group of countries engaged in this coordination effort.

We have also expanded our international footprint to collaborate with governments across the globe. We now have 11 Export Control Officers and one enforcement analyst stationed in 10 locations outside the United States. In July, we established a new Export Control Officer presence in Taiwan. And, last month a new Export Control Officer began work in Helsinki. In addition, for the first time ever, we have stationed an enforcement analyst outside the United States. We now have a BIS analyst assigned to Ottawa to liaise on export controls directly and daily with the Canada Border Services Agency and our other Canadian partners.

We are mindful, however, that working among likeminded coalition partners alone isn’t sufficient to address the issue of illicit transshipment. Assistant Secretary Kendler and I, along with our U.S., EU, and UK partners, have been traveling to numerous non-GECC countries to inform our government counterparts of our concerns and the consequences of continued diversion. As one example, I traveled to Kazakhstan and Kyrgyzstan this past summer with colleagues from the Department of the Treasury, as well as the sanctions coordinators from the UK and the EU, to talk to the Kazakh and Kyrgyz governments about evasion of our Russia controls.

I also recently visited Beijing with U.S. Commerce Secretary Gina Raimondo where she and her counterpart from China’s Ministry of Commerce launched an export control enforcement information exchange, one that will allow us to communicate directly about the need for compliance with our rules and the actions we will take when those rules are violated. My Chinese counterpart and I held the first in-person meeting of the information exchange at the Ministry of Commerce in Beijing. Among other things, I conveyed our strong concerns about Chinese companies violating our Russia controls by transshipping U.S. items through the PRC to Russia. I also could not have been clearer about the consequences that such actions will trigger.

 

* * *

 

So that’s some of what we’ve been doing at the government-to-government level. But nothing is more important than the actions you in industry can take. You are our first line of defense. You know your industry best. You are the ones receiving the orders, the ones who will first spot any red flags. No one knows your business, and the export control risks inherent in it, like you do. So, what am I asking of you?

I’m asking you to partner with us in this fight. I’m confident my German enforcement colleagues would agree with me when I say that we would much rather work with companies to prevent export violations on the front end than enforce violations on the back end. When we enforce, it typically means the technology has already gone to our adversaries and the national security harm has already occurred. Our collective goal is to avoid getting to that point whenever possible.

As government enforcers, it is a priority for us to talk with you about how our export controls work and to help you sharpen your compliance efforts. The last thing you want is for your product to be recovered on the battlefield in Ukraine, for your product to play a role in the death of a Ukrainian civilian or soldier. And that’s the last thing we want too.

Since the Russia controls went into effect, our agents have reached out to more than 800 U.S. companies with past export ties to Russia or whose components have been identified inside Russian weapons systems found in Ukraine. And we’ve educated hundreds of international companies as well, through webinars and trainings, including those coordinated by our Export Control Officers here in Frankfurt.

Given the increased scope of our Russia controls, especially for items not traditionally controlled by the multilateral export control regimes, we recognize that we need to prioritize our asks of industry. Earlier this year, the U.S., EU, Japan, and UK identified specific technology dependencies that Russia has for its military operations. Accordingly, we initially identified 38 Harmonized System or HS codes tied to these technologies, and we recently expanded it to 45 HS codes earlier this month.

Within those 45 HS codes, we in the U.S. are most highly focused on the nine codes representing the most important items for Russia’s and Iran’s missile and UAV programs. As discussed earlier, Russia is using Western parts to help power weapons used to constrain Ukraine’s military operations and sow terror through the targeting of civilian infrastructure and homes. We’re asking industry to focus specifically on transshipment and diversion of these battlefield items. And while our efforts in the U.S. have focused primarily on the nine codes – because they capture the majority of U.S. items that are being used by the Russians to wage war – companies outside the U.S. are shipping other key items that are chokepoints for Russia’s war machine. That’s why we’ve prioritized the nine codes in the U.S., but as part of the longer list of 45. If your company sells items falling within any of the 45 HS codes, you should be extra vigilant to ensure those items aren’t being diverted through third countries to Russia.

I’m hopeful this isn’t the first time you’ve heard that we’re focused on these HS codes. We’ve taken a number of actions to spread the word and build awareness, particularly about the top nine.

First, we issued guidance to industry. In June 2022, in partnership with our country’s Financial Crimes Enforcement Network (FinCEN), we issued a joint alert to financial institutions. The alert described red flags for financial institutions to look out for to help prevent items from being diverted. Importantly, the alert created a unique key term for financial institutions to use when filing Suspicious Activity Reports (SARs) related to Russia diversion, and I’m pleased to say that in just the first 15 months of its operation, we have received over 400 filings. We’ve been able to action nearly one-third of those SARs in various ways, including by cutting leads to our enforcement agents, advancing existing cases, and developing Entity List packages.

In May 2023, we issued a second joint alert with FinCEN and a separate tailored product for exporters that specifically highlight the nine HS codes as well as tactics that Russia is using in attempts to evade our controls. We identified three fact patterns for exporters to be wary of, as they are indicative of possible attempted circumvention of our controls: (1) the customer never received exports prior to February 24, 2022, the date of the Russian invasion, but is now ordering items falling into one or more of the nine HS codes; (2) the customer received U.S. exports prior to the start of the war, but those exports did not fall into one or more of the nine HS codes and now do (like a beauty salon that has recently started importing microelectronics); and (3) the customer received U.S. exports of items within the nine HS codes prior to February 24, 2022, but has since significantly increased their order volume. If you see any of these fact patterns, we ask that you do extra due diligence. Don’t sell to customers who are helping to fuel the Russian war machine.

In June, we did a first-ever quad-seal advisory along with our country’s Departments of Justice, Treasury, and State to alert industry about the threat of Iran’s drone program and to highlight effective due diligence policies, compliance structures, and internal controls that can be employed to harden supply chains against the threat posed by illicit Iranian UAV procurement efforts.

And just earlier this week, through our E5 partnership, we published an advisory for industry, coauthored by all five countries’ governments. This is the first “quint-seal” advisory of its kind. This new advisory again amplifies the importance of the high-priority items that Russia is using in its weapons systems, as well as the need to apply a risk-based approach to export compliance.

All of these guidance documents are available on our website and I encourage you to review them.

Second, we’ve been reaching out to U.S. companies, like electronics distributors and trade associations, to educate them on the problem of Western parts ending up in Russian missiles and drones. We’ve identified specific customers of those companies that meet one of the fact patterns I just described and notified companies about them. This information should result in companies conducting enhanced due diligence on their customers before filling orders, and we have already been informed of a number of order cancellations to prevent diversion.

Third, we worked with our colleagues from Export Administration to impose license requirements on third parties, either by individually informing companies of these requirements, or by adding parties to the Entity List. Just earlier this week, in fact, we put 28 more parties on the list, including a number for their role in procuring components for Iranian and Russian UAVs. To date, BIS has added over 600 parties to the Entity List for supporting Russia’s military – including more than 60 in third countries like China and Iran for seeking to supply Russia’s military after implementation of the new controls. If you ever have a question about whether one of your potential customers is on the Entity List or another U.S. restricted party list, you should check our Consolidated Screening List, available for free on our Commerce Department website.

Fourth, we have initiated investigations and brought criminal charges. Our cases, like the Petrov indictment and TDO and the Marchenko complaint I mentioned earlier, help bring accountability to those who we believe have violated our rules by sending battlefield items to Russia. Our cases also help ensure that those who expend the resources to implement effective compliance programs are not placed at a competitive disadvantage.

That’s a lot of work so far. But we’re not close to done. Among other things, we’re working to further amplify our industry efforts internationally. We have been consulting with GECC partners on identifying additional red flags and on establishing best practices for coordinating with industry across the coalition. By making coordinated approaches to industry in partner countries, we seek to put everyone on an even playing field with comparable due diligence expectations.

I also have two specific requests of you to help prevent diversion of your products, particularly those ending up on the battlefield. First, if you don’t already have one, you need to institute a strong export compliance program as a critical component of your overall corporate compliance structure. Having such a program in place protects both your company by mitigating risk, as well as our collective security by keeping sensitive technology out of the wrong hands. BAFA’s published guidance on compliance programs states that “it is in the power of the companies themselves to make their contribution to detecting procurement attempts early and preventing them by establishing suitable organizational measures and provisions.” In other words, a robust internal compliance program is paramount.

Second, I ask that you implement end-user verification statements when you receive a customer order for items that fall into any of the priority HS codes. By asking for written certification of that customer’s business history, the specific end use, and the specific end user of the exported item, you can better identify red flags and deter diversion. This is especially critical when dealing with customers in countries outside of the Global Export Control Coalition. Today, BIS is publishing “best practice” guidance for industry recommending the use of these customer certifications. Such a certification statement can help ensure that parties to the export transaction are, in essence, who they say they are, and that the goods are going where they should be. While our guidance is directed at U.S. industry, it can be instructive for industry everywhere. Together, we can harden our supply chains to prevent the diversion of goods that help prop up the Russian war machine.

 

* * *

 

While I’d venture to guess that “Ich bin ein Berliner” are the most famous words President Kennedy ever uttered in Germany, back home in the United States, there’s a line of his that’s even more well known. It comes from his inaugural address and highlights that, as citizens, we are not just given rights by our government but obligations as well. As President Kennedy put it, “[a]sk not what your country can do for you, but what you can do for your country.” With these words, President Kennedy sought to inspire his fellow Americans, urging them to coalesce around a common goal of peace and security at the height of the Cold War.

What’s not nearly as well remembered is the line that followed. His next line was a call to action not just for Americans, but for people across the globe: “My fellow citizens of the world: ask not what America will do for you, but what together we can do for the freedom of man.”

In the United States, we’ve asked industry to partner with us to meet the urgent challenge of degrading Russia’s ability to wage war against the Ukrainian people. We’ve asked them to redouble their compliance efforts, to watch out closely for red flags when exporting goods that can be used on the battlefield, and to be deeply skeptical of new customers ordering sensitive items in countries known for transshipment. I’m here to ask the same of you. You represent some of the largest, and most important, industries in Europe. And you can play a critical role in hindering Russia’s ability to wage its illegal war in Ukraine.

None of us do this work alone. The work that you do is a crucial counterpart to the work that your governments are doing, that U.S. industry is doing, and that we’re doing at BIS. Together, we can degrade Russia’s battlefield supply of missiles, tanks, and drones. Together, we can help the Ukrainian people in their fight to defend their homeland against unprovoked Russian brutality. Together, we can work to ensure the continued “freedom of man.”

Thank you.

Remarks as Prepared for Delivery by Assistant Secretary Kendler: BIS-BAFA Export Control Forum

Frankfurt, Germany

September 27, 2023

President Safarik, Director General Pietsch, Consul General Scharpf, Distinguished Colleagues –

Thank you to the German Federal Office for Economics and Export Control (BAFA) for cohosting the Export Control Forum with the U.S. Department of Commerce’s Bureau of Industry and Security this week. The Export Control Forum is an opportunity for U.S. government export control and sanctions implementation agencies to provide updates on regulations, enforcement, and compliance considerations to European industry and U.S. companies with operations in Europe, alongside our German government colleagues. To our industry colleagues, thank you for making the time to join us this week. Industry is our first line of defense to ensure that sensitive goods and technology are not misused to contribute to the proliferation of weapons of mass destruction, destabilizing military modernization programs, or human rights abuses.

Export controls have been an important tool for advancing our mutual national security and foreign policy interests since at least the establishment of the Coordinating Committee for Multilateral Export Controls in 1949. Since that time, we have seen the rise of four multilateral export control regimes – The Australia Group (chemical and biological controls), the Missile Technology Control Regime, the Nuclear Suppliers Group, and the Wassenaar Arrangement (conventional weapons and related dual-use items). These regimes focus on preventing the proliferation of weapons of mass destruction or destabilizing accumulations of conventional weapons.

In addition to these longstanding regimes, new arrangements are emerging to leverage export controls to confront threats posed by other misuses of technology, such as by authoritarian regimes to abuse human rights. For example, earlier this year the United States announced the release of a Code of Conduct for the Export Controls and Human Rights Initiative, as part of the Summit for Democracy, whereby subscribing states, including the United States, Germany, and eleven additional EU countries, take human rights into account when authorizing potential exports and share information on risks associated with the trade of goods, software, and technologies that pose human rights concerns.

Over the past 18 months especially, we have seen an unprecedented increase in the profile of export controls globally. Once largely the province of regulators, attorneys, and compliance specialists, export controls have entered common parlance. One has only to open a newspaper on any given day to find reporting on semiconductor manufacturing equipment and advanced computing exports controls, or on the impact of our export controls on Russia’s ability to wage its brutal and illegal war in Ukraine.

As we have seen in the Russia context in particular, our controls are more effective when they are coordinated with our allies and partners. Both the Administration and the U.S. Congress share a deep commitment to such coordination; in fact, the statute that authorizes BIS’s export controls explicitly states that multilateral controls are most effective. In the words of former Under Secretary of Commerce for Industry and Security Eric Hirschhorn, U.S. unilateral controls are like “damming half the river,” as equivalent technologies are likely available from other suppliers that do not restrict their export. Coordinated controls not only reduce avenues for evasion or backfill by other technology suppliers, but from an industry perspective, they are easier to comply with. The more our controls are aligned, the fewer nuances industry must contend with across licensing regimes, reducing compliance burdens and facilitating secure trade.

In remarks made on February 4, 2021, over a year before Russia’s further invasion of Ukraine, President Biden highlighted that America’s alliances are some of our greatest assets and that the United States would be “more effective in dealing with Russia when we work in coalition and coordination with other like-minded partners.” Consistent with this direction, following Russia’s full-scale invasion of Ukraine and Belarus’ complicity in that invasion, the United States led the formation of and continued alignment within the Global Export Controls Coalition (GECC), now comprising the United States and 38 other global economies. Our export controls on Russia and Belarus have been impactful because they have been imposed and maintained through this coalition, which has been more effective than any action the United States or EU might have taken in isolation.

As we have imposed increasingly impactful controls on Russia over the course of the war, we have maintained continuous coordination with our partners in the GECC. Earlier this month, along with partners such as the EU and the United Kingdom, we released guidance for industry on compliance with Russia export controls, specific “red flag” indicators of potential unlawful diversion, and a common list of 45 priority harmonized system codes for enhanced due diligence to prevent unlawful exports to Russia. Finally, to reduce compliance burdens on multinational companies operating in jurisdictions that have substantially aligned on Russia export controls, BIS has ensured that extraterritorial U.S. reexport controls do not apply to exports of certain controlled items from aligned jurisdictions that would otherwise be subject to a BIS licensing requirement because of newly-controlled U.S.-origin content or U.S. software, technology, or production equipment used to produce such items. This highlights how coordinated controls are not only more effective, but easier to comply with to ensure a level playing field for industry across ally and partner countries.

Beyond coordination on Russia sanctions, the United States and the EU have forged a deeper partnership on trade-related issues through the U.S.-EU Trade and Technology Council (TTC). The TTC’s Export Controls Working Group (ECWG), thanks in large part to Germany’s leadership, has held four stakeholder meetings with public participation to identify export control-related issues where further coordination and regulatory alignment by the United States and the EU could streamline secure transatlantic trade. With stakeholder input, Germany has taken the lead identifying U.S. reexport controls as a key area for further discussion. Most recently on July 19, the ECWG, under Germany’s leadership, held a stakeholder outreach event on U.S. reexport controls to address the issue of “double licensing,” that is when an EU export authorization is required for the export from the EU of a controlled item, and a U.S. reexport authorization is also required because the controlled item was originally manufactured in the United States or was produced abroad with U.S. controlled content, software, technology, or production equipment. Public comments specifically suggested that BIS consider how U.S. license exceptions could be further aligned with EU general export authorizations, or BIS reexport jurisdiction could be removed entirely for less sensitive items exported from the EU to certain destinations.

These are issues BIS is examining closely and will continue to seek public comment on. Our policy approach is to generally rely on licensing decisions made by our trusted allies and partners and only to review transactions such allies and partners have authorized consistent with their own national security and foreign policy reviews when the items, end-uses, end-users, or destinations involved are the most sensitive. Accordingly, we are evaluating what regulatory flexibility we may have to reduce licensing burdens associated with U.S. reexport controls on exports authorized by close allies and partners. Some license exception provisions are already available for certain such reexports and we welcome your feedback through the TTC on how those license exceptions are currently used and what additional exceptions could be beneficial.

To further reduce “double licensing” resulting from U.S. reexport controls, we strongly encourage reexporters to use license exception Strategic Trade Authorization (STA) whenever it is available. A product of the U.S. Export Control Reform (ECR) effort beginning over a decade ago, STA authorizes, subject to certain conditions, exports of many controlled dual-use items to all EU member states, as well as Commerce-controlled munitions items to most EU member states, including Germany. STA was intended to significantly reduce licensing volumes for controlled trade with our closest allies and partners, including in the EU, but remains chronically underused. Ten percent of our overall licensing volume involves transactions eligible for STA and 25% of our licensing for munitions items involves STA-eligible transactions. Accordingly, we welcome input through TTC stakeholder events on ways in which BIS could make this license exception more user-friendly to facilitate additional controlled trade without a specific BIS license, as originally intended during ECR.

Finally, we continually assess list-based licensing requirements for exports to our closest allies and partners to determine whether such licensing requirements should be adjusted based on allies’ implementation of substantially similar controls and ability to regulate the use and reexport of controlled items consistent with our shared national security and foreign policy interests. If we determine certain licensing requirements are no longer warranted, we may remove or revise them as appropriate.

The mutual national security and foreign policy objectives of the United States and the EU require that we protect sensitive technologies that could be used for proliferation-sensitive, militarily-destabilizing, or anti-democratic purposes while facilitating secure transatlantic trade and fostering innovation on emerging technologies. I look forward to our continued cooperation as we apply export controls in novel ways, including to advance the protection of human rights throughout the world. If we continue to work together, we can ensure trade remains secure while moving at the speed that your business operations demand. As we refine existing controls, develop new ones, or tailor our regulations, we will remain coordinated with our allies and partners around the globe to ensure our respective export controls systems achieve their national security objectives while creating a secure innovation ecosystem that promotes technology leadership.

Thank you.

Remarks as Prepared for Delivery by Assistant Secretary for Export Administration Thea D. Rozman Kendler to the Export Controls and Human Rights Initiative

As prepared for delivery on September 15, 2023.

Introduction: Explanation of A/S Role and Current Authorities

Thank you all for being here & for participating in this 2d day of the Export Control and Human Rights Initiative (ECHRI) Plenary, focusing on the roles of industry and civil society. I am thrilled to be here with you to talk about our shared commitment to protecting human rights and vulnerable populations throughout the world. We in the Bureau of Industry and Security (BIS) at the U.S. Department of Commerce are deeply committed to using U.S. export controls to advance this mission. Human rights are, and historically have been, at the center of U.S. foreign policy. They are central considerations for trade and especially for export controls.

We are actively formulating, coordinating, and implementing various export control measures to counter the use of items subject to our regs that enable human rights violations and abuses. Today, I would like to walk you through types of controls we have in place to prevent U.S. items from being used to enable human rights violations and abuses. I will also share my impression of the direction in which we’re headed, and make the case for why, at this particular time in history, we need ally and partner engagement on these issues more than ever before.

Our current export controls are a mix of tech and end user controls, accompanied by specific licensing policies that allow review of transactions for concerns of human rights violations and abuses. We have long implemented unilateral tech controls, for items that by their nature are particularly useful to police and security services and could be used for arbitrary detention or arrest, dispersal of peaceful protests, and other activities of human rights concern. This includes items such as: restraints, stun guns, stun grenades, water cannons, saps, police batons, whips, instruments of torture (e.g., thumbscrews), equipment for executions, tear gas, and shot guns.

In Oct 2020, we added water cannons and related parts to these controls, particularly given clear evidence of the use of water cannons to suppress peaceful protestors across the world. We intended this action to signal U.S. Government resolve to address the spread of violations and abuses of human rights by enabling the U.S. Government to review the export of water cannon to most countries in the world.

BIS also has tech controls on high tech surveillance items such as surreptitious intercept, key logging, and intrusion equipment and certain biometric items that may be used to enable abusive genetic collection and analysis. These items have a multitude of legitimate end uses but also may be used to engage in or enable human rights violations and abuses. We’re keenly focused on appropriately controlling new advanced surveillance tech to inhibit U.S. software and technology from being misused, and to ensure human rights-related export controls reflect the realities of today, with an eye on the future.

Separate from these specific items, we consider HR when reviewing all licensing applications, even where items to be exported are not controlled for HR-related reasons. All license applications we receive for the export of items, including firearms, are reviewed by BIS foreign policy experts and our international affairs partners at the U.S. Department of State for assessment of foreign policy and human rights implications. We take human rights protection into account when we look at the items, destination, end-users, specific nature of the end use, and the risk of unauthorized use or diversion. Our end-user controls are based on recognition that authoritarian regimes, repressive governments, and complicit commercial entities seek U.S.- origin items to engage in or enable human rights violations and abuses throughout the world.

We have taken reg action, primarily through additions to our Entity List, to identify malign actors and prevent them from obtaining and misusing items subject to our controls. To level-set, the Entity List includes foreign persons involved in activities contrary to U.S. foreign policy or national security, and generally restricts exports/re-exports of U.S. items and technology if such entities are a party to the transaction. Not just end-user, also middleman or financer. We’ve added over 100 government and commercial entities to the Entity List to protect Human Rights.

Specifically, the EL includes over 80 entities in China that are connected with human rights violations and abuses, including campaigns of repression, mass arbitrary detention, and hightechnology surveillance against minority groups in Xinjiang. We’ve added entities in Russia and Burma for selling and procuring military equipment used to carry out aerial attacks that have killed civilians. Similarly, we’ve added entities in Nicaragua for being complicit in, or directly or indirectly engaging in, serious human rights abuses. Our Entity List generally prohibits listed parties from acquiring items subject to BIS’s export licensing jurisdiction without specific authorization, which is unlikely to be granted.

* * *

Dual-Use Technologies are Increasingly being Used to Commit Human Rights Abuses at a larger Scale

That’s what we do to combat this problem, and the tools we have. Now we find ourselves at an inflection point; state actors are leveraging advanced tech to automate surveillance at scale. This significantly enhances their ability to track dissidents, profile and repress minorities, spread disinformation, and restrict political freedoms. These practices are not new, of course. In 1985, we issued regulations restricting the export of certain computers to specific South African government agencies due to their use in Apartheid-era repression.

But modern technology has supercharged the ability of authoritarian regimes to exercise social control over their populations in violation of universal human rights. We witness this on the world stage today with dual-use tech. State-actors leverage technology such as AI and big data to turn entire regions of the world into open-air prisons. They target populations for forced DNA collection and collect genetic information. Many of this tech has peaceful and legitimate uses, in fact, AI can assist with image recognition to gather data on human rights abuses. Last night there was a story on NPR about using AI to help clear Russian-seeded mine fields in Ukraine. And forensic technology can reconstruct crime scenes and hold perpetrators accountable.

In the wrong hands, though, this same technology is being weaponized. Export controls are more important than ever in balancing the risk and benefits of dual-use tech. And new export control tools are essential to combat the spread of the software, technology, and know-how that enables such activities.

* * *

Role of Export Control Human Rights Initiative

We in the United States cannot confront the issue of dual-use tech being used to commit HR abuses alone. It’s an axiom of export controls that unilateral controls are not as effective as multilateral controls. This is especially true in protecting human rights and why the Export Control and Human Rights Initiative is so important. Sharing a political commitment among countries that with shared values is exactly the foundation we need to create an ecosystem in which our goods are not misused to commit human rights violations.

Commitment is only the first step, of course. Our goal is to exchange best practices, develop a shared understanding of threats and risks, and implement controls. A diversity of countries have signed onto ECHRI. Some have long-established export control systems and others are new to export controls. We have much to learn from one-another, including those who are considering export controls with fresh eyes. I’d note for you in particular that I am personally an enormous fan of the Export Control and Related Border Security (EXBS) program, which I encourage you to take advantage of for capacity-building efforts.

The beauty of this afternoon’s event is the opportunity to work not just with likeminded countries, but also with industry. Frankly, we cannot fully implement export controls to protect human rights without you. Our export controls will be more effective when we pair with commitments from industry to conduct due diligence, particularly in evaluating customers, to identify transactions that might contribute to repression, detention, surveillance, censorship, and other activities of human rights concern.

The National Science and Technology Council last year identified 19 areas of critical and emerging technology of particular importance to U.S. national security, including advanced computing, AI, autonomous systems and robotics, biotech, and human-machine interfaces. In each of these fields, we must work with industry to think ahead to not just the wonderful benefits they will bring to humanity but also the potential nefarious applications. Emerging technology such as artificial intelligence, machine learning, and the Internet of Things are shaping every aspect of modern society, with human rights and national security implications. As we work together as governments, we will also work with industry to develop creative best practices and solutions in this evolving tech landscape.

* * *

Conclusion

As President Biden said upon the United States election to the United Nations Human Rights Council:

“We stand at an inflection point in history. The choices we make in the years ahead will determine the kind of world we leave to future generations. Defending human rights . . . is a fundamental challenge of our time . . . we have to meet that challenge [to] unleash our full human potential.”

The world is undergoing a fundamental digital transformation that is changing how we live, work, and think. The technologies of tomorrow have the potential to move humanity forward to a better and safer world, but alternatively, if technology ends up in the wrong hands, will cause massive societal disruption. We must be at the forefront of ethical innovation. And only a collective solution will work.

Thank you for your participation today and please join me in renewing our commitment to ensure that export controls promote human rights and protect vulnerable populations throughout the world. On this eve of the Jewish holiday of Rosh Hashanah I wish Shana Tova Umetuka to those who are celebrating. To quote former President Barack Obama:

“the Days of Awe are a time to ask of ourselves something only we can control: the strength to do better. To be better. To make the world we live in a kinder, more peaceful place. To hear in the sacred shofar blast a call from within to change.”

Everyone in this room has that power, to do better, be better, and make our world kinder and more peaceful. By working together to protect human rights through export controls, we will make a difference in our lives and in our world.

Remarks as Prepared for Delivery by Assistant Secretary for Export Enforcement Matthew S. Axelrod to the Society for International Affairs Summer Back to Basics Conference

July 26, 2023

Last month, I noticed a few streets closed outside my office at the Department of Commerce. That’s not unusual, given our close proximity to the White House. But these street closures were different. In addition to the typical barricades, the streets were filled with giant camera booms, dollies, cranes, and what seemed like miles of extension cords. Turns out, they were filming a Captain America movie, which will add to the roster of more than 30 superhero films that comprise the Marvel Cinematic Universe.

What’s interesting about the fictional universe Marvel has created is that it’s a shared one. In other words, the superheroes who inhabit it do so in an extended web of interconnected plots, crossovers, sequels, prequels, and spin-offs. There are stand-alone movies, where one character, like Iron Man, is showcased. And there are movies like the Avengers, where an ensemble cast of Marvel’s most powerful superheroes team up to vanquish a collective evil. The Marvel universe is not only a shared one, it's also a ridiculously popular one. Out of the top fifteen highest grossing movies of all time, six are Marvel movies.

Now, you may be asking why I’m bringing up comic books at an export control conference. It’s because we too inhabit a shared universe. Export controls are inherently interconnected. When a country acts unilaterally, its actions can be self-defeating – the country burdens its own companies while the bad guys still get the technologies they need from other countries to modernize their military or advance their weapons-of-mass-destruction program. As one former Bureau of Industry and Security (“BIS”) Under Secretary used to say, imposing unilateral controls is like damming half a river. That’s why so much of the export control universe involves multilateral or plurilateral controls.

Likewise, on the enforcement side, our universe is a shared one too. As I’ll discuss in some detail today, our efforts are ever more intertwined with those of our U.S. government partners, including through our Disruptive Technology Strike Force and our work with Treasury Department components. They’re also increasingly connected with the efforts of our foreign enforcement counterparts, including Five Eyes and G7 countries. And perhaps most importantly of all, our efforts are linked with those of industry and academia – our primary line of defense against foreign adversaries. The people on the frontlines, whether in a company or a university, are the ones best positioned to notice when a customer’s or research partner’s request seems off, or when something anomalous appears. When their Spidey-sense tingles, there’s a reason. Simply put, when it comes to ensuring compliance with our export laws, it’s not just my team doing the work. It’s the entire export enforcement universe – one that’s filled with real-life superheroes.

* * *

Given that this is SIA’s Summer Back to Basics Conference, I want to provide you an overview of the Export Enforcement side of BIS – what we do, why it’s important, and what we’ve been working on.

What we do. As Assistant Secretary for Export Enforcement, I lead a team of law enforcement agents and analysts dedicated to preventing sensitive U.S. technology from ending up where it shouldn’t. Our enforcement authorities are broad, allowing us to bring both criminal charges (with our colleagues at the Department of Justice) and administrative enforcement actions (with our Commerce Department lawyers). We also nominate parties to the Entity List if they are involved in activities contrary to the national security or foreign policy interests of the United States. While various U.S. government agencies can nominate parties to the Entity List, the vast majority of those nominations come from our enforcement analysts.

Why it’s important. In 2006, the Office of the Director of National Intelligence (“ODNI”) published the Intelligence Community’s very first Annual Threat Assessment, which catalogues our country’s most pressing national security threats. The 2006 report began with a discussion of the threat of terrorism from non-state actors like al-Qaeda. Analysis of the threat posed by Russia did not appear until page 16 and the discussion of China wasn’t until page 20. As you can imagine, this year’s report is quite different. For 2023, the Annual Threat Assessment leads with nation-state actors: China, Russia, Iran, and North Korea. Part of why these nation-state actors now come first in the report is because they are trying to use advances in technology to surpass us militarily. They seek to acquire sensitive U.S. technology to advance their military capabilities – with their ultimate goal being to shift the world’s balance of power.

