U.S. Commerce Department Announces New Export Enforcement Programs

Enforcement Edge: Shining Light on Government Enforcement

By Bell Johnson Junghyun Baek Trevor G. Schmitt John P. Barker Ryan Hartman Nicholas L. Townsend Soo-Mi Rhee Deborah A. Curtis

Last week, several officials from the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) spoke at BIS’ 2024 Update Conference, highlighting the regulatory changes to the Export Administration Regulations (EAR) over the past year and providing guidance for those operating in the national security and international trade sectors. Making clear that compliance and enforcement remain top of mind for BIS, Matthew S. Axelrod, Assistant Secretary for Export Enforcement, reinforced BIS’ commitment to implement “more aggressive and effective ways to hold companies that don’t comply accountable,” especially if those companies fail to invest adequately in robust compliance programs on the front end.

BIS revealed four recent updates or programs designed to facilitate industry commitment to effective front-end compliance:

“Red Flag” Letters to U.S. Companies: In an effort to prevent the diversion of items to Russia, BIS sent “red flag” letters over the past year to specific U.S. companies about customers and distributors within their supply chains that continue to ship high-priority items to Russia. Using customs data, BIS identified specific customers of U.S. companies exporting to Russia, and BIS cautioned the U.S. companies to use enhanced due diligence and further bolster their export screening efforts when engaging with those parties. BIS also announced it has gone a step further and recently sent lists of parties located in third countries to 20 U.S. manufacturers and distributors whose products have been recovered in weapons found inside Ukraine. BIS requested these 20 companies voluntarily stop engaging with such customers due to high diversion concerns. These “red flag” letters are not to be confused with “is informed” letters. In these “red flag” letters, BIS is requesting U.S. companies to exercise additional caution and/or voluntarily cease engaging with such customers. In contrast, “is informed” letters provide notice that a license from BIS is required to engage in the contemplated activity.
Published Anti-Boycott List: Last year, BIS required anyone reporting boycott requests to identify the entity or individual that made the request. Using those inputs, BIS has published a list of companies, financial institutions, freight forwarders, and others that were reported to BIS as having made boycott requests to help industry comply with the EAR’s antiboycott regulations. The list contains names of entities located in various jurisdictions, including those outside of the Middle East region (e.g., Bangladesh, Pakistan, Japan, Malaysia, India, Singapore, Brazil, Hong Kong, United Kingdom, Germany, Marshall Islands). While companies and individuals can continue to transact with those on the list, BIS urges caution and “to diligently review transaction documents from all sources, but especially transaction documents with these parties, given that they’ve been identified by others as a source of boycott requests.” The EAR requires U.S. persons to report boycott requests and, in certain circumstances, prohibits U.S. persons from taking certain actions in furtherance or support of an unsanctioned boycott. BIS noted that it will update this list quarterly based on boycott reports it receives.
Updated Freight Forwarder Guidance and Best Practices: In this updated guidance, BIS emphasizes freight forwarders’ “obligation in securing the global supply chain stemming the flow of illegal exports” and provides an overview of best practices that freight forwarders should adopt, including identifying certain red flags indicative of potential diversion tactics.
Updated “Don’t Let This Happen to You”: BIS updated its list of criminal and administrative enforcement case examples. The list provides illustrations of actions and activities that could run afoul of the EAR. Assistant Secretary Axelrod emphasized, “[w]e put this guide out because we mean it — we want to help make sure you literally don’t let this happen to you.”

In light of these policy changes and BIS’ continued expansion of export control restrictions, companies and individuals should take stock of BIS’ current enforcement priorities. For questions about U.S. export controls or sanctions, contact the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations or Export Control & Sanctions practice groups.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.