Export Enforcement Should Focus on Preapprovals, Not Blacklists, Researcher Says

The U.S. should rethink its export control enforcement efforts by creating an ecosystem of preapproved, trusted sellers and logistics providers instead of blacklists of bad actors, a researcher with the Center for Strategic and International Studies said in a report this month. The report said some of those companies would be required to earn an export compliance certification, use digital waybills to reduce chances of documentation fraud and help trace sensitive exports, and submit monthly reports to the Bureau of Industry and Security about suspicious consignments.

“Rather than fixating on who to bar from the game, regulators should shift their focus toward who gets to play,” said the CSIS report, written by nonresident adjunct fellow Barath Harithas, a former official with the Singapore Foreign Service and a trade negotiator for the Trans-Pacific Partnership. The U.S. should move “from a system of exclusion based on the reactive blacklisting of suspicious entities to a system of inclusion built on preapprovals.”

The report argues that this is a more efficient way to catch and prevent illegally exported goods than the “whack-a-mole” game that officials must currently play, which often involves sanctioning front companies and smuggling networks that can vanish and reappear somewhere else. It also said regulators are facing challenges catching illegal exports that have been diverted multiple times.

“As soon as illicit goods depart the port of origin and get buried in transshipment networks,” the report said, “untangling the knotted snarl becomes impractical.”

The report’s recommendations focus on a “stringent preapprovals regime” that will allow only “thoroughly screened chip sellers and logistics providers” to send and receive certain controlled goods. Those companies will have to “undergo and complete the requirements of a certification workshop” held by BIS officials and customs officials from U.S. allies, with recorded versions available to remote companies, and the companies will have to pass a test to “ensure comprehension.” Companies also should have to participate in “periodic refresher workshops,” the report said, adding that the certifications can be revoked.

The U.S. also should mandate digital waybills, specifically for sector-related shipments, which can “mitigate the risks associated with the falsification of customs documents.” Those waybills should have a unique QR code or similar identifier, should include the quantity, value, origin and destination of the goods being shipped, list the logistics provider and whether they are preapproved by the U.S., and include sections for customs officials to stamp or digitally sign after inspection, “ensuring traceability at every checkpoint.”

The report said chip buyers specifically should be allowed to use only prescreened logistics providers and routes, and the buyer “must identify their logistics provider of choice at the point of sale.” If they don’t, the sale should be canceled, the report said.

Logistics providers should be required to submit monthly reports to BIS “on any consignments not received within a specified timeframe of two to four weeks.” This will “flag discrepancies between recorded sales and actual shipments, facilitating swift spot checks on vendors identified as potential weak links,” the report said. “This will also better pinpoint suspicious entities that could be operating as front, shell, or shelf companies.”

To convince distributors and resellers to use the digital waybills, the U.S. should put in place a “revenue-sharing program” where each company receives a small percentage of the transaction fee from every digital waybill, the report said. “This turns compliance into a direct revenue stream.”

It also said logistics providers that submit audits to BIS should be eligible for “green-lane customs treatment in ports of call” after the first year. “In addition, there is room for negotiation with insurance companies to offer lower premiums for shipments that use digital waybills, as they are easier to track and thus present a lower risk of theft or loss.”

The U.S. also should create “dedicated regional units” composed of BIS staff and officials from other countries to help monitor shipments. They should include two to four “specialist advisory experts” from the U.S., and when a “frontline officer detects a suspicious transaction, they can immediately seek guidance from the specialized team.” This unit then “proactively disseminates its intelligence to partner countries,” the report said.

It added that these units would work only if there were “robust interagency information” sharing both within and between countries, especially between customs and intelligence agencies, which would require granting new security clearances. Intelligence data also would need to be turned into a “redacted, yet actionable format, ensuring broader dissemination within the customs department without compromising sensitive information.”

The report noted that this recommendation and others require the U.S. and its allies to use modern data analytics. BIS officials have asked for more funding from Congress partly to replace its aging information technology systems, including “antiquated systems fielded in the mid-2000s using 1990s technology,” Undersecretary Alan Estevez said in March (see 2403210068).

With better resources, BIS can use artificial intelligence, including machine-learning algorithms, “tailored to each port’s unique profile to auto-score incoming and outgoing shipments based on the history of evasive activities and identified patterns,” the report said. It also can use “optical character recognition (OCR) and natural language processing (NLP) systems” to verify shipment documents; use algorithms to study behavior patterns of freight forwarders; and should consolidate data from various ports to create a “holistic database, improving collaborative efforts in detecting evasive actors across the continent.”

The report’s author said his recommendations “likely do not go far enough” and “will likely be imperfect.” But export enforcement shouldn’t be “about guaranteeing success, but defining the level of failure that is acceptable.”