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
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Washington, D.C.
December 9,
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 and the inscription “Steamboat Inspection.” Back in , 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 , 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 s. 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 , 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 , 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 , 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 14th 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,
Remarks as Prepared for Delivery
Introduction
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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:
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 , 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 .
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:
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 and , the April 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:
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 , 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:
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.
[1] Average value per kilogram of items under Tier 1 as reported in customs data, 3/ – 12/ vs. 1/ – 2/.
[2] Average value per kilogram of items under Tier 4.B as reported in customs data, 3/ – 12/ vs. 1/ – 2/. Comparison of G7-origin through G7-origin pre-invasion values to G7-origin through China values post-invasion.
[3] Average value per kilogram U.S.-origin Tier 1-4 items as reported in customs data, 3/ – 12/ vs. 1/ – 2/.
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