Recent Export Control Enforcement Actions 'Just the Beginning,' BIS Official Says

The new strike force, launched by DOJ and the Commerce Department in April (see 2302160019), is “sending a strong demand signal” from “headquarters” to prosecutors that the administration is prioritizing export control and sanctions cases, Axelrod said. But he also said the government had been working on this week's indictments -- which charged six people for trying to illegally ship either dual-use technologies and aircraft parts to Russia, isostatic graphite to Iran or trade secrets to China (see 2305160086) -- long before the strike force was set up.

Prosecutors have been "very busy" and have "lots of different cases to choose from," but Axelrod said the strike force has helped them decide which ones get the most focus. “These are the cases we want to move into the top of the pile and try to get across the finish line,” he said.

Much of that work will continue to surround China, which BIS is “intensely focused on,” Axelrod said. He pointed to the agency’s historic fine against Seagate Technology in April for supplying hard disk drives to Huawei (see 2304190071) and that the Biden administration has so far added about 200 Chinese entities to the Entity List.

“We have a lot more investigations ongoing,” Axelrod said of China. “This is right at the top of our priority list.”

He also said BIS is continuing to work closely with Treasury, including by better aligning new additions to the Entity List with additions to Treasury’s Specially Designated Nationals List. Congress has pushed the administration to better harmonize its various sanctions lists (see 2302280064). “We try to -- although not always successfully -- we try to coordinate” on the lists, Axelrod said.

As part of that coordination, BIS and Treasury’s Financial Crimes Enforcement Network are preparing another joint alert -- “either at the end of this week or the beginning of next week” -- to inform industry about Russian sanctions evasion tactics, he said. The first alert, released in October, featured a new code for financial institutions to include in their suspicious activity reports (SARs) to signal that the activity may be connected to efforts to evade Russian sanctions and export controls (see 2212160027). Axelrod said one in three of SARs that have been filed using the code have been “directly useful and actioned by us in some way."

“That's a pretty good batting average,” he said. “For baseball, that will get you in the hall of fame. I think for SARs, that's way, way above average."

Axelrod also said he has heard concerns that BIS’ new voluntary disclosure policies and other recent administrative enforcement changes (see 2206300069) would “drive down” the number of disclosures it receives, but he said BIS statistics so far show the opposite. The agency had the “most voluntary disclosures ever” last year at close to 500, adding that over the past five fiscal years, about 93% were closed out with a warning letter or no-action letter.

These numbers show that most disclosures don’t result in prosecutors “charging through [your] door,” Axelrod said. “There's still some conduct where we will plug in a prosecutor, but it is a very small percentage.”

He also addressed BIS’ new policy “clarifications” announced in April (see 2304180071), which said, in part, the agency will reward companies that tip off BIS about their competitors’ wrongdoings. As part of the change, BIS will record instances in which it received tips from a company and will use that as a mitigating factor if that tipster ever finds itself under investigation by BIS.

Axelrod said he has received questions from companies concerned BIS won’t remember tipsters “five years down the road,” including if a new administration takes over. “We have systems in place and this is getting documented,” Axelrod said. “We’ll remember institutionally that you were helpful.”

But he also stressed that submitting tips to BIS that lead to enforcement actions doesn’t protect a company from liability for its own future violations. “Trust me -- it’s not a get-out-of-jail-free card or anything like that,” Axelrod said. "But it’s a factor we will consider along with all the other factors when we figure out how to work through your violation.”

BIS also is continuing to try to increase cooperation with allies surrounding export enforcement, but Axelrod said the process hasn’t been easy. “Export enforcement is new to a lot of countries,” he said, adding that countries aren’t naturally inclined to restrict what their own companies can sell, which can hurt their economies. “It’s a little bit of an education process.”