Assistant Secretary for Export Enforcement Matthew S. Axelrod Delivers Remarks at the Practising Law Institute’s Coping with U.S. Export Controls and Sanctions Conference
Washington, D.C.
December 9, 2024
Remarks as Prepared for Delivery
Every morning, as I drive my car into the Commerce Department parking lot, I pass under a stone relief sculpted on the outside of the building. The relief, which depicts a life preserver on top of an anchor, bears the year 1838 and the inscription “Steamboat Inspection.” Back in 1838, steamboat disasters were common. From boiler explosions to collisions, traveling by steamboat had significant safety risks. To help mitigate those risks, Congress created the Steamboat Inspection Service, tasking it with protecting the safety of steamship crews and passengers. The Inspection Service examined the hulls and machinery of steam vessels and administered laws requiring those vessels to carry life-saving equipment. In 1903, Congress transferred the Service to the Commerce Department, then called the Department of Commerce and Labor. And until the end of World War II, when its functions were eventually transferred to the U.S. Coast Guard, steamboat inspection work was among the Department’s core functions.
Seeing that stone relief each day reminds me just how drastically the Commerce Department’s mission has changed since the early 1900s. Today, instead of steamboats powering the American economy, it’s semiconductors. And instead of worrying about safety risks for individual steamboat crewmembers and passengers, we’re focused on national security risks shared by every American. At the Bureau of Industry and Security (BIS), my team is responsible for preventing nation-state adversaries from obtaining sensitive U.S. technologies to modernize their militaries, enable human rights abuses, and advance their weapons-of-mass-destruction (WMD) programs. We work to keep our country’s most sensitive technologies out of the world’s most dangerous hands. That world looks a lot different today than it did when the Commerce Department was first created. And so does the Department’s place in it, with BIS now playing a critical role in protecting our country’s national security.
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I started at Commerce in December 2021, just two months before Russia’s full-scale invasion of Ukraine. And what I said to my team that first day rings just as true three years later: Export Enforcement, now more than ever before, is the tip of the spear when it comes to preventing sensitive U.S. technologies from being put to malign purposes by our adversaries.
Our enforcement authorities under the Export Control Reform Act are mighty. We have the power to investigate export violations and impose administrative and, with the support of the Department of Justice, criminal penalties. We also have the regulatory ability to impose broad controls on entities of national security or foreign policy concern.
But our budget – aptly described by Secretary Gina Raimondo as still less than “the cost of a few fighter jets” – has not kept pace with those authorities or with the heightened importance of our mission. There were more than 32 million exports of dual-use items in 2021, the year I came on board. And we have approximately 150 enforcement agents and 40 analysts to detect and investigate exports that violate our rules. You do the math. There’s just no possible way we can protect U.S. technology through investigation alone.
That’s why, on my very first day, I told everyone in Export Enforcement that we needed to be strategic and intentional about how we maximize our finite resources to best meet this critical national security moment. I told them that, during my tenure, we were going to focus on three “Ps” – prioritized enforcement, profile, and partnerships. By prioritizing our enforcement, enhancing our profile, and strengthening our partnerships, I said, we can ensure that we are putting the resources we do have to their highest and best use. Those three “Ps” were our focus areas for the last three years. So, let’s take a look at how well we did executing on them.
Prioritized enforcement
I’ll start with how we’ve prioritized our enforcement efforts. We don’t have the resources to monitor every export or investigate every potential violation. That means every investigation we choose to do actually carries with it an implicit choice not to do others. Because our resources are limited, it’s a zero-sum game. Accordingly, we’ve needed to be relentless in our thinking about how to use our finite resources to have the biggest national security impact.
That’s why, in February 2022, we launched the Disruptive Technology Strike Force with the Department of Justice to protect a prioritized group of advanced technologies – such as quantum computing, advanced semiconductors, and hypersonics – from illegal acquisition and use by nation-state adversaries like Russia, China, and Iran. The Strike Force brings together experienced prosecutors and agents from BIS, the Federal Bureau of Investigation (FBI), Homeland Security Investigations (HSI), and the Defense Criminal Investigative Service (DCIS) to form operational cells in seventeen different locations across the country. These agents and prosecutors are supported by an interagency analytical effort organized out of the agencies’ headquarters here in Washington, D.C.