It is critical we ensure that these advanced technologies work for, not against, democracy and security. Technologies like hypersonics, quantum computing, and artificial intelligence, for example, have the potential to refine and reshape the geopolitical landscape. The experts assess that, eventually, quantum computing will enable the country that sufficiently develops the technology first to create unbreakable encryption. And, at the same time, it will allow that country to break all existing encryption, revealing the world’s most sensitive national security communications. Imagine if the country to get there first is one of the four listed in this year’s Annual Threat Assessment.

Our tools are now a spot-on match for confronting this most pressing national security challenge. Our mission is singular: keeping our country’s most sensitive items out of the world’s most dangerous hands. But just because we have a singular mission doesn’t mean we do this work alone. To the contrary, the magnitude of the challenge we face requires joint efforts and partnerships.

Which brings me to what we’ve been working on – with our U.S. government partners, with our international partners, and with our industry partners.

* * *

I’ll start with our recent efforts to strengthen our partnerships within the U.S. government. Earlier this year, we and the Department of Justice (“DOJ”) established the Disruptive Technology Strike Force, which I co-lead with Matt Olsen, the Assistant Attorney General for National Security. The mission of the Strike Force is to target illicit actors, protect supply chains, and prevent critical technology from being acquired by authoritarian regimes and hostile nation-states.

To achieve this mission, we’ve established 14 local cells around the country, each of which includes a federal prosecutor, an agent from BIS, a Homeland Security Investigations agent, and an agent from the Federal Bureau of Investigation. Each of the 14 cells work together to investigate and prosecute violations of U.S. export laws. The cells are also supported by an interagency analytic cell in Washington, D.C.

The Strike Force is already delivering results. In May, we announced our first five cases, which originated in U.S. Attorney’s offices around the country, from New York to California. The cases involved everything from alleged procurement networks created to help the Russian military and intelligence services obtain sensitive U.S. technology, to defendants allegedly stealing source code from U.S. technology companies to market it to Chinese competitors.

We’ve also strengthened our partnership with the Treasury Department, particularly with the Financial Crimes Enforcement Network (“FinCEN”) and Office of Foreign Assets Control (“OFAC”). Alongside FinCEN, we’ve published two unprecedented joint BIS-FinCEN alerts designed to educate financial institutions about export control evasion and how to spot it. The joint alerts highlight specific items that Russia needs for its military, including its missiles and unmanned aerial vehicles, as well as ways to identify and report evasion red flags. They contain a unique key term for financial institutions to use when filing Suspicious Activity Reports (SARs) related to evasion of the Russia controls. That key term has now been included in over 300 SARs – nearly one third of which have helped predicate new investigations, advance existing investigations, or develop Entity List packages. We are currently working with FinCEN 4 to find additional ways to notify financial institutions of export control evasion trends more broadly beyond our Russia controls and to support financial institutions’ reporting of activities that contribute to those trends.

I’m announcing today that we just signed an agreement with OFAC formalizing our close coordination and partnership. My team and I already meet regularly with our counterparts at OFAC. Now, we’ll ensure that our enforcement teams are working even more closely together. Among other things, we’ll be seeking to jointly resolve investigations of common subjects, including matters voluntarily disclosed to both agencies. As a result, you can expect to see more coordinated enforcement actions from us going forward.

* * *

To be clear, our government isn’t the only one with whom we’ve strengthened partnerships. We’ve also been working hard to broaden our partnerships with foreign governments. On Russia specifically, our colleagues on the Export Administration side of BIS built a coalition with 38 other governments to put in place the most comprehensive export controls in history aimed at a specific country. Together with our partners, we’ve limited Russia’s access to specific technologies and other items needed to sustain its illegal military activity in Ukraine. Multilateral controls, especially when part of a coordinated international endeavor to apply economic pressure on a specific country, are incredibly powerful.

On the enforcement side, we’re working closely with foreign counterparts across the world to enforce these controls. Late last month, I was in Ottawa meeting with our Five Eyes partners from Canada, the United Kingdom, Australia, and New Zealand, where we announced a commitment to formally coordinate on export control enforcement. We agreed that we will increase collaboration and information sharing across our respective enforcement teams. We’ll share export enforcement best practices and enhance our abilities to prevent malign actors from evading our respective controls. By leveraging each other’s strengths, we will enhance our collective security. We have also – for the first time ever – stationed an enforcement analyst abroad. We now have an enforcement analyst in Ottawa to liaise on export controls directly and daily with the Canada Border Services Agency and our other Canadian partners.

In addition to our work with our Five Eyes allies, we are also partnering with the other G7 members (Canada, the United Kingdom, France, Germany, Italy, Japan, and the European Commission) to close evasion pathways and disrupt Russia’s ability to source inputs for its illegal war. This past April, our Deputy Secretary, Don Graves, along with his counterparts from the Treasury Department and the Japanese Finance Ministry, convened a meeting of the G7 countries to announce a new enforcement coordination mechanism. This effort is designed to bolster coordinated international enforcement of the multilateral sanctions and export controls on Russia. There is widespread agreement that it’s not sufficient for allied countries to have established complementary controls on paper. We also need to work together to enforce those controls in a complementary way. Earlier this month, we held the first working-level meeting of this G7 enforcement coordination mechanism, where we committed to leverage our collective enforcement capabilities. Just like our Five Eyes effort, by working closely with our international enforcement counterparts, we are strengthening security for everyone.

* * *

Let me turn now to our partnership with industry. As I mentioned earlier, export controls are a shared universe, and no inhabitant of that universe is more important than industry. Put simply, industry is our first line of defense. No one knows a company’s business, and the export control risks inherent in it, like the company itself does. As I’ve said repeatedly – and as recently as last week in a post on the Compliance and Enforcement Blog hosted by New York University School of Law’s Program on Corporate Compliance and Enforcement – we would much rather work with companies to prevent violations on the front end than enforce violations on the back end. When we enforce, it often means the technology has already gone to our adversaries and the national security harm has already occurred. Our goal, which I know is a shared one, is to avoid getting to that point whenever possible.

Our work enforcing the Russia controls provides a concrete example. Beyond our enforcement efforts, U.S. and international industry have been essential players in preventing Russia’s access to key technologies. Our agents have reached out to more than 800 domestic companies with past export ties to Russia or whose components have been identified inside Russian weapons systems found in Ukraine. And we’ve educated hundreds of international companies as well, through webinars and trainings. I’ve also been contacting specific companies and trade associations involved in the manufacture or distribution of components that Russia needs for its missile and drone programs in order to share diversion prevention strategies.

We’ve also put out written Russia-related guidance to industry. In March, we issued a first-ever tri-seal compliance note for industry with DOJ and the Department of the Treasury, focused on Russian evasion tactics. And in June, we did a first-ever quad-seal advisory along with DOJ, Treasury, and the Department of State to highlight the threat of Iran’s drone program and the need for industry to take appropriate steps to prevent activities that would support its further development. That’s all in addition to the joint BIS-FinCEN alerts on Russia I mentioned previously.

And our guidance is not limited to Russia or to evasion tactics. Just today, for example, we issued a second tri-seal compliance note with DOJ and Treasury, highlighting our respective voluntary self-disclosure policies. As discussed in the note, we recently clarified our regulations concerning both voluntary self-disclosures and disclosures about the conduct of others. The new compliance note discusses these clarifications, along with recent changes to the National Security Division’s VSD policy and FinCEN’s whistleblower program.

In addition to industry, we also partner closely with academia. Last June, I announced our Academic Outreach Initiative. Given the increasing interconnections between the domains of national security and academia, we are partnering with prioritized universities to help them protect their research from foreign government adversaries. Last year, we established partnerships with 20 universities whose work gives them an elevated risk profile. 

In addition to providing each of these universities with a dedicated “Outreach Agent” to serve as their point of contact, we conducted webinars and trainings on topics such as red flags specific to academia and how to best conduct open-source research and due diligence on academic partners. Today, I can announce that we’ve expanded this effort. I recently invited nine new universities to the Initiative. They’ll join the existing twenty in receiving a dedicated agent, training, and briefings as part of this important effort to protect the sensitive technologies that can result from advanced academic research.

* * *

Our partnership with industry goes beyond partnership on export controls. I also oversee the Office of Antiboycott Compliance, which enforces the antiboycott rules and works closely with companies to support their compliance with those rules. The antiboycott laws, implemented under the Export Administration Regulations, prohibit U.S. companies from taking certain actions in support of an unsanctioned foreign boycott of a country friendly to the United States, such as the Arab League boycott of Israel. The provisions also prohibit U.S. persons from complying with certain requests for information designed to verify compliance with such a boycott.

Last October, we strengthened our antiboycott enforcement program by making changes designed to enhance compliance, increase transparency, incentivize deterrence, and compel accountability. We instituted a requirement that companies entering into settlement agreements for antiboycott violations admit to a statement of the facts outlining their conduct. We raised our penalties. And we announced a renewed focus on foreign subsidiaries of U.S. companies and said we would explore additional ways to deter foreign parties from issuing or making boycott requests. Our efforts have borne fruit. In May, for example, we imposed a civil penalty of $283,500 against Regal Beloit FZE, a foreign subsidiary of a U.S. company located in the United Arab Emirates, to resolve alleged violations of the antiboycott regulations. The company failed to report to us that it had received 84 requests during a period of more than four years from a Saudi Arabian customer to refrain from importing Israeli-origin goods into Saudi Arabia. The company voluntarily self-disclosed the violations, cooperated with the investigation, and took remedial measures after discovering the conduct at issue – otherwise the penalty would have been even higher.

Today, I’m announcing further actions to strengthen antiboycott reporting and compliance. As detailed in a memorandum that I distributed to our workforce this morning, we are implementing two new measures:

First, we have modified the boycott reporting form. Prior to today, U.S. persons were required to report to us when they received a boycott-related request and required to identify the country from which the request originated. But they weren’t required to tell us the identity of the specific party who made the request. Starting today, our reporting form will also require the identification of the requesting party. This information will help us investigate and hold accountable any foreign subsidiaries or affiliates of U.S. companies that make unlawful boycott-related requests.

Second, we have placed an antiboycott policy statement on U.S. acquisition management websites. Yesterday, we posted a policy statement on both the Department of Commerce’s Office of Acquisition Management website and the broader federal contractor SAM.gov website. The policy statement clearly articulates the requirements of the antiboycott regulations and their applicability to U.S. government acquisition contracts. By adding the policy statement to these websites, we’re notifying federal contractors that they must abide by the antiboycott regulations as part of their contractual responsibilities, especially if they want to do business with one of the world’s largest procurement organizations.

Compliance with the antiboycott regulations is not optional. All U.S. companies – whether federal contractors or not – should familiarize themselves with the antiboycott regulations and reporting requirements. And if you have any questions, please visit our website or call the Office of Antiboycott Compliance advice line. Our team stands ready to partner with you on antiboycott compliance.

* * *

A little over a month ago, there was a long New Yorker article on the Marvel Cinematic Universe and how it came to exist. Reading the article, I was struck by one particular line, which said that “[m]ost plots boil down to ‘Keep glowy thing away from bad guy,’ and the stakes are nothing less than the fate of the world, which come to feel like no stakes at all.” I think the article meant this as a criticism of Marvel movies’ repetitive storylines, implying that audiences might get bored because when, for each movie, “the stakes are nothing less than the fate of the world,” then over time they can “come to feel like no stakes at all.”

I want to assure you that, for both my team and for everyone who does export enforcement, who focus day in and day out on keeping our country’s most sensitive items out of the world’s most dangerous hands – or, in other words, “keep[ing] glowy thing away from bad guy” – the work is never boring. We know the stakes. Those stakes are incredibly high. And they never come to feel like no stakes at all. Thank you.

Assistant Secretary for Export Enforcement Matthew S. Axelrod Remarks to the American Association of Exporters and Importers’ 102nd Annual Conference and Expo

As Prepared for Delivery

June 21, 2023

Thank you for the introduction. It’s great to be here with all of you. Last week, I was in Phoenix for work. While there, I visited places called Biscuit Flats and Dead Man’s Gulch. When I say those names, I’m sure it conjures up pictures in your head of dust, cactus, and tumbleweeds. Like something out of an old Western movie. And two years ago, that picture would have been accurate. The only thing missing would be the saloon with the swinging doors. But not anymore.

Today, rising from Biscuit Flats and Dead Man’s Gulch is a building about as modern as modern gets. That’s where Taiwan Semiconductor Manufacturing Company (TSMC) is constructing a state-of-the-art semiconductor manufacturing facility, known as a “fab.” TSMC plans on producing advanced 5 nanometer chips there next year. Five nanometers. Do you know how small that actually is? A sheet of paper is about 100,000 nanometers thick. That means that five nanometers is 1/20,000th as thick as a sheet of paper. To put it another way, one nanometer is about as long as your fingernail grows in one second. So, look at your fingers and wait five seconds. The change in your fingernail length – that’s how big we’re talking.

The theme of today’s conference is “Reshaping the Status Quo.” When Biscuit Flats and Dead Man’s Gulch are on the cusp of churning out microchips that are 1/20,000th as thick as a sheet of paper, or equivalent to five seconds of fingernail growth – I think it’s fair to say the status quo is being reshaped.

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And that reshaping of the status quo when it comes to the scale and power of our technological advances is paralleled by a reshaped status quo when it comes to our national security. We’re at an inflection point there, too.

In 2006, the Office of the Director of National Intelligence (ODNI) published the Intelligence Community’s first Annual Threat Assessment, which catalogues our country’s most pressing national security threats. The 2006 report began with a discussion of the threat of terrorism, from non-state actors like al-Qaeda. Analysis of the threat posed by Russia did not appear until page 16 and the discussion of China wasn’t until page 20. As you can imagine, this year’s report is very different. For 2023, the Annual Threat Assessment leads with nation-state actors: China, Russia, Iran, and North Korea. Part of why these nation-state actors now come first in the report is because they are trying to use advances in technology to surpass us militarily. They seek to acquire sensitive U.S. technology to advance their military capabilities – with their ultimate goal being to shift the world’s balance of power.

It is critical we ensure that these advanced technologies work for, not against, democracy and security. Technologies like hypersonics, quantum computing, and artificial intelligence, for example, have the potential to refine and reshape the geopolitical landscape. The experts assess that, eventually, quantum computing will enable the country that sufficiently develops the technology first to create unbreakable encryption, and to break all existing encryption, revealing sensitive national security communications and exposing sensitive economic data. Imagine if the first country to get there first is one of the four listed in this year’s Annual Threat Assessment.

Our tools are now a spot-on match for confronting this most pressing national security challenge. Our mission is singular: keeping our country’s most sensitive items out of the world’s most dangerous hands. It is critical that we prevent sensitive U.S. technology from ending up where it shouldn’t overseas.

As Assistant Secretary for Export Enforcement, I lead a team of law enforcement agents across the country, paired with analysts at headquarters, dedicated to this mission. Our enforcement authorities are broad, allowing us to bring both criminal charges (with our colleagues at the Department of Justice) and administrative enforcement actions through in-house lawyers at Commerce. We also nominate parties to the Entity List when they are involved in activities contrary to the national security or foreign policy interests of the United States. And while a a number of U.S. government agencies can nominate parties to the Entity List, the vast majority of nominations come from our enforcement analysts.

* * *

Given these mind-boggling advances in technology and the change in the national security threat picture, we’re intently focused on making sure our tools are maximally effective. This has led to enforcement policy shifts over the past year, in addition to new enforcement partnerships. Let me spend a few minutes talking about each. On the policy front, we’ve made a number of changes to help strengthen our administrative enforcement program. I’ll highlight just a few of the changes here.

First, we changed our regulations, so our charging letters are now public when filed rather than only down the road when there’s a resolution. This change allows the exporting community to know in closer to real time what type of conduct gets you in trouble. It also provides an incentive for companies to resolve matters with us sooner rather than later.

Second, we got rid of “no admit, no deny” settlements. It used to be you could resolve with us and pay a penalty, but never admit you actually did the conduct we alleged. No longer. Now, our resolutions require you to admit that you did the conduct. That’s why, a few months ago, when we entered into a $300 million resolution with Seagate Technologies – the largest standalone penalty ever imposed by BIS – the company admitted that it continued to sell hard disk drives to Huawei after we imposed the Huawei foreign direct product rule, and after its only two competitors had stopped selling.

Third, we recently clarified our regulations concerning voluntary self-disclosures and disclosures about the conduct of others. The work we do is a shared endeavor with industry. We don’t want your technology going where it shouldn’t and neither do you. We rely on you to come tell us when something went wrong. We want to hear from you whether you discovered a potential violation of our rules by your own company or by someone else. Either way, we want to hear it. That’s why, for voluntary self-disclosures, we sharpened the risk calculus. People have long understood that if you find out about a significant potential violation, and you report it to us, you get concrete credit in the form of a sharply reduced penalty. Now, if you uncover a significant potential violation but affirmatively choose not to report it, and we later find out, we will consider that an aggravating factor in your penalty calculation. In other words, , it’s better to knock on our door before we knock on yours.

On disclosures about the conduct of others, we want to incentivize companies to tell us when other companies are violating our rules. The goal is a level playing field. The last thing we want is for a company to feel like a chump for following our rules because they’re watching their competitor ignore the rules and continue to make sales. But we can’t act on things we don’t know about. So, we made clear that, under our regulations, if you provide a tip about another company that leads to an enforcement action, we’ll remember it and take it into consideration if you ever get in trouble with us down the line. That is, we will consider your tip “exceptional cooperation,” and will count it as a mitigating factor if a future enforcement action, even for unrelated conduct, is ever brought against you.

* * *

So those are some of our enforcement policy initiatives. Let me turn to some of our partnerships. I outlined the seriousness of the threat earlier. One primary way we’re combatting that threat is through the newly established Disruptive Technology Strike Force, which I co-lead with Assistant Attorney General for National Security Matt Olsen at the Department of Justice. The Strike Force has 14 local cells across the country, which each include a federal prosecutor plus agents from Commerce, Homeland Security, and the Federal Bureau of Investigation. These local cells are supported by an interagency analytic cell here in Washington, D.C.

The purpose of the Strike Force is to focus and prioritize enforcement efforts to prevent our adversaries from advancing their development of these disruptive technologies – like quantum, like hypersonics, like artificial intelligence. The Strike Force uses an all-tools approach, including everything from criminal indictments to administrative actions to industry outreach. And it’s not just the most heavily controlled pieces of technology – many disruptive technologies rely on uncontrolled items. If there’s a particular widget that allows the quantum computer to run, we care about that too.

The Strike Force is already delivering results. A month ago, we announced the first five cases brought in U.S. Attorney’s Offices across the country, from New York to California. The cases involved everything from alleged procurement networks created to help the Russian military and intelligence services obtain sensitive U.S. technology, to defendants allegedly stealing source code from U.S. technology companies to market it to Chinese competitors. One case, out of the Southern District of New York, alleges that a Chinese procurement network worked to provide Iran with materials used in weapons of mass destruction and ballistic missiles. In addition to arrests and indictments, we also announced a related temporary denial order suspending the export privileges of several defendants, a Russian airline, and a freight forwarder for sending U.S. aviation parts and electronics to Russia. Although the cases are all different, there’s a throughline – we’re focused on keeping countries of concern from getting the technology they need to help advance their militaries.

The Strike Force is supported by other interagency partnerships we’ve developed. We’ve partnered with Treasury to put out the first two ever joint alerts between FinCEN and another agency. The alerts provide financial institutions and exporters with guidance on how to spot indicators of evasion of our Russia controls. And they give banks a specific code to use when filing Suspicious Activity Reports (SARs). A code that our analysts can then search the SAR database for and use to send leads out to the Strike Force cells or compose Entity List nominations.

We also, along with the Department of Justice (DOJ) and the Department of the Treasury, issued a tri-seal compliance note for industry focused on Russian evasion tactics. And just a few weeks ago, we did a quad-seal advisory along with DOJ, Treasury, and the State Department to highlight both the threat of Iran’s drone program and the need for industry to take appropriate steps to prevent activities that would support its further development.

We are also partnering with academic research institutions through our Academic Outreach Initiative. We’re working with specific universities to help them protect their sensitive research from nation-state actors who seek to exploit our open, collaborative academic environment.

And we’re collaborating with foreign coalition counterparts, like our Five Eyes partners, to coordinate on enforcement issues. We are also coordinating with our European partners, both bilaterally and through the U.S.-EU Trade and Technology Council. And we’re partnering with ASEAN countries like Singapore, Malaysia, and the Philippines as well.

We’ve long had an international presence to help prevent diversion, through our Export Control Officer, or ECO, program. We recently added two new ECO positions, one in Helsinki and the other in Taipei. We have also, for the first time ever, embedded an enforcement analyst abroad. We’ve sent one of our analysts to Ottawa to liaise on export controls directly with the Canada Border Services Agency and our other Canadian partners.

Finally, we’re traveling to spread the word. I recently went to Kazakhstan and Kyrgyzstan with colleagues from the Department of the Treasury and the sanctions coordinators from the United Kingdom and the European Union to talk to those governments about countering the evasion of our Russia controls. While there, we met with government officials and the private sector to share information, outline strategic priorities, and offer assistance to help facilitate compliance.

* * *

Let me turn now to a partnership that, while not a new one for us, is an absolutely critical one: our partnership with industry. At the Bureau of Industry and Security, we regularly interact with industry – in fact, we consider it a cornerstone of what we do. As I mentioned earlier, export controls are a shared endeavor, and industry is the primary line of defense. No one knows your business, and the export control risks inherent in it, like you do. As I’ve said repeatedly, we’d much rather help those of you in industry comply on the front end than have to enforce on the back end. When we enforce, it often means the item has already ended up where it shouldn’t, and the national security harm has already happened.

If you don’t know your local Office of Export Enforcement agent, please reach out and get to know them. We have agents in 30 locations across the country. We have 12 dedicated offices and another 18 locations where our agents are co-located with another federal law enforcement agency. But no matter where you are, even if not in one of those 30 locations, there’s an agent responsible for your geographic area.

While our partnership with industry isn’t new, what is new is the increased importance of export controls and export enforcement. You need to understand that not paying attention to export controls now presents enterprise risk. Our regulations and our policies are being updated frequently, at a pace higher than in the past. And they’re more expansive than in the past as well. 6 At the same time, as I mentioned earlier, we are enhancing our enforcement posture. Enforcement of our export controls is a top priority not just for us but also for our partners at the Department of Justice. That means that when companies do not invest in compliance up front, they’re going to pay the price on the back end – with large fines and reputational consequences.

As they used to say in the old days of Biscuit Flats and Dead Man’s Gulch, there’s a new sheriff in town. You don’t want to get this wrong. And we don’t want you to get it wrong. So reach out to us for help. We’re ready and willing partners.

Thank you.

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Assistant Secretary for Export Enforcement Matthew S. Axelrod Delivers Remarks on the Disruptive Technology Strike Force

Washington, D.C.
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Tuesday, May 16, 2023

Remarks as Prepared for Delivery

When we announced the Disruptive Technology Strike Force in February, we said it would bring together top experts to attack tomorrow’s national security threats today.

That’s exactly what we’ve done. We brought together agents, analysts, and prosecutors across the country to disrupt foreign actors who are trying to siphon advanced U.S. technology and then use that technology for malign purposes contrary to our national security interests.

Today, we’re starting to see results. Five coordinated enforcement actions across the country, including arrests, indictments, and a temporary denial order, that demonstrate the Strike Force’s impact. And it’s just the beginning.

Stopping sensitive technologies – like those used to develop quantum cryptography – from being misappropriated by foreign countries is a critical national security priority.

As Assistant Secretary for Export Enforcement at the Department of Commerce, I lead a team of law enforcement agents and intelligence analysts whose mission is clear and singular: keeping our country’s most sensitive technologies out of the world’s most dangerous hands.

What qualifies as the “most dangerous hands” has changed over time. Twenty years ago, in the post-9/11 world, it was primarily al-Qaeda and other non-state actors. In 2023, though, our greatest national security concerns stem from the actions of nation-states like China, Russia, Iran, and North Korea. Nation states that want to acquire sensitive U.S. technology to advance their military capabilities – with their ultimate goal being to shift the world’s balance of power.

We formed the Disruptive Technology Strike Force – a powerful partnership between DOJ, Commerce, FBI, HSI, and others – to help combat this threat. Foreign nation-states are working hard to acquire our most sensitive technologies. We’re working even harder to stop them.

We’re committed to using an all-tools approach, including both administrative and criminal authorities. And that’s part of what you see in today’s actions. In addition to the criminal charges announced today, we also took administrative action in the Arizona case. This morning, I signed a temporary denial order suspending the export privileges of a Florida company called MIC P&I, the Russian airline Smartavia, a freight forwarder in the Maldives called Intermodal Maldives, and two Russian nationals residing in Florida, for diverting civilian aircraft parts to Russia. The two Russians were also indicted criminally, as you’ll hear shortly from U.S. Attorney Restaino.

The message coming from our collective agencies could not be clearer. We are working in lockstep to protect American technology and to counter the threat posed by nation-states seeking to exploit that technology to threaten our national security.

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Remarks as Prepared for Delivery by Assistant Secretary for Export Enforcement Matthew S. Axelrod to the Academic Security and Counter Exploitation Program’s Seventh Annual Seminar

Good afternoon. Thank you, Dr. Gamache, for that generous introduction and for the invitation to join you today. And thank you for your leadership – and the leadership of Texas A&M – on academic security and counterexploitation issues. You heard from Assistant Director Alan Kohler yesterday about what the FBI is doing to promote academic security. Today, I want to talk to you about what we at the Department of Commerce’s Bureau of Industry and Security, or BIS, are doing to help you protect both your research and the open collaborative environment that drives it.

But first, I want to talk about the 12th Man. Last year, Texas A&M celebrated 100 years of the 12th Man tradition. For those unfamiliar with it, that’s the tradition where the fans at Aggie football home games spend the entire time on their feet, hooting and hollering, thereby becoming a metaphorical 12th player on the field. It all arose out of something that happened way back in 1922. The Aggies were facing the top-ranked and undefeated Centre College Praying Colonels. Yes, you heard me correctly, the Praying Colonels. And, yes, you also heard correctly, Centre College, which now plays in Division III, was the number one college football team in the country. Anyway, the Aggies were worried about having enough players to finish the game – they were shorthanded and kept losing more men to injury.

A Texas A&M basketball player by the name of E. King Gill was in the stands watching. As the Aggies coach took stock of his rapidly thinning bench, he saw Gill in the stands and called him down. Gill ran under the bleachers and put on the uniform of an injured running back. Gill stood ready to play throughout the game, becoming “the 12th Man” in what was one of the greatest upsets in college football history, with the Aggies winning 22-14. In the end, Gill didn’t enter the game. But he was dressed and ready, just in case he was called on to play.

This Aggie tradition of the 12th Man is now a protected one. It’s true. The university trademarked the term with the U.S. Patent and Trademark Office, which is part of the Commerce Department, where I work. When the Seattle Seahawks, started using the phrase to describe their home fans in the early 2000s, A&M sued them in court. The case settled and the Seahawks now pay the university to use the term.

In other words, when it comes to the 12th Man, Texas A&M worked with the Commerce Department to successfully protect their idea from misuse by others. It’s that type of collaboration between academia and the Commerce Department – a partnership that protects innovation from misuse – that I want to speak with you about today.

 

* * *

 

Texas A&M is a research and development powerhouse. Among other achievements, it is a collaborator on large-scale engineering projects such as the Giant Magellan Telescope in Chile. This telescope, which will be the most powerful on earth, will be able to produce unprecedented images of our galaxy. Twelve stories tall, with seven primary mirrors, the telescope will be used to study the first galaxies that ever formed and search for life in the atmospheres of potentially habitable planets. Some of the state-of-the-art optics systems that will be used in this telescope, including first-light instruments, are being built right here at Texas A&M.

But Texas A&M isn’t doing this work alone. The Giant Magellan Telescope is being developed by an international consortium of 13 leading research institutions. Both U.S. universities like A&M, the University of Chicago, and Harvard, and research institutions abroad, like the Australian National University, the Sao Paolo Research Foundation, and the Weizmann Institute of Science in Israel. The mind-boggling research that will be done once the telescope is completed later this decade will only be possible because of this collaboration, not only across disciplines but across institutions and across countries.

Our research institutions are strongest and most productive when they collaborate with partners, including international ones. But at the same time, our open, collaborative research environment, which is the hallmark of American academia and one of its greatest sources of strength, also presents an inviting target for foreign adversaries who wish to exploit that environment and misappropriate our research. In an age where you can share even the most sensitive and valuable research in an e-mail, over Zoom, or through visual inspection of certain manufacturing schematics, our research universities must be relentless in their efforts to protect themselves.

We’re here to help. As the Assistant Secretary for Export Enforcement, I oversee a team of law enforcement agents and analysts focused on a singularly important mission: keeping our country’s most sensitive technologies out of the world’s most dangerous hands. One of our most important partners in this endeavor is academia.

Last summer, we established a comprehensive effort – our “Academic Outreach Initiative” – to help academic institutions maintain their open, collaborative research environment in a way that also protects them from national security risk. Through this initiative, we have strategically prioritized our engagement with universities whose work gives them an elevated risk profile.

When we rolled out the Initiative, we identified twenty research institutions that either possess ties to foreign universities on the Entity List; host a strategic Department of Defense University Affiliated Research Center, also known as a UARC; or conduct research in sensitive technologies subject to the Export Administration Regulations.

