Bureau of Industry and Security

On April 24, 2024, President Biden signed HR 815, “Making emergency supplemental appropriations for the fiscal year ending September 30, 2024, and for other purposes,” into law (the “National Security Supplemental” or the “NSS”). The National Security Supplemental appropriates funds to provide security assistance to Ukraine, Israel, and US partners in the Indo-Pacific and humanitarian aid for Gaza. Alongside the appropriations measures, the National Security Supplemental includes the “21st Century Peace through Strength Act”, a collection of fourteen sanctions, export controls, and related regulatory measures targeting Iran, Russia, and China, in addition to areas of concern including narcotics trafficking, terrorist financing, and misuse of information and communications technology and services (“ICTS”).

In this post, we assess these new developments and the areas where they will likely have the greatest impact.Continue Reading President Signs Expansive Sanctions Bill Into Law; Doubling of Limitations Period for IEEPA Violations Likely to Have Major Impact

On March 21, 2024, the Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a final rule under the U.S. Export Administration Regulations (“EAR”) that imposes new export controls on certain individuals and entities identified on the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (“OFAC’s”) List of Specially Designated Nationals and Blocked Persons (“SDN List”).  More specifically, the final rule imposes a BIS licensing requirement on exports, reexports, or transfers (in-country) of all items “subject to the EAR” when certain categories of SDNs are parties to the transaction.  The covered types of SDNs are designated under 11 OFAC-administered sanctions programs (as noted by BIS), including those relating to Russia, Belarus, transnational criminal organizations, and narcotics traffickers (as well as making slight changes to similar preexisting controls on SDNs designated for activities related to terrorism or proliferation of weapons of mass destruction).

The U.S. government has described these broader EAR restrictions as a “force multiplier” to complement OFAC’s jurisdiction, by allowing these controls in Part 744 of the EAR to “act as a backstop for activities over which OFAC does not exercise jurisdiction.”  OFAC’s sanctions regulations generally prohibit U.S. persons from engaging in any transactions or dealings involving SDNs and blocked parties (i.e., entities owned 50 percent or more by one or more SDNs or blocked parties), and the property or interest in property of such parties in the United States or within the possession or control of a U.S. person must be blocked (i.e., frozen) and reported to OFAC.  Non-U.S. persons can violate U.S. sanctions programs by, among other things, “causing” a U.S. person to violate U.S. sanctions.  With limited exceptions such as under the Cuban Assets Control Regulations and the Iranian Transactions and Sanctions Regulations, OFAC’s sanctions regulations generally do not specify whether they apply to transactions taking place entirely outside the United States that do not involve U.S. persons simply because the transactions involve items subject to the EAR.  This new rule aims to close this gap by providing BIS with clear authority to take export controls enforcement action in such cases where U.S. products or technologies, but not U.S. persons, are involved.   

As a result of BIS’s rule, non-U.S. persons outside the United States, who may not clearly be prohibited (absent the involvement of U.S. persons) by U.S. sanctions regulations from dealing in the property or interests in property of an SDN or blocked party, will now generally be subject to licensing requirements under the EAR if reexporting or transferring (in-country) any item “subject to the EAR” when an SDN designated under at least one of these sanctions programs is a “party to the transaction,” including as purchaser, intermediate consignee, ultimate consignee, or end user.  This underscores the guidance in the Tri-Seal Compliance Note of March 6, 2024 that non-U.S. persons have export controls (and sanctions) licensing obligations under U.S. law, even if operating wholly offshore, and therefore, they should consider enhancing compliance screening protocols and controls to prevent violations of U.S. export controls and sanctions.Continue Reading Export Controls and Sanctions Converge: New BIS Restrictions on SDNs

In a first of its kind action, the US Department of Commerce has begun a rulemaking process to prohibit or impose conditions on certain transactions involving foreign technology used in so-called “connected vehicles” or “CVs,” as defined below for automotive applications.

The measure, announced by Commerce on February 29, 2024 in a press release and an advanced notice of proposed rulemaking (ANPRM), is Commerce’s first attempt to cover a class of transactions under the Department’s Information and Communications Technology and Services (ICTS) rules.