Since its inception, the Strike Force has publicly charged 25 criminal cases, a 50 percent increase in such actions when compared to the prior two years. The cases charged so far range from Russian procurement networks acquiring military-grade technology, to the theft of blueprints for sophisticated missile-detection technology in support of the People’s Republic of China (PRC), to the smuggling of U.S.-origin items used in the production of unmanned aerial vehicles (UAVs) and ballistic missile systems to Iran. Just last month, for example, the work of the Strike Force led to charges against a Virginia company and two of its top executives for allegedly shipping sensitive U.S. electronics to Russia.
The Strike Force has employed an all-tools approach. In addition to our criminal cases, we imposed a nearly $6 million administrative penalty on a Pennsylvania company for shipping items to parties tied to China’s hypersonics, UAV, and military electronics programs. We issued Temporary Denial Orders against nearly 30 entities (including airlines, freight forwarders, defense companies, and others) to cut off their access to controlled U.S. items. We worked with Treasury to add parties to their Specially Designated Nationals (SDN) list. And we nominated over 20 parties to the Entity List for their participation in the PRC’s artificial intelligence (AI) and quantum technology programs.
At BIS, we’ve been laser-focused on countering the PRC’s efforts to leverage advanced technologies for military modernization purposes. Last month, we imposed a half-million dollar administrative penalty on a New York company for shipping semiconductor materials to an Entity-Listed Chinese company. In October, a Chinese national pleaded guilty to illegally exporting semiconductor manufacturing equipment to company placed on the Entity List for its ties to the Chinese military. Over the past few years, we’ve brought numerous enforcement actions against Chinese procurement networks, including arresting a defendant in connection with an alleged plan to steal proprietary information related to AI technology from Google and obtaining a guilty plea from a NASA contractor who secretly funneled sensitive aeronautics software to an Entity-Listed Chinese university. In another case, we charged a Belgian national with crimes related to a years-long scheme to unlawfully export sensitive, military-grade technology to the PRC.
Our work has similarly led to the dismantling of over a dozen separate illicit Russian procurement networks, including one led by Maxim Marchenko, a Russian national who used several Hong Kong-based shell companies to obtain large quantities of sensitive, military-grade microelectronics. Marchenko was sentenced in July to three years in prison. We’ve also targeted Iranian procurement networks, including, most recently, arresting a dual U.S.-Iranian national charged with exporting U.S.-manufactured aircraft components to Iran and, separately, indicting a father-son duo who are alleged to have exported aerospace equipment to Iran.
To further hone our prioritization efforts, we changed the categories of what we measure internally. More specifically, last fiscal year, we launched a new metrics initiative to track our investigative and analytic work, that is, to measure how close the fit is between our highest priorities and how we are spending most of our time. Now, for the first time ever, the annual performance plans for all of our managers include a component on how well their field office’s investigations, or leads generated by their analysts, connect to our highest-priority areas. More specifically, we’ve internally identified items of greatest concern – like the disruptive technologies the Strike Force prioritizes; end users of greatest concern – like adversarial military, intelligence, and security agencies; and end uses of greatest concern – like WMD, military modernization efforts, and human rights abuses. We now track how many of our leads and cases are tied to one or more of these highest-priority areas. This way, we can better ensure that our agents and analysts are spending the bulk of their time where it can have the biggest impact. And it’s working. Last year, we increased the percentage of our cases that involve a prioritized technology, end user, or end use from 70% to more than 85%, with over 95% of our leads tying to one or more of these categories as well.
We also strengthened our administrative enforcement program. We changed our procedures – to make our charging letters public when filed, to eliminate “no admit, no deny” settlements, and to raise the penalty amounts for serious violations. We clarified our voluntary self-disclosure policy to specify that if a company knows of a significant potential violation and affirmatively decides not to tell us, then that lack of disclosure will be an aggravating factor in any subsequent penalty calculation. A few months ago, we amended our administrative penalty and voluntary self-disclosure regulations to institutionalize these changes, and to give us more discretion in determining appropriate penalties for export control violations more broadly. We hired a first-ever Chief of Corporate Enforcement, to help advance our significant corporate investigations. And we made changes to our antiboycott enforcement program, where we re-ordered the regulatory penalty tiers, raised penalty amounts, eliminated “no admit, no deny” settlements, and announced an enhanced focus on foreign subsidiaries of U.S. companies.
These program and policy changes – designed to maximize our overall enforcement efforts – are bearing fruit. Over the last two years, we’ve had the agency’s highest number ever of convictions, months of imprisonment, Temporary Denial Orders, end-use checks, and post-conviction denial orders. Last year, we imposed our largest standalone administrative penalty ever, $300 million, against Seagate for their shipment of millions of hard disk drives to Huawei. We also participated in the disruption of what is believed to be the world’s largest-ever botnet, which infected over 19 million IP addresses and facilitated cyber-attacks, export violations, and billions of dollars of fraud.