All twenty agreed to partner with us. We’re now working on identifying additional universities who meet one or more of these criteria, but who were not part of the initial group of twenty. We’ll be reaching out to them in the near future about joining the Initiative. And if there’s an institution that meets one of the criteria and wants to reach out to us to join, we welcome that too.

Each of the twenty institutions has been assigned a dedicated “Outreach Agent,” a specific agent from their local BIS office who meets with them quarterly and serves as a resource and point of contact. Over the past few months, we’ve also presented two different webinars to our partner institutions. The first focused on how export controls apply in academic settings and on ways to identify the national security threats facing universities. The second was a training on how best to conduct open-source research to better vet potential foreign partners. This spring, we’ll be offering a broader training on regulatory requirements, including fundamental research in academic settings.

Separate from our Academic Research Initiative, we recently launched a Disruptive Technology Strike Force with the Department of Justice, the FBI, and Homeland Security. The Strike Force’s goal is to protect critical technological assets from being acquired by nation-state adversaries. The types of technologies that the Strike Force will focus on are ones where our research universities are playing a critical developmental role, including advanced semiconductors, supercomputing, quantum computing, hypersonics, and biosciences related to enhancing human performance like brain control interfaces.

The Strike Force will focus enforcement resources in locations across the country to protect cutting-edge research from misappropriation. In short, through both the Academic Outreach Initiative and the Disruptive Technology Strike Force, we’re committed to doing all that we can to both protect national security and maintain U.S. leadership in academic research and innovation.

 

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The challenge faced by research institutions of how best to safeguard their research is not just an American challenge. It’s an international one. Allied countries with world-renowned research universities face the same quandary as American ones – how to protect sensitive research from theft and diversion by nation-state adversaries while maintaining an open research environment that encourages the free exchange of ideas. And just as we at the FBI and BIS are working through that quandary with American institutions, several allied governments are doing the same in their countries.

Take the United Kingdom. There, the government published guidance on how UK export controls apply to academic research and what academics should watch out for as they conduct research with overseas partners. As noted in their Higher Education Export Control Guide and Toolkit, awareness of and guidance on export controls should form an integral part of an academic institution’s research policies.

Similarly, the Australian government, in collaboration with their academic community, published the Guidelines to Counter Foreign Interference in the Australian University Sector, which were updated in 2021. The guidelines seek to safeguard the security of Australia’s university sector without undermining its invaluable openness. The guidelines delineate four foundational elements for building resilience within a university: (1) governance and risk mitigation; (2) communication, training, and information sharing; (3) regular due diligence and risk assessments; and (4) cybersecurity. Like we do in our Academic Outreach Initiative, the Australian government is working in partnership with Australian universities to share information and raise awareness about the importance of protecting academic research.

In January, I met with counterparts in Canada to discuss, among other things, their approach to academic research security. The Canadian government has launched a “Safeguarding Your Research” portal, which provides information to the Canadian research community on how to safeguard their research and innovations. Canada also publishes a “Protect Your Research” guide, which is broken down by geographic region to reflect the nuances of each province and territory – highlighting specific industrial sectors, research institutions, and technology hubs in each place. Additionally, in 2021, the Canadian government released its National Security Guidelines for Research Partnerships, which integrate national security considerations into the development, evaluation, and funding of research partnerships. As I stated during my visit to Ottawa, we’re committed to working closely with our Canadian counterparts in helping academic institutions in both countries protect themselves from current and future threat actors.

 

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One aspect of university research that we and allied countries are thinking about is fundamental research. Scientific and technological breakthroughs are only possible because of foundational research that precedes those breakthroughs. Experimental and theoretical work must be shared, tested, and peer-reviewed. In the case of dual-use technology, the UK calls this “basic scientific research,” which is undertaken solely to obtain new knowledge of the fundamental principles of phenomena or observable facts. It is not directed towards a specific practical aim or goal.

Here, the term “fundamental research” refers to scientific and technical research that is intended for publication and widespread dissemination within the academic community. As long as researchers do not accept restrictions on publication for proprietary or national security reasons, the results of fundamental research are generally not subject to the Export Administration Regulations, or EAR. Therefore, sharing technology or software that arises during, or results from, this research will likely not require a BIS export license.

Note that I just said, “will likely not require a BIS export license.” The key word is “likely.” There is sometimes a misconception among professors that any research destined to be published is wholly exempt from export controls because it qualifies as fundamental research. While this is true as a general matter, there are some important exceptions that I want everyone to be aware of. I’ll touch on just two of those exceptions here – government-funded research and changes during the research cycle.

First, it is important to note that technology and software that is produced through a U.S. Government-funded research project might not be considered “fundamental research” if it is protected by government-imposed access and dissemination or other specific national security controls. These national security controls include prepublication review requirements, restrictions on publication or dissemination to non-U.S. citizens, or the restriction of participation in the project to U.S. citizens only.

And second, remember that just because your project falls within the definition of fundamental research at the outset, it does not mean that it will in the middle, or at the end, as publication decisions may shift. As an example, take a project where at the beginning everyone intends that the research will be published without restrictions. The project is therefore considered fundamental research. But then, mid-project, someone sees a unique commercial use for the technology and decides that it is now proprietary information and will instead be protected. If that happens, it would no longer be considered fundamental research, would become subject to the EAR, and may require a BIS license. For this reason, an assessment should be made at every stage or development of a research project.

In summary, even if you are conducting fundamental research, you still may be required to obtain a license if your activities fall under one of the exceptions. The question of compliance does not just end once you determine that what you’re producing is considered fundamental research. Instead, it comes down to the facts. Each university research program is different. Each individual research project is different. The final determinations on fundamental research are fact specific. If you need assistance with this determination in your individual case, please reach out to your compliance team, your export control officer, and/or the BIS Office of Exporter Services. You can also choose to file an Advisory Opinion request. We have a lot of resources at your disposal so please don’t hesitate to contact us.

 

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Export controls are not static. And they play an increasingly important role on the global stage. Just reflect back on the past year: export controls and sanctions have been some of key tools that the United States has used to respond to Russia’s unjustified and brutal war against Ukraine. We’ve built a coalition with 38 other countries to put in place the most expansive export controls in history aimed at a specific country. As a result of those actions, the Russian military has turned to pariah states, like Iran and North Korea, to replenish its supplies with inferior and defective equipment.

As the nature and scope of export controls change, it is incumbent on everyone to take notice. If I can impart three pieces of advice to those who work in academia, it would be this:

First, export controls should be everybody’s concern, not just something your compliance team thinks about. You – and I mean everyone at a university, including professors, research assistants, students, counsel, academic deans, etc. – should be thinking about how export controls fit into your roles and responsibilities. You don’t need to be an expert on the EAR, but you do need to know how to spot red flags and when to reach out to your export control officer for further guidance.

Checking in with the export control officer could have prevented one Ivy League university from exporting various strains of animal pathogens without the required license to overseas research institutions in Canada, Belgium, France, and other countries. The items fell under chemical and biological weapons export controls that exist to keep the building blocks for these weapons out of the wrong hands. University staff only realized their error during a subsequent training session on export controls. This type of unforced error – one that could have been avoided with a call to the right people at the outset – underscores how important it is that everyone think about how export controls may relate to your research and have procedures in place to guide your staff.

Second, you should always do a risk assessment before collaborating with international partners. We recommend vetting any potential partner in at least two different ways: (1) through an opensource search, for example by using a search engine like Google, to see what is in the public domain; and (2) checking the name of your potential partner against the Consolidated Screening List, which is a free online tool administered by the Commerce Department. If you see any news articles, press releases, or NGO publications that link your potential partner to foreign military or defense projects, foreign intelligence or security services, or other end-users of concern, you should reach out to your compliance team, your export control officer, or BIS. As I said earlier, international collaboration is an essential part of academia. The Giant Magellan Telescope, for example, is a good illustration of the importance of working with partners across the world. Without strong international partnerships, we wouldn’t be close to unlocking the secrets of the universe. But without strong internal controls, you could end up partnering with institutions that serve the interests of hostile foreign governments as well as the interests of scientific discovery.

Third, as the Canadians say, “Protect your Research.” From a prudential standpoint, think about the purpose of your research and the motivations of your partners. You don’t want to risk your reputation by inadvertently partnering with someone who has nefarious intentions. And that’s true regardless of whether you’re engaged in fundamental research or not. We want you to have confidence in your collaborations and to make informed decisions concerning all of your research. If you have offers from foreign entities to purchase or invest in your research that seem too good to be true, listen to your gut and call your compliance team, your export control officer, or us at BIS.

 

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In reflecting back on becoming the legendary 12th Man, E. King Gill once told a reporter, “I wish I could say that I went in and ran for the winning touchdown, but I did not. I simply stood by in case my team needed me.”

Gill’s willingness to serve is reflected throughout the history of Texas A&M, well beyond the football field. Aggies have played key roles in our government, military, and civil society. By 1918, almost half of Texas A&M’s graduates were serving our country in World War 1.

During the Second World War, over 20,000 Aggies contributed to the war effort, which resulted in seven Aggies receiving the Medal of Honor. Thousands of additional A&M graduates have continued to serve their country since then.

When it comes to protecting our country’s sensitive technology from foreign adversaries, we need everyone to step up and serve. Compliance with export controls must be a team effort. As the Australian guidelines on countering foreign interference note, “[s]ecurity is a collective responsibility with individual accountability.” Whether you’re an export control officer or the Vice Provost for Research, a professor or a research assistant – your efforts are critical to protecting that innovative and groundbreaking research for which our U.S. research institutions are rightly famous. Our shared mission is to protect that research and to prevent it from falling into the hands of those who would do our country harm.

Thank you.

Remarks by Assistant Secretary Thea D. Rozman Kendler to the Association of Women in International Trade (WIIT)

As prepared for delivery on March 2, 2023.

I’m so glad to be here speaking at with the Association of Women in International Trade today with Assistant Secretary Liz Rosenberg, who not only has been a partner in crafting our economic response to Russia’s further invasion of Ukraine but has become a good friend in the process. Speaking to you today, with Liz, is a fitting marker for the start of National Women’s History Month, and also marks an observation of one year since Russia launched its horrifying and senseless attack on the Ukrainian people.

I am hard pressed to identify any silver linings in the last year, but this work has provided the opportunity to powerful women leaders in the international trade and national security sphere, which has been heartening.

This past September, I experienced the career highlight of delivering the keynote address at the first ever Women in Strategic Trade conference – in Singapore – and meeting women strategic trade leaders from across the world. Women who are passionate about export controls, which provide a foundation for global peace and security and protection of innovation and intellectual property, and also enable trade promotion activities. Organizations like WIIT that bring together women from across the international trade spectrum to facilitate the exchange of ideas provide a foundation from which we can develop networks and collaborate.

Along these same lines, we see that – in direct contravention of what Vladimir Putin may have expected – Russia’s heinous actions in Ukraine have galvanized a powerful and aligned international response. Instead of weakening our resolve and the international order, Russia has strengthened it.

In very short order last year, we marshalled 37 allies and partners from North America to Europe to the Indo-Pacific to impose substantially similar export controls on Russia and Belarus. By acting together with international partners, we have put a vice grip on Russia’s ability to sustain its war machine through obtaining primarily commercially available items, the most critical of which is semiconductors.

Our export control restrictions – together with this Global Export Control Coalition – have led to a severe deterioration of Russia’s industrial base’s ability to repair, replace, and replenish the military platforms and munitions necessary to sustain the war in the long-term.

One year has nearly passed and the Global Export Control Coalition’s commitment to this effort is even stronger. Consider the measures introduced and adopted on February 24. BIS published four rules: adding hundreds of low-level technologies to our Russia/Belarus controls, bringing us into further alignment with our partners; imposing controls on specific items going to Iran, including semiconductors, that are components for Iranian UAVs used by Russia in Ukraine; and amending the Entity List with 86 entities supporting Russia’s defense-industrial sector.

At almost the same time, the EU adopted its 10th package, which – among other things – added technology export restrictions and identified new Russia military end-users, including for the first time seven in Iran. Japan and the United Kingdom also announced extensive new aligned export controls of lower-level technologies on the same day. And Korea introduced new export controls for Russia on over 700 items, including automobiles and parts, industrial machinery, chemicals and steel products.

As a result of our collective actions, we have seen global exports of GECC-controlled goods to Russia decrease by 48 percent by value ($32.1 billion), and direct GECC exports to Russia decline by 72 percent ($30.2 billion). This includes decreases of 55 percent ($15.7 billion) in sectors including information and communications, aerospace, nuclear technology, and weapons. We have also seen nearly 100 percent decreases in GECC trade in railway freight cars and oil drilling platforms, and 65 percent decreases in vehicles of various types.

At the same time, we have expedited over $1 billion in export licenses to Ukraine to help with firearms, ammunition, night vision goggles, and other items desperately needed and requested by the Ukrainians.

I want to commend my team in BIS’s Export Administration for their tireless work bringing about all of these achievements. But we do not rest while Russia continues to wage its war.

As you might expect, with our international partners, we intend to close gaps in our controls that may continue to fuel Russia’s war. We look at unusual trade patterns, focusing on increases in Russian imports from countries that may have become transshipment hubs and at points of origin for the trade through those hubs. We reach out to the governments at issue, as well as industry in these countries, to educate about the extent of U.S. controls. And when needed, we will use all the regulatory and enforcement tools available to us to counter Russia’s illicit procurement.

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Remarks as Prepared for Delivery by Assistant Secretary for Export Enforcement Matthew S. Axelrod to the 12th Annual Forum on U.S. Export & Re-export Compliance for Canadian Operations

 

Thank you for the introduction.

It’s great to be with you here in Toronto as you kick off the 12th Annual Forum on U.S. Export and Re-export Compliance for Canadian Operations. I’m particularly grateful to have the opportunity to speak with you this morning about how the United States and Canada are continuing to strengthen our export enforcement partnership.

Canada and the United States share more than just a border. We share a common perspective. We’re partners in the collective effort to create a safe, secure, and prosperous North America. Our economies are deeply integrated, and we enjoy the largest bilateral trade and investment relationship in the world. The almost 400,000 people and $2.6 billion worth of goods and services that cross our shared border every day are a testament to the strength of our economic relationship. We’re also enforcement partners. Our two governments work together closely to bolster our shared continental security against domestic, regional, and global threats. President Biden and Prime Minister Trudeau reaffirmed this shared commitment at the North American Leaders’ Summit earlier this month. As you’ll hear shortly, within our countries’ general law enforcement partnership, we have established a specific and impactful relationship on export enforcement. But first, a quick story about the Ukrainian men’s ice hockey team.

 

* * *

 

This month, the United States and Canada – along with 48 other countries from around the world – competed in the 2023 Winter World University Games in Lake Placid, New York. Staged every two years in a different city, the winter edition of the World University Games is the largest multi-sport winter event in the world, after the Winter Olympics. The Games combine high-level competitive sport – from ice hockey to snowboarding – with educational and cultural events. As the largest gathering of college athletes on the planet, the Games provide a unique opportunity for students to represent their respective countries and connect with other students from around the globe.

But the real story of this year’s Winter Games is one not of competition, but of cooperation. Since Russia further invaded Ukraine last February, Ukrainians have celebrated major victories – like breaking the siege of Kyiv – and have endured major destruction, like the bombardment of Bakhmut. They have dealt with constant missile strikes, power outages, and a lack of basic necessities. Yet, somehow, in the middle of a war, despite the incredible hardship, the Ukrainian under-25 men’s hockey team has managed to persevere.

The Canadian Hockey Federation and other Canadian sponsors made it possible for the team to come and tour Canada prior to the Winter Games. The Ukrainians played exhibition games against Canadian universities to raise money for humanitarian causes in Ukraine. Once at the Games themselves, they beat Sweden in a decisive 12-2 victory. Following the victory, Ukrainian Defenseman Arsen Paliichuk told a reporter: “We were motivated to win this game so the people back home could have some kind of hope and something to believe in over there.” Without Canada’s support, none of this would have been possible. The Ukrainian hockey team likely never would have even made it to the Games.

It is this hybrid of competition and cooperation, of representing one’s own country’s interests but also being part of something larger and interconnected, that I want to speak about with you today.

 

* * *

 

Simply put, export controls are a shared endeavor. And when it comes to export enforcement, cooperation is critical to ensure our shared security.

At the U.S. Department of Commerce, where I am the Assistant Secretary for Export Enforcement, our team of law enforcement agents and analysts is focused on a singularly important mission: keeping our country’s most sensitive technologies out of the world’s most dangerous hands.

At no point in history has this mission been more important, and at no point have export controls been more central to our collective security, than right now. Countries implementing multilateral export control regimes have long known that such controls are critical to the world’s safety, and most effective when widely implemented across the globe. But our current geopolitical challenges, the increasingly rapid development of technology with the potential to provide asymmetric military advantage, and the countless ways in which the world is now interconnected, have raised the prominence and impact of export controls in unprecedented ways.

And that means that the importance of export enforcement has risen in unprecedented ways as well. It’s not sufficient for likeminded countries just to have parallel controls on paper. It’s critically important, but it’s not sufficient. We also need to ensure a common commitment to effective implementation and enforcement of those controls.

In other words, export enforcement must be a shared focus across the globe. Strong multilateral export enforcement coordination is essential to keeping the world safe. All likeminded countries should be looking to build their export enforcement capacity, both individually and collectively. That enforcement capacity will help protect countries’ own sensitive goods and technologies – as well as those of their allies – from being transferred to countries or entities that may use them for harmful purposes such as destabilizing military modernization, proliferation of weapons of mass destruction, support for terrorism, or human rights abuses.

There are, of course, challenges to ensuring effective export control enforcement. For example, enforcement responsibility resides in different agencies in different countries, but often is handled as part of a country’s Customs bureau. Customs bureaus, understandably, are often preoccupied with preventing harmful items – like drugs and weapons – from coming into a country and therefore are sometimes less focused on sensitive items – like technologies that can be used to support military modernization programs – from going outbound.

But given the increase in security risk that advanced technologies – such as quantum computing, hypersonic weapons, and unmanned aerial vehicles – now pose, we need all likeminded countries to invest in their export enforcement capacity. Unlike other geopolitical challenges, export enforcement cannot be effective unless there is a coordinated global effort. Without such an effort, bad actors can simply bypass one country’s controls and source a sensitive commodity elsewhere. It’s only by working together, with strong enforcement regimes across countries, that we can truly protect technologies that need protecting.

We’ve done this before. Up until 1977, when the United States passed the Foreign Corrupt Practices Act (FCPA), no country in the world considered the bribing of foreign officials for business purposes to be illegal. Twenty years later, the Organization for Economic Cooperation and Development’s (OECD) Anti-Bribery Convention was signed. The Convention – eventually ratified by 44 countries, including the United States and Canada – illustrates a shared global understanding of the importance of combating bribery of foreign public officials. In other words, the world shifted. Countries took collective action against a common challenge and built a multilateral enforcement coordination mechanism to combat foreign corrupt practices.

We’re now beginning to see that same shift with respect to export enforcement. As our country’s Deputy Attorney General, Lisa Monaco, stated last year, export and sanctions enforcement are “the new FCPA.” In other words, just as the U.S. Department of Justice previously ramped up enforcement of its foreign bribery statute and worked with partners around the world to ensure a robust global enforcement focus, so too is the United States now ramping up sanctions and export control enforcement. Like bribing a foreign official, exporting the most sensitive goods and technologies without appropriate safeguards is a collective harm; and we must work collectively as partners – through coordinated and aggressive enforcement action – to prevent these sensitive goods and technologies from falling into the wrong hands.

 

* * *

 

The events of the past year provide a stark example of the increasing importance of international export enforcement capacity and coordination. After Russia launched its brutal and unprovoked war against Ukraine last February, 38 countries – including the United States and Canada – coalesced to put in place the most expansive export controls in history aimed at a specific country. Both my colleagues at BIS Export Administration and their counterparts at Global Affairs Canada deserve immense credit for enacting these unprecedented – and based on Russia’s responses – increasingly stringent export controls.

The controls are working to degrade Russia’s ability to wage its unjust war against Ukraine. Global exports of semiconductors to Russia, for example, have seen a sustained decline of approximately 70 percent since the invasion began, leaving Russian companies without the chips they need for weapons like precision guided missiles and tanks. The Russian defense industry has struggled to replace weapons destroyed in the war, including over 6,000 pieces of military equipment, such as armored personnel carriers and infantry fighting vehicles. Russian hypersonic ballistic missile production has virtually ceased due to the lack of necessary equipment.

But it’s not enough just to impose multilateral controls; to be effective, controls need to be aggressively enforced, not only by the United States but through coordinated work with coalition partners. For the United States and Canada, that means coordinated work by our respective enforcement teams – my Export Enforcement team at the Bureau of Industry of Security (BIS) and Canada Border Services Agency (CBSA) here in Canada.

CBSA and BIS have enjoyed a successful relationship over the past decade, but the events of February 24, and the resulting export control rules, required intensified collaboration. And so, last June, BIS and CBSA announced a joint commitment to leverage our authorities and resources to detect, deter, and stop export violations.

Our first step in this process was to initiate quarterly senior-level meetings between our teams, where we strategize on how best to leverage our combined resources to enforce our complementary export control rules. In fact, this is precisely the reason I am in Canada this week – to meet with CBSA, as well as our colleagues from GAC and the Royal Canadian Mounted Police (RCMP), where we will: share information on diversion actors; coordinate the targeting and conduct of pre- and post-shipment verifications and audits; upgrade joint efforts to inspect, detain, and seize illicit shipments; and work to reduce threats through coordinated outreach, investigations, and enforcement actions.

Our second step was to establish a BIS enforcement analyst position in Ottawa to liaise on export controls directly and daily with CBSA and our other Canadian partners like GAC and RCMP. Since last summer, we’ve had an analyst stationed in Ottawa on a rotating basis. We are now in the process of hiring someone to fill a dedicated position there. This will be the first time ever that BIS has embedded a full-time analyst outside of the United States.

This partnership is already bearing fruit. During one of the temporary deployments last year, BIS and CBSA’s Counter Proliferation Operations Section (CPOS), working with U.S. Customs and Border Protection, stopped a shipment of drone antennas on the tarmac in Alaska before they could be illegally exported. Drone antennas are used to either transmit or receive electrical signals and, in layman’s terms, tell the drone where to go and what to do when it gets there. This interdiction is just one example of “intelligence to action” – a term used by our colleagues at CBSA to illustrate how we use real-time intelligence to take action and stop illicit procurement efforts.

And just today, we placed onto our Entity List seven Iranian unmanned aerial vehicle producers for providing drones to Russia that are being used to attack civilian infrastructure in Ukraine. As many of you are aware, Canada’s export control regulations have restricted U.S.-origin goods destined to Iran since 1997, meaning that diverters can’t circumvent our regulations by transshipping through Canada or vice versa. Given the threat posed by Iran’s support for Russia’s war machine, our increasingly close bilateral relationship on export enforcement – including our placement of an analyst in Ottawa – better positions us to prevent U.S. and Canadian technologies from enabling Iran’s UAV program.

Collaboration on enforcement doesn’t stop with just us and Canada. We are also working to coordinate more broadly with our other Five Eyes partners, as well as with ASEAN countries like Singapore, Malaysia, and the Philippines. And just last month, the U.S.-EU Trade and Technology Council (TTC) reaffirmed the importance of enforcing export controls in a parallel manner. The TTC resolved to take “additional steps to enhance enforcement collaboration between the United States and the European Union, including through the exchange of best practices . . . and with a view to promoting the consistent application of sanction-related export restrictions targeting Russia and Belarus.” The EU and the U.S. have since piloted an information exchange on Russian diversion tactics and are actively planning exchanges of best practices, building upon the successes of our partnership with CBSA and GAC.

 

* * *

 

While 2022 required intense work on Russia, Russia was not our only priority. We remain laserfocused on the risk posed by other nation-states, such as the People’s Republic of China (PRC), Iran, and North Korea.

To give a recent example of the challenges we face, just two weeks ago, a California man pled guilty for violating export control laws by secretly funneling sensitive aeronautics software to a Beijing university. The recipient, Beihang University, had previously been placed on our Entity List for helping to develop the PRC’s military rocket systems and unmanned air vehicle systems.

This case helps illustrate how the domains of national security and of academia are growing increasingly interconnected. To address this dynamic, we are actively engaging with U.S. academic institutions and research centers, in part through our Academic Outreach Initiative, on ways they can help safeguard their advanced research. We’re also working closely with our Canadian counterparts in helping academic institutions protect themselves from current and future threat actors.

We also changed our policy on how we respond to a host government that is preventing our ability to conduct end-use checks overseas. We’ve found that the governments of foreign countries, like Canada, generally welcome our end-use checks, as they are eager to support their companies in receiving U.S. exports and participating freely in the global economy. When a foreign government prevents our attempts to conduct an end-use check for a sustained period, however, we are faced with the unacceptable risk that U.S.-origin goods or technology will be misused, given our inability to verify a company’s compliance with our controls. Under our new policy, such governments now have a choice. If they cooperate and the end-use checks are successful, then companies will be removed from our Unverified List. On the other hand, if they continue to prevent our end-use checks, we will initiate the process to have companies added to our Entity List.

This new policy is having real world impact. After the policy became effective, we were able to complete successful end-use checks in China for the first time in over two years. In December, we removed 25 Chinese entities from our Unverified List after the satisfactory completion of end-use checks and verification of those entities’ bona fides in cooperation. And the policy has had an impact in other ways as well. We didn’t only remove entities from our Unverified List in December – we also moved nine Russian companies onto the Entity List because of Russia’s sustained failure to schedule our end-use checks.

End-use checks provide us with unique insight into the reliability of foreign parties around the globe, insight that we can then share with our partners like GAC and CBSA to inform their licensing and enforcement decisions. As a result, when we expand our Export Control Officer (ECO) footprint abroad, it has direct implications for safeguarding not only U.S. exports, but also Canadian ones. Right now, we have ECO positions located in seven places around the world, in Beijing, Hong Kong, Frankfurt, Singapore, Istanbul, New Delhi, and Dubai. I’m excited to share that we’re now adding two more ECO positions, one in Helsinki and the other in Taiwan. These new positions, plus our new Export Control Analyst position in Ottawa and our enhanced partnership arrangement with CBSA, mean that we now have more resources devoted to protecting U.S. and Canadian technology from diversion than ever before.

 

* * *

 

I’ll close with this. There’s a quote from a prominent Canadian that has been repeated so often it is now a cliché. I’m sure you’ve heard it as something Wayne Gretzky said: “Skate to where the puck is going to be, not to where it has been.” The quote captures the idea that we need to anticipate events and get ahead of them, lest we fall behind. That sentiment is most assuredly true for export enforcement. In our rapidly changing world, export controls are critical to protecting our collective global security. That’s why we need all likeminded countries to build up their enforcement capacity, as well as to coordinate their enforcement efforts multilaterally. That’s where we need to skate, because that’s where the puck is going.

While I imagine you’ve heard the quote before, two things about the quote you may not know. First, it’s not actually a Wayne Gretzky quote. It’s a quote from Wayne’s father, Walter Gretzky. And, second, it wasn’t just an exhortation. It was a method of training. Walter Gretzky had his young son Wayne watch hockey games on television and trace the movement of the puck on a piece of paper. When the game was done, Wayne had essentially created a map – a record of where the puck had spent the most time and where it had spent the least. After tracing hundreds of games this way, Wayne Gretzky learned to anticipate where the puck was going instinctively – not because of innate genetic talent, and not because of his father’s mere words, but because he put in the hard work, day after day after day, of methodically building his capacity.

Just as the last few decades have seen the expansion of multilateral antibribery enforcement, I am confident the next few will include a worldwide movement to combat export violations. But that movement won’t happen by itself. It is going to take sustained effort, by all of us, day after day after day, to build up our individual – and collective – enforcement capacity.

It’s been 34 years to the month that the first free trade agreement between the United States and Canada entered into force, and our relationship is stronger than ever. As President Biden said while announcing the U.S.-Canada Partnership Roadmap two years ago, we share a unique bond as friends, neighbors, NATO Allies, and partners. I look forward to continuing to strengthen that bond in the months and years ahead.

Thank you.

Remarks as Prepared for Delivery by Assistant Secretary for Export Enforcement Matthew S. Axelrod to the Society for International Affairs 2022 Fall Advanced Conference

Thank you, Tom, for the generous introduction. And thank you to the Society for International Affairs for hosting me again today. A lot has changed since I last spoke with you in May. As just one example, last time I had to speak with you all remotely. I’m glad that today we can all be together in person.

Back in 1927, a man named Edwin Link invented the flight simulator. The story of Link, a New Yorker who fell in love with flying, is recounted in Daniel Coyle’s book, “The Talent Code.” In 1927, flying was an incredibly dangerous activity, where fatality rates at some Army aviation schools approached 25%. The belief was that good pilots were born, not made. That is, if you could survive a few hours in the air doing rolls and spins without throwing up, you were assumed to be capable of piloting an airplane, in need of only minimal additional ground training.

Link thought that there must be a better way to train pilots. And so, displaying his own brand of American ingenuity, he developed the first flight simulator. Roughly the size and shape of a bathtub, Link’s technology allowed pilots to learn to fly in half of the time, at a fraction of the cost, with sharply reduced fatality rates. Eventually, the U.S. military took notice, and, by the end of World War II, a half-million airmen had logged hours in Link’s simulator. You would think that this critical technology – which could give the U.S. military a distinct advantage in a dogfight – would be restricted from sale to nations adverse to the United States. But instead, hundreds of Link’s devices were permitted to be exported to Japan, Germany, and the USSR in the years leading up to World War II.

