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Event Recap: “2022 Export Enforcement Priorities"

A Fireside Chat with Assistant Secretary for Export Enforcement Matthew S. Axelrod

02/24/2022 | Silverado Policy Accelerator

Silverado Policy Accelerator's Executive Director Sarah Stewart sat down with the Commerce Department's newly-confirmed Assistant Secretary for Export Enforcement Matthew Axelrod on Thursday morning for a one-on-one discussion about the Bureau of Industry and Security's priorities.

Speaking as Russia's invasion of Ukraine unfolded halfway around the world, Assistant Secretary hinted at President Biden's intentions to announce new export control measures in remarks later in the day on Thursday. Axelrod did not provide additional details about the new measures, but recommended that the event’s viewers “stay-tuned” for the president’s comments this afternoon.

Axelrod also spoke to the role of the Bureau of Industry and Security (BIS) in enforcing new sanctions against Russian individuals and institutions for its invasion of Ukraine, saying that his bureau “will enforce those severe sanctions aggressively.”  On building support for multilateral and plurilateral controls, Axelrod emphasized the importance of “working with allies and like-minded countries in order to make sure we’re coming at problems from a position of where we can present a unified front.”

Moving beyond the day’s headlines, Assistant Secretary Axelrod also announced that BIS is commencing a series of reviews of its administrative enforcement program, with a particular focus on the bureau’s use of "no-admit/no deny" resolutions, its calculation of penalty amounts, and the use of export enforcement administrative resolutions in conjunction with criminal resolutions by the Department of Justice. Axelrod said these reviews are designed to bring the bureau’s enforcement practices in line with the growing importance of export controls as a national security tool. Axelrod also announced that BIS is conducting a review of its voluntary disclosure program to incentivize companies to report issues. “Rather than wait for us to come knock on your door and ask you about it, you come and tell us about it,” said Axelrod. The review will also evaluate how BIS can strengthen and streamline its voluntary disclosure program.

Although Axelrod emphasized that these reviews are still ongoing, he hinted at potentially significant changes to BIS’s administrative enforcement program, saying “The way things have operated in the past isn't necessarily the way they're going to operate going forward as we conduct these reviews.”

A complete video recording is available here, and a full transcript is available below.

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TRANSCRIPT: “2022 Export Enforcement Priorities: A Fireside Chat with Assistant Secretary Matthew S. Axelrod,” presented by Silverado Policy Accelerator

February 24, 2022 - Online

SPEAKERS:

Sarah Stewart, Executive Director, Silverado Policy Accelerator

Matthew S. Axelrod, Assistant Secretary for Export Enforcement, U.S. Department of Commerce’s Bureau of Industry and Security

DISCLAIMER: This transcript was generated using an automated transcription service, and as a result may not be 100 percent accurate. Please check all quotations against the original audio before publication. Full audio and video recording is available here.

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Sarah Stewart  00:09

Good morning, everyone. We're just going to let the rest of the participants join in and then we'll go ahead and get started. Welcome everyone. Silverado policy accelerator is thrilled to have you here with us this morning for our event on 2022 export enforcement priorities. We are very lucky to have with us newly-confirmed Assistant Secretary for export enforcement. Matt Axelrod. Welcome, Matt. First and foremost, congratulations on your appointment. We're going to dig in a little bit more on your background. But I'd like to thank you up front for many years of dedicated public service, you served for 13 years at the Department of Justice on a range of criminal and national security matters before bringing that wealth of expertise to the Department of Commerce. With export controls, and enforcement bubbling up as one of the key ways to address today's growing national security and foreign policy threats. You could be running for the hills. But instead, that could not be farther from the truth, as you are already hard at work and even in a position today to announce some new compliance initiatives that will impact industry. So to our viewers, if you were thinking about jumping off early, you may want to stay put.

Just a quick note about the Silverado policy accelerator. We celebrated our first anniversary just yesterday and very proud of all that we've accomplished in the past year. Our mission is to forge a path towards prosperity and global competitiveness for the United States and its allies through investment and bipartisan economic, strategic and technological policy solutions. At this pivotal moment of geopolitical competition, Silverado is working to advance the best solutions to critical policy challenges, and then incubate and accelerate those ideas into concrete results. Today's event falls squarely in our ambit. And we look forward to the discussion. Please use the Q&A function to submit questions and we'll make sure to reserve a few minutes at the end. So let's jump in.

Matt, you have a distinguished career as a lawyer from private practice to White House counsel to over 13 years at DOJ where you served in a range of key leadership roles, including most recently, as Associate Deputy Attorney General, you've prosecuted high profile cases, including convicting to founders of the Cali Cartel. Now you are helping the export enforcement office within the Bureau of Industry and Security at the Department of Commerce. Tell us more about how your career path led you here.


