BIS Policy Recommendation: Strengthen Export Control Enforcement to Deter Violations

Today, China Tech Threat released the first in a series of policy recommendations meant to help leaders at the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) prevent adversaries from acquiring and weaponizing sensitive U.S.-made technologies.

·        BIS Agenda Recommendation 1: Strengthen Enforcement to Detect, Identify and Deter Export Control Violation

Export controls provide a primary defense to keep sensitive dual-use and emerging technologies out of the hands of adversaries, like the People’s Republic of China (PRC), that seek to apply them against U.S. national security and economic interests. However, the tools to enforce compliance are relatively weak and may not fit the seriousness of threats posed by violators.

Export controls are one of the few frontline defenses to maintain U.S. advantages in key technologies. Yet, it’s unclear how many violations (and violators) authorities may be missing or how well aligned the BIS’ enforcement workforce and penalty regime are.

The next BIS Director should consider increasing export control violation penalties, which he or she has significant leeway to do, up to twice the value of an applicable transaction. The next Director should also consider adding more enforcement officers and tools available to them to better identify, evaluate and deter export control violations.

Penalties for export control violations are determined by the BIS’ Office of Export Enforcement (OEE), which assess the gravity of infractions based on a set of “aggravating factors.” The maximum criminal penalty for willful violations is $1 million and up to 20 years in prison for individuals. The maximum civil penalty is $300,000 or twice the value of the applicable transaction, whichever is greater.

According to the agency’s 2020 Annual Report, BIS investigations produced 36 criminal convictions last year for export control violations. This resulted in just more than $2,141,000 of combined restitutions, forfeitures and fines and 615 months of imprisonment—or less than $60,000 of financial penalties and 15 months of jail time, on average.

The penalty regime was updated in 2016 and codified by the Export Control and Reform Act of 2018—a process that generated an important debate about the structure and level of fines. While fines equal to twice the value of a transaction may seem sufficient to deter potential bad actors, many dual-use items have a low dollar value but can inflict a high level of damage when deployed in military use.

While the BIS is recognized as a critical national security agency, its importance is not duly reflected in the agency’s annual budget. The BIS employs about 450 full-time staff—about a quarter of which are dedicated to enforcement—with a yearly budget of approximately $122 million (compared to the full Commerce Department annual budget, ~$10 billion).

U.S. export control enforcement “by far exceeds all other countries combined,” says Kevin Wolf, former Assistant Secretary of Commerce for Export Administration. Yet, as he has testified before Congress, Mr. Wolf believes greater resources are needed to ensure fairness for companies that act in good faith to comply with BIS restrictions and expand the playing field for legitimate, lawful trade—while still reliably deterring potential violators.