One piece of technology – like a flight simulator – can be a military game-changer for a country, especially if it helps to provide overmatch. That’s even more true today, where the power of technology, and its ability to provide overmatch, is exponentially greater than it was in 1927. As National Security Advisor Jake Sullivan recently highlighted, a fundamental connection now exists between our country’s scientific and technological advantages, on the one hand, and our national security on the other. Our job at the Bureau of Industry and Security is to help preserve our country’s scientific and technological advantages and thereby help protect our national security.

*  *  *

Last month, President Biden released the National Security Strategy, which describes the current national security threat environment and the Administration’s vision on how best to address it. It provides a roadmap for how we will work to advance our vital interests and pursue a free, open, and secure world.

As the Strategy makes clear, our two greatest priorities are out-competing China and constraining Russia. So-called “traditional” national security threats – like arms control and terrorism – remain pressing. We are focused on all these challenges, but today I want to focus on those two nation-state actors.

Since Russia further invaded Ukraine on February 24, we’ve used export controls to degrade Russia’s military capabilities. Putin’s war machine has been denied the critical supplies and spare parts it needs to replace its battlefield losses. We’ve built a coalition with 37 other countries to put in place the most expansive export controls in history aimed at a specific country. And they’re working. Global exports of semiconductors to Russia, for example, have seen a sustained decline of approximately 70 percent since the invasion began, leaving Russian companies without the chips they need for weapons like precision guided missiles, unmanned aerial vehicles, and tanks.

The Russian military has been forced to rely on contraband chips, workarounds, and lower quality imports, which has undermined the effectiveness of their weapons systems. The Russian military is reportedly cannibalizing chips from dishwashers and refrigerators to fix their military hardware. They’ve taken Soviet-era tanks out of storage. They’ve also turned to third party countries – like North Korea and Iran – for supplies and equipment. Russian hypersonic ballistic missile production has nearly ceased due to a lack of chips. And a critical shortage of bearings has undermined their production of tanks, aircraft, submarines, and other military systems.

A critical part of this success has been both U.S. and international industry, with whom we have partnered to ensure that our controls are effective. Our agents have reached out to more than 600 domestic companies with past export ties to Russia or whose components have been identified inside Russian weapons systems found in Ukraine. And we’ve educated hundreds of international companies as well, through webinars and trainings.

We have also been active on the enforcement front. We’ve issued Temporary Denial Orders (TDOs) against ten Russian and Belarussian airlines – including Aeroflot, Russia’s flag carrier – that were flying airplanes subject to U.S. law into Russia and Belarus in violation of our rules. These airlines are now prohibited from receiving U.S. parts for their airplanes. Over time, Aeroflot, Utair, Azur Air, and the others will be unable to continue flying, either internationally or domestically, as they are now cut-off from the international support, and U.S. parts and related services, they need to maintain and support their fleets.

And we’ve been paying attention to individual airplanes as well. We’ve publicly listed 183 aircraft that have flown into Russia and Belarus in apparent violation of our rules. In September, we also took action against four Iranian cargo planes, one of which contracts with the Iranian Air Force, that had been shipping electronics and spare parts to 4 Russia without our authorization. And last week, I reupped our TDO against Mahan Air, which in addition to supporting Iran’s Islamic Revolutionary Guards Corps, has ferried materiel to Russia. The world is now on notice that any action related to these planes – including refueling, maintenance, repair, or the provision of spare parts and services – is subject to General Prohibition Ten of our rules.

More broadly, we have a significant number of ongoing investigations related to Russia. Just last month, for example, the Department of Justice unsealed an indictment charging individuals and companies in Europe with violating U.S. export laws by attempting to smuggle a jig grinder to Russia. Luckily, the jig grinder – a high-precision grinding machine system with potential application in nuclear proliferation and defense programs – was intercepted by law enforcement before it reached its destination.

*  *  *

In addition to constraining Russia, the National Security Strategy makes clear that we must out-compete China. Our national security requires that we prevent the PRC from misusing advanced U.S. technology. That’s where we come in.

On October 7, BIS announced new rules to prevent the PRC from acquiring and using advanced U.S. technology to support China’s military modernization. We had already imposed restrictions on exports to companies involved in China’s military supercomputing and quantum computing efforts. These new rules, however, are meant to establish a clear technical line connected to military applications.

The new controls do this in three ways: first, by limiting China’s ability to acquire advanced integrated circuits that have been used in AI applications tied to military modernization or human rights abuses; second, by preventing China from leveraging certain U.S. technology to support its supercomputer program, which directly enables its WMD and 5 military modernization efforts; and, third, by preventing China from leveraging U.S. semiconductor manufacturing equipment to indigenously develop or produce advanced chips as part of its military-civil fusion program.

These new rules require companies to come to BIS for approval of transactions involving specific items and activities of concern. The interagency—Commerce, Defense, Energy, and State—will then review any license applications under a presumption of denial for PRC end users. And we in Export Enforcement will be hard at work enforcing the new rules through all resources at our disposal, including classified and open-source reporting, partnerships with U.S. companies, administrative and criminal investigations, and our global end-use check program.

*  *  *

My side of the house in Export Enforcement also had an announcement on October 7. We’ve changed our policy on how we respond to a host government that is preventing our ability to conduct end-use checks overseas.

We’ve found that foreign governments generally welcome our end-use checks, as they are eager to receive U.S. exports and participate freely in the global economy. When a foreign government prevents our attempts to conduct an end-use check for a sustained period of time, however, we are faced with the unacceptable risk that U.S.-origin goods or technology will be misused, given our inability to verify a company’s compliance with our controls.

Accordingly, we announced on October 7 a new, two-step policy to address instances of foreign governments frustrating our end-use checks through sustained scheduling delays.

First, end-use checks must be scheduled and completed promptly. If 60 days pass without a requested check being conducted, we will 6 initiate the regulatory process to add the foreign company to the Unverified List (UVL). As was true even before our policy announcement, placement on the UVL triggers additional regulatory requirements on exports to the listed company and notifies U.S. industry of our inability to determine the company’s legitimacy as a recipient of controlled exports. Until a successful end-use check is completed, we stop processing licenses for the company and impose pre-license checks on all subsequent license applications received for exports to it.

Second, once the foreign party is added to the UVL, another 60- day clock starts. If we are not able to successfully complete an end-use check within the second 60-day window, we will initiate the regulatory process to have the foreign party added to the Entity List.

The rule announced on October 7 added 31 entities to the UVL, all of whom – along with 50 other companies previously on the UVL – are now at risk of moving to the Entity List as soon as December 6 (which is 60 days from October 7) if we are unable to complete an end-use check by then. I want to point out that the October 7 rule also removed nine entities from the UVL based on their having had a successful end-use check completed. In other words, the Unverified List is not an automatic pipeline to the Entity List. We want to verify the bona fides of a company so that it can participate in the global economy. When a company’s end-use check is successful, it comes off the UVL.

End-use checks are a critical component of U.S. national security. And when we’re not able to do those checks because of non-cooperation from a host government or other factors, placement on our lists will follow.

*  *  *

In addition to our end-use check policy change, let me quickly recap some other significant policy changes we’ve made since I last spoke with you in May.

In June, I announced four significant changes to strengthen our administrative enforcement tools.

First, we’re now using our existing authorities to ensure that the most serious administrative violations trigger commensurately serious penalties. If you invest in an export compliance program while your competitor flouts the rules to gain an economic advantage, we are going to aggressively impose penalties on your competitor to help ensure a level playing field.

Second, we have done away with “no admit, no deny” settlements. We want companies – and industry generally – to have the opportunity to learn from others and avoid repeating their mistakes. When we enter a resolution, the settling party gets significant credit, in the form of a reduced penalty. But to earn that reduced penalty, we now require an accompanying admission that the underlying factual conduct occurred. That way, others can have a clear sense of what the company or individual did that got them into trouble and can modify their own behavior accordingly.

Third, in administrative cases where the violations do not reflect serious national security harm, we have been entering settlement agreements that do not require monetary penalties. We have been resolving these cases by focusing on remediation – through the imposition of a suspended denial order with certain conditions, such as training and compliance requirements. For the cases that we’ve resolved so far, we’ve imposed a two-year suspended denial of export privileges and required that the entities undergo compliance training. In one case, we also required an internal audit of the company’s export controls compliance program.

Fourth, we amended how we process Voluntary Self-Disclosures (VSDs). For those VSDs involving minor or technical infractions, we are now resolving them on a “fast-track” with a warning letter or no- 8 action letter within 60 days of receipt of a final submission. For those VSDs that indicate potentially more serious violations, however, we are doing a deeper dive to determine whether enforcement action may be warranted, while at the same time adhering to the principle that companies deserve, and will get, significant credit for coming forward voluntarily. By fast-tracking the minor violations while assigning specific personnel to the potentially more serious ones, we are using our finite resources more effectively while also allowing companies that submit more minor VSDs to receive a quicker turnaround. For those wondering if our new process has “chilled” the submission of VSDs – it hasn’t. We’ve received 150 new disclosures since the policy change, approximately the same average number of disclosures received for the same time period in the preceding two years. Companies continue to recognize that it is always better to knock on our door before we knock on yours.

In June, we also made a regulatory change to make charging letters public. Since that change, we’ve published five charging letters, including one alleging that Roman Abramovich, a Russian oligarch, unlawfully flew his two private jets worth an estimated combined $400 million to Russia. Just last week, we published a charging letter alleging that WEBS Electronics Trading Company unlawfully reexported U.S.- origin telecommunications equipment to Iran and Syria. These charging letters give the export community – and the wider world – visibility into what types of violations we see occurring and what we’re doing about them.

*  *  *

While much of our work is done in partnership with industry, industry isn’t our only important partner. In June, I announced our “Academic Outreach Initiative,” which is our effort to help educate universities about export controls, given that the domains of national security and academia are now increasingly interconnected. We need to protect our sensitive technologies, which often stem from research 9 conducted at our universities and prevent them from being used against us by adversaries.

Here’s what we’ve done so far. We identified twenty academic research institutions whose work gives them an elevated risk profile. This summer, I reached out to each of the twenty institutions to see if they would be interested in partnering with us. Happily, all twenty said yes, and we’ve assigned each one an individual special agent to work with them. In September, Under Secretary Estevez sent a letter to each prioritized university noting the importance of maintaining a strong compliance program to guard against the risk of unauthorized exports.

In October and November, we conducted a webinar for the twenty universities on how export controls apply in academic settings and on ways to identify the national security threats facing academic research institutions. In December, we will be providing additional training on how best to conduct open-source research to better vet potential partners. And early next year, we’ll conduct a broader training on regulatory requirements, including fundamental research in academic settings. In short, we’re committed to doing all that we can to both protect national security and maintain U.S. leadership in academic research and innovation.

*  *  *

There’s one more thing we’re working on that I want to share with you today. And that’s the thinking we’ve been doing about our metrics – how we track our investigative and analytic efforts – so that we can evaluate how tight the fit is between our highest priorities and what we’re spending most of our time on. China and Russia are key priorities for the U.S. government and for BIS. At Export Enforcement, we want to make sure that our finite enforcement resources are effectively matched against these significant national security challenges. To do that, we need to make sure we’re measuring the right things.

We are certainly not alone in this attempt to get our measurements right. Almost all law enforcement agencies – including federal ones like the FBI, DEA, and HSI – have confronted the challenges of how best to measure outcomes. And, throughout the law enforcement community, metrics are continuing to evolve. For many years, the default was simply to count the numbers of arrests made, convictions obtained, and jail terms imposed. Arrests, convictions, and sentences are fairly easily tracked. And, in the past, they were frequently used as proxies for law enforcement “success.” But just as the broader law enforcement community has begun to search for different metrics in an attempt to better and more accurately measure the impact of their actions, so too are we at Export Enforcement.

In some ways, it should be less complicated for us to come up with metrics for success than it is for our some of our sister law enforcement agencies. Unlike many other federal, state, or local agencies, we are not responsible for a broad swath of statutes or a widely divergent set of crimes. Instead, our mission is singular – to enforce the nation’s export laws in order to prevent the most sensitive U.S. technologies from falling into the hands of our adversaries. But even with that laser focus, it can still be challenging to discern which measures are the right ones.

We’re still settling on the best way to measure our impact. But, as a preliminary step, we have begun evaluating our enforcement leads and cases against three criteria: (1) the criticality of the technology, (2) the end users of most concern, and (3) the end uses of most concern. Our thinking is that by inventorying our work against these criteria, we can help ensure that our enforcement resources are focused on our highest national security priorities.

For the first criterion – the criticality of the technology – our primary focus is on technologies that could eventually lead to military overmatch by a foreign adversary. We work with licensing officers from across the Departments of Commerce, Defense, Energy, and State to determine the highest-priority items on the Commerce Control List, as 11 well as additional chokepoint technologies that countries or end users of concern are dependent on from the United States. We also evaluate our own enforcement leads and cases to identify technologies explicitly sought for military applications or that enable human rights abuses.

With regard to end users – the second criterion – we are focused on military, intelligence, and security organizations in countries like China, Russia, and Iran. In addition, we, along with Treasury and State, have identified other actors of heightened national security concern. We’re focused on them as well.

Our final criterion looks at end uses – or, more concretely, misuses of dual-use technology for applications such as nuclear weapons, missiles, chemical and biological weapons, advanced conventional weapons, and human rights abuses.

While we’re still refining the best way to measure our impact, we have started to use these three criteria and to inventory our existing caseload against them. So far, these new criteria and metrics have proved helpful, both in confirming that our caseload is broadly in line with our priorities and in identifying areas for further analysis.

* * *

Edwin Link’s invention of the flight simulator changed the battlefield of World War II, as it gave U.S. airmen (and, unfortunately, also some Soviet, German, and Japanese ones) the training and foundational skills they needed to pilot an airplane effectively. Today’s technology advances are even more powerfully game-changing. No longer do wars require pilots to conduct aerial surveillance and strike ground targets. As we’re finding out in Ukraine, unmanned drones are the new frontier in aerial combat – at a fraction of the cost of a manned airplane. This is the modern-day version of Edwin Link’s core belief – that, through technological advances, we can increase warfighting efficiency and effectiveness. It is also how technologically over- 12 matched adversaries will try to overcome our military superiority. That’s why the fight to keep U.S. technology – from the next-generation flight simulator to the next generation AI chip – out of the hands of our adversaries has never been more important.

Thank you, again, to the Society for hosting me today. The work that you’re doing is an important complement to the work that we’re doing at BIS. Keeping sensitive American technology out of the wrong hands is a shared endeavor. All of us at BIS are committed to helping industry understand both the importance of trade controls and the mechanics of how to comply with them. I look forward to continuing the partnership between Export Enforcement and the trade community in the coming months and years as we work together to keep our country safe and secure.

Remarks As Prepared for Delivery by Assistant Secretary for Export Enforcement Matthew S. Axelrod at Oregon State University on the Academic Outreach Initiative

Thank you, John, for the generous introduction. And thank you to Oregon State University for hosting us today.

It’s great to be here in Oregon. Oregon was among the top 20 export states in the U.S. last year, with overall exports valued at $29.6 billion. Computer and electronic products have been Oregon’s number one export for several decades now, representing almost 50% of the state total. Leading the way are semiconductors, which comes as no surprise with Intel located in Oregon’s Silicon Forest. Interestingly, it was an Oregon State alum who played a vital role in the creation of Intel’s 386 32-bit microprocessor, a key milestone in the history of semiconductors that revolutionized the personal computer industry.

The size of a fingernail, semiconductors contain billions of electrical switches and are critical to the functioning of nearly every piece of technology today—from the phones in our pockets, to the cars we drive, to advanced military applications. They are the quintessential dual-use commodity. They play a critical role in not only Boeing’s commercial aerospace business but also its military one. Semiconductors power data-processing units used both by Nike and by the Umatilla Army Depot, for everything from payroll to inventory monitoring systems. And they’re an essential component of the unmanned aerial vehicles that can help the Departments of Transportation in Oregon and Washington conduct bridge inspections, but they also can be misused in kamikaze drones in Ukraine. It is the use – or rather – misuse of U.S. semiconductor and other advanced technologies by our adversaries to support military modernization and WMD programs that is our core focus at Export Enforcement.

 

* * *

 

Earlier this month, President Biden released the National Security Strategy, which describes the current national security threat environment and the Administration’s vision on how best to address it. The Strategy is the culmination of years of hard work by hundreds of government employees across many different federal agencies. It provides a roadmap – or a syllabus, if you will – for how we will work to advance our vital interests and pursue a free, open, and secure world.

When the first National Security Strategy was presented to Congress by President Truman in 1950, the world was in recovery from two World Wars. The ideological clash at the time was communism versus capitalism, and our greatest geopolitical rival was the Soviet Union. Today’s Strategy has some of the same parallels. The world is in recovery from a global pandemic. We’re defending democratic values against the encroachment of authoritarianism, and our most pressing strategic challenges are China – which happens to be the number one export market for Oregon – and Russia.

As the Strategy makes clear, our two greatest priorities are out-competing China and constraining Russia. So-called “traditional” national security threats – like WMDs, arms control, and terrorism -- remain pressing, but have been overtaken by the even more urgent ones from China and Russia. Confronting the challenges posed by nation-state actors like these cannot be met by military might alone. We must also shape the rules that govern the development of technology, cybersecurity, trade, and economics.

What this means, at a practical level, is that the domain of national security and the domain of academia are growing increasingly interconnected. Our country’s technological leadership and our economic dynamism stem from the strength of our academic institutions. Advances in fields like artificial intelligence (AI), biotechnologies, robotics and automation, and smart materials will play a critical role in advancing our national security interests over the next decade. Oregon State and the University of Washington, for example, are doing cutting-edge work on nanotechnology infrastructure. Stanford is conducting pioneering research in all areas of AI, including on robotics and machine learning. University research will continue to drive big breakthroughs in a variety of scientific and technological fields.

These breakthroughs will be important for academia. But they’ll also be critical on the national security front. The experts assess that, eventually, quantum computers will be so powerful that they will enable unbreakable encryption. And, that their computing power will allow whichever country develops the technology first to break all existing encryption. Whichever researcher develops that technology first will be a strong candidate to win the Nobel prize. But whichever country develops that technology first will be a strong candidate to be the world’s dominant superpower. And that’s just one technology. Others, like AI, biotechnologies and hypersonics are similarly capable of providing military overmatch to the country that develops them first.

As Jake Sullivan, the National Security Advisor, recently put it, we need to lead in the areas of these “force multipliers.” Maintaining a “relative advantage” no longer cuts it. The sliding scale approach of staying only a couple of generations ahead is untenable in the long run. Instead, we need to maintain as large of a lead as possible. And to do so, we need to protect our technology advantages and prevent our adversaries from using our technologies against us or their own people.

 

* * *

 

Our work at Export Enforcement reflects this growing convergence between science and technology, on the one hand, and national security on the other. In a world where even the most sensitive and valuable research can be exported in an email exchange, our research universities unfortunately present inviting and potentially vulnerable targets. According to public reporting, in 2019, hackers associated with the Chinese government targeted universities in the United States to steal research on undersea technology. And the Cybersecurity and Infrastructure Security Agency, or CISA, recently published a joint cybersecurity advisory with the FBI and the NSA about the new techniques that the PRC uses to conduct malicious cyber activities. These techniques – which include stealing IP and accessing sensitive networks – are used, and will continue to be used, against a wide variety of sectors, including academia.

If our adversaries can’t steal your research through the back door, they may attempt to do so through the front door – by taking advantage of partnerships with academia. Take iFlyTek, a well-known partially state-owned Chinese technology company that specializes in artificial intelligence and voice recognition software. In 2017, Human Rights Watch publicized the relationship between iFlyTek and the Xinjiang police, who were using the software to develop a pilot surveillance system to identify and monitor Uyghurs. Despite that public reporting, just one year later, in 2018, iFlyTek announced a five-year research partnership with a U.S. university to study AI, among other topics. Over the next year, iFlyTek developed relationships with several other U.S. universities, all in the name of conducting fundamental research on machine learning and AI. In 2019, due to concerns about U.S.-origin items being used to commit human rights abuses, iFlyTek and seven other entities were listed on the Commerce Department’s Entity List, a list of parties that an interagency group has determined pose a significant risk of being involved in activities contrary to U.S. national security or foreign policy. And earlier this month, iFlyTek was identified by BIS as one of 28 companies on the Entity List whose activities are of such national security concern that additional license requirements now apply. In short, any advanced AI chip produced anywhere around the world now requires a license if destined to iFlyTek because of the foreign direct product rule.

But even before iFlyTek was listed, it was risky to deal with. It presented a number of red flags, all of which could be found through open-source reporting or a Google search. We ask that if you find these red flags – like a connection to programs that enable human rights abuses or WMD development, close ties with state security services, or public reporting by Human Rights Watch or other NGOs – and there is a potential for technology transfer either through a deemed export or traditional export, you alert BIS either through the submission of a license application or by reaching out to one our OEE agents.

In addition to vetting your industry partners, we also ask that you review your academic institution partners for any red flags. Just this week, the Department of Justice indicted four Chinese nationals, including three alleged MSS intelligence officers, in a conspiracy to target professors at U.S. universities with access to sensitive information and equipment. The charges allege that the MSS officers did so using the cover of a purported academic institute — the Institute for International Studies — at Ocean University of China. Last year, we had a defendant plead guilty to illegally exporting sensitive U.S. technology – including anti-submarine warfare products – to Northwestern Polytechnical University, which has been on the Entity List since 2001. Northwestern Polytechnical is a Chinese university that is heavily involved in military research for the People’s Liberation Army and is considered one of the “Seven Sons of National Defense” public research universities that are closely tied to the Chinese military.

As another example, we recently added the Harbin Institute of Technology, or HIT, along with several of its subsidiaries, to the Entity List for using U.S. technology to support the PLA. At the time, HIT had a joint education program with a prominent U.S. university and academic exchange programs with several other U.S. universities. It also beat out MIT and Stanford to take a top spot for electrical and electronic engineering, according to the U.S. News & World Report’s most recent “Best Global Universities” list. Despite this veneer of legitimacy, HIT was using U.S. technology to support Chinese missile programs.

Look, we understand that when it comes to complying with the export rules, universities rely heavily on their export management and compliance teams. That’s as it should be. But we also want to ensure that the people on the ground – the professors, students, researchers, and staff – are paying close attention to these issues too and understand when to ask the specialists for help. Not all universities have an equal risk profile. Some universities have strong ties to the Department of Defense to develop emerging and strategic military technology. Some spend billions – yes, billions – of dollars per year on research and development. Others are still in the nascent stages of developing an export compliance program. Still others have no formal compliance program at all. My message to you today applies regardless of where your institution falls on the spectrum. We want to ensure that your critical research is not being used to power a foreign adversary’s military or fuel their human rights abuses. And we want to work with you in that effort. Export controls are a shared responsibility.

 

* * *

 

This past summer, we established a comprehensive effort – our “Academic Outreach Initiative” – to help academic institutions maintain an open, collaborative research environment in a way that also protects them from national security risk. The initiative has four prongs:

• • Strategically prioritized engagement;
• • Assignment of “outreach agents” to prioritized institutions;
• • Background briefings; and
• • Trainings.

I’ll go through each prong in turn and describe how we’ve worked – and will continue to work – to implement them going forward. Let’s call this a midsemester self-evaluation.

First, we’ve strategically prioritized our engagement with the academic research institutions whose work gives them an elevated risk profile. These are institutions that: (1) possess ties to foreign universities that are on the Entity List; (2) are involved in R&D for the Department of Defense; or (3) are conducting research in sensitive technologies subject to the Export Administration Regulations (EAR) - for example, laboratories conducting applied research on emerging or foundational technologies. Earlier this summer, our Office of Enforcement Analysis identified twenty universities whose work potentially gives them an elevated risk profile based on one or more of these three criteria. That list of twenty includes universities covered by our Portland Field Office, which has responsibility for the Pacific Northwest. In August, I reached out to each of the twenty institutions to see if they would be interested in partnering with us. Happily, all twenty said yes. In September, our Under Secretary, Alan Estevez, sent letters to each prioritized university noting the importance of maintaining a strong compliance program to guard against the risk of unauthorized exports, deemed exports to foreign national students and scholars, or ‘support’ to prohibited end uses or end users. The Under Secretary will be issuing letters to additional universities on a rolling basis this Fall. Please know that whether or not your university is one that has been prioritized so far, we are available and eager to help, and we’re committed to partnering with you to navigate the landscape of export controls.

Second, we have assigned an individual outreach agent to each of the twenty prioritized universities. These “outreach agents” serve as a dedicated point of contact for the university to help answer questions, build long-term relationships, and help prevent unauthorized exports of technology or source code. To minimize risk, academic research institutions need to have a sophisticated understanding of the EAR and how these rules apply to professors, students, staff, and visitors. I highly encourage you to reach out to your dedicated outreach agent, if you have one, and if not, to your local Export Enforcement Office (including our Portland Resident Office for those of you here locally), for any questions you may have related to export enforcement. For questions about developing a strong export compliance program, you can reach out to our Office of Exporter Services and they’ll be eager to assist.

Third, we will offer background briefings. We know that research universities often benefit from having strong working relationships with foreign universities or partners in industry. Sometimes, however, those foreign universities or companies can have ties to foreign governments, or other foreign actors – ties the U.S. university may be unaware of. Where appropriate, our outreach agents will brief universities on known national security risks associated with specific foreign entities or efforts by foreign adversaries to acquire specific technologies that are directly relevant to that particular university. We understand specific information related to potential export control risks or requirements can help inform your decisions.

Finally, we will offer trainings. Our outreach agents and analysts will offer trainings to prioritized academic research institutions on how export controls apply in academic settings and on ways to identify the national security threats facing academic research institutions. We will begin with a centralized briefing to our 20 partner universities on identifying red flags and mitigating risks, followed by a webinar on conducting open-source research. We will be offering the centralized briefing twice this fall, with the first one scheduled for tomorrow. In December, we will provide the additional training session on how to best conduct open-source research to better vet potential partners. That way, you can avoid ending up on the pages of our aptly named publication, “Don’t Let This Happen to You” (which we just updated a few weeks ago with the most current case examples – the newly revised version is available on our BIS enforcement website). We are also coordinating with our Export Administration colleagues to provide a broader training for practitioners on regulatory requirements, which will be provided in the new year.

 

* * *

 

In short, we’re committed to partnering with you to protect national security and to maintain U.S. leadership in innovation and collaboration. As the National Security Advisor recently said, we need to invest in the underlying sources and tools of American power and influence – especially our strength here at home – both for the purpose of effective competition and for the purpose of solving shared challenges. One of the most important sources of American strength at home is our innovation base, which has long underpinned both our economic prosperity and our military strength. The importance of collaboration, of a free and open exchange of ideas, is one of the bedrock principles of American society and has led to our technological leadership. At the same time, though, we must ensure that our strategic competitors cannot exploit foundational American technologies, knowhow, or data to undermine our security.

We are hopeful that our progress on the four components of our Academic Outreach Initiative will help empower universities to continue to drive innovation while also protecting national security. But we are only at the beginning of this effort. Your input will help us refine and improve our approach as we work together to both facilitate and protect U.S. technological leadership. In conclusion, we look forward to directly engaging with you – and your compliance teams – as we work to safeguard your critical research from improper foreign acquisition.

I’d be happy to take your questions.

 

Remarks As Prepared for Delivery by Assistant Secretary for Export Enforcement Matthew S. Axelrod to the American Jewish Committee 

I appreciate the warm introduction, Jason. It's a privilege to join you tonight at AJC. Aligning with President Biden's declaration, this administration is dedicated to denying "hate no safe harbor." AJC has upheld this commitment since its establishment, serving as a steadfast and influential advocate in the battle against hate. The recent Call to Action Against Antisemitism from AJC presents thorough suggestions on how we, whether as individuals, as a society, or as government officials, can collaboratively address antisemitism in its various manifestations.

Yesterday, during Yom Kippur, I reflected on the past year. Among other things, I thought about forgiveness and reconciliation. I thought about what the month of Tishrei signifies – a new year, a new beginning, and an opportunity to renew our commitment to our ideals and to each other. And it’s in that spirit of renewal that I come to speak with you tonight, to let you know about changes that we’re making to strengthen our enforcement of the country’s antiboycott rules.

It may surprise some of you to learn that the Arab League’s economic boycott of Israel is actually older than Israel itself. It’s true. The boycott of Israel existed before Israel existed. Israel was born in 1948, when it won its war for independence. At the time of Israel’s birth, the Arab League boycott had already been in place for two years, having begun in 1946 as a boycott of Jewish goods and services in British-controlled Palestine. The initial Arab League announcement of the boycott tellingly proclaimed that “Jewish products and manufactured goods shall be considered undesirable to the Arab countries.” Not “Israeli products and manufactured goods,” but “Jewish products and manufactured goods.” In other words, from its inception, the Arab League boycott was aimed not at Israelis (who did not yet exist as a people) but at Jews.

While today, years later, Israel has flourished into an advanced market economy, that path was far from assured. The Arab League’s original objective was to put Israel out of business and thus out of existence.

In Israel’s early years, those efforts had tangible impact. In 1959, Renault ceased business in Israel based on a promise from the Arab Boycott Office that its name would be removed from the ‘blacklist’ if it would agree to breach its contract to supply Israel with automobile parts. In the mid-1960s, carmakers Toyota, Nissan, Honda, and Mazda also boycotted. And it wasn’t just cars. In 1971, you could buy a Big Mac in Costa Rica, Japan, or Australia. But it wasn’t until more than twenty years later that you could finally buy one in Israel; the delay due to McDonald’s participation in the boycott.