But it’s not just the arrests, indictments, and administrative penalties. We’ve also publicly listed, for the first time ever, nearly 200 aircraft from Russia, Belarus, and Iran that have flown in violation of our controls and thus triggered General Prohibition 10 restrictions, which prohibit refueling, maintaining, or repairing those planes. And we’ve issued a record number of TDOs against the biggest airlines in Russia, Belarus, and Iran. Alongside DOJ, we seized a $13 million plane owned and operated for the benefit of Nicolás Maduro Moros and his regime in Venezuela. Our work also led to the forfeiture of a U.S.-manufactured Boeing 747 cargo plane, previously owned by Mahan Air, a sanctioned Iranian airline affiliated with the Islamic Revolutionary Guard Corps-Qods Force, a designated Foreign Terrorist Organization.
And that’s not all. Beyond our casework, we’ve taken further prioritized actions. In the last three years, nominations from my team in Export Enforcement have resulted in over 900 parties from Russia, China, Iran, and elsewhere being added to the Entity List. This past fiscal year, for example, the team was responsible for adding over 320 parties to the Entity List and nearly 40 parties to the Unverified List. This represents an all-time high for Export Enforcement. We also – for the first time ever – placed 16 addresses in Hong Kong and Turkey on the Entity List for “housing” hundreds of shell companies responsible for more than $130 million in high-priority items being diverted to Russia. And we’ve also ensured that, under new regulations, persons blocked under certain OFAC sanctions programs are automatically subject to our controls as well.
Over the past three years, our aggressive and prioritized enforcement posture has become business as usual. It’s our basic operating level. And I anticipate that you’ll continue to see significant enforcement announcements in the weeks, months, and years to come.
Profile
Next, let me address our profile. I told the team on that first all-hands call that I would be a tireless champion for Export Enforcement and the work we do. Not just so that our agents, analysts, and Export Control Officers get the recognition they deserve, although that’s important. But also because raising the profile of Export Enforcement out in the world has a strategic purpose. It acts as a force multiplier. Because we have such limited resources to meet such significant national security threats, we can’t succeed by end-use checks and investigations alone. Those are essential, but they’re not enough. We also need deterrence. We need to have industry fully committed to investing in robust compliance programs. And, my view, from the first day of my tenure, has been that one way to help make that happen is to continually evangelize about our work, including through speeches, interviews, conferences, and press releases. The goal is to let industry know that we want to partner with them to make sure they follow our rules (and also to let them know that there are meaningful consequences when they don’t). By continuing to raise Export Enforcement’s profile, we hope to convince companies to invest more heavily in compliance and prevention.
That’s why I’ve agreed to speak at so many external events, including giving this keynote here today. Through webinars, podcasts, and conferences, I’ve spoken to thousands of trade practitioners and compliance professionals, C-Suite leaders, in-house and outside counsel, and trade associations. I’ve participated in panel discussions at forums as varied as the Munich Security Conference, the American Bar Association’s White-Collar Crime Institute, and the American Bankers Association Financial Crimes Enforcement Conference. This speech marks the eighteenth formal speech that I’ve delivered to audiences around the globe – from New York to Singapore, from Texas to Toronto – about our national security mission and the critical importance of our work.
And, of course, I haven’t been the only government official out there speaking on this topic. The Secretary of Commerce, Gina Raimondo, has repeatedly emphasized the importance of export controls, explaining that, in the wrong hands, the most cutting-edge technology, like supercomputers or AI chips, can ultimately prove as deadly as any weapon. National Security Advisor Jake Sullivan has highlighted export controls’ national security role, noting their centrality in helping the United States to maintain as large a scientific and technological lead as possible over our adversaries. Deputy Attorney General Lisa Monaco and other Department of Justice leaders have focused time and again on sanctions and export enforcement in their speeches, including by declaring sanctions and export enforcement a top Department of Justice corporate enforcement priority and noting how national security concerns must rise to the top of corporate compliance risk charts.
Three years after I told my team that we wanted to raise their profile, I submit that we’ve successfully done it. Industry and trade practitioners understand that we’re now in a new era for export enforcement. Companies are evaluating their compliance programs to ensure they are robust and effective, lest they face multimillion dollar penalties for violating our rules. Word is out that export violations can no longer be considered just the cost of doing business. Instead, violations now present enterprise risk, which means that investment in compliance is crucial. The enhanced profile, combined with our voluntary self-disclosure policy changes, has led to a sharp rise in the number of significant disclosures we’re receiving – an increase of nearly 70% when comparing the 18 month-period before and after the policy announcement.
