Smarter Enforcement and Focus on China

By Kristine Kelleher

A Noteworthy Conference with Strong Messages

There has been a lot of chatter regarding the recent Bureau of Industry and Security (BIS) annual Update Conference on Export Controls and Policy, which took place recently in March.

This year’s conference was particularly noteworthy as it marked the first time Commerce Secretary Howard Lutnick addressed export controls and export enforcement at length. The Secretary’s comments, along with those from other BIS officials, emphasized two main themes:

1. Increase in BIS enforcement activities
2. Greater emphasis on China

Increased Enforcement and a Sharper Eye on China

Secretary Lutnick confirmed what most within the industry already know, that the current administration is adopting a proactive approach towards those determined to gain illicit profits through the sale of sensitive technologies to U.S. adversaries, mainly quantum computing, artificial intelligence (AI) and semiconductors as well as military and intelligence end uses and users. BIS intends to significantly enhance both the enforcement efforts and the financial penalties for entities found in violation of the Export Administration Regulations (EAR).

Iran and Maximum Pressure Enforcement Strategy

Chinese and Iranian purchases of certain technologies and related items have been determined to be significant threats to the United States, elevating them to the top of the list of enforcement priorities.  So, what does this mean for a country like Iran?  For starters, BIS has increased its collaboration with the Department of Justice in response to President Trump’s directive to continue to apply maximum pressure on Iran by prosecuting those involved with purposefully diverting exports to Iran.

China continues to be at the forefront of concerns for BIS and the current administration.  Secretary Lutnick specifically identified China’s AI model DeepSeek as proof that China continues to evade US export controls and more concerning, that China is using US-made chips to power its AI technology.  BIS’ expectation of all exporters is to continue to always be vigilant by identifying and disrupting potential export violations; especially due to China’s recent and dramatic increase in military spending internally to the PLA (People’s Liberation Army). China continues to utilize its military-civil fusion strategy where military and civilian capabilities produce an autonomous military base.  This is why it is especially important to continue with understanding the definition of a “military end user”   as well as the defined terms of military end uses provided for within the regulations.  (Spoiler alert – it’s not just the PLA!)

Russia, Hong Kong, and the Broader Diversion Problem

Not to be undone by China and Iran, Russia continues to remain a primary focus for export enforcement who are obtaining items by diverting shipments to shell companies in Hong Kong, long known to be a point of diversion. The Hong Kong network of entities that enables controlled goods to transship through its country to Russia to continue its war within Ukraine as well as re-exports to Iran and North Korea still proves to be problematic for export controls.

On another interesting note, stopping the flow of fentanyl into the United States has been a constant battle for the United States and BIS is considering using export enforcement to support the administration’s priorities to combat this illegal drug; with talks of even designating this fentanyl as a controlled chemical weapon.

New Tools and Expectations for Exporters

BIS is also employing new tools for enforcing export controls such as:

• Physical addresses have been added to the entity list putting more responsibility on the exporter to not only screen the entity, but also the address
• Foreign entities on export license applications are now gaining greater attention to the vetting process by the US government who are using intelligence data for vigorous screening of those parties

So, what does this mean for you, the exporter or an entity within the supply chain knowing your item will not remain in the United States?  Remember the following:

• Know Your Customer per Supplement No. 3 to Part 732
• Obtain End Use Certificates
• Understand and identify Red Flags per Supplement No. 3 to Part 732
• Do not self-blind

It looks like the days of a warning letter from BIS may be behind us, with the US Government employing uncompromising export enforcement to protect U.S. national security objectives.

Concerned about heightened BIS enforcement or the global reach of export controls?
Schedule a no-charge consultation with one of our experts to assess your company’s exposure, review your export compliance procedures, and strengthen your readiness in light of the latest BIS priorities—from China and Iran to advanced technologies and transshipment risks.