While the Arab League was attempting to strangle Israel economically, the United States was taking action to blunt the boycott’s impact. U.S. legislative action related to the Arab League boycott dates from 1959 and includes multiple statutory provisions expressing U.S. disapproval of it, usually in foreign assistance legislation. In 1977, Congress passed legislation making it illegal for U.S. companies to cooperate with the boycott and authorizing the imposition of civil and criminal penalties against U.S. violators.

The subsequent passage of the Export Administration Act (or EAA) in 1979 provided the Commerce Department with the legal authority to control U.S. exports for reasons of national security and foreign policy. The antiboycott provisions of that act, and its successor, the Export Control Reform Act of 2018, prohibit U.S. companies from taking certain actions in support of any unsanctioned foreign boycott of a country friendly to the United States, including the Arab League boycott of Israel. The provisions also prohibit U.S. persons from complying with certain requests for information designed to verify compliance with the boycott.

Shortly after the enactment of the EAA, the Commerce Department established the Office of Antiboycott Compliance, which, for over four decades now, has enforced the antiboycott provisions. The Office of Antiboycott Compliance – or OAC, as we call it – helps ensure that U.S. firms aren’t used to implement boycott policies of other nations that run counter to the foreign policy interests of the United States.

In the last ten years alone, OAC has brought over 50 enforcement actions against those who have furthered the Arab League boycott of Israel. OAC’s enforcement efforts have disincentivized and diminished participation by U.S. companies in boycott-related activity. But, unfortunately, OAC’s work is not done.

There is good news to report. A number of Arab League members have formally terminated their participation in the Arab League Boycott of Israel, realizing that their national security, political stability, and economic prosperity are better served through improved diplomatic relations with Israel. Egypt renounced the boycott as part of the treaty of peace with Israel in 1979. Jordan dropped the boycott as part of its treaty with Israel in 1994. The countries of the Gulf Cooperation Council (GCC) – including Kuwait, Oman, Qatar, and Saudi Arabia – announced in September 1994 that they no longer would adhere to what they considered to be the secondary and tertiary aspects of the boycott.

The 2020 Abraham Accords normalized relations between Israel and the UAE and Bahrain, ending their participation in the boycott. More recently, Morocco and Sudan have renounced the boycott and normalized or taken steps to enhance their relations with Israel. The UAE and Israel now share diplomatic relations, tourism exchanges, and since May, even a Free Trade Agreement. Trade between the two is booming. Bahrain and Morocco have similarly established strong relationships with Israel and begun to realize economic benefits from enhanced cooperation.

But some Arab States continue to move in the wrong direction. Holdouts, like Assad’s Syria, have categorically rejected “normalization” with Israel. And in May, Iraq passed a law that even criminalizes normalization of relations with Israel.

AJC describes antisemitism as the world’s oldest hatred. The recent doubling down on anti-Israeli sentiment by countries like Syria and Iraq comes at a time of shocking growth in antisemitism, both here in the United States and around the globe. In 2021, for example, your colleagues in fighting antisemitism at the Anti-Defamation League tabulated 2,717 antisemitic incidents throughout the United States. It’s the highest number on record since ADL first began tracking such incidents back in 1979. And it represents a staggering 34% increase from 2020. That means that in a single year – last year – antisemitic incidents in this country rose by over a third. Even more sobering is that, according to AJC’s State of Antisemitism in America report, one in four American Jews were victims of antisemitism last year.

And the resurgence of antisemitism is not limited to the United States. In France, Canada, the UK, and Germany, for example, there has been a significant increase in antisemitic incidents. Just like the early days of the boycott movement, antisemitism too often manifests itself in attempts to delegitimize Israel, through conspiracy theories and discourse that dehumanizes the Jewish people.

Given the remaining anti-Israel holdouts, as well the seriousness of this rise in antisemitism, I want to ensure that we in the Commerce Department are doing what we can to have the strongest possible antiboycott enforcement program. That’s why, today, I’m announcing four changes designed to enhance compliance, increase transparency, incentivize deterrence, and compel accountability for those who violate our nation’s antiboycott rules. These four changes are reflected in a policy memo that I sent to my entire workforce this afternoon.

First, within the existing regulatory framework, we’re going to be imposing higher penalty amounts for violations. Violations of the antiboycott rules cause real harm to the United States, both to our core principle of nondiscrimination and to our foreign policy interests. Our regulations divide the various types of antiboycott violations into three tiers by relative seriousness – Category A, 

Category B, and Category C. Going forward, for the most serious violations, that is, Category A violations, we will begin our penalty calculus at the statutory maximum penalty of a little more than $328,000. Before, we only used this maximum penalty as the starting point for a small subset of violations. Now, we will do so across the board for all of Category A. And we’re increasing penalties for violations of Categories B and C as well. To be clear, we’re not raising penalties just to raise penalties. We’re doing it because penalties send a message and drive behavior. They must be high enough to hold accountable those who violate the antiboycott rules. And they must be high enough to deter people from violating the rules in the first place.

Second, because we’ll now be using the maximum penalty as the starting point for all Category A penalty calculations, we need to ensure that the violations we include in Category A are the ones we view as the most serious. As OAC has evaluated cases over time, it has determined that the current categories do not always correlate with the appropriate comparative degree of seriousness. To ensure we have the right violations in the right categories, we put updated regulations on public display earlier today that go into effect tomorrow. By recategorizing violations to reflect our current view of their relative seriousness, we can make sure that the most serious violations are paired with the most serious penalties.

Third, we’re no longer going to permit companies that wish to settle antiboycott matters to do so without admitting that they actually engaged in the conduct at issue. Instead, we will now require those who violate the antiboycott rules to admit to their conduct in order to obtain a resolution. In other words, the days of “no admit/no deny” settlements are in the past. We’re making this change for several reasons. First, no admission means no admitted statement of facts explaining what got the company in trouble. Without this explanation, it is more difficult for other companies to learn from their peers’ mistakes. Second, companies get a significant reduction in penalty when they resolve matters short of trial. We want companies to resolve matters and we want to incentivize them to do so. But in other enforcement contexts, including in our administrative export enforcement cases, companies must admit their conduct in order to obtain a resolution. The same is now true in administrative antiboycott enforcement cases as well.

And fourth, we are renewing our focus on foreign subsidiaries of U.S. companies. Under our legal authorities, violations of our antiboycott rules can only result in consequences being imposed on the U.S. parties receiving the boycott-related requests and not on the foreign parties making them. Those penalties help to deter U.S. companies from acquiescing to boycott-related requests by attaching significant costs on the back end. But this is only one side of the equation. We want to dissuade foreign parties from making these requests in the first place. That’s why, going forward, we will be more aggressive in exploring ways to deter such behavior – in particular, by renewing our focus on foreign subsidiaries of U.S. companies when they act in violation of our antiboycott regulations.

President Biden has called all of us to stand up to antisemitism – a hatred that is “constantly lurking in the shadows.” With these policy changes, the Commerce Department is continuing to do so. Our Office of Antiboycott Compliance now has enhanced tools to help deter violations of our antiboycott rules. And where deterrence proves unsuccessful, it now has enhanced tools to punish violators.

The Jewish people and the state of Israel have been the target of the Arab League boycott for 76 years. It is well past time for this boycott to finally end. Concerted U.S. engagement has demonstrated that the path forward to peace and prosperity comes with recognition, trade, and inclusive regional integration. But until we achieve this goal in full, our Office of Antiboycott Compliance will vigorously enforce our antiboycott rules, protect our foreign policy interests, and defend our core American principles of equality and non-discrimination.

Thank you.

Assistant Secretary for Export Enforcement Matthew S. Axelrod Remarks to the Southeast Asia Forum on Export Controls
September 15, 2022

Singapore

Thank you for that kind introduction, Heidi. I am honored to welcome everyone to this second day of the Southeast Asia Forum on Export Controls. Our collective participation in this forum, and in the Joint Industry Outreach and Women in Strategic Trade discussions earlier this week, reflects a shared belief that we work best when we work together – when we develop common best practices aimed at protecting sensitive technologies, when we deter evasion through robust enforcement, and when we build capacity among strategic trade practitioners.

At the U.S. Department of Commerce, where I serve as Assistant Secretary for Export Enforcement, we have a dedicated team of analysts and agents focused on a singularly important mission: keeping the most sensitive technologies out of the most dangerous hands. At no point in history has that mission been more important, and at no point have strategic trade controls been more central to our collective security, than right now. Adherents to multilateral export control regimes have long known that such controls are critical to the world’s safety, and most effective when widely implemented across the globe. But our current geopolitical challenges, the increasingly rapid development of technology with the potential to wreak largescale devastation, and the countless ways in which the world is now interconnected, have raised the importance of strategic controls in unprecedented ways.

As just one example, the effectiveness of the stringent multilateral controls recently adopted by the United States and 37 other countries aimed at degrading Russia’s war machine in Ukraine has become front page news. There have been numerous reports that Russia is unable to repair and rebuild its tanks and other weaponry because they lack critical components; Russian and Belarusian commercial airplane traffic has decreased 77%, with Russian airlines having to cannibalize their fleets to keep the remainder operational; and none other than Vladimir Putin himself assessed in mid-July that “the almost-complete closure of access to foreign high-tech products is a huge challenge for our country” that had put Russia in a “state of disarray.”

The Biden Administration, alongside our allies and partners, has been sending a clear message to those seeking to undermine our strategic trade controls, whether they be our Russia controls or controls traditionally imposed to prevent the advance of WMD, destabilizing military modernization, or human rights abuses. And that message is this: we will work tirelessly to enforce our restrictions and hold accountable those who violate them. My hope is that as partners in the region, we can build a collective capacity for effective enforcement to deliver this same message multilaterally.

So how can we work together, both to maintain a level global playing field for industry and to ensure a safe and secure world? From my perspective, it’s through three sets of critical partnerships.

First and foremost are partnerships with industry and academia. Industry is often our primary line of defense. After all, they’re the ones who receive the sales order. They’re the ones who evaluate whether the item, end user, and end use are appropriate. That’s one reason why it was so important for this week’s events to kick off with the Joint Industry Outreach seminar. Those of us here who lead enforcement agencies should all be committed to helping industry understand both the importance of trade controls and the mechanics of how to comply with them. It’s much more effective to help companies prevent violations on the front end than to wait to enforce violations on the back end.

For our part, we have been actively working with U.S. and global industry to educate companies on compliance with our export controls and inform them of potential diversion attempts. Our domestic enforcement agents have reached out to almost 600 companies in the past six months to discuss our enhanced Russia controls. And here in Singapore, our regional Export Control Officer, Mike Burnett, has facilitated outreach to more than 1,000 regional exporters on the Russia controls. We’ve also partnered with Singapore, Malaysia, and Japan to host the JIO, which last year alone trained 1,400 exporters in the Asia-Pacific region on strategic trade controls more broadly.

Another way we partner with industry is by helping companies that trade in U.S. items screen their end users. We make frequent updates to our Entity, Unverified, and Denied Persons Lists, and have developed a tool for global companies to easily search and download a consolidated screening list onto their own IT systems. We also warn companies of specific diversion attempts when we receive tips through intelligence, partner, or industry channels.

As for academia, we just launched an Academic Outreach Initiative to partner with research universities, a crucial engine of U.S. and global innovation, in order to help them better understand and comply with export controls. We are initially focusing on those universities that are involved in research and development for our Department of Defense, are researching emerging and foundational technologies, or have affiliations with parties on our Entity List.

Our research universities are busy developing the latest and greatest technologies. But the same open and collaborative research environment that sparks such innovation can also create vulnerabilities for unauthorized technology transfer. That is why it is critical that we partner with academia to minimize risk.

Our second critical set of partnerships involves cooperation across our domestic law enforcement agencies. The U.S. Commerce Department, like our Singaporean colleagues, is rare among strategic trade controllers because we have both export licensing and enforcement under one roof. That co-location helps us link customs and licensing data to identify non-compliant strategic goods shipments. But even in a system such as ours, where the licensing and enforcement functions have connectivity in a single government agency, we have found that working closely with law enforcement partners across the U.S. government helps maximize the effectiveness of our enforcement efforts.

Our domestic collaboration starts with U.S. Customs and Border Protection (CBP), which is housed in a different cabinet agency. We share strategic trade licensing information and work cooperatively with officials at CBP to identify, detain, and seize unauthorized shipments at U.S. ports and borders. For example, in the first six months since Russia’s further invasion of Ukraine, we have detained nearly 240 outbound shipments worth over $93 million that were all destined for Russia. That means we’re on pace to achieve nearly as many detentions this fiscal year for items headed to Russia as we did last year for the entire world. Our ability to focus attention on Russia in this way simply would not be possible without our powerful partnership with our customs agency.

We also have crucial investigative partnerships with a variety of other U.S. law enforcement agencies, like FBI, HSI, ATF, and Department of Defense investigators. Although we work in different agencies housed in different cabinet departments, our complementary tools, authorities, and resources allow us to be more effective together than we would be separately. Simply put, it’s rare that we work a case alone. We rely on these domestic partnerships to enhance our capacity to enforce our controls. This type of partnership among domestic enforcers is a practice we believe can prove successful across the globe.

Which brings me to the third set of partnerships – our partnerships with all of you, both bilaterally and multilaterally. We live in a world where the manufacture and distribution of advanced technologies often spans multiple countries. At every point in this global network there are potential vulnerabilities that adversaries can attempt to exploit, whether it be stealing intellectual property (including for controlled technology) or diverting items for WMD or illicit military end uses. For all of us who work to establish and enforce strategic trade controls, that deep interconnectedness of the global supply chain means we must be deeply interconnected as well.

A key part of that interconnection is the sharing of information and best practices. Earlier this summer, we announced the establishment of enhanced enforcement coordination efforts with both Canada and the European Commission. One foundational element of our coordination is the sharing of information to increase each other’s capability to enforce strategic controls. By sharing shipment data with our partners in Canada, for example, we have already been able to identify diversion pathways and collaborate on investigative actions that have prevented adversaries from acquiring controlled items. Here in the Asia-Pacific region, we hope to similarly expand upon the relationships we have with the countries in this room to further support enforcement capacity building. We look forward to the opportunity to discuss concrete ways to do that in bilateral and multilateral sessions with you later today and tomorrow. By combining our efforts through coordinated enforcement, we believe we expand our joint capacity to safeguard technologies from misuse and misappropriation – and help keep all of our countries safe and secure.

Let me close with this. There’s an old saying: “If you want to go fast, go alone. But if you want to go far, go together.” The challenges we collectively face require us to do both – to go fast and far at the same time. To me, that means we all have lots of work to do individually, within our own agencies and countries, to design, implement, and enforce effective strategic trade controls. But it also means that we have lots of work to do together, in partnership with one another. I recognize that given the differences in our authorities and in our agencies’ structures, there will also be differences in how we each implement our respective controls. But I am confident that we can all benefit from building ways to share best practices on effective enforcement, including through enhanced information sharing, to protect our collective security interests.

I look forward to meeting with you over the next two days so that we can continue to learn from one another on how best to enforce strategic trade controls and, in so doing, help build a safer world. Thank you and now on to today’s program.

Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler Keynote Address
Women in Strategic Trade Conference Singapore
September 14, 2022

Remarks as Prepared for Delivery

It is a personal and professional honor for me to deliver the keynote address at the inaugural Women in Strategic Trade Conference. To do so in a region that is so critically important and with the friendly faces of our international partners in attendance brings me even more joy.

I am delighted to join in this gathering of women leaders in national security, international trade, science, technology, and engineering.

Events like this are more important than ever. They not only facilitate the exchange of ideas but also provide a foundation from which we can develop networks and collaborate on how to help each other successfully navigate and address workplace complexities and encourage future generations of strategic trade leaders.

Many of us who work in the strategic trade field are drawn to it because of a deep-seated interest in global security and counterproliferation. We may come from backgrounds in science, technology, engineering, and math (STEM), national security, or economics. All of these fields are critically relevant to strategic trade and are historically male-dominated.

In a 2021 report, UNESCO found that women are under-represented in fields such as computing, information technology, engineering, and mathematics. Women make up just 28% of graduates in engineering, 40% in computer sciences, and just 22% of people working in artificial intelligence. Moreover, studies show that in the United States, 40% of women leave STEM jobs within just 5 years of starting.

One source that tracks women leaders in national security reports that over 50% of senior appointments in national security in the President Biden administration are filled by women. This is higher than any previous administration, but we still have a lot of work to do.

Deputy Assistant Secretary Ian Saunders tells me that fewer than 15 heads of customs are women. This has to change. Studies show that representation of women in the national security field drops considerably from the STEM statistics. Our challenge is to support women at every step of their career and to change systems that are designed to exclude them.

President Biden has observed, “When women are engaged fully in building and maintaining peace and security in their countries, we see more sustainable and more equitable outcomes, less conflict, and longer-lasting peace agreements. If we hope to succeed in building peace and prosperity and delivering real progress, women must be engaged at every step.”

That is why we are here as a group today. Our careers are dedicated to maintaining global peace and security, and stability, and we share the hopes that our controls on strategic technologies to malign actors will lead to fewer global conflicts.

Governments should help lead the way. The Biden Administration is committed to breaking down the barriers of gender inequality in many arenas, including in STEM and national security. It has spearheaded this effort by not only ensuring women are represented at all levels of government, but also, implementing, for the first time ever, a national strategy on gender equity and equality.

The United States is taking our efforts internationally as well. Through the U.S. Singapore Women in Tech Partnership Program, Singapore and the United States have committed to support female entrepreneurs. For example, through the program Singaporean mentors will support U.S. female entrepreneurs looking to get exposed to the Singapore tech ecosystem and U.S. mentors will support female Singaporean entrepreneur who want to success in the U.S.

To succeed in a digitally-driven future, we must engage the entire spectrum of society’s diversity and talent—especially women—to train and prepare the next generation of leadership and build the strong partnerships that will ensure technological advancement is being channeled to make the world more peaceful and prosperous.

The world is undergoing a fundamental digital transformation that is changing the way we live, work, and think. Emerging technologies such as artificial intelligence, machine learning and the Internet of Things are shaping every aspect of modern society, including national security.

Over the course of the next decade, nations around the world will face a unique geopolitical environment framed by great power competition, extreme climate events, and accelerating technological disruption. Wars will be fought on land, in the sea, in cyberspace, and potentially in outer space. Machines may replace human soldiers. And autonomous weapons systems will be leveraged to overwhelm conventional weapons systems. In the face of these emerging threats, the world needs problem solvers like you who can navigate a complex scientific and technological landscape.

The world also needs more women at the forefront of ethical innovation. The technologies of tomorrow have the potential to move humanity forward to a better and safer world, but alternatively could cause massive societal disruption.

We are already witnessing this on the world stage with dual-use technologies. State-actors leverage technologies such as artificial intelligence and big data to turn entire regions of the world into open-air prisons. They target populations for forced DNA collection and collect genetic information.

Many of these technologies have peaceful and legitimate uses—artificial intelligence can assist with image recognition to gather data on human rights abuses and forensic technology can reconstruct crime scenes and hold perpetrators accountable. However, in the wrong hands, these same technologies are being weaponized. Strategic trade controls are more important than ever in balancing the risk and benefits of dual-use technologies.

With the digital revolution at our doorstep, bringing women to the strategic trade table is more important than ever. There is ample evidence that people with different backgrounds and experiences bring different perspectives to policy conversations. Our diversity enriches our discussion and offers opportunity for progress.

In our field particularly, where national security, STEM, and international trade meet, we must be the leaders committed to building and sustaining inclusive workplaces. Strategic trade leadership must reflect the diversity of society, just as our controls affect all of society. Please join me in a commitment to use our leadership roles to promote these goals.

I look forward to collaborating with all of you over the course of this event and am excited to hear from our extraordinary panelists.

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Assistant Secretary for Export Enforcement Matthew S. Axelrod BIS’s 2022 Update Conference on Export Controls and Policy
June 30, 2022

Thank you, Kevin, for that kind introduction. And, more importantly, thank you for all you have done over the past twenty-five years – and continue to do every day – to help BIS advance its mission and keep our country safe. And thank you to all of you for being here today, either in person or virtually. I am so excited to be here with you, speaking at my first Update Conference.

I’ve been in the seat since the beginning of January, so I’m now a grizzled six-month veteran of BIS. While I’m joking, there’s actually a bit of truth to it. Six months may not sound like a long time, but Kevin tells me he’d put the past six months up against any six-month period in BIS’s history. Sparked by Russia’s brutal and unprovoked war against Ukraine, the pace and scope of changes to our export control rules are without precedent. And, given the global threat environment we currently face, our enforcement efforts have never been more central to America’s national security strategy.

I want to take today as an opportunity to talk a little bit about what we at Export Enforcement, or EE, have accomplished in the past six months and then a little bit about what we have planned for the future. And when I say “what we have accomplished,” I really mean the accomplishments of the incredible team of agents, analysts, and export compliance specialists I have the honor to lead. These men and women work tirelessly every day to deny our adversaries the sensitive technology they desire – technology our adversaries would then use in their quest to overcome the United States’ military superiority. We may not be the biggest law enforcement agency, but no agency enforces export controls – or antiboycott controls for that matter – better than EE.

As you all know, Russia launched its invasion of Ukraine on February 24th. That same day, the United States and our partner countries put in place the initial wave of what would become the most expansive export controls in history aimed at a specific country. Since that day, both the scope of the restrictions put in place, and the number of countries standing shoulder to shoulder alongside us in this effort, have only continued to grow. Thanks to the incredible work of Thea Kendler, Matt Borman, and their team, BIS has issued 12 separate rules aimed at degrading Russia’s ability to continue to wage war against the people of Ukraine, rules that have been complemented by parallel actions taken by our now 37 coalition partners.

EE’s enforcement of these enhanced Russian export controls has been swift and powerful. Our agents have detained or seized over 200 shipments valued at over $88 million. I have signed nine temporary denial orders, or TDOs – including three that I signed last Friday – against Russian and Belarusian airlines; those orders should ground significant numbers of Russian- and Belarusian-operated planes. We’ve also, for the first time ever, published lists of airplanes we believe have violated our controls. We did that to put the world on notice that providing services or parts to those planes will place the providers in violation of General Prohibition 10 of the EAR. And while these TDOs and our General Prohibition10 list have successfully hampered Russian owners’ abilities to fly these aircraft, we’ve also been busy granting case-by-case authorizations to return specific planes to their Western owners, thereby helping to thwart Vladimir Putin’s efforts to steal American and European assets.

On June 6, OEE administratively charged oligarch Roman Abramovich for illegally exporting his Gulfstream 650 and 787 Dreamliner, planes worth an estimated combined $400 million. On the same day, the Department of Justice, with OEE’s assistance, obtained seizure warrants for the two planes. The public nature of the OEE charging letter represents the first use of an important regulatory change that just became effective on June 2nd – our charging letters will now be public when issued, rather than down the road after a matter is resolved. Prior to the change, the public wouldn’t know when a charging letter was issued, and there wasn’t as strong an incentive for those under investigation to try to resolve matters quickly. And because the wider world wasn’t given visibility into what types of violations we saw occurring until those violations were later resolved, other companies sometimes didn’t have the information they needed – information that would have sparked urgency to upgrade their compliance program or to submit a voluntary disclosure. To address those issues, we made a change. Now, charging letters are public when filed with the Administrative Law Judge. Once that happens, we put them up on our website for public viewing. That’s not to say we’ll always go straight to a charging letter. In appropriate cases, we will still use pre-charging letters, which are not public, and which allow us to give a company notice of what we think they’ve done wrong. In appropriate cases, pre-charging letters can be a useful tool as they allow us to have conversations and negotiations about a resolution prior to a charging letter being issued publicly.

We've been innovative in other ways as well. Two days ago, on Tuesday, we partnered with the Treasury Department to issue the first-ever joint BIS-FinCEN alert. This unprecedented joint alert informs financial institutions about the specifics of our new Russia controls and identifies red flags that those institutions should be looking for as indicators of potential evasion. The joint alert also gives financial institutions a specific code to use in their Suspicious Activity Reports when they identify transactions they think might be designed to evade the controls. The use of this special code will, in turn, allow our investigators to review SARs for potential violations of the Russia controls more quickly and should help lead to enforcement actions.

We want our investigators to have powerful tools to identify violations because once identified, we can take action. Take, for example, the Entity List announcement this week identifying eight companies for backfilling – in other words, for shipping items to Russia to replace the items Russia is no longer able to obtain from the United States due to the enhanced controls. Identifying these parties came about because of the terrific research our enforcement analysts, working with interagency partners, were able to do. Secretary Raimondo has been crystal clear that we will not tolerate parties in third countries undermining our export controls, and Tuesday’s announcement delivers on this promise. These listings are in addition to almost 300 Russian and Belarusian defense sector companies we have added to the Entity List since Russia’s invasion of Ukraine.

Our enforcement efforts have not been limited to Russia alone, of course. While the invasion of Ukraine has rightfully occupied a lot of our time, we have also been laser-focused on identifying violations tied to China. CIA Director Burns has identified China as "the most important geopolitical threat we face in the 21st Century." The PRC is determined to advance China’s military capabilities by illicitly acquiring U.S. technology. Our job is to prevent them from doing so.

The Temporary Denial Order I issued on June 8th is an example of our efforts. Our investigation uncovered a scheme by three interrelated companies – Quicksilver Manufacturing Inc., Rapid Cut LLC, and U.S. Prototype Inc – that contracted with U.S. defense and aerospace customers to 3-D print items based off sensitive prototype space and defense technologies. Unbeknownst to their customers, the three companies sent the blueprints and technical drawings to China, without the required export licenses, to have the items 3-D printed there and then shipped back to the United States. In response, we imposed what some consider our most powerful administrative tool – the denial of export privileges. And while the investigation continues, those companies will no longer be able to ship sensitive U.S. technology to China, risking that technology falling into the hands of the PRC.

We have been using other administrative tools as well. In February, I added 33 Chinese parties to our Unverified List as a result of our inability to conduct end-use checks on them. When a requested end-use check cannot be performed, we cannot have confidence that items sent to that party will be used for their intended purpose. Until and unless we are able to conduct the checks successfully, those 33 parties will remain on our list.

Earlier this week, in addition to identifying eight Chinese parties on the Entity List for their backfilling to help Russia, we added 25 other Chinese parties for involvement in military modernization and Iran sanctions evasion activities. Those additions bring us to a total of over 100 Chinese parties added to the Entity List during the Biden Administration, for an overall current total of nearly 600 – nearly 600 Chinese parties that the interagency has determined to have been involved, or to have posed a significant risk of being involved, in activities contrary to the national security or foreign policy interests of the United States. That number includes parties leveraging artificial intelligence applications to support the Chinese Police’s subjugation of Uyghur Muslims in Xinjiang; of quantum technology acquisitions by China for WMD and military modernization purposes; and efforts to leverage semiconductor designs for high-performance computers that can model Chinese hypersonic missiles.

Beyond enforcement actions involving Russian, Chinese, or other actors, we have also been busy building coalitions – with industry, with academia, and with foreign partners. For industry, we have just finished revising our Don’t Let This Happen to You guidance document, which provides examples of what happens when individuals or companies don’t comply with our regulations. In fact, we just uploaded the new version to our website today, so industry will have an up-to-date compendium of examples to help drive compliance. Separately, we’ve been working hard to educate the exporting community about the Russia controls – our philosophy being that we’d rather deter violations on the front end than enforce on the back end after a violation has occurred. Our Export Control Officers stationed overseas have organized seminars with U.S. and international business associations to explain the new Russia controls, with more than 1,500 companies trained to date. And, domestically, our agents have visited more than 500 U.S. companies with a history of exporting to Russia to explain the new rules and to partner on preventing diversion.

Having our agents spread across the country allows us to better know the exporting community, and the technologies being exported, so that we can help protect them from unauthorized use. In that regard, I am pleased to be able to announce that, thanks to the President and to Congress, our footprint is growing. The Office of Export Enforcement is located in 30 cities nationwide, and today I am announcing that our Phoenix location will officially become our ninth full Field Office. Given the region’s growing semiconductor manufacturing presence, and the important role this technology plays for our U.S. national security, we’re excited to be able to bring a full complement of agents there.

For academia, I was in Pittsburgh on Tuesday to announce our “Academic Outreach Initiative,” which is the name of our new effort to help educate universities about export controls and their importance to national security. Our research universities are an essential component of the scientific and technological success that powers the engine of the American economy. But they can also sometimes present an inviting target for foreign adversaries. Our goal is to help these institutions maintain their open collaborative research environments in a way that allows them to protect themselves from national security risk. The Initiative has four elements. First, we’re prioritizing engagement with academic research institutions whose work has resulted in an elevated risk profile – for example, those universities that are engaged in sensitive research for the Department of Defense or have ties to parties on the Entity List. Second, for each prioritized university, we’re designating a specific local Special Agent to serve as a dedicated point-of-contact who will offer to hold regular meetings with them. Third, we’ll be offering background briefings for prioritized universities on known national security threats. And, fourth, we will be training universities on how to comply with EAR license requirements and implement an Export Management and Compliance Program, as well as on how to vet potential foreign partners to determine connections to parties that are on the Entity List or otherwise of concern. By launching this initiative, we hope to work alongside our great research universities to protect the innovation driven by professors and students of all nationalities from illicit acquisition attempts by foreign governments.

At the government-to-government level, the Department of Commerce has been leading an effort to establish international enforcement partnerships and coordination mechanisms. Earlier this month, Deputy Secretary Don Graves and I met with European Commission counterparts to lay the groundwork for a U.S.-EU enforcement cooperation strategy, and the following week, I met virtually with counterparts from Canada to publicly announce a strengthened partnership between Export Enforcement and the Canada Border Services Agency. These efforts are already producing results, including through surges in end-use checks and coordinated detentions and investigations with our partners in Canada and Europe.