The ICTS rules, contained at 15 CFR Part 7, were first issued in 2021, but Commerce has not yet implemented or used the rules to cover a particular class of transactions. However, Commerce recently created a new Office of Information and Communications Technology and Services (OICTS) within the Bureau of Industry and Security (BIS) and appointed the first ever director of that office (see additional detail here). Those measures, coupled with the ANPRM on CVs, suggest that Commerce has ramped up its efforts in this area and is becoming increasingly active in its use of the ICTS rules. It is all but certain that the ANPRM on CVs is just the first example of industries to be targeted, and we expect to see similar efforts in relation to other high-priority industries going forward.

Comments on the ANPRM are due by April 30, 2024. Commerce will likely publish a proposed rule after reviewing public comments on the ANPRM and provide an additional opportunity to comment on the proposed rule at that time.Continue Reading In First of Its Kind Action, Commerce Moves to Regulate Foreign Tech in Vehicles

On February 23, 2024, the United States issued a broad set of new Russia-related sanctions and export controls in response to the second anniversary of Russia’s invasion of Ukraine and the February 16, 2024, death of opposition leader, Aleksey Navalny, in Russian custody.

The Treasury Department’s Office of Foreign Assets Control (OFAC), the Commerce Department’s Bureau of Industry and Security (BIS), and the State Department all issued new designations.  The agencies also issued an inter-agency advisory warning non-Russian companies from doing business in or with Russia.Continue Reading US Government Imposes New Russia Sanctions, Designating Over 500 Parties and Issuing Interagency Russia Business Advisory

On January 16, 2024, the Assistant Secretary for Export Enforcement at the Department of Commerce’s Bureau of Industry and Security (BIS) issued a memorandum, announcing that:

  1. parties disclosing minor or technical violations that occurred close in time can submit a single Voluntary Self-Disclosure (VSD) on a quarterly basis, which may include an abbreviated narrative account of the suspected violations; and
  2. parties sending formal requests to BIS’s Office of Exporter Services to engage in otherwise prohibited activities with respect to items involved in violations of the Export Administration Regulations (EAR) should also send courtesy copies to the Office of Export Enforcement (OEE), which will help expedite BIS’s processing of such requests.

The memorandum builds upon previous changes to BIS’s administrative enforcement program, which were announced in memoranda dated June 30, 2022 and April 18, 2023.  These changes are intended to help OEE fast-track its review of “minor” or “technical” VSDs and to encourage additional disclosures of potentially significant violations of the EAR, but do not apply to VSDs relating to Part 760 of the EAR (antiboycott and restrictive trade practices).  For a detailed analysis of the previous memoranda, see our blog posts from July 6, 2022 and April 26, 2023.  Continue Reading BIS Makes Further Changes to Administrative Enforcement, But Questions Remain

Effective August 18, 2023, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) issued amendments to the Commerce Control List (CCL) (15 CFR Part 774) of the Export Administration Regulations (EAR) to formalize changes based on Nuclear Supplier Group (NSG) commitments to prevent nuclear proliferation and the development of nuclear-related weapons of mass destruction.Continue Reading BIS Promulgates CCL Changes Based on Nuclear Supplier Group Commitments

On July 26, 2023, Assistant Secretary for Export Enforcement Matthew Axelrod of the US Department of Commerce’s Bureau of Industry and Security (“BIS”) spoke at the Society for International Affairs “Back to Basics” conference about BIS’s recent efforts to build partnerships in export controls regulation and enforcement and developments in antiboycott rules.  In his address, Assistant Secretary Axelrod likened the Marvel cinematic universe—the blockbuster superhero films that feature intertwined characters and storylines—with the current export control landscape.  By way of this analogy, Assistant Secretary Axelrod articulated BIS’s view that an ensemble cast of its interagency colleagues, international partners, private industry, and academia is central to a successful export control strategy.Continue Reading Assistant Secretary for Export Enforcement Matthew Axelrod Addresses Recent Developments in Export Controls and Antiboycott Regulations