I’ve heard several times at my speaking engagements over the past three years that I was the first speaker they ever had from the Commerce Department. I’ll tell you how I responded: I may be the first, but I won’t be the last. Export enforcement is now at the red-hot center of protecting our national security. Given our current geopolitical environment, that’s likely to remain true for the foreseeable future. And so is our heightened profile.
Partnerships
Which leads me to the third and final “P” – partnerships: how we’re working with our interagency partners to pool resources and authorities to bring enforcement actions; with our international counterparts to multilateralize our efforts; and with the private sector to help ensure compliance with our rules.
1. Interagency partnerships
While the Disruptive Technology Strike Force is the highest-profile example of our interagency partnerships, it’s certainly not the only one. We’ve also developed a close relationship with the Treasury Department, working with their Financial Crimes Enforcement Network (FinCEN) to publish – for the first time ever – a joint alert that created a new key term for financial institutions to use when filing Suspicious Activity Reports (SARs) for suspected Russian diversion. We then published two additional alerts together, creating a key term for export control evasion globally. To date, our analysts have reviewed over 1,400 SARs that contain one of these key terms, and we have been able to action more than 160 of those filings – either by sending a new lead to our enforcement agents, advancing an existing case, or developing an Entity List package. We’ve also built a close relationship with Treasury’s Office of Foreign Assets Control (OFAC), with whose Director I have a standing biweekly coordination call. Last year, we signed an MOU formalizing our enhanced coordination and partnership. And, last April, we imposed a combined $3.3 million civil penalty against Microsoft to jointly resolve alleged violations of U.S. export controls and sanctions laws. You can expect to see additional coordinated enforcement actions from us in the near future.
In addition to DOJ and Treasury, we’ve also worked with the interagency more broadly to publish an unprecedented number of advisory notes, guidance documents, and alerts. From the applicability of our controls to non-U.S. persons, to Iran’s UAV-related activities, to the need for the transportation industry to “know their cargo,” it’s hard to find a topic where we haven’t published something. It’s unheard of for the government to release so many multi-agency guidance documents in such a short amount of time. That’s a testament to our partners at the Departments of Justice, State, Homeland Security, and Treasury. And it reflects our core belief that we would much rather help industry understand and comply with our rules on the front end than pursue violations of them on the back end. When we’re pursuing violations on the back end, it typically means the sensitive technology has already gone where it shouldn’t and the national security harm has already happened.
Most recently, we partnered with the National Security Agency to build and deploy the Commerce Screening System (CSS), a brand-new game-changing information technology tool. Through the CSS, we are now able to screen every foreign party to a license application against certain intelligence holdings. Prior to the CSS, such screening was done manually, which meant that we were only able to screen about 800 license applications a year. Now, thanks to our new automated system, we’ll be able to screen all of the approximately 40,000 applications that BIS receives annually. While the CSS just went live in October, it’s already demonstrating real results. After two months of operation, this tool has enabled us to screen over 7,300 license applications and identify over 420 unique licenses where the intelligence holdings needed further review by a licensing officer prior to the licensing decision being made.
2. International partnerships
On the international front, while export controls have long been coordinated multilaterally on the policy side, there have not been any corresponding multilateral coordination mechanisms when it comes to enforcement. Thanks to our leadership efforts, and those of our allies and partners, I’m proud to say that’s no longer the case. We’ve established – for the first time ever – three different enforcement coordination mechanisms.
First, we worked with the G7 to create a Sub-Working Group on Export Control Enforcement. The Sub-Working Group, established last year, provides the G7 countries and the European Commission a forum for exchanging information and operational results, discussing trends in research and analysis, and sharing best practices for enforcement. A few months ago, the G7 countries and the European Commission published, for the first time ever, joint guidance for industry on preventing evasion of the export controls and sanctions imposed on Russia.
Second, we established the Disruptive Technology Protection Network (DTPN) with the governments of Japan and South Korea, to expand information sharing and the exchange of best practices across the three countries’ enforcement agencies. This past April, we held a high-level summit here in D.C. to formally launch the initiative, after it was first announced at the Trilateral Leaders’ Summit at Camp David last summer. Since then, our teams have met regularly to exchange information, including just last week.