Thanks to President Biden and to Congress, we were provided with supplemental resources to expand our international partnerships by deploying additional Export Control Officers. We’ve started by implementing long-term deployments, including at the U.S. Embassy in Helsinki and the American Institute of Taiwan in Taipei. And, in May, we deployed our first intelligence analyst abroad. We now have an analyst working side-by-side with the Canada Border Services Agency to identify illicit reexports through Canada and to speak with Canadian companies about export compliance.

So that’s what we’ve been up to so far this year. You can see why I say it’s been such a busy six months. Now let me talk about what comes next. It’s my view that our enforcement tools have never been a better match for the global threat environment than they are right now. Given that, we need to make sure we are using those tools to their fullest potential. In partnership with our Office of Chief Counsel, we are going to focus our greatest attention on the most serious violations, by prioritizing the cases that do the most harm to our national security. That way, we can ensure that we use our finite resources to maximum effect.

Today, I am announcing four policy changes to help accomplish this prioritization strategy and strengthen the power of our administrative enforcement tools. These four changes are laid out in a policy memorandum that I issued earlier today to the entire EE workforce and that will be publicly available on our newly revamped enforcement website.

First, we will use all of our existing regulatory and statutory authorities to ensure that the most serious administrative violations trigger commensurately serious penalties. By aggressively and uniformly applying the existing BIS settlement guidelines, we will ensure that all appropriate cases are properly deemed “egregious,” which opens the door to more significant penalties under our regulations. In addition, we will ensure that the existing aggravating penalty factors are applied more uniformly to escalate penalty amounts where appropriate, which parallels how mitigating factors are currently applied to reduce penalty amounts. In short, if you invest in an export compliance program while your competitor flouts the rules to gain an economic advantage, we are going to aggressively impose penalties on your competitor to create a level playing field. In addition, by imposing stiff penalties, we want to create a strong disincentive for those considering circumvention – one that hurts both the pocketbook and reputation of violators.

Second, in alignment with our goals of ensuring a level playing field and incentivizing investments in compliance, we are eliminating "no admit, no deny" settlements. We want companies – and industry generally – to have the opportunity to learn from others and avoid making the same mistakes. When we enter a resolution, the settling party gets significant credit, in the form of a reduced penalty. But to earn that reduced penalty, there needs to be an admission that the underlying factual conduct occurred. That way, others will have a clear sense of what the company or individual did that got them into trouble and can modify their own behavior accordingly.

Third, to help clear through pending administrative cases where the violations do not reflect serious national security harm but do rise above the level of cases warranting a warning letter or no-action letter, we are going to offer settlement agreements that do not require monetary penalties. Instead, we will seek to resolve cases by focusing on remediation – through the imposition of a suspended denial order with certain conditions, such as training and compliance requirements. Any such resolution will be contingent on the violator’s willingness to accept responsibility, admit to the conduct, and commit to enhanced compliance measures.

Fourth, we are amending how we process Voluntary Self-Disclosures (VSDs). For those VSDs involving minor or technical infractions, we will resolve them on a “fast-track” with a warning letter or no-action letter within 60 days of receipt of a final submission. For those VSDs that indicate potentially more serious violations, however, we will do a deeper dive to determine what type of enforcement action may be warranted, while at the same time adhering to the principle that companies deserve, and will get, significant credit for coming forward voluntarily. The VSDs that are not fast-tracked will be assigned to a Special Agent and an OCC attorney. In the most serious cases, the Department of Justice’s Counterintelligence and Export Controls Section will assign an attorney as well. (As an aside, please know that VSDs to us don’t qualify you for benefits under DOJ’s VSD program. As their policy makes clear, to qualify for their program, a company must disclose to DOJ also.) By fast-tracking the minor violations while assigning specific personnel to the potentially more serious ones, we will be able to use our finite resources more effectively while also allowing companies that submit more minor VSDs to receive a quicker turnaround.

These four changes are designed to enhance our administrative enforcement program and to help make it as effective as possible. While these changes will be applied within our existing regulatory framework, they do come on top of a fifth change made earlier this month that was regulatory in nature – a regulatory amendment making charging letters public. So that’s where we are for now. Depending on how these collective changes play out, we may consider further ones as well. We are committed to making whatever changes are necessary to maximize the effectiveness of our administrative enforcement of export violations.

In addition to the export side, I also oversee the Office of Antiboycott Compliance, or OAC, which has administrative enforcement authority over our antiboycott laws. These laws prohibit U.S. persons from supporting unsanctioned foreign boycotts against countries friendly to the United States, such as the Arab League boycott of Israel. Because violations of the antiboycott regulations cause real harm to the principle of free trade and to our national security and foreign policy interests, strong enforcement and accountability measures are needed. To that end, we are reviewing ways to further enhance OAC’s enforcement posture to reflect the seriousness with which we view antiboycott violations and to discourage U.S. companies, in the strongest possible terms, from cooperating with any unsanctioned boycott.

More specifically, we are considering revising the EAR to recategorize the relative seriousness of the various antiboycott violations to better comport with current boycott-related activity and with OAC’s priorities and practices. In addition, we are evaluating current penalty levels to determine whether they should be higher – both to sanction those who violate the law and to deter those who would. And, last, like I announced today with regard to export cases, we’re considering whether to eliminate “no admit, no deny” settlements in order to incentivize compliance and strengthen deterrence. I expect to have more to say about where we’ll land on these questions in the coming weeks.

Thank you again for being here today and for your continued partnership in this effort. We at BIS don’t do this work alone. All of you who make up the exporting community are on the frontlines alongside us. And just as your clients and companies rely on you to keep them in compliance and out of trouble, so do we. So, thank you for all you do to help ensure our rules are followed and our sensitive technology kept secure. If the last six months have taught us anything, it is that all of us must remain vigilant in protecting our democratic principles, our shared values, and our technology from misappropriation. Thank you.

Assistant Secretary for Export Enforcement Matthew S. Axelrod at the National Association of College and University Attorneys 2022 Annual Conference

Export Enforcement Academic Outreach Initiative Policy Memo Available online here.

Thank you, Ona, for that kind introduction. And thank you to the National Association of College and University Attorneys for hosting me today. It’s terrific to be with all of you here in Pittsburgh.

In 1999, my wife, who had just graduated from business school, joined a small tech startup in Cambridge, Massachusetts. When friends and family would ask what the company did, she would dumb it down for them, saying simply, “we make websites download faster.” Today, that explanation might not resonate. But back in 1999, websites didn’t load instantly. And the more photos or graphics they had, the longer they took. So, the ability to make websites download faster was something even my parents could understand. It was a service that was quickly adopted by some of the biggest websites in the country – sites like CNN and Yahoo. And today, twenty-plus years later, that small start-up, Akamai Technologies, is the largest content delivery network in the world.

Akamai’s story is a profoundly American story. A start-up venture with innovative technology that meets a pressing customer need, which grows over time into a major industry player. But it’s a profoundly American story in another way as well – none of it would have ever happened if it weren’t for the collaborative environment of the American research university.

Akamai only exists because MIT exists. It only exists because one MIT professor, Tim Berners-Lee, the inventor of the World Wide Web, challenged other MIT professors to see if they could help address the problem of slow Internet download speed. It only exists because a MIT applied mathematics professor, Tom Leighton, then collaborated on that problem with his graduate students, one of whom, Danny Lewin, helped him come up with algorithms that routed web traffic more efficiently. And it only exists because Leighton and Lewin then collaborated with a MIT business school student, Jonathan Seelig, to create a business plan to commercialize the algorithms. They entered that plan in the business school’s annual $50K entrepreneurship contest. They didn’t win the contest, but they did well enough to attract venture capital funding that turned the business plan into Akamai Technologies, a company that later went public with a market cap of over $13 billion.

I tell you that story not because it’s singular. On the contrary, I tell it because it’s emblematic of the contributions of both professors and students, in collaboration, to incubate innovative ideas and entrepreneurial solutions. Academic research institutions are a fundamental component of the scientific and technological success that forms the foundation of the American economy. Our colleges and universities are where life-saving medicines are developed, scientific breakthroughs are made, and revolutionary technologies are invented.

That innovation is driven by this country’s open and collaborative academic environment. That open environment ensures that the best minds – from both the United States and abroad – can collaborate and share ideas. We want international students to study here because a diverse, international talent pool strengthens our economic and technological competitiveness. By some estimates, immigrants account for a quarter of the inventions and entrepreneurship that occur in the United States. What’s more, it’s estimated that, during the 2020-2021 academic year, international students studying at U.S. colleges and universities contributed $28.4 billion to the U.S. economy and supported more than 300,000 jobs.

At the same time, however, this open collaborative environment at our academic research institutions can create important vulnerabilities to our national security. American research universities aren’t just the envy of the world, they’re the envy of the parts of the world we consider adversaries. Our foreign adversaries know how successful our research universities are at developing the latest and greatest technologies, or medicines, or scientific innovations. They also know that, given the multitude of disciplines, heterogeneous makeup of professors and students, and open collaborative environment, a university’s technology and research controls may not be as robust as those of a for-profit corporation – even though the research being conducted at universities can be just as valuable (if not more so) as that being done at companies.

In a world where even the most sensitive and valuable research can be exported with the click of a button, our research universities unfortunately present inviting and potentially vulnerable targets. And it’s that tension – between the genius of our collaborative university research environment and the national security challenges that environment can present – that I want to explore with you today.

This year marks the 40th anniversary of the Bureau of Industry and Security’s Office of Export Enforcement, or OEE, which – thanks to President Biden, Secretary Raimondo, and the United States Senate – I now have the honor to oversee. For forty years, OEE Special Agents, aided by our intelligence analysts and export compliance specialists, have been on the frontlines of protecting U.S. national security, ensuring that sensitive U.S. goods and technologies aren’t falling into the wrong hands. For much of those forty years, the focus was primarily on physical goods: commodities capable of civilian use but also capable of use in conventional weapons or in weapons of mass destruction, such as nuclear weapons, missiles, and chemical or biological agents.

As the pace of technological development has increased, however, the national security threat has evolved – and so too have our areas of focus. While traditional threats of conventional arms and the proliferation of weapons of mass destruction remain ever-present, new and emerging technologies have now joined them as primary areas of concern for us.

Each year, the Office of the Director of National Intelligence, or ODNI, publishes the Intelligence Community’s Annual Threat Assessment, which details ODNI’s view of the gravest national security threats faced by the United States. In its most recent 2022 report, ODNI identifies the “rapid development of destabilizing technologies” as one of the “transnational challenges [that] stand out for the clear and direct threats they will pose to U.S. interests during the coming years.” As the report further explains, “The increasing convergence of seemingly unrelated fields and the rise of global competition to generate and lock in advantage are leading to a global diffusion of emerging technologies, shrinking timelines for development and maturation of technologies, and increasingly blurred lines between commercial and military endeavors, particularly in fields with broad impact across societies and economies, such as artificial intelligence (AI), biotechnologies, robotics and automation, and smart materials and manufacturing.”

What this means is that technological development done at our research universities – work that can lead to the formation of companies like Akamai – can also increasingly lead to national security risks, especially because it can sometimes be difficult to determine the potential nefarious end uses of these nascent technologies until they are actually leveraged by malign foreign actors. If we can’t effectively identify, control, and safeguard these emerging and potentially disruptive technologies, real national security risks result.

Let’s start with just one of those technologies, artificial intelligence, to illustrate the challenge. AI technology has rapidly spread worldwide. It has improved how we integrate information, analyze data, and make decisions. Government, academia, and industry have all experienced its benefits. Like all tools, however, AI can also be put to harmful uses. AI-enabled surveillance tools have been developed that can monitor, track, and surveil people, thereby allowing authoritarian regimes to violate their citizens’ human rights. There have been shocking headlines that describe how Chinese authorities have installed invasive mass-surveillance software in the Xinjiang province to track members of the Uyghur Muslim minority and map their relations with friends and families. Other stories recount how Russian authorities are ramping up the use of AI in facial recognition technology to track opposition protesters to their homes and arrest them.

While these examples may seem distant from the research occurring on your campuses, some of the AI companies behind these tools of repression, companies such as iFlytek and SenseTime, have past ties to U.S. research universities. Both companies are now on the Commerce Department’s Entity List, a list of parties that an interagency group has determined pose a significant risk of being involved in activities contrary to U.S. national security or foreign policy, and which means they can no longer easily access U.S. goods or technologies. But even before that legal hurdle was put into place, these companies were risky to deal with. Risky because of their connection to Chinese military, intelligence, and police organizations. But also risky to the reputations of universities who chose to engage with them.

And it’s not just AI where universities face potential reputational and legal risk when working with foreign parties on the latest technologies. We had a recent case where a U.S. university received a grant from the National Science Foundation to establish a partnership with a foreign company, called CloudMinds, to develop a deep learning laboratory – that is, a laboratory that explores machine learning to analyze large data sets and develop prediction models. While CloudMinds may have seemed innocuous at first, its products were later identified in open-source materials as directly supporting China's military modernization efforts. What’s more, the company’s owner had an associated company that was described as the Chinese government’s answer to DARPA, our defense agency that invests in technology development for national security purposes. Once we informed the university of the national security risk, the university took steps to end the collaboration. CloudMinds too is now on our Entity List.

Partnerships like this are just one of the ways foreign adversaries can attempt to gain access to cutting-edge research developments. Another involves attempts to exploit known relationships between U.S. universities and government research entities, such as Department of Defense-supported University Affiliated Research Centers, or UARCs. UARCs – strategic DoD research centers affiliated with a university – are often where the emerging technologies of tomorrow are being incubated. These nonprofit organizations are tasked with maintaining essential research and developing core capabilities in areas of particular importance to national defense. DoD has been cataloguing unsolicited requests to UARCs made by foreign researchers, and by foreign-entity-linked shell companies here in the United States, for information about emerging technologies being developed at UARC facilities. DoD has then been mapping those requests back to our adversaries’ strategic military technology gaps to see where there is overlap between those gaps and the information requests. The preliminary results have been both illuminating and concerning given the volume of solicitations they’re seeing and the tactics that are being used to obscure foreign military affiliations. For those of you whose institutions support UARCs, these dynamics raise particular challenges in implementing an effective compliance program over a broad swath of research activities and university personnel.

So now that I’ve attempted to describe the risks – both to your institutions and to our national security – what can we collectively do to help mitigate them? The good news is that the vast majority of technology released in an academic setting is not subject to the Export Administration Regulations, or EAR, because it is released as part of classroom instruction or constitutes information that is tied to fundamental research. While certain inputs to, and results of, fundamental research may be subject to the EAR, most information that is tied to fundamental research – basic and applied research that is ordinarily published and shared broadly within the scientific community – is not.

What those of us at Export Enforcement are particularly concerned about is proprietary research. Proprietary research, which consists of research restricted from publication because it is considered confidential from a business or national security perspective, is generally controlled for either traditional export or “deemed export” purposes. While a traditional export involves sending technology from the United States to another country, a “deemed export” involves the transfer of technology within the United States to a foreign national or nonpermanent U.S. resident, through things like a briefing or hands-on laboratory research. Under the EAR, if a license would have been required to send that technology to another country, then a “deemed export” license is generally required to release such technology in the United States to a professor, student, or visitor whose most recent citizenship or permanent residency is in a foreign country.

To minimize risk, academic research institutions need to have a sophisticated understanding of the EAR and how these rules apply to professors, students, staff, and visitors. I highly encourage you to develop an Export Management Compliance Program, or EMCP, if you haven’t already done so. Our Office of Exporter Services is available to advise you on the creation and implementation of EMCPs that are tailored to your specific needs.

Having an effective EMCP will help you integrate export control requirements into everyday operations, which in turn helps minimize risks of violations. One key element of an EMCP involves a Technology Control Plan to safeguard sensitive information from unauthorized release. Another is conducting a risk assessment before engaging with foreign parties, starting with the screening of those parties against the U.S. Government’s Consolidated Screening List – a list that, as the name suggests, combines all export-restricted parties identified by the Departments of Commerce, State, and Treasury in one place. In one past case of ours, a U.S. university was fined for exporting an atmospheric testing device to the Pakistan Space and Upper Atmosphere Research Commission, which was on the Entity List due to its involvement in Pakistan’s nuclear and missile activities. Because of that Entity List status, the university was prohibited from shipping the device without a license, something the university could have easily determined had it conducted a screening check.

Another key element of an effective EMCP is having a system of information barriers and access controls in place to guard against the inadvertent release of controlled software or technology to specific faculty, staff, students, or visitors without the requisite license. Examples of such information barriers include physical locks and access procedures for entrance to research areas with controlled technology, as well as restrictions on access to controlled electronic files and software using personal identification verification cards and passwords.

So those are a few suggestions for what you can do on your end. But what about my end? What can those of us at the Department of Commerce do?

The challenges of keeping our academic research environments thriving and our controlled information secure from improper foreign acquisition are significant. That’s why I’m announcing today a new Export Enforcement initiative to help academic research institutions protect themselves from these threats. This new “Academic Outreach Initiative,” which is described in further detail in a policy memorandum that I sent earlier today to all Export Enforcement personnel, and which we are also making public, contains four lines of effort:

First, we will strategically prioritize engagement. While we are always available to any research university that wants our assistance, we will be specifically prioritizing for engagement those universities whose work has resulted in an elevated risk profile. These are institutions that: (1) are involved in research and development for the U.S. Department of Defense; (2) have ties to foreign universities that are on the Entity List; or (3) are conducting research in sensitive technologies subject to the EAR (for example, applied laboratories conducting proprietary research on emerging technologies).

Second, we will assign “Outreach Agents” for prioritized institutions. For prioritized universities that wish to partner with us, we will assign Export Enforcement agents to serve as “Outreach Agents,” so that each prioritized university has a dedicated point of contact. Outreach Agents will seek to establish long-term partnerships with universities to help them prevent unauthorized exports, including improper releases of technology or source code. Outreach Agents will seek to meet regularly with their university counterparts, not less than once per quarter.

Third, we will offer background briefings. We know that research universities often benefit from having strong working relationships with foreign university or industry partners. Those relationships can be important sources of collaboration and innovation. Sometimes, however, those foreign partners can have ties to foreign governments, or other foreign actors, about which the university is unaware. Where appropriate, our Outreach Agents will seek to brief their partner universities on known national security risks associated with specific foreign entities.

And, fourth, we will offer trainings. For prioritized research institutions, we will offer trainings on how export controls apply in academic settings and on applicable national security threats. In addition, our Outreach Agents will offer hands-on training to help ensure those institutions know how to vet potential partners to determine connections to parties on the Entity List or that are otherwise of concern. Our colleagues in BIS’s Office of Exporter Services will be available to advise on establishing and implementing tailored EMCPs. And we will provide a list of resources to help administrators, professors, staff, and students comply with the export rules.

In short, we at Export Enforcement are committed to partnering with you to protect national security and to maintain U.S. leadership in innovation and collaboration. We are hopeful that the four prongs of our Academic Outreach Initiative will empower colleges and universities to prevent unauthorized exports, including releases of controlled technology, and to make informed judgments about their future and ongoing partnerships with foreign universities and companies.

I said earlier that the story of Akamai is a profoundly American story. There’s one additional aspect of Akamai’s early years that – unfortunately – is part of our American story as well. Danny Lewin, the MIT graduate student I mentioned who helped discover the algorithm that became the “secret sauce” of Akamai’s technology, co-founded the company in 1998. He died just three years later, on September 11, 2001. He was a passenger on American Airlines Flight 11 – the first of the four planes to be hijacked that day. Lewin, who had grown up in Jerusalem and served in the Israel Defense Forces before coming to MIT for graduate school, used his military training to attempt to stop the hijackers from taking control of the airplane. He died trying as he became one of the first people the terrorists murdered that day.

The national security threats facing the United States are real and they are persistent. And while they have morphed significantly since that tragic day in 2001, they have not diminished. They continue to demand our collective attention and resilience, for colleges and universities perhaps in a way even greater than ever before. Twenty years after 9/11, the current ODNI threat assessment, which I referenced earlier, no longer lists terrorism as the preeminent national security threat. Instead, it assesses that the most significant threats now come from nation-state actors – China, Russia, Iran, and North Korea foremost among them. And because of the resources and strategic vision of these countries, they represent the most sophisticated threats to technology protection we have seen in OEE’s forty years of existence – including the protection of technology developed at your research institutions.

Thank you to NACUA for inviting me here today and to all of you for your work in keeping your institutions vibrant and secure. It is my hope that BIS can serve as a resource to you going forward, to help protect the security of your institutions’ research while continuing to support the incredible innovation and collaboration for which our universities are deservedly renowned.

I’d be happy to take your questions.

BUREAU OF INDUSTRY AND SECURITY KEYNOTE REMARKS OF ASSISTANT SECRETARY THEA D. ROZMAN KENDLER
2022 American Association of Exporters and Importers (AAEI) Annual Conference & Expo
June 15, 2022
Remarks as Prepared for Delivery

I’m proud to be here to address your 101st Expo—Slightly less pressure than speaking at your centennial, so thank you for that. I am honored to be here as Assistant Secretary for Export Administration, addressing AAEI as it begins its second century.

Think of all that our global economy has been through over the last 100 years—world wars, recessions, depressions, famines, pandemics. Through all of that, your organization has endured, and AAEI members have—I hope, prospered.

While I’m optimistic that we’re starting to come out of the COVID-19 pandemic, we’re also facing a previously unimaginable and certainly unconscionable attack on the innocent people of Ukraine. This is another moment of tremendous global stress.

As you know, those are the moments when we’re tested most—and many times, we end up coming up with creative solutions to these stressful situations that make us stronger in the long run.

Your conference theme this year is spot on—Tempest to Transformation. As the world churns around us, we need to be prepared to transform the way that we operate so that we can ensure our continued prosperity. Tempest to Transformation sounds like something I’ve been saying a lot recently: from crisis comes opportunity.

As Assistant Secretary I’m committed to utilizing the flexibility of the EAR creatively, informed by data, to address national security challenges while also ensuring that industry can comply effectively with the rules that we issue.

Today I want to talk a bit about how we approach novel problems in the export control world, about where we get stuck, and hopefully about how we get unstuck.

Let me start with our response to the war on Ukraine.

In just a few months, in response to the atrocious, unjustifiable war launched by Russia, we’ve recalibrated, revitalized, and strengthened our international partnerships as never before—from international meetings to text chains and video calls, we’ve essentially accomplished years’ worth of relationship building in a few months.

This started as a solution to a problem we faced with Russia.

How were we to expand the effect of our export control system against Russia when U.S. trade with Russia is limited in scope, and when our export control system had already tightened trade in sensitive commodities with Russia after years of behavior contrary to U.S. national security and foreign policy, as well as global peace and security?

I won’t relay a laundry list of the measures we and our partners have imposed. But let me thank you for your compliance.

U.S. exports to Russia for the items subject to new U.S. controls have decreased around 97% compared to the same time last year.

I’d also add a reminder that we are also committed to supporting sectors in Russia essential to humanitarian activities. Critical medical items, items for the safety of flight and civil nuclear safety, and items that enable telecommunications services to support the flow of accurate information and access to the internet – these benefit the Russian people, and we are prepared to license exports in these areas.

We have taken this enormous test of the will and spirit of the world and tried to find a way to make changes that make us stronger in the long run.

Almost four months after Russia launched its war, the implications of this new cooperation point to a new and stronger future.

It is my objective and hope that our cooperation will not just serve to respond to Russia’s barbaric actions, but that we recalibrate our international export control collaboration around the challenges of the future.

The challenges we face are presented both by nation state actors—Russia of course, but also China, Iran, North Korea—as well as the changing threat environment facilitated by the internet and cheaper, more powerful and commercially available technologies.

I’m proud of the enormous effort BIS technology, regulatory, and policy experts have expended to bring about a real impact on the Russian military and to help the Ukrainian people.

Our controls are getting attention from the highest levels of the Russian government.

We have expanded our Russia controls quite a bit since February 24: our focus on restricting Russia’s access to semiconductors, which as you all know are an essential input to many of the things that we rely on in a modern economy, including a variety of military applications, has not wavered.

Since the start of the invasion, through April when the most recent data is available, Russia’s semiconductor imports from all sources have dropped by 90 percent.

That is a significant long-term challenge as Russia seeks to replace, repair, and resupply its military.

As was recently reported, Russian companies are struggling to determine how to source these critical inputs, and at a recent meeting with Russian entrepreneurs, one participant indicated that he was “very concerned about our microelectronics.”

Mr. Putin cut in: “Me too. Honest.”

Putin and honest are two words that should be taken with a grain of salt when they are in the same sentence, but the fact remains that our coalition of 38 of the most technologically advanced economies is a powerful one.

As you’ve seen, our response to Russia’s war has evolved as we’ve worked with partner countries to maximize our effectiveness.

It is my hope that we keep expanding and strengthening that coalition, and that we’ve now built a strong foundation on which we can address new and emerging challenges together.

Unfortunately, it took a horrific invasion to provide the impetus to jolt these 38 countries to work together so closely. It took a strong vision from President Biden and other world leaders — not to mention Secretary Raimondo and Deputy Secretary Graves — to get us to this multilateral approach.

Russia’s aggression gave the world an urgent focal point for action, around which we coordinated and have acted quickly, creatively, and powerfully.

Fortunately, not all the challenges before BIS are quite as urgent, but do require us to take a step back, reevaluate our objectives, and ask whether we need to be creative in updating our approach to that objective.

Sometimes BIS implements solutions with good intentions that don’t land the way we expect.

We’ve all been in situations where we drive one route for so long that we don’t even pay attention to another route that might take us to our destination more quickly. How do we make the decision to try the new route?

We created License Exception Strategic Trade Authorization (STA) eleven years ago.

Our goal was to reduce licensing burdens for sensitive items to trusted destinations, facilitating compliance and protecting national security.

Those trusted destinations are many of the same countries that joined our Russia export controls coalition.

STA was – and still is -- intended to facilitate exports between the United States and our close partners by easing license burdens.

In 2011, then-Under Secretary Eric Hirschhorn estimated that use of STA could potentially eliminate 3,000 of the approximately 22,000 licenses BIS issued the prior year.

The data shows you aren’t utilizing STA the way we’d hoped, and this means you’re continuing to drive the slower route.

Some of you have followed us into the faster lanes -- Since its inception in 2011, STA has been used for approximately 145,000 shipments, for a total value of $10.0 billion worth of transactions. Per year, that is an average of 12,000 shipments with a value of $830 million.

But during the same period, $2.0 billion in exports were shipped using a BIS license even though those transactions could have been shipped using STA, which would have saved time and money for industry, not to mention BIS’s ability to more quickly process licenses for which there isn’t a substitute license exception available.

Of course, License Exception STA does not fit every situation or make sense in every case. Following my analogy that is now getting a little old, I also recognize there may still be too many traffic lights on the new route.

I know there are businesses that could benefit from STA if they took the time to consider the alternate path and adapt their compliance programs.

So please consider me the friendly voice of your traffic app of choice, letting you know that there is an alternate, faster route. And please report obstacles as you identify them.

Just as we work so closely with our allies to counter the world’s security challenges, we want to ensure we’re facilitating trade with our trusted partners.

We may need to spend more time educating exporters on our ideas to facilitate trade, like STA. In turn, we ask that you evaluate and improve your compliance programs.

However, we’re not just looking backwards at how we can improve on what we’ve done in the past.

We also have to be responsive to the new realities we’re seeing in the marketplace and threat environment.

Everything about export controls is international, of course, but we all know that not every transaction involving an export is a straight seller-exports-to-buyer situation.

I want to bring to your attention an export controls issue I encountered when I was a prosecutor in the Justice Department’s National Security Division.

As we consider trusted country partners and facilitating trade, there are also non-standard situations in which I wonder if our rules are appropriately tailored.

The presence of freight consolidators is not new in our exporting system.

Consider the case of a Florida company and its owner that were the subject of criminal prosecution and administrative penalties a few years ago.

The business model was to provide a mailbox or freight consolidation service to foreign customers. For a fee, the U.S. company provided a domestic U.S. address that they – the foreign customers – provided to U.S. sellers. In this way, the foreign buyers were able to acquire U.S. items while concealing from U.S. sellers that the items were intended for export. The company then exported the items to the foreign buyers.

Let me ask you to consider, who are the principal parties in interest in this transaction?

Under the EAR, the Principal Parties in Interest are “Those persons in a transaction that receive the primary benefit, monetary or otherwise, of the transaction.”

Generally, they would be the U.S. seller as the U.S. PPI and the foreign buyer as the FPPI (foreign principal party in interest). The forwarding or other agent is not a principal party in interest.

Does that make sense to you for freight consolidators? When the U.S. seller isn’t aware that they’re engaged in an export transaction?

This company shipped the items overseas, but they created a business model whereby they didn’t always know what was being exported. In addition to potentially having less information than other parties to the transaction, what if they made less money from the transaction than the U.S. seller?

This case was successfully prosecuted based on a strong investigation and the uncovering of specific facts that showed unlawful intent. But this isn’t the only business like this in the United States. Is it possible to more clearly define the responsibilities in these transactions?

The EAR has the concept of a “routed export transaction”, where the foreign principal party in interest agrees in writing to assume responsibility for determining licensing requirements, but that isn’t what happened here. If the foreign party didn’t assume that responsibility, who should have it in the United States?

Along with the Census Bureau, we’ve considered different permutations of these terms of the years. We’re thinking about how best to harmonize definitions between the Foreign Trade Regulations and the EAR, and how to make sure we are as clear as we can be for you – exporters and industry – to obtain the information you need and fulfill your obligations under the law.

I’m not here to make any major announcements on how we’re going to solve these issues today.

