The US plans to increase the penalties for companies violating rules that limit export of products that threaten national security, an effort recently focused on countries including Russia and China, according to a top Biden administration official.
Likely potential changes include higher fines for firms that break the rules, earlier public disclosure of accusations of violations and more recognition of wrongdoing when companies settle their cases short of trial. The strategy was outlined on Monday in a speech by Matthew S. Axelrod, assistant secretary for export enforcement at the Bureau of Industry and Security, which is a Department of Commerce agency.
The envisioned increase in costs for rule-breakers comes as export controls play an ever-greater role in US policy following President Vladimir Putin’s invasion of Ukraine. Washington spent months ahead of the war working with allies across the globe to agree on rules to deny Russia the technology and inputs needed for its military.
The Biden administration also is using export controls put in place under its predecessor to limit cutting-edge tech exports to China, its top geopolitical rival, to keep them from being used by the military or for surveillance and human rights abuses.
Axelrod laid out the changes in a speech on Monday to the Society for International Affairs, a nonprofit group focused on export licensing.
The considered changes “will be designed both to protect our country from these growing nation-state threats and to hold those that don’t play by the rules accountable,” Axelrod said in the speech.
The planned changes are focused on cases of administrative enforcement by the BIS –- a separate process from a Justice Department investigation that can involve criminal penalties.
The BIS is considering changes that include releasing letters with charges publicly when filed, rather than the current practice of waiting until after a case resolves, which can take years, so that other companies can see in real time what kind of behavior to avoid, Axelrod said.
It’s also mulling a requirement for companies that settle before a trial in order to avoid stiffer penalties to admit to facts of the case publicly. That would send a transparent deterrent message, rather than the current “no admit/no deny” settlements that don’t require an admission of misconduct, he said.
Thirdly, the BIS is looking at increasing penalty amounts to make sure that they are high enough to both punish rule-breakers and deter violators. The agency wants companies to invest in compliance rather than conclude in their cost-benefit analysis that they’d be comfortable running the risk of paying a small fine, Axelrod said.
In the 2020 fiscal year, the BIS issued 20 administrative orders, with 19 involving a monetary penalty. Of the 19, eight resulted in fines below $100,000, nine were between $100,000 and $1 million, with two above $1 million. The largest administrative fines BIS has imposed to date involved Chinese networking giant ZTE Corp. in 2017 and 2018 for a total of $1.7 billion.
Axelrod, a Justice Department veteran, was confirmed for his current post at the BIS late last year. In the sweeping speech, he talked about how export controls have evolved over the past four decades from a focus on the Soviet Union, to include non-state actors after the Sept. 11, 2001, terrorist attacks, to experts from the Office of the Director of National Intelligence now identifying China, Russia, Iran and North Korea as the biggest national-security threats.
“Preventing sensitive US technologies and goods from being used for malign purposes by those would do us harm has never been more important, never been more central, to the national-security threats we face,” Axelrod said.