And, third, we established the Export Enforcement Five, or E5, with the governments of Australia, Canada, New Zealand, and the United Kingdom. The E5 works with industry, including by publishing novel guidance, to harden supply chains of the items that Russia needs to sustain its unlawful full-scale invasion of Ukraine. The E5 also works to identify entities that have violated our coordinated export controls and to share investigative information for coordinated enforcement actions against them.
In addition to these unprecedented multilateral efforts, we’ve signed individual bilateral agreements for the first time with the European Anti-Fraud Office and with the Australian, Japanese, South Korean, and Swiss governments, to facilitate law enforcement cooperation and information sharing. We’ve also expanded our international footprint to better collaborate with partner governments across the globe. We now have 11 Export Control Officers in nine locations abroad, including two newly stationed in Taiwan and Finland. And, for the first time ever, we placed an enforcement analyst outside the United States, in Ottawa.
3. Private sector partnerships
Last but certainly not least, we’ve enhanced our partnerships with industry and academia. Over the past three years, we’ve conducted outreaches to nearly 6,000 companies, an all-time high, to ensure they’re aware of regulatory changes and to warn them against illicit procurement attempts. We’ve issued supplier list and red flag letters, along with a guide explaining the difference between the two. In addition to our numerous multi-agency guidance documents, we also published BIS-specific recommendations for exporters on Russian evasion typologies, high-priority Harmonized System (HS) codes, and evasion red flags. Expanding beyond our more traditional stakeholders, we also recently published new BIS guidance for freight forwarders and for financial institutions containing best practice recommendations on how to avoid liability for export violations.
For academia, we launched the Academic Outreach Initiative to help universities protect their sensitive research from nation-state adversaries who seek to acquire it. The open and collaborative nature of our research institutions is fundamental to their success as science and technology leaders – but at the same time presents an inviting target for foreign adversaries who wish to exploit that environment and misappropriate those institutions’ research. Over the last few years, we’ve doubled our reach – expanding the initiative from an initial 20 research institutions to 40, with 11 added this past October. For each of the 40 institutions, we’ve assigned a dedicated “Outreach Agent,” a specific agent from their local BIS field office who meets with the institution regularly and serves as a resource and point of contact. We’ve also conducted webinars on identifying red flags for academia and other topics. And we published – for the first time ever – a compendium of resources to help universities comply with our export rules and an analysis of voluntary self-disclosure trends to help them identify high-risk areas.
We’ve developed similar innovations to help industry comply with our antiboycott rules. We implemented a new data field to collect the names of foreign parties making boycott requests and then used that data to create – for the first time – a public list of such foreign parties. This innovative boycott Requester List now lets U.S. companies know which foreign parties have made boycott requests in the past – so that if they’re dealing with those parties, they know to scrutinize transaction paperwork closely for reportable boycott requests. Beyond that, the Requester List has driven foreign parties to change their behavior by eliminating boycott language from their transaction documents, thus reducing boycott requests at their source. To date, over 20 companies have removed boycott-related language from their transaction documents. That benefits both U.S. companies and U.S. foreign policy interests.
As intended, these partnerships have worked as force multipliers. They’ve allowed us to galvanize resources across the interagency, across industry, and across the world to help protect sensitive technology from being misappropriated by our adversaries. The national security challenge we face is massive. Through prioritized enforcement efforts, an enhanced profile, and expanded partnerships, we’re doing everything in our power to meet it.
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So, I began my remarks by telling you about the “Steamboat Inspection” carving I see every day as I enter the Commerce Department. I want to close by telling you about a different part of what has been my daily commute for the past three years. Just before I arrive at work each morning, I drive down 14th Street through the National Mall. Each day, I take the conscious action of looking to my left, at the Washington Monument, and then to my right, at the United States Capitol. I do this intentionally to remind myself of the immense privilege I have been given – the privilege of serving the people of the United States, the privilege of waking up every day and driving to a job where the mission is to protect our national security by bringing to justice those who would transfer our country’s most sensitive technology to our country’s most serious adversaries.
It’s been my deep and profound honor to serve as the Assistant Secretary for Export Enforcement these past three years. When this Administration began, I never could have predicted that this role would be the one I was asked to fill. But I am beyond fortunate to have had the opportunity to serve in it. The commitment, dedication, and impact of the men and women in Export Enforcement are second to none. It has been humbling to lead them and to learn from them. And while the time is rapidly approaching when I will no longer have the responsibility of leading them, I can’t wait to see what they accomplish next.
Thank you.