But I can say that we are paying attention, focused on the details of how transactions may be structured, and taking into account the practical realities of how trade professionals such as yourselves operate.

Our greatest human asset is creativity, and we will need creativity as we face the next 101 years of change and continually evaluate whether the way we do things remains the best way that they can be done.

We face questions in export controls that require engagement from governments, industry, and average citizens.

To properly address these questions, BIS is prepared to be creative in how we move forward. We are ready to transform our export controls corner of the world from this tempest and turn our crises into opportunities.

I am optimistic about our future based on the collaboration and cooperation I see today.

We aren’t just muddling through—we are deliberately charting where we want to go and working to get there.

Let’s work together, solve these problems, and enhance our national security.

Our current moment is by nearly every metric a tempest—but the work we do together, every day, makes a difference in how we navigate through this moment into what I hope will be a more secure and prosperous future.

Assistant Secretary for Export Enforcement Matthew S. Axelrod delivers remarks to the Society for International Affairs 2022 spring virtual advanced conference on export controls & international politics

Monday, May 16, 2022

Thank you, Marc, for that kind introduction. Thank you to the Society for International Affairs for hosting me today. And thank you to all of you for tuning in. I’m hopeful that virtual conferences will soon go the way of the 8-track (and, as of last week, the iPod) and we can safely gather in person once again in the near future.

This year marks the 40th anniversary of the Office of Export Enforcement, which – thanks to President Biden, Secretary Raimondo, and the United States Senate, I now have the honor to oversee. For forty years, special agents from OEE have been on the frontlines, ensuring that sensitive U.S. goods and technologies aren’t falling into the wrong hands abroad. Their efforts, and their results, have been constants for those forty years. But the nature of the goods and technologies themselves, and their relevance to the primary national security threats facing our country, have shifted dramatically during that time span.

Forty years ago, our export control system was narrower, focused singularly on traditional dual-use items related to conventional military applications, and were aimed a single adversary. The Coordinating Committee for Multilateral Export Controls, or CoCom, was established by the United States and our allies after World War II as an informal mechanism to coordinate an embargo policy on the export of sensitive technology and goods to the Communist bloc. CoCom gave a veto to the United States or a participating ally over the export of any multilaterally-controlled item destined to the Soviet Union or a Warsaw Pact country. This arrangement prevented the backfilling of exports when one allied country denied an export, squarely preventing Russia from acquiring advanced technologies to support its Cold War ambitions. In 1982, when the Office of Export Enforcement began, its job was to enforce United States export control laws in a CoCom world.

From these narrow post-World War II beginnings, the global export control system evolved in the mid-1990s with the simultaneous fall of the Soviet Union and rise of the proliferation of weapons of mass destruction. The single mechanism of CoCom gave way to multiple export control regimes focused on a broader array of items – not only dual-use items tied to conventional weapons, but also items related to missiles, chemical and biological weapons, and nuclear weapons. This structure posed unique challenges, however, because of splintered agreement among allies about how to treat countries like Russia, China, and Iran. If Russia, for example, could simply obtain advanced technologies from Europe that the U.S. denied, the ability to impede their military’s technological advancement was undermined – while U.S. industry lost business to their European competitors.

Fast-forward twenty years to 2002 and the focus of our country’s national security efforts had recently pivoted to face a new and pressing threat – that of terrorist attacks on our homeland by non-state actors like al-Qaeda. In the years following 9/11, our government surged resources to meet this threat, with significant success at preventing follow-on attacks. For OEE, the changing nature of the threat meant that in addition to investigating the proliferation of WMD and destabilizing military activities, we also worked more closely with the Department of Defense to prevent U.S. components from getting into the hands of terrorists for use in improvised explosive devices. And, in parallel, we expanded the use of our Entity List to allow for the designation of parties when supporting any activity contrary to U.S. national security or foreign policy interests.

Today, forty years since OEE’s founding and a little more than twenty years since 9/11, the national security landscape has changed yet again. While non-state actor threats of course remain, experts assess that nation-state actors are now the paramount threat. Each year, the Office of the Director of National Intelligence publishes the Intelligence Community’s Annual Threat Assessment, which details the IC’s view of the gravest national security threats faced by the United States. The differences between the first such assessment, issued in 2006, and this year’s assessment are striking. In 2006, the DNI stated on the assessment’s very first page that “terrorism is the preeminent threat to our citizens, Homeland, interests, and friends.” The 2006 assessment’s first section is on the “Global Jihadist Threat,” followed by a section on “Extremism and Challenges to Effective Governance and Legitimacy in Iraq and Afghanistan.” Analysis of the threat posed by Russia does not appear until page 16, with the China discussion not appearing until page 20.

Compare that to this year’s assessment and you will see how significantly our national security landscape has changed since 2006. The first four sections of this year’s assessment each focus on a different nation-state actor – China, then Russia, then Iran, then North Korea. As the assessment notes on its first page, “Beijing, Moscow, Tehran, and Pyongyang have demonstrated the capability and intent to advance their interests at the expense of the United States and its allies.” The assessment later goes on to point out that “China will continue pursuing its goal of building a world-class military that will enable it to secure what it views as its sovereign territory, establish its preeminence in regional affairs, and project power globally while offsetting perceived U.S. military superiority,” will “continue the largest ever nuclear force expansion and arsenal diversification in its history,” and “is working to match or exceed U.S. capabilities in space to gain the military, economic, and prestige benefits that Washington has accrued from space leadership.”

Given that threat picture, I submit to you that the job of our Office of Export Enforcement agents – preventing sensitive U.S. technologies and goods from being used for malign purposes by those would do us harm – has never been more important, never been more central, to the national security threats we face than at any other time during the organization’s forty-year existence. It's among the reasons why I’m so honored to lead those agents, and the analysts who work in tandem with them, at this point in history. And it’s why I feel such a strong sense of urgency about our work and how we go about doing it.

President Biden vividly captured this national threat picture in this year’s State of the Union address, when he described the ongoing “battle between democracy and autocracy.” Today, we are tragically witnessing this battle play out in real time as Russia continues its brutal and unprovoked war against its peaceful, democratic neighbor, Ukraine.

As I’ll discuss, we have taken swift and strong enforcement action in response to Russia’s further invasion of Ukraine. But our work isn’t stopping there. In the future, we anticipate making changes to our administrative enforcement policies, for both our export control and antiboycott laws, in order to increase transparency, strengthen compliance, and incentivize deterrence. These contemplated policy shifts, which I will touch on later, will be designed both to protect our country from these growing nation-state threats and to hold those that don’t play by the rules accountable.

Before I get to future administrative enforcement changes, though, I want to provide some details on the Commerce Department’s efforts to hold Russia accountable for its unjustified war against Ukraine. My Commerce colleague, Assistant Secretary Thea Kendler, and her team have worked in close coordination with an unprecedented coalition of U.S. allies and partnersto impose far-reaching export restrictionsthat limit Russia’s ability to obtain the goods and technologies it needs to wage war.

This includes both expansive controls on dual-use items – items that can be used for both commercial and military purposes – in the fields of electronics, marine, and aerospace, including when certain items are produced abroad from U.S. software, technology, or equipment; controls on oil-field refinery equipment; controls on luxury goods like alcohol and cigarettes; embargoes on U.S. goods and technologiesto specificRussian and Belarusian military groups that are helping Vladimir Putin; and last week’s expansion of restrictions on Russian industrial and commercial sectors to align with European Union actions.

These stringent and sweeping export controls, along with similar controls on Belarus for enabling Russia’s conduct, are designed to cut off Russia’s access to the tools of war and undermine its strategic ambitions to exert influence on the world stage.

The controls are not just being imposed by the United States, but also by 37 allies and partners around the globe. It’s the broadest expansion of multilateral export controls among like-minded partners since the creation of CoCom back in 1949. It’s also a partnership for a similar purpose – to help counteract Russian aggression.

This powerful international response is already resulting in serious consequences for the Russian military and defense sectors. Our new export controls have helped degrade the Russian military and defense base, including the production and operation of tanks, precision-guided missiles, military satellites, and intelligence and military systems dependent upon western electronics.

In the aerospace sector, companies have stopped selling spare parts or providing engineering and maintenance support to Russian airlines. Analysts predict that, in the near future, Aeroflot, Russia’s premier commercial airline, will be unable to sustain even domestic flights without the parts necessary to maintain its aircraft. And the story is the same across virtually every other Russian economic sector – from automobile to heavy machinery to advanced computing. Since February 24th, total U.S. exports to Russia have decreased nearly 80% in value compared with the same time period last year. We’ve witnessed companies not only comply with our rules, but some have gone further of their own accord. In effect, they have “self-sanctioned” to account for the reputational risk of staying in business with Russia. According to one study conducted by the Yale School of Management, as of Friday, 594 U.S. companies have suspended or scaled back operations in Russia and another 316 have exited Russia altogether.

When we work together with our allies, echoing the multilateralism of the CoCom days, export controls can achieve powerful results. Not surprisingly, we’ve found that companies are more likely to tolerate controls when they are held to the same rules as their competitors. While it’s good news that most companies have complied with the new controls, rest assured that we’re taking vigorous action against those that don’t. And that’s where my team comes in on the enforcement side of the house. We have 130 federal agents stationed in 30 cities nationwide, who work in concert with more than 50 intelligence analysts, export compliance specialists, and Export Control Officers, to enforce the export laws.

Here’s what we’ve done so far to enforce the new Russia rules. First, we’ve put in screening mechanisms to identify all relevant exports to Russia. When someone files paperwork saying they’re shipping something to Russia that’s potentially covered by the new controls, we’ll see it and then we can stop it. So far, since the first Russia rule went into effect on February 24, we’ve detained 166 shipments to Russia and Belarus and currently have over $77 million worth of exports under detention. Second, we’ve put 260 parties with Russian defense affiliations on the Entity List, which means that they can’t receive U.S. exports without a license and, under current policy, licenses will be denied. The companies added to the list include Russia’s leading integrated circuit manufacturers, Russian space-based and satellite-based component manufacturers, Russian drone manufacturers, and Russian shipbuilding factories. Because of their entity listing, these companies can no longer get the U.S. parts they need to manufacture things for the Russian military. Third, in the aerospace sector, we’ve publicly identified 157 airplanes that we believe were illegally exported to Russia and Belarus. By publicly identifying these airplanes, we are putting the world on notice that if they service these aircraft, they are in violation of our laws and do so at their peril. I have also issued Temporary Denial Orders against four of Russia’s biggest passenger and cargo airlines. These orders mean that the four airlines cannot receive U.S. parts for their planes. Over time, Aeroflot, Utair, Azur Air, and Aviastar will be unable to continue flying, either internationally or domestically, as they are now cut-off from the international support, and U.S. parts and related services they need to maintain and support their fleets. Fourth, we know from data which U.S. companies had been exporting items to Russia that are now restricted. We’re reaching out to these companies, both to educate them on the new controls and to make sure they’re in compliance with the new rules. We’ve conducted 440 of those outreaches so far. And fifth, we’ve opened a number of enforcement investigations. While our investigations take time to turn into public charges as we gather the necessary facts and evidence, my prediction is that, down the line, you’ll see the results of that hard work – in the form of public charges against companies that are putting profits ahead of the welfare of the Ukrainian people.

So now that I’ve described the national security threat landscape, how our enforcement tools are central to combatting those threats, and the ways in which we’ve put those tools to use in support of Ukraine, I’d like to preview some future policy changes we’re contemplating as part of an effort to further strengthen our enforcement posture. More specifically, we are going to be making some changes to our administrative enforcement programs in order to increase prevention, increase transparency, and incentivize compliance and deterrence. Administrative sanctions, whether in combination with criminal penalties or alone, send a powerful message: implement effective compliance programs on the front end or risk penalties on the back end that will hurt both your reputation and your bottom line, either through stiff monetary penalties, or potential denial of export privileges, or both. Our view is that most U.S. companies are committed to doing the right thing and work hard to ensure that their sensitive technologies and goods don’t end up in places where they could harm our national security. But, unfortunately, that’s not uniformly the case. When faced with the stark choice of complying with the export laws or booking revenue, some companies choose mammon before country. Our view is that, in addition to our obligation to enforce the law when it’s been violated, we also have an obligation to companies that are playing by the rules. If we are not vigorously enforcing against violators, then those companies that are obeying the law are unfairly disadvantaged in the marketplace.

Taking into account these considerations, we are currently conducting a policy review with a specific focus on enhancing our administrative enforcement. It is crucial for us to convey that criminal prosecution is a vital tool in our arsenal, employed assertively when circumstances dictate. However, it is not our exclusive recourse. Our administrative penalties possess significant impact and, consequently, serve as a potent deterrent. While it is accurate that our administrative enforcement authorities do not lead to individual imprisonment for misconduct (a prerogative reserved for criminal authorities), they wield substantial influence in the corporate realm. They empower us to impose substantial monetary fines, mandate corporate compliance overhauls through agreements, and, in extreme cases, deny a company the ability to export.

Apart from the potential reputational damage and collateral consequences associated with criminal convictions, our administrative enforcement authorities can rival their criminal counterparts in potency when dealing with corporate cases. Recognizing this potential, we aim to ensure that our policy framework enables maximum flexibility for our administrative authorities. Here are specific areas under review where we anticipate potential changes in the future:

Firstly, presently, our administrative charging letters are not made public until a case is resolved. This means that the public remains uninformed about companies alleged to have violated regulations until the matter concludes, often years later. This lack of transparency can hinder the real-time demonstration of consequences for rule-breaking, potentially allowing similar misconduct to persist. Therefore, we are contemplating a policy shift to make charging letters public upon filing, aligning with the disclosure practices in criminal charges or administrative proceedings with the SEC.

Secondly, we are reassessing the use of "no admit/no deny" settlements. While facilitating smoother resolutions, such settlements present two significant drawbacks. They lack a company's admission of misconduct, depriving others of valuable insights for learning from peers' mistakes. Additionally, companies benefit from a substantial penalty reduction without admitting wrongdoing, potentially weakening the deterrent message, especially concerning export law violations with significant national security implications.

Thirdly, we are scrutinizing penalty amounts. Given the direct alignment of our export laws with contemporary national security threats, violations demand proportional punishment. Adequate penalties are essential to both punish and deter potential violators, preventing a scenario where companies might view low fines as an acceptable risk compared to investing in compliance measures.

In addition to overseeing the Office of Export Enforcement, I also supervise the Office of Antiboycott Compliance, which administers enforcement authority over antiboycott laws. Similar to our approach with export controls, we are reviewing the application of administrative penalties to antiboycott violations. This includes evaluating the appropriateness of no admit/no deny settlements and considering adjustments to penalty levels.

For both export and antiboycott enforcement, we anticipate implementing policy changes in the coming months. Prior to finalizing these changes, we welcome your input and thoughts.

I express gratitude to the Society for International Affairs for the invitation to deliver today's keynote address. It is an honor to be present and share perspectives with all of you. As emphasized earlier, the collective work we engage in has never been more crucial, with national security considerations at an unprecedented level. I am optimistic that our joint commitment and actions, in collaboration with domestic and foreign partners, will continue safeguarding our country from harm. Thank you.

KEYNOTE ADDRESS TO ASSOCIATION OF UNIVERSITY EXPORT CONTROL OFFICERS 2022 CONFERENCE ON EXPORT CONTROLS AND RESEARCH SECURITY AT HIGHER EDUCATION AND SCIENTIFIC INSTITUTIONS ASSISTANT SECRETARY FOR EXPORT ADMINISTRATION THEA D. ROZMAN KENDLER

Delivered May 4, 2022

Remarks as Prepared for Delivery

Thank you for the opportunity to speak with you today. As a Penn Law school alumna, I’m honored to be delivering these remarks here at Penn, although it is a little surreal to be up here on the stage with Dean Ruger.

Places like Penn and the institutions the export control officers of AUECO represent shape new generations of entrepreneurs, scientists, engineers, teachers, and yes, lawyers. I am thrilled to partner with you all to educate all these stakeholders on the importance of export controls.

While the U.S. higher education system is the crown jewel of our open society, it is also a front line in protecting our national security.

We face real threats to the principles of rule of law and democracy around the world. And we strive to ensure that U.S. innovation does not benefit adversaries who seek to undermine those values.

Consider the ongoing, brutal Russian assault on Ukraine. Underlying that senseless war is Vladimir Putin’s warped sense of grievance against Ukraine and disregard for the free, open, rules-based order.

Also consider Xi Jinping’s rejection of democratic values and human rights, not just in Xinjiang and Tibet, but across China’s population, not to mention its military-civil fusion strategy and military expansion across the region. Our strategic competition with the People’s Republic of China is one of the defining challenges of our time.

We reject the notion that going the way of state-run kleptocracy and ethno-nationalism based on repression and human rights abuses is a viable path for any nation to take. Our challenge is to demonstrate that our principles of tolerance, respect for human rights, and the rule of law, are the surest paths to long-term prosperity for every nation. That challenge has only gotten bigger in recent years as commercial technologies have become more sophisticated.

The phones that we have in our pockets are tremendously powerful tools. They can take amazing pictures of our family—or become tools of surveillance and repression.

We are seeing this link between commercial technologies and national security play out in Ukraine, where semiconductors produced by Western firms have turned up in Russian military drones and other applications.

More and more, this link between commercial technology and national security requires us to think about how technological breakthroughs and innovation will operate outside the lab, in the worst-case scenario.

You may be aware of the criminal case against Xu Yanjun in Ohio – he was a Chinese intelligence officer tasked with obtaining jet engine technology from a U.S. company. Or the case against Mozaffar Khazaee in Connecticut – while working for U.S. defense contractors, Khazaee obtained controlled U.S. technology, which he sought to take to Iran, in part to aid him in finding work at an Iranian state-owned technical university.

It’s true that industry and academia require different approaches to export controls, and the Xu and Khazaee cases are examples of technology that was held by private companies, not research institutions.

But these cases also show that when foreign countries cannot legally obtain U.S. technology, they will resort to whatever means necessary.

There is no distinction between industry and academia for a procurement agent.

Let me also draw your attention to the risks associated with collaboration with unvetted foreign institutions. We value, and we know that your faculty and researchers value, international collaboration. How would they feel, though, to know their science and engineering support a military program contrary to U.S. national security? Attacks on innocent civilians? A government mass surveillance program? Human rights abuses? For your faculty and researchers, these are not just national security, but also ethical concerns. And how about the reputational risk to your institutions of being associated with a program engaged in these activities?

The AUECO website poses the question, “Why do U.S. universities need to worry about export controls?” I respectfully suggest that the answer is not – or at least isn’t solely – that unauthorized exports can result in fines and jail time.

Rather, universities should cooperate with export controls because export controls protect innovation and national security.

Controlling exports, of course, is not the same as cutting off exports. Export controls on a technology enable us to look at the destination, end use, and end user involved in a collaboration. This gives us insight into whether such exports or collaborators are a U.S. national security concern. They help you and your faculty and researchers do the due diligence to protect you from exposure to the concerns I know we share.

Our job – yours and mine – is to make sure that American innovation is protected. Protected from use in shocking human rights abuses, military attacks on innocent civilians, and theft by those who seek to illicitly procure what they can’t obtain within the bounds of the law, certainly without regard to intellectual property rights.

Even research that appears inherently civilian may have national security implications. And I am grateful to you for making your faculty and researchers aware of these concerns.

Why this is relevant to you, and the higher education system writ large, is that the academic community is a critical partner in our efforts.

I am here today to thank you for your help in this effort and to ask for deeper collaboration between us. A strong relationship between the Bureau of Industry and Security and the institutions you represent is essential to ensuring U.S. national security, including long-term technological leadership.

I would be shocked if you told me that your institution does not engage in international collaboration.

But we at BIS know that there is no one size fits all approach for academia. Some of your institutions focus only on fundamental research. Others operate classified labs working at the cutting edge of military technology. And many operate somewhere in between.

Different institutions have different needs and different challenges.

We are trying to better understand how we can help you support your institutions. We want to provide better resources and support, tailored to the issues that keep you – the compliance officers – up at night.

To this end, when BIS issued a survey to AUECO membership in 2020. We received great feedback from many of you all about how BIS can help. I’d like to hear from more of you, though. Given how different your institutions are, we want to know how we can address your different needs.

In fact, you can provide that feedback right after I’m done. As I know has already been mentioned by other BIS speakers this week, copies of BIS’s survey are available at the registration desk. I’d ask you to please fill these out and return them to the same location. I will be reviewing the survey results to assess how we can better engage with academia. Thank you in advance for your participation in this information-gathering.

Let me also point you to the resources we have made available for you to use in your individual institutions.

The BIS website provides short videos on topics including deemed exports, how to classify items subject to the EAR, license exceptions, and reexports and offshore transactions. These videos are designed to be short introductions on their topics and may be useful to you as you train your colleagues.

We also developed an academia-specific export controls brochure for you to share with your community members. I heard that the brochure was provided to some of you at an event last year. Thanks to AUECO and Penn, we are able to make it available to the rest of you through the link posted on the slide. Note that BIS designed this brochure for you, as ECOs, to provide to faculty and researchers who may be less knowledgeable about export controls. We welcome your feedback on how we can better tailor our message, starting with how our national security message can best resonate in your institutions.

Export Control Officers are indeed the front line in our export controls, and we want to support you as you protect our national security. Please help us understand your challenges, needs, and how we can best help.

Let me change gears for a minute and mention a concrete area where we seek your help and that of your faculty.

As you know, the Export Control Reform Act (ECRA) Congress enacted in 2018 specifically identified BIS’s responsibilities for reviewing and controlling emerging and foundational technologies.

We were already doing this as part of our regular proposals for new controls to the multilateral regimes. ECRA gave this work a new boost, and BIS has strived since August 2018 to cast a wide net for emerging and foundational technologies that are not already identified in the Export Administration Regulations and ought to be.

I recognize that there is some controversy surrounding this area. Some claim BIS has not defined what emerging and foundational technologies are, has not acted fast enough, and hasn’t been willing to act unilaterally. Others criticize the notion of controlling emerging technologies at all because such action will harm innovation.

Let me be clear. If a technology poses a risk to national security, BIS controls it.

That may be because of the inherent nature of the technology or because of the risk of it falling into the wrong hands. We are responsive to national security threats posted by new technologies and innovations of old technologies, whether or not we formally identified the technologies as “emerging” and “foundational.”

Shortly after ECRA’s enactment, we published a list of 14 general technology categories and invited comment on what types of items, applications, technologies pose a national security threat. For your reference, those areas are:

1. Biotechnology;
2. Artificial intelligence (AI) and machine learning technology;
3. Position, Navigation, and Timing (PNT) technology;
4. Microprocessor technology;
5. Advanced computing technology;
6. Data analytics technology;
7. Quantum information and sensing technology;
8. Logistics technology;
9. Additive manufacturing;
10. Robotics;
11. Brain-computer interfaces;
12. Hypersonics;
13. Advanced Materials; and
14. Advanced surveillance technologies.

Over the last 3½ years, we have imposed 38 new technology controls we identified as emerging or foundational under Section 1758 of ECRA.

All but one of these controls were established through multilateral regimes, meaning that U.S. exporters and their counterparts in other major economies of the world faced the same export controls.

We know from your industry counterparts that multilateral export controls help maintain a level playing field. In the academia context, this means collaboration with partner country institutions is easier.

I’d also note that in identifying emerging and foundational technologies, ECRA requires us to consider:

• The development of emerging and foundational technologies in foreign countries;
• The effect export controls may have on the development of such technologies in the United States; and
• The effectiveness of export controls on limiting the proliferation of emerging and foundational technologies in foreign countries of concern.

As you can see, our mandate under ECRA starts with national security, but also directs us to be thoughtful and to carefully tailor controls.

We must get this right. To do so requires technical understanding, including the benefits and concerns associated with specific technology. And it requires acting in a tailored, targeted way to protect national security while supporting American technological leadership.

I’d ask for your help with this effort.

Given the widespread threats we face, we can’t have our academic institutions, researchers, and faculty stick their heads in the sand and reflexively hold that all controls are bad for innovation.

Carefully tailored export controls support innovation.

They encourage due diligence with respect to partnerships—That will help to protect intellectual property and ensure that partners with whom your faculty and researchers seek to collaborate won’t divert research to dangerous ends.

Consider nuclear technology. We have a well-developed and understood regime for control of nuclear technologies. This helps to protect our national security—not to mention global security.

Yet, we still see nuclear technology innovation in energy and health care, among other civilian, commercial industries.

Certainly, not all our 14 identified emerging technology sectors will end up with the kind of robust, multilateral regulatory regime that nuclear technology has.

But the risk of failing to think through the national security concerns of new technologies is real. Developing technologies without considering how they may be applied outside the lab is reckless. Failure to consider the guardrails – based on national security, ethics, and values – that we need to establish during the development process can have serious consequences.

Let me share an example in the biotechnology field.

Biotechnology and life sciences are areas of amazing technology potential. But technology is value neutral. It’s people who determine how that technology will be used and in what applications.

Last year BIS asked for public comments on a control we were considering on brain computer interface (BCI) technology.

We received 18 comments, the general thrust of which was: Don’t regulate or you’ll kill innovation.

The potential applications of BCI technology are many, and their impact could be profound.

Around the same time that we closed the comment period on our BCI notice, BIS added a series of parties to our Entity List for attempting to develop and deploy biotechnology and other technologies for military applications and human rights abuses.

We added the Chinese Academy of Military Medical Sciences (AMMS) and eleven of its research institutions to the Entity List, according to the Federal Register Notice:

“…based on the body of information that AMMS and its eleven research institutes use biotechnology processes to support Chinese military end uses and end users, to include purported brain-control weaponry. This activity is contrary to U.S. national security and foreign policy interests . . .”

“Brain-control weaponry” sounds a lot different from BCI technology.

I understand the initial instinct behind the commenters’ responses to our request for comments on BCI technology. But an outright condemnation of export controls is not tenable given the potential for the technology’s nefarious uses.

Your faculty and researchers are likely focused on collaborating with the best minds in their fields. Are they thinking about who else is interested in the technology, and the worst-case scenarios? Export controls will help them do that.

We’re on the precipice of tremendous technological advancement in many of the labs and research facilities you oversee, and we need your help.

I hope that I’ve illustrated that BIS’s concerns are tangible and real, that the responsibility for protecting national security is shared, and that you are valued partners. I thank you for your critical role in raising awareness of export controls and doing your part to create a more secure and prosperous future.

You have an important job, and BIS wants to help you do it, because we will all benefit.

Before I close, let me share a personal observation with you.

I grew up in an academic community, the daughter of a professor whose career was based on international collaboration. My family lived overseas when my father had a sabbatical year at a Japanese university. I understand the value of global education and research. And I share the view that the openness of U.S. universities makes them second to none.

BIS is your partner, and my door is open to you and the specific issues facing your institution.

We have shared interests and responsibilities. Protecting national security. Supporting the next generation—of people, and of technologies.

Thank you.

###

Assistant Secretary for Export Enforcement Matthew S. Axelrod delivers remarks to the Ukrainian Congress Committee of America, Illinois Division, on enforcement actions to disrupt Russia’s invasion of Ukraine

Chicago, Illinois – Thursday, April 21, 2022

I'd like to commence with the words of the Ukrainian poet and writer, Taras Shevchenko:

"When I am dead, then bury me
In my beloved Ukraine,
My tomb upon a grave mound high
Amid the spreading plain,
So that the fields, the boundless steppes,
The Dnieper's plunging shore
My eyes could see, my ears could hear
The mighty river roar.
When from Ukraine the Dnieper bears
Into the deep blue sea
The blood of foes... then will I leave
These hills and fertile fields —
I'll leave them all and fly away
To the abode of God,
And then I'll pray... But till that day
I nothing know of God.
Oh bury me, then rise ye up
And break your heavy chains
And water with the tyrants' blood
The freedom you have gained.
And in the great new family,
The family of the free,
With softly spoken, kindly word
Remember also me."

Though these words could seem contemporary, they are from Shevchenko's poem "Zapovit" or "Testament," written in 1845 and later translated by John Weir. Two years after its creation, Shevchenko was criminally convicted for advocating Ukrainian independence from the Russian Empire.

As Mark Twain purportedly said, "History doesn't repeat itself, but it often rhymes."

I extend my gratitude to the Ukrainian Congress Committee of America, Illinois Division, for hosting me today. It is an honor to be in Chicago, home to what I believe is the second-largest Ukrainian-American community in the United States. I am here to discuss the United States' response to Russia's brutal and unprovoked war against the people of Ukraine and, specifically, to share what those of us enforcing our country's export laws are doing to help degrade the Russian military.

I understand the profound personal impact this has on you and the Ukrainian-American community. It's not merely another foreign policy matter; it's a senseless and barbaric attack on your homeland, your relatives, and your friends.

In your grief and anger, know that your federal government stands with you.

One year ago, at the Munich Security Forum, President Biden spoke of an "inflection point between those who argue that... autocracy is the best way forward... and those who understand that democracy is essential." Today, just over a year later, we tragically witness this battle between democracy and autocracy in real-time.

We are in a global struggle between these two competing worldviews, where autocracies like Russia challenge the rules-based international order to gain an advantage. In democracies like the United States and Ukraine, we believe in a government where people choose their political leaders, freely express their opinions, and practice their chosen religion. We believe in a system where people determine their livelihoods, capital flows to the best ideas, and laws and rules govern behavior, not only of the populace but also of the government.

However, countries like Russia reject these democratic values. Vladimir Putin rejects the freedom and rule of law embraced by the United States and Ukraine. He violates the international rules-based order by engaging in this unprovoked and barbaric war against his peaceful neighbor.

His military targets and kills civilians. His troops commit war crimes against innocent Ukrainian men, women, and children. Meanwhile, back in Russia, he uses propaganda and censorship to stymie internal dissent and wage disinformation and mass surveillance campaigns against his own people.