On July 26, 2023, the US Department of Commerce’s Bureau of Industry and Security (BIS), the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the US Department of Justice (DOJ) issued a joint compliance note (the Note) focusing on the voluntary self-disclosure (VSD) policies that apply to US sanctions, export controls, and other national security laws. The Note is the second collective effort by the three agencies to inform the private sector about civil and criminal enforcement trends, as well as to provide guidance to the business community and all persons regarding compliance with US sanctions and export laws. The first joint note, which focused on combatting third-party intermediaries used to evade Russia-related US sanctions and divert export-controlled items that are contributing to Russia’s foreign harmful activities, was issued on March 2, 2023.

The Note does not change the existing VSD policies of the three agencies, but highlights the benefits of their existing VSD policies to incentivize companies to promptly disclose and remediate.  Likewise, the Note highlights the risks companies face, in at least some instances, should they choose not to disclose.

The Note also encourages whistleblowers to report suspected violations of sanctions and anti-money laundering laws to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), for which persons that submit whistleblower tips may be awarded up to 10% to 30% of the monetary penalty collected for successful US government enforcement actions.Continue Reading Commerce, Treasury, and Justice Issue Joint Compliance Note on Voluntary Self-Disclosure

On April 18, 2023, Matthew Axelrod, Assistant Secretary for Export Enforcement at the Department of Commerce’s Bureau of Industry and Security (BIS), issued a memorandum outlining two important changes to BIS’s settlement guidelines when significant potential violations of the Export Administration Regulations (EAR) are identified. Specifically, BIS announced that (1) the deliberate non-disclosure of a significant potential violation will now be treated as an aggravating factor in civil enforcement cases, and (2) whistleblowing of significant potential violations by another party that ultimately results in a BIS enforcement action will be considered a mitigating factor in any future enforcement action involving the whistleblower, even for unrelated conduct. The policy changes are intended to incentivize the submission of disclosures to BIS when industry or academia uncovers significant EAR violations (i.e., those reflecting possible national security harm, as opposed to minor, technical violations).

BIS’s new policy of treating non-disclosure of significant potential violations of the EAR as an aggravating factor marks a potential sea change in the voluntary self-disclosure (VSD) risk calculus for exporters and reexporters. By reorienting the purpose of the VSD to serve as both carrot and stick, BIS has now interjected more complexity into the voluntary disclosure decision making process. Companies that may have been inclined, previously, to remediate significant potential violations but not disclose may now face a more difficult choice. While it may take years for the civil penalty data to demonstrate the concrete costs of non-disclosure of significant potential violations of the EAR, consideration of that factor is likely to weigh heavily in any future BIS VSD decisions.Continue Reading A Carrot and a Stick: BIS Clarifies Policy on Self-Disclosures and Whistleblowing

On February 16, 2023, the Department of Justice (DOJ) and Commerce Department announced the creation of the Disruptive Technology Strike Force with a mission to prevent nation-state “adversaries” from acquiring “disruptive” technologies.  The strike force will be co-led by Assistant Attorney General Matthew Olsen of the DOJ’s National Security Division (NSD) and Assistant Secretary for Export Enforcement at the Commerce Department’s Bureau of Industry and Security (BIS) Matthew Axelrod, and will bring together the DOJ’s NSD, BIS, the Federal Bureau of Investigation, Homeland Security Investigations, and 14 US Attorneys’ Offices in 12 metropolitan regions. 

The strike force’s mandate, and remarks by Deputy Attorney General Lisa Monaco announcing the new initiative, illustrate the US government’s continuing focus on protecting sensitive data and “disruptive” technologies, as well as the regulatory and enforcement tools that the US government has used and will continue to use to prevent the acquisition, use, and “abuse” of “disruptive” technologies by autocratic governments to commit human rights abuses and seek strategic advantage vis-à-vis the United States.Continue Reading Justice and Commerce Departments Announce Creation of Disruptive Technology Strike Force