Departing Enforcement Chief: BIS Profile Has Risen, but Compliance Questions Remain

“I think more and more companies are hearing about this and realizing this is something they need to pay attention to,” he said. “But there are still really various questions, company to company, as to how seriously they're taking this.”

Axelrod, in an interview with Export Compliance Daily before he was set to officially leave BIS on Jan. 3, said the adoption of export compliance programs among American companies isn’t quite “uniform,” despite the frenetic pace of recent BIS fines and new export licensing rules. Under President Joe Biden, the agency’s Office of Export Enforcement has issued hundreds of millions of dollars in penalties against export violators; sent public and private warnings to shippers, freight forwarders, banks and universities to step up their customer due diligence efforts (see 2406060041 and 2409110046); increased penalties on exporters who choose not to report serious violations (see 2409120017); and more.

BIS also has stressed the importance of compliance among companies’ senior executives -- not just mid-level compliance officers -- so they “understand that this is now something they need to worry about, whereas previously, maybe it was lower down on their priority chart,” Axelrod said.

He said many companies have responded to the enforcement uptick by pouring more resources into their compliance programs -- especially businesses operating in sensitive industries subject to strict export controls, such as the semiconductor and aerospace sectors. But Axelrod said others have work to do.

“I think we're in a period of change,” he said. “When you're at that point in the cycle, there's usually an uneven pattern of adoption.” He added that there are questions about whether some companies “have upgraded their compliance program so that it's fit for purpose to meet the current national security moment.”

Axelrod said he believes the government will continue to prioritize penalties and prosecutions on export violators under the incoming Trump administration, including possibly through efforts begun by the Disruptive Technology Strike Force -- the joint group created by Commerce, DOJ and other agencies to pool resources toward investigations of trade violations involving critical technologies (see 2411250027 and 2302160019).

He called the strike force the most “significant initiative” he helped spearhead during his tenure. In the nearly two-year period since it was launched, Axelrod said, BIS has seen a 50% increase in indictments compared with the previous two years.

“This isn't any kind of a political or partisan initiative,” Axelrod said. “I suspect that those efforts will not only maintain but continue to increase.”

Although BIS has touted its enforcement record in recent years -- and it said 2023 resulted in the highest-ever volume of export-related convictions, temporary denial orders and post-conviction denial orders (see 2401030074) -- the agency also has received criticism for not yet issuing a major public penalty against a large corporation for violating any of the series of complex China-related semiconductor export control rules BIS has released since October 2022 (see 2412030041 and 2412020016).

“These investigations are important. They're also complex and take time,” said Axelrod, who declined to comment on any potential ongoing investigations. “The fact that folks haven't seen resolutions or announcements yet doesn't mean that there's not lots happening behind the scenes.”

Both Republicans and Democrats also have criticized BIS for not doing enough to stop illegal exports to Russia. The Democratic majority staff of the Senate Permanent Subcommittee on Investigations said last month that the agency hasn’t adequately held companies accountable for “knowing” violations of export controls, and has not imposed significant fines for export control violations despite acknowledging the need for larger penalties (see 2412190033).

BIS has levied multiple fines against chip companies for export violations in recent years, ranging from a record $300 million penalty on Seagate Technology in 2023 after BIS said it violated Huawei-related foreign direct product rule restrictions, to a $500,000 fine of multinational chipmaker GlobalFoundries in November for illegal exports of semiconductor wafers to an Entity Listed firm (see 2411010043). The agency most recently fined a U.S.-based electronics manufacturer and semiconductor industry supplier $180,000 after it admitted to exporting 11 shipments to Russia without a license (see 2412230052).

BIS also is reportedly probing Taiwan Semiconductor Manufacturing Company for a possible breach of export controls against Huawei (see 2410240011).

“We do have a sense of urgency about all of our work, but also, big, complex corporate investigations, particularly corporate investigations that span activity in foreign countries, take time,” Axelrod said. “We're working urgently, because every second does count, but it doesn't mean we're going to rush something to meet an artificial deadline to bring cases before they're ready.”

The agency’s investigative efforts could be aided by more enforcement agents. Axelrod and other senior Commerce officials, including Secretary Gina Raimondo, have asked Congress for more BIS funding, which has remained mostly stagnant over the last decade despite a spike in the volume of export controls the agency must enforce (see 2312040041). BIS Undersecretary Alan Eztevez last year called the agency’s budget “pocket change” (see 2312070074).

“I think we're undersized by an order of magnitude,” Axelrod said.

He also said U.S. allies need more resources. Axelrod said his conversations with counterparts in ally governments have partly centered around how the U.S. can help them build their own enforcement infrastructure.

“I think they're going through the same shift that we are,” he said. “With my 150 agents, that's still probably 30 times more agents than a lot of other countries have dedicated to this work.”

Axelrod also noted that the export enforcement operations of many foreign countries are stationed within their customs bureaus, which tend to “primarily” focus on stopping dangerous imports, such as guns and drugs. Those efforts tend to receive more support than export restrictions, he said, which are viewed as being damaging to domestic businesses.

“When you're restricting exports, you’re preventing sales from your country's industry,” he said. “That can be a tough thing in some countries.”

But some nations, including the U.S., appear to be doubling down on enforcement. BIS in September hired its first chief of corporate enforcement to serve as a liaison between the agency and DOJ -- someone Axelrod said will help “quarterback” both agencies through complex joint investigations (see 2409120007).

He also said he hopes the U.S. continues to educate industry about their export compliance responsibilities through more guidance, but also with penalties, which he said can sometimes help companies better understand the “consequences” of not abiding by U.S. export laws.

“To get people to spend money up front [on compliance], sometimes part of the calculus is, ‘Well, if I don't, how much am I risking it costing me on the back end?’” Axelrod said. “And so it's important that we be aggressive in enforcement, too.”

He added: “I expect there to be significant corporate resolutions coming down the road.”