BIS Hoping New Enforcement Policies Clear Case 'Backlog,' Official Says

The Bureau of Industry and Security is hoping the recent changes to its administrative enforcement policies help clear a “backlog” of minor cases that had been taking up too much of the agency’s time and resources, said Matthew Axelrod, BIS’s top enforcement official. Axelrod, speaking during an event last week hosted by the Massachusetts Export Center, also said the agency is making progress on establishing a multilateral export enforcement mechanism and urged exporters to make sure they are continuously screening suppliers and customers.

Axelrod, BIS’s assistant secretary for export enforcement, announced several policy changes earlier this year designed to strengthen the agency’s administrative enforcement tools and penalties, including higher penalties for more serious violations and a revision to how the agency processes voluntary disclosures (see 2206300069). The changes stemmed in part from Axelrod’s view that previous export enforcement cases resulted in penalties that didn’t match up with the severity of the violations, and that BIS agents were spending too much time on “lower-level violations.”

He said BIS has historically received about 400 voluntary disclosures per year. Of the 400 disclosures the agency received in 2021, Axelrod said, none led to “criminal action,” three resulted in an “administrative action” and the remaining resulted in warning letters or no-action letters. “We want disclosures even if the result is a warning letter or a no-action letter,” Axelrod said, “but it was taking too long and it was diverting agents from other work.”

Instead of spending time on minor cases, agents can now shift their focus to more serious violations that warrant harsher penalties, Axelrod said. When he first started at BIS last year, Axelrod said he was “struck” that serious violations sometimes resulted in relatively small fines. “I’d be reading the facts, and I’d be like, ‘Wow, that’s pretty bad. That's really harmful to national security,’” Axelrod said. “And then the end result was like a $50,000 fine.”

Axelrod is hoping the agency can resolve minor cases with a nonmonetary settlement so “we don't have to waste time, months and months, negotiating over whether it's gonna be a $40,000 fine or a $30,000 fine.” This will help BIS “hopefully get them out the door” and “clear out that backlog of administrative cases that had been pending with our lawyers in order to allow them to have time to focus on the most significant ones,” Axelrod said.

He also urged companies to disclose violations, noting most voluntary disclosures result in no or little penalties. “I heard earlier that some folks feel that the change in our voluntary self-disclosure program was meant to be scary. It's not meant to be scary,” Axelrod said. “It's really meant to save the agent time and make sure that the technical ones get back to you really quickly with a warning letter and no-action letter.”

He also said companies shouldn’t hesitate to inform BIS if a competitor is gaining a competitive advantage by flouting U.S. export restrictions. “Do not suffer in silence. Come and tell us that that is happening,” Axelrod said. “It's not fair, and it's a huge disincentive to companies to obey the law if they feel that they're the only ones playing by the rules. We don't want you to feel that way. It shouldn't be that way.”

Axelrod also stressed that all exporters should have some type of compliance program, saying “you are just asking for trouble” without one. He also pointed to several gaps he sometimes sees in even “sophisticated” compliance programs, such as when a company screens a customer only during the onboarding process.

“Things are changing pretty quickly these days. People get added to our various lists all the time,” Axelrod said. “Just because someone was good when you onboarded them doesn't mean they're good three months down the line when they place the next big purchase. You have to continually do your due diligence and do your screening.”

BIS is also “working hard” to build a multilateral export enforcement mechanism with U.S. allies, Axelrod said, but isn’t quite there. He said the agency is working to “convince” the European Commission to join and has laid groundwork with several Asian countries, pointing to his September trip to Singapore (see 2209150031). Axelrod said he met with members of the Association of Southeast Asian Nations to “talk about trying to build” a mechanism to share more information on export enforcement. BIS is also hoping to build a similar multilateral framework to better coordinate with allies on export controls, particularly around semiconductors (see 2206290032 and 2207250029).

“Over time, if we’re not implementing those controls in a similar way, if we're not enforcing those controls in a similar way, I'm worried the playing field becomes unlevel,” Axelrod said. “I think we're doing a lot to try to build this coordination mechanism on the international front, but it doesn't currently exist. Standing something up like that takes a little bit of time.”