DOJ Not Yet Prosecuting Cases Involving MEU Rule Violations, Official Says

The Justice Department hasn’t yet begun prosecuting cases involving violations of the Commerce’s Department's newly issued end-user restrictions but expects that to soon become a significant part of the agency’s focus, a senior Department of Justice official said.

“It's a little soon to see those cases coming to us as things that we would be prosecuting,” said Jay Bratt, chief of the Justice Department’s counterintelligence and export control section, speaking during an April 27 event hosted by the University of California, Berkeley. “But I expect that will be a source of work for us in the future.”

As the U.S. government and Congress continue to search for ways to out-compete China, enforcement in several export control areas is expected to pick up (see 2007020035), including around Commerce’s military end-use and end-user rule issued last year (see 2004270027) and its military intelligence end-use and end-user rule issued in January (see 2101140035). The expanded restrictions created uncertainty for a range of U.S. companies that were unsure how much additional due diligence was required to determine if their customers qualified as Chinese military or military intelligence end-users (see 2007090075 and 2102190042).

While Bratt said he expects the Justice Department to eventually see case work in those areas, he said the agency’s export control division is mostly occupied with cases involving Chinese cyber activities, espionage and theft of trade secrets, which can often be interconnected. “We see China using its offensive cyber activities as a means of furthering another goal, which is the acquisition of proprietary technology from Western and U.S. companies,” Bratt said. “That has been a persistent threat and a persistent problem, and it’s one that we've been addressing across our cases.”

The Justice Department has prosecuted, convicted and helped penalize a number of people over the last year who were involved in Chinese attempts to steal U.S. trade secrets, including a Coca-Cola chemist (see 2104230023) and a hospital researcher this month (see 2104200069). But other cases don’t result in convictions because the defendants are outside the U.S., Bratt said. He said the agency has received questions about why they pursue prosecutions against people they can’t imprison. “I don’t want to say it’s controversial, but it’s something that’s come under questioning,” Bratt said. “While it's true that we usually don't get custody of them, at a minimum we restrict their ability to travel, and we do call attention to their activities.”

Bratt said pointing out those export violations and espionage cases is critical because the evidence sometimes contributes to sanctions designations by the Treasury Department or Entity List additions by Commerce. “We do consider those to be very important cases even if we never bring people to court,” he said.

As the Justice Department continues to prosecute cases of Chinese trade theft, the U.S. has increased trade restrictions against Chinese technology companies, including through Commerce's expansion of the foreign direct product rule last year (see 2012210044). Jimmy Goodrich, vice president of global policy for the Semiconductor Industry Association, said the industry has seen a notable increase in export controls against China under both the Trump and the Biden administrations and expects the rise in restrictions to continue.

“It's very clear that because of the strategic nature of semiconductor technology -- and the bipartisan support from the U.S. Congress for a ‘get tough on China approach' -- that restrictions are going to increase,” Goodrich said during the Berkley event. “So how the U.S. will move forward to both protect its security interests while also promoting the resiliency of its own economic and industrial base in the semiconductor industry is a key question.”

Goodrich praised efforts by Congress to provide more research funding and incentives to the semiconductor industry (see 2104140051 and 2102180062). But even though that funding will help, he said, semiconductor companies will still face challenges due to U.S. restrictions against China. “While the funding is incredibly important and will go a long way to increase the resiliency of domestic U.S. supply chains,” Goodrich said, “it by no means is enough or should be enough to supplant U.S. company revenue derived from China.”