The Biden Administration and the Department of Commerce stand with Ukraine, and we are committed to holding Russia accountable. In fact, Commerce Secretary Gina Raimondo is meeting with the Executive Vice President for the European Commission, Valdis Dombrovskis, in Washington, D.C. today to further reaffirm our nation’s support.

To that end, the Department of Commerce’s Bureau of Industry and Security, where I serve as the Assistant Secretary for Export Enforcement, plays an important role in preventing Russia from obtaining tools of war.

Our mission is to ensure that bad actors like Russia can’t get and use sensitive U.S. goods and technologies for destructive or malicious purposes.

In response to Russia’s invasion of Ukraine, my Commerce colleague Assistant Secretary Thea Kendler and her team have worked in close coordination with an unprecedented coalition of U.S. allies and partners to impose far-reaching export restrictions that limit Russia’s ability to obtain the goods and technologies it needs to wage war.

This includes both expansive controls on dual-use items – items that can be used for both civilian and military purposes – in the fields of electronics, marine, and aerospace; controls on oilfield refinery equipment; controls on luxury goods like alcohol and cigarettes; and embargoes on U.S. goods and technologies to specific Russian and Belarusian military groups that are helping Putin wage war.

These stringent and sweeping export controls are designed to cut off Russia’s access to the tools of war and undermine its strategic ambitions to exert influence on the world stage.

These expansive controls are not just being imposed by the United States, but also by 37 allies and partners around the globe. The European Union, Japan, Australia, the United Kingdom, Canada, South Korea, New Zealand, Norway, Iceland, Liechtenstein, and Switzerland have all implemented substantially similar restrictions on Russia and Belarus in close coordination with the United States. This powerful international response will have serious consequences for the Russian military and defense sector.

These heightened export controls have had a significant impact to date. Since February 24th, when the first new rule came into effect, total U.S. exports to Russia have decreased almost 90 percent compared with the 30 days prior.

We have seen public reporting of Russian defense industries, including tank, space, and unmanned aerial vehicle companies, being unable to obtain the spare parts needed to support warfighting in Ukraine. Chinese telecom company Huawei has suspended all orders in Russia and furloughed part of its staff in the country to avoid U.S. and allied sanctions. Experts predict that Aeroflot, Russia’s leading airline and flag carrier, will soon be unable to sustain even domestic flights due to Boeing and Airbus halting exports of spare parts.

U.S.-based semiconductor companies Intel and AMD have halted all sales to Russia. Microsoft announced that it would suspend sales and support services in Russia in order to maintain compliance with U.S. and international sanctions.

Toyota, Ford, Nissan, Mazda, Volvo, Honda, BMW, and Jaguar Land Rover have also halted or suspended exports to Russia, reflecting the companies’ concerns about the possibility of violating U.S. and allied export controls. Heavy equipment manufacturer Caterpillar has halted all production in Russia, and John Deere announced that it would halt all shipments of machinery to Russia and Belarus to ensure compliance.

And while it’s good news that most companies have complied with the new controls, we’re taking vigorous action against those that don’t.

That’s where my team comes in. We’re the enforcement side of the house. We have 130 federal agents stationed in 30 cities nationwide, including Chicago.

Here’s what we’ve done so far to enforce the new Russia rules.

First, we’ve put in screening mechanisms to identify all relevant exports to Russia. When someone files paperwork saying they’re shipping something that’s potentially covered by the new controls, we’ll see it and then we can stop it. So far, since the first Russia rule went into effect on February 24, we’ve prevented 145 shipments worth nearly $76 million from going to Russia. Included in that total is a jet valued at $11.6 million that was detained just last week by our Chicago Field Office, in partnership with the Department of Homeland Security, for potential violation of the new controls.

Second, we’ve publicly identified 176 airplanes that we believe were illegally exported to Russia and an additional 7 airplanes that we believe went illegally to Belarus. By publicly identifying these airplanes, we are putting the world on notice that if they service these aircraft, they are in violation of our laws and do so at their peril.

Two weeks ago, I issued Temporary Denial Orders against three of Russia’s biggest airlines. These orders mean that those airlines cannot receive U.S. parts for their airplanes. Over time, Aeroflot, Utair, and Azur Air will be unable to continue flying, either internationally or domestically, as they are now cut off from the international support, and the U.S. parts and related services they need to maintain and support their fleets.

And we have another enforcement action to share today.

This morning, I signed a new temporary order denying export privileges for the Russian airline Aviastar due to ongoing violations of the comprehensive export controls the Commerce Department has imposed on Russia.

This order terminates the right of Aviastar to receive exports of United States items. This is especially important because Aviastar is a cargo carrier, which means that it can no longer access U.S. technology or parts to ferry goods to Russia, including military cargo.

Third, we’ve put almost 260 companies with Russian defense affiliations on what we call our Entity List, which means that they can’t receive U.S. exports without a license (and that those license applications will be denied). These companies include: Russia’s two leading indigenous integrated circuit manufacturers; Russian space-based and satellite-based component manufacturers and suppliers; Russian unmanned aerial vehicle manufacturers and suppliers; and Russian shipbuilding factories.

Fourth, we know from data which U.S. companies had been exporting items to Russia prior to the imposition of the new controls and that are now restricted. We’re reaching out to these companies both to educate them on the new controls and to make sure they’re in compliance with them. We’ve conducted 412 of those outreaches so far.

And fifth, our staff overseas is regularly conducting physical inspections to make sure that banned items aren’t making their way to Russia. These inspections can lead to the imposition of criminal and civil penalties.

That’s what we have been doing to prevent exports of controlled items from going to Russia. But what about exports of items that supporters want to send into Ukraine? The team I mentioned earlier that put in the new Russia rules also plays a role in ensuring that Ukraine promptly obtains support for its defense by providing licenses to those who have been collecting body armor and other goods for Ukraine.

Together, our licensing and enforcement teams have been educating the public, including through our agents here in Chicago, on how to submit license applications for such items. And I would urge UCCA members to continue to reach out to Aaron Tambrini, our Special Agent in Charge of our Chicago Field Office, for guidance on those efforts.

Back in Washington, D.C., the licensing team is committed to expediting license applications for the protection and support of Ukraine and the people of Ukraine. We have done so in the recent past and will continue these efforts for as long as necessary.

Thank you, again, for inviting me here today to discuss the critical role of the Commerce Department and our export controls as we work alongside other U.S. government partners to degrade the Russian military for its unprovoked and unwarranted brutality against the Ukrainian people.

Earlier, I quoted from President Biden’s speech from last year’s Munich Security Forum. Elsewhere in that speech, the president said: “Democracy doesn’t happen by accident. We have to defend it, fight for it, strengthen it, renew it. We must prove that our model isn’t a relic of our history; it’s the single best way to revitalize the promise of our future. And if we work together with our democratic partners, with strength and confidence, I know that we’ll meet every challenge and outpace every challenger.”

The United States government now stands with the people of Ukraine to meet the current and existential challenge to their democracy.

Let me close on a personal note. This past weekend, I gathered with my family to observe the Jewish holiday of Passover.

Passover is the time of year where Jews the world over, for thousands of years, in peacetime and in wartime, in homelands and in exile, have celebrated the Jews’ freedom from oppression at the hands of a foreign autocrat – the Egyptian Pharaoh.

My thoughts during the seder this year were with the people of Ukraine. The parallels between the story of the Exodus, and the current crisis in Ukraine, are stark.

As we sat around our dinner table, conducting our Passover seder, we recited: “For more than one enemy has risen against us to destroy us. In every generation, in every age, some rise up to plot our annihilation. But a Divine Power sustains and delivers us.”

May you and your relatives in Ukraine be sustained and delivered from the latest enemy who has risen against you. And may those of us in the United States government continue to stand alongside you and alongside the people of Ukraine in their fight for freedom and self-determination.

Thank you. I look forward to taking your questions.

KEYNOTE REMARKS OF ASSISTANT SECRETARY THEA D. ROZMAN KENDLER
American Conference Institute’s 12th Annual Advanced Forum on Global Encryption, Cloud, and Cyber Export Controls
March 30, 2022

As prepared for delivery

Good morning. Thank you for opportunity to speak with you today.

I was asked to talk about Perspectives on the U.S.-EU Trade and Technology Alliance. I welcome the chance to provide some background on the Bureau of Industry and Security’s export controls work through the U.S.-EU Trade and Technology Council.

Of course, since I was invited to speak, the world has changed a great deal. Russia has spent the last five weeks engaged in a senseless, unprovoked, and unjustifiable attack on Ukraine.

And with President Biden’s announcement on February 24, export controls began to be wielded in a new and powerful way.

The President explained that our new export controls on Russia were designed to “impose severe costs . . . immediately and over time.” And that we would “strike a blow to [Russia’s] ability to continue to modernize their military . . . degrade their aerospace industry . . . hurt their ability to build ships . . . [and provide] a major hit to Putin’s long-term strategic ambitions.”

Our export controls response over the last five weeks has been imposed in concert with our Allies and partner countries. Even our controlling statute – the Export Control Reform Act of 2018 – tells us this is the right approach, “Export controls that are multilateral are most effective.” We have seen this play out with our Russia export controls coalition of 34 countries that represent well more than half of the global economy.

U.S. exports to Russia have been minimal, particularly since we tightened controls in response to the 2014 invasion of Ukraine. But as President Biden noted, “[b]etween our actions and those of our Allies and partners, we estimate that we’ll cut off more than half of Russia’s high-tech imports.”

With this in mind, let me turn the clock back to September 2021 – before I was confirmed for this position.

The U.S.-EU Trade and Technology Council (TTC) launched last fall with two objectives: to coordinate approaches to key global technology, economic, and trade issues; and to deepen transatlantic trade and economic relations based on shared democratic values.

Under this framework, we had a clear opportunity to jointly enhance our export controls. The first TTC meeting in Pittsburgh, in fact, identified a common set of export controls goals and culminated with the establishment of an Export Controls working group. Through this working group, we and the EU were tasked to:

• Engage in technical consultations on legislative and regulatory developments;
• Exchange information on risk assessments and licensing good practices;
• Similarly exchange information on compliance and enforcement;
• Promote convergent approaches on sensitive dual-use technologies; and
• Conduct joint industry outreach on dual-use controls.

We issued a Statement on Export Control Cooperation, noting some areas of common understanding. Among other points, we noted that multilateral export controls are most effective for protecting international security and supporting a global level-playing field. We identified that potential applications of emerging technologies in the defense and security field raise important concerns. We expressed that security interests are undermined by certain technology acquisition strategies, including economic coercion, and civil-military fusion policies. And we shared the common goal of controlling technologies that may be misused in serious violation of human rights.

Accordingly, we agreed to enhance our cooperation.

As you know, BIS’s practice is to consult with and obtain industry input on our export controls whenever possible. On October 27 last year, we held a virtual outreach event – together with EU – where we heard from you. A few salient points became clear: first, you expressed industry preference for multilateral over unilateral controls; second, you sought policy alignment between the United States and the EU; and third, you noted concern that the reach of U.S. export controls into Europe discourages EU companies from U.S. collaboration.

To follow up, BIS issued a request for public comments regarding areas and priorities for export control cooperation under the TTC. We received 30 comments from companies, individuals, and non-governmental organizations, comprising over 300 pages. The comments we received were thoughtful and – on first review – seem to contain similar recommendations. The EU also put out a notice for public comments and received a similar number, some of which overlap with what BIS received.

Which brings us to February, and Russia’s further invasion of Ukraine.

We understood from the start that we could use export controls in an unprecedented way. Our stakeholders may always have been aware of the power of export controls to influence international debate and the projection of military power. Now the world is, too.

We are using export controls to degrade Russia’s military capability. To accomplish this goal, we have four elements to our strategy, which is aligned with that of the EU.

First, we asked ourselves which items were most important to Russia’s military capabilities. In response, we tightened our licensing policy for goods, software, and technology that we control pursuant to the four multilateral export control regimes. As a result of the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991, BIS was already applying a presumption of denial when reviewing license applications for most of these items due to Russia’s use of chemical weapons to poison its own nationals. We made this even more restrictive – now we have a policy of denial.

The thirty-three countries that have joined with us in our export controls coalition have also imposed this licensing policy.

Second, we asked which entities in Russia are most relevant to the defense industrial base. We started with Russian military end users, moving them to the Entity List and imposing a policy of denial for all items subject to the EAR. The Entity List – as you know – creates a license requirement for exports to that organization. It 3 puts you on notice that BIS has national security and foreign policy concerns about the entity. We have continued to add to the Entity List over the past few weeks, and you will see more of that as Russia’s war continues.

Our partner countries have aligned with this in different ways – some have their own lists; others have applied financial sanctions to restrict trade.

Third, we consider what other technologies that could contribute to Russia’s military. For BIS, those were items we controlled unilaterally for “anti-terrorism” reasons. We focused specifically on the defense, aerospace and aviation sectors and identified 52 Export Control Classification Numbers (ECCNs). For these items, we imposed Russia- and Belarus-specific controls with that same policy of denial.

Our partner countries have adopted this list, too. The EU refers to it as the “Advanced Technology List.”

Fourth, we wanted to be sure that U.S. tools and software were not used to support Russia’s military capabilities. And so we used BIS’s foreign direct product rules in a way never before extended to a country – we applied them to Russia and Belarus, and to the Russian and Belarussian militaries. One common application of the foreign direct product rules is that if certain specified U.S. tooling is used in a production line outside the United States, then the output of that production line is subject to our regulations.

This application of BIS’s new foreign direct product rules is unnecessary, however, in partner countries that are applying their own substantially similar controls. In those jurisdictions, their own controls apply to the output of production lines.

We crafted the exclusion from our foreign direct product rules for Russia, Belarus, and the Russian and Belarussian militaries with the goals of the TTC and your comments on the TTC in mind:

• We should use multilateral controls wherever possible;
• We need policy alignment between the United States and the EU; and
• Industry is concerned that the reach of U.S. export controls into Europe discourages EU companies from U.S. collaboration.

To accomplish our goals, my colleagues and I engaged in extensive international dialogue to design, coordinate, and execute our export control response. As has been reported in press, my Treasury colleagues and I traveled to London, Brussels, Paris & Berlin to bring this coalition together. Deputy Assistant Secretary for Export Administration Matt Borman spent the following week in Brussels building on our work and bringing us to final common ground. While we were not able to travel to other destinations, thanks to the use of technology, we held extensive dialogues with Japan, South Korea, Canada, Australia, and New Zealand, as well. Our work to build this coalition is not yet done – I expect to be able to announce additional like-minded export controls countries soon.

33 countries have joined together with one export controls strategy. We are responding to a shared horror with common purpose.

Note that of Russia’s total imports, about 5% came from the United States. When you add the European Union and the other countries that are in the coalition we have built over the last month, we account for roughly 50% of Russia’s imports. Necessity brought together this unprecedented collaboration on export controls and other measures that are having a meaningful impact on Putin’s war. Walking this path alone would not have been nearly as effective.

Unlike financial sanctions, our export controls measures were never expected to have immediate effects. The data tell us that as compared to the same time period last year, U.S. exports to Russia of items subject to new licensing requirements have decreased by 99% by value. The Ukrainian government reports that Russia’s two major tank plants have halted work due to lack of foreign components. Baikal Electronics, a Russian fabless semiconductor company and computer manufacturer, is cut off from the integrated circuits needed to support its domestic communications equipment—including surveillance, industrial controls, servers, and more. TSMC’s exit from the Russia market has cut of the Moscow Center of SPARC Technologies’ access to Elbrus chips, which are widely used in Russian intelligence and military systems. Even Russian car maker Lada has shut down production as U.S. and partner countries’ export controls have deprived the company of necessary parts and supplies.

What we have learned through this crisis is that the day-to-day work and engagement between BIS and our counterparts is effective. The relationships we are strengthening now will extend well past current crisis. In fact, in terms of export controls, we are closer to our allies than we have been in decades. Matt Borman and I speak with at least one of our counterparts across the globe on a daily basis, and we often have more than one call a day.

With the EU and other countries identified as having substantially similar controls, we are working on similar implementation, and information sharing to support those goals. And for other partners who may still be sorting out their plans, we are talking about adoption. If that isn’t likely for their system, we’re helping them and their industries understand how our foreign direct product rules will work in their countries.

We are all deeply motivated in light of the plight of the Ukranian people. Perhaps this common purpose has enabled us to accomplish more than we might have otherwise. But I look back on the shared goals identified in the TTC framework and know we share a purpose beyond that of responding to Putin’s war.

In fact, we have jump-started the work of the TTC.

I have always liked the Chinese proverb “from crisis comes opportunity.” This crisis has brought partner countries’ export controls authorities closer than ever.

I am looking forward to the next TTC meetings in mid-May in France where I hope we can show you that we have made progress on the goals announced last fall. Weare looking to build on the relationships that have developed in the last weeks.

Changing gears for a moment, as much as the Russia crisis has occupied BIS these past months, I want to recognize for a moment that our response to Russia has not diverted BIS from our other national security and foreign policy goals.

I am thinking deeply about the policy goals we use export controls to accomplish; trying to clearly define the national security threats we are countering with export controls; focusing on partnership with industry that seeks to comply with our controls and to maintain a level playing field; and collaborating with international partners who share our world view. These are my priorities.

The links between national security, foreign policy, economics, and technology are now clearer and tighter than ever before.

BIS will follow the facts when it comes to identifying national security threats and applying export controls. We will ensure our rules are as effective as possible and reflect our changing world.

National security is a shared responsibility, and we all need to do our part. We need you -- our front lines – to help us understand the current economic environment—domestically and globally—and ensure our export control rules and policies are informed by the reality of the marketplace. As technology continues to accelerate the linkages between national security, foreign policy, and economics, governments need the private sector as a partner more than ever.

My door is open, and I hope we can have effective two-way communication as we navigate this new world together.

Thank you.

Opening Remarks by Assistant Secretary of Commerce for Export Administration Thea Kendler to the 2022 Massachusetts Export Expo

As prepared for delivery

Good morning. It’s a pleasure to be with you today, at least virtually. I want to thank Paula Murphy and the team at the Massachusetts Export Center for the invitation. They have been great to work with. This is my first presentation as Assistant Secretary of Commerce for Export Administration. In this role, I lead the Export Administration arm of the Bureau of Industry and Security (BIS).

I’ll start by sharing some Massachusetts export data. In CY 2021, BIS approved almost two thousand license applications from Massachusetts, with a value of $8.2 billion. We approved about 90% of the applications we received. That’s the third most application approvals in the entire country behind California and Florida.

Given that, I gather most of you are familiar with BIS’s work, but I don’t expect you’re all that familiar with me. I’d like to start today by taking a few minutes to give you a bit of a sense of who I am, my approach to this role, and some of my priorities at the outset. I will get to the regulatory updates you’re all waiting for, and I look forward to taking some questions as well.

To start with, I am a national security lawyer. I have over 20 years’ experience in export controls, first at a private law firm, then in the BIS counsel’s office, and most recently at the Department of Justice as a criminal prosecutor.

For the last seven years, I was in the Counterintelligence and Export Control Section of the Justice Department’s National Security Division. I’ve worked on dismantling procurement networks, thwarting intelligence threats, deterring economic espionage, and holding criminals accountable for breaking the export control laws that you work so hard to comply with.

As a criminal prosecutor, I saw firsthand that our export controls work. Bad actors that can’t have lawful access to U.S. technology try to obtain it illicitly.

One case I worked on involved a Chinese intelligence officer who tried to covertly obtain jet aircraft engine technology. You know we require a license for this tech to China. He targeted leading U.S. and international aviation companies. And recruited the companies’ aviation technology experts to come to China for “exchanges” during university lectures and conversations with academics. But the audiences in China were Chinese government officials who sought the technology. Even though this scheme fortunately did not result in the unlawful export of controlled technology, I raise it because it further opened my eyes to the concerns facing you and your companies. You are thinking seriously about theft of trade secrets, which may very well be export controlled.

I also was part of the team that charged the telecommunications company Huawei with operating as a criminal enterprise, stealing trade secrets, and defrauding global financial institutions. The Huawei Indictment notes that had Huawei’s banks known about the company’s repeated violations of the Iran sanctions, they would have reevaluated their relationships with Huawei. According to the allegations, the banks continued banking Huawei and its affiliates based in part on Huawei’s false statements. This is another example of our export controls and sanctions laws fulfilling their intended purpose. Financial institutions and other companies are focused on compliance and can be duped by bad actors trying to evade controls.

One final story – another case that was meaningful to me: As you probably know, we have significant controls on radiation-hardened integrated circuits – including those in ECCN 9A515.e.1 for those who like the details – going to Russia. According to an indictment I worked on, a Russian individual tried to obtain these chips from a U.S. company and was told that export controls barred the shipment. So instead, as we alleged – with co-conspirators – he set up a company in Bulgaria to receive the chips and send them on to Russia. He is also alleged to have used the front company to obtain almost $2 million in U.S. electronic components for shipment through Bulgaria, where they were repackaged, and on to Russia. Bulgaria, of course, is a NATO member and under Country Group A it receives favorable export controls treatment.

I’m sorry to say that the U.S. rad-hardened chip manufacturer was witting in this scheme. They agreed to pay just short of 500 thousand dollars as a civil penalty and they’re now the subject of a suspended denial order. Unfortunately, they knew about the need for the chips in Russia and the planned “business model” in Bulgaria.

Our export controls work. We’re implementing national security, foreign policy, and economic security goals through the EAR, and we see that bad actors can only resort to illicit procurement. Fortunately, my colleagues in Export Enforcement and across the U.S. law enforcement community are very good at what they do.

These cases, and much of my other work at the Justice Department, gave me direct experience with the challenges American businesses – large and small – face when it comes to determined efforts to evade export controls. I bring with me to my new role as Assistant Secretary a clear view of the environment in which we operate.

I want you to know that I approach export control matters seriously and judiciously. We will follow the facts when it comes to identifying national security threats and applying export controls. We will ensure our rules are effective and reflect our changing world.

As much as my national security experience will inform my approach to this job, so will my values. I have always felt a deep gratitude to the country that provided my family with the opportunity to prosper. My commitment to public service generally, and national security specifically, flow from that gratitude.

My mother and my grandparents came to our country after World War II as refugees. Through determination and hard work they achieved the American dream within one generation. My mother went on to a long and successful legal career of public service as an attorney for the State of New Jersey. My father, a university professor, which I also think of as a form of public service -- inspired me to understand the world and see current events from multiple perspectives. I was raised in an academic community that valued international collaboration and a true exchange of ideas. We lived in Japan when I was a teenager, and I studied foreign languages, including in Beijing. I’m fortunate to have been supported by a family that exposed me to so much. I feel a keen responsibility to give back and to contribute to the security and prosperity of the people and country that gave us so much.

Preserving that security and prosperity means standing up for the principles of adherence to the rule of law, advancement of human rights, multilateral engagement, and democratic governance. I’m proud to be part of an Administration that has placed these principles at the heart of its agenda. Right now, we face new challenges to our security and prosperity. We are seeing national security, foreign policy, and economics intertwine like never before. Authoritarian regimes and non-state bad actors seek to turn the strength that is our economic prosperity, into a weakness they can exploit. Many of you know this reality too.

I come into this job clear eyed about the threats we face—but I am also confident in the extraordinary people I’m humbled to lead, and the mission we’re charged to carry out. I believe deeply in BIS’s mission to advance America’s national security, foreign policy, economic competitiveness, and technological leadership through effective export control policies. This mission—and the unique role BIS plays in the constellation of federal agencies to fill it—could not be more relevant.

Major diplomatic discussions between countries and debates about military strategy are usually somewhat abstract. They happen at summits in Geneva, or in the White House Situation Rooms. They are important—maybe intimidating and high stakes—but not reality for most of us. BIS connects these strategies and debates with the activities of the American people and American businesses. We bring a unique perspective to these conversations within the government and with other governments—our experience with people who are in the marketplace every day.

You.

Our work with you and exporters across the United States gives us a deep understanding of the economy. The work it takes to bring products to market. The R&D that goes into new technology. The impact that decisions in Washington, or Brussels, or Beijing have on how you operate and what that means for your workers, their families, and communities. BIS applies a national security lens where it matters to the underlying strength and health of our nation— informed by the commercial relationships you’ve built, the innovation environment you’re advancing.

At BIS we think about the products and the engineering, the global threat picture, the market, R&D funding, foreign availability, and more. We don’t just think about “what if”—we have to consider “what is.” And we avoid restrictions that hurt the international competitiveness of U.S. industry unless there are real national security benefits. We base our decisions on data and facts. We have worked at the nexus of national security, foreign policy, economics and technology for decades.

Authoritarian regimes and non-state bad actors are seeking to turn commerce into chaos. It’s a playbook that I saw clearly as a prosecutor, and it’s the threat environment for BIS and our intraand inter-government partners. Our non-proliferation concerns have not changed: missiles, chemical and biological weapons, nuclear capabilities —these are still serious concerns. And we have strong institutions, alliances, and partnerships that agree on those points -- that help detect and deter malign uses of those technologies. We live in a changing world, and our traditional, regime-based, approach cannot help us adjust to every scenario.

We are increasingly using the Entity List to identify entities of concern for you – so that you know which specific transactions need extra scrutiny. We’re similarly identifying Military End Users in certain countries for which additional license requirements apply for certain items.

We also are prepared to act quickly, and unilaterally when conditions warrant. For example, in 2020, we issued a unilateral control for certain software specifically designed to automate the analysis of geospatial imagery under our 0Y521 ECCNs. While artificial intelligence (AI) is an important technology that is frequently being used in more commercial products and services, this specific application of AI with geospatial imagery presented national security concerns. We found that the U.S. was the sole developer of this type of software. As a result, we proceeded with the 0Y521 control. We are pursuing a multilateral approach to controlling this technology through Wassenaar, but it is an example where we needed to lead and act quickly to address national security and foreign policy concerns.

I understand that research and innovation are essential and international collaboration may be necessary. I also understand how essential it is for U.S. companies to actively participate in international standards organizations. Our commercial ties with like-minded partners support a vibrant economy here at home and enhance our global security posture.

Technology is tightening the connection between national security, foreign policy, and economics. We have to stay ahead of the threats. National security is a shared responsibility— we all need to do our part. That is key to my approach to this job. That we work with our federal partners. We work with our international partners.

Importantly, we will work with you. Because day-to-day, whether you think of it this way or not, you are the front lines of our national security. You see the market demands and screen your shipments. You know your customers. You’re creating the new products and technologies that create new jobs and opportunities, drive our economy, and enhance our security. You’re engaging with foreign and domestic partners in the private sector every day. That daily engagement, your practical insights and partnership is essential to BIS.

I am always hungry for data, and for practical solutions to our shared responsibilities. As much as you seek guidance from us, I’m going to be seeking guidance from you. We are in this together. I want you to know that my door is open, and I look forward to hearing from you.

Let me turn to a few priority areas that I look forward to working with you all on.

First, we must use our export controls to ensure that your technological innovation is not diverted to destructive ends that hurt our national security.

This means using export controls effectively to confront and combat China’s military-civilian fusion program. Deterring Russia from taking aggressive and dangerous actions. Continuing to work with our multi-lateral partners to restrict nuclear, chemical, and biological technologies to prevent them from being diverted to weapons of mass destruction and terrorism. The list of threats and malign actors is long, and the threat environment is ever changing. But we are leading with our values and working together with like-minded partners in the government, the private sector, and outside the United States.

Second, we must tailor export controls to ensure that we don’t disincentivize your technological leadership and that we return resources to the United States for further innovation and research. Our universities are the envy of the world because we welcome the brightest minds from anywhere. Our companies innovate and create jobs because they engage across the globe. Our public policies and laws are transparent and the product of open—sometimes raucous—debate. The openness of our economy and society must remain a strength. And you must be able to sell your technology to foreign markets so that you can continue to innovate. BIS will work to use export controls effectively, judiciously, and whenever we can in concert with like-minded allies. This approach is particularly important in the areas of emerging and foundational technologies.

Finally, we must make our export controls a multilateral – or plurilateral or bilateral – system as much as possible. Unilateral controls have a place in our system, but we know that they affect you and not your foreign competitors. We must use them judiciously. I will use my platform to continue pushing for partner countries to recognize our national security concerns and join us in similarly applying controls.

As I mentioned, I like data. BIS does the hard analysis, we collect the information, and we consider both “what if” as well as “what is.” We have to look at the whole picture. I’m so proud of BIS’s analytical capacity. It enhances our export controls work, helps us understand our industrial and innovation base, and enables cooperation to promote a competitive environment for innovation and experimentation.

Semiconductors are ubiquitous, and essential to nearly every facet of modern life. Our bodies need food and water—nearly everything else needs computer chips.

BIS understands that. We contributed substantially to the Department of Commerce’s analysis of semiconductor supply chain risks as part of the Administration’s report under Executive Order 14017. That report included analysis of the global semiconductor industry. It assessed supply chain risks. It also outlined recommendations for industry and government to work together to secure our long-term leadership in the sector—something that I will be intensely focused on. That’s just one example of the type of detailed, clear-eyed analysis, coupled with action, that BIS can take to support and grow our industrial base and support innovation.

We identify national security threats. We need you—our front lines – to help us understand the current economic environment—domestically and globally—and ensure our export control rules and policies are informed by the reality of the marketplace. We will continue to be as transparent as we can with you, sharing as much as we can about the threats that we address. And I hope you will take me up on my request for information so that I can see the whole picture.

I am fortunate to be taking this role at a moment when BIS has been working hard on all of these fronts. It’s an exciting time to be back at BIS – I’m very glad to be here.

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