Regulatory intelligence for US exporters

Industry Should Expect Significant BIS Enforcement of Military Exports Rule, Experts Say

Industry should expect the Bureau of Industry and Security to dedicate significant resources to enforcing its new export restrictions on shipments to military end-users and end-uses, export control experts said. Although the rule (see 2004270027), which took effect June 29, increased license restrictions for shipments to China, Russia and Venezuela, companies should expect increased enforcement and monitoring specifically for exports to China as the Trump administration hardens its stance on countering China’s civil-military fusion efforts, the experts said.

China is “always a high priority for U.S. government enforcement actions,” said Kevin Wolf, a trade lawyer with Akin Gump, speaking during a July 1 webinar hosted by Dow Jones. “I expect a considerable amount of attention directed at this topic.” Wolf, who previously served as the Commerce Department’s assistant secretary for export administration, said civil-military fusion is the “primary export control policy topic” of the Trump administration. “Anything that pertains to a suspicion of support for civil-military fusion in China is going to get a lot of enforcement resources and attention behind it,” he said.

Foreign companies should also expect more scrutiny and enforcement actions, said Alexandra Turner, head of export controls at Customs Connect, a customs consulting agency. She said BIS officials are “actively looking at transactions … to see where people will try to divert them,” including U.S. companies using foreign subsidiaries. “What people don't realize is that the Office of Export Enforcement for BIS is very active, and they have a very sophisticated way of really tracking the transactions that are going through,” Turner said during the webinar. “They are responsible for a lot of commerce.”

While BIS will step up enforcement, Wolf said, he doesn’t expect the agency to take enforcement actions based on transactions that were conducted during the first week the rule took effect. He said the agency understands companies are still trying to understand the rule and won’t impose penalties “unless [the export violations are] clearly willful.”

The rule has been widely criticized by industry (see 2006150031, 2006180035 and 2005050035) for imposing overbroad due diligence requirements and expanding Electronic Export Information filing requirements. Although BIS issued a June 29 guidance (see 2006290045), industry remains concerned about the rule’s compliance burdens, said Larry Christensen, a trade lawyer and former Commerce official.

“I think we all would be better served, including the government of the United States, if there was a bit more clarity and a little bit less complexity,” Christensen said. Wolf said industry was hoping BIS would narrow the scope of the rule and was disappointed they had no opportunity to provide feedback before it was finalized. A BIS spokesperson declined to say whether the agency plans to issue more guidance.

Although it is unclear if BIS will revise the rule, Wolf said companies should expect the rule to result in more enforcement leads for the agency. The rule’s due diligence requirements, which require exporters to apply for a license if they have knowledge their shipment will be used for military purposes, should give BIS insight into what types of shipments to track, Wolf said.

“Given that this is a knowledge-based standard … there’s a high likelihood that companies in the same industry are going to come to different conclusions” about which Chinese customers are military end-users, Wolf said. “One company may say, ‘hey, we're complying with the rules and our competitors are not.’” BIS will also likely see more leads from the new EEI filing requirements in the Automated Export System, Wolf said. “I think a lot of enforcement leads are going to be created by discrepancies in the AES data,” he said.