Matthew Axelrod  03:09

Thanks, Sarah, and thank you to Silverado for putting together this event today. You know, I'm really lucky to have the opportunity to serve. Again, it's been six years, I think, since there was a Senate confirmed person in my position. And so as well, I'm giving out thank yous. I have to give a thank you to President Biden for nominating me, to Secretary Raimondo for supporting that nomination, and for the United States Senate for confirming me. You know, it's great. It's great to be here, I would say that the through line, for me, has been a commitment to public service and particularly to doing work with federal law enforcement and national security. And that's why I'm so excited to be here at the Bureau of Industry and Security, doing export enforcement, you know, a decade ago, I will confess, I didn't know a lot and I think the sort of American people didn't know a lot about BIS and what we do, but our profile has sort of changed in the past 10 years I think boof actions, taken against ZTE. And then in the last administration against Huawei, and, you know, and now we're sort of in the news and on a daily basis for unfortunate reasons, but you know, talk about what export controls are going to be brought to bear against Russia. So you combine the sort of rising profile with, rising sort of threats from nation state actors. You know, we at BIS along with with others in the US government are really, you know, tips of one of the spheres working to prevent countries like China, Russia and Iran from obtaining so sensitive us technology that they then can use for malign purposes like WMD proliferation and military modernization and human rights abuses.


Sarah Stewart  05:10

Well, you wouldn't know it, but your career path really does actually dovetail. And so the Department of Commerce is lucky to have you bringing that experience on. And I couldn't agree with you more. I've been a trade lawyer for the past several decades, and never before in the last, you know, few years have our export control laws and enforcement been so front and center. You know, obviously, in the last few weeks, we've seen increasing aggression by Russia against Ukraine and most recently, actual invasion. So it's evident that our threats continue to evolve. I wonder, you know, you've touched on a little bit of this already. But can you talk about the nature of the national security threats that your office is going to be working to combat in your new role?

Matthew Axelrod  05:59

Yeah, sure. And unfortunately, you know, today of all days, it's, it's all too clear, the rising nation state threats that our country faces, you know, if you think about the last 20 years, the threats to our national security have been largely non state actors, right, if you think about al Qaeda, and ISIS, but where we are now, today, and not just today, right, where we've been for a little while is really a rise of threats from state actors. You know, President Biden, just a year ago at the Munich Security Conference, right, there was one last week, but there was also one a year ago and President Biden at that conference talked about the competition between democracy and autocracy, right, and how in the United States, as a leader of democracy, we believe in the international rules based order, we have freedom of speech, we have freedom of religion, people are free to do what they want for work, right. We have a rule of law where the laws apply not just to the people, but also to the government. And, that's in opposition to regimes like those in China and Russia, and Iran that reject those democratic values. And you have political leaders who bully and repress their neighbors and their own people. And today, you know, Russia started an unprovoked and an unjustified war of choice against the people of Ukraine. Right, those governments, the autocratic governments use propaganda and censorship to stymie expression, and freedom of expression and wage disinformation and mass surveillance campaigns. They subvert the rules based order through cyber attacks, and massive IP and technology theft, WMD proliferation, and to maintain their grip on power. And this is sort of where we come into the picture. They are intently focused on building their military capabilities, both conventional military capabilities and nuclear capabilities, and at the rapid pace of technological advancement that we see and benefits us in our personal lives are sometimes not benefits - depending on your perspective, right? Also, there's technology advancement on things like hypersonics, right, like the rapid technological change, when it comes to hypersonics can lead to potentially right missile systems that are able to evade existing detection, which, you know, obviously has huge consequences for the strategic deterrence system, or quantum, quantum computing, advances in quantum computing, could eventually lead to both the ability to make unbreakable encryption and the ability to break all existing encryption. And whoever sort of wins that technology race, is going to have a real sort of leg up strategically and militarily.


Sarah Stewart  08:58

Well, there's no shortage of work to be done. And almost an alarming amount of threats. So you have within BIS two offices, you have the Export Enforcement Office and the Export Administration Office. And together, you work to counter the threats that you've just talked about to enable legitimate global trade and in goods and technology and to keep those goods and technology out of the hands of our adversaries. But this is a huge mandate. As we've just heard, the amount of threats that you're trying to combat are huge. Can you walk through a little bit of how the office works? And what are the key challenges that you see in your office?


Matthew Axelrod  09:48

So our primary mission is to make sure that sensitive US technology isn't used by governments like China, Russia and Iran for malign purposes, right? That they don't get that technological leg up that they're trying to get by using US technology to get there. And in particular, we at the Bureau of Industry and Security (BIS) are responsible for what are called dual use goods, goods that are capable of civilian use, but also capable of military use. And that's one of the things right off the bat. That's a challenge, because that's complicated, right, like, so I have a prop. So this is a graphics processing unit (GPU). Well, it's actually an assembly that has a bunch of chips on them that are GPUs. And what these chips do is they process many pieces of data simultaneously to accelerate the creation and processing of images. Right? So that's terrific. When it's in your kid's Xbox. Right? It makes the video game like really lifelike, but it's not great when it's used to build surveillance, artificial intelligence, surveillance tools that the Chinese government use to repress the Uyghurs, as part of the genocide that's led to the death of more than a million people in that country, and so our challenge is, it's the same GPU, how do we ensure that the GPUs that are being used for the Xbox are okay for American industry to ship, but the GPUs that are being used to repress the Uyghurs aren't, so that that's a real challenge. And we come out of a couple of different ways. We have two sides to our house at BIS, there's the Export Administration side, which is run by my colleague, Tad Kendler. And they're the ones who set the rules tell industry what's okay to go where, and then they license. They run the licensing process so that US exporters can get licenses. We come in more on the backend, I run the enforcement side, right. One of our challenges is that we're a bit out numbered, right last year, there were 32 million dual use exports out of the United States, we have 400 people total in the BIS, on my side, the enforcement side, there are 170 of us. And so that's a real challenge, we have to be very strategic, about how we, how we do our work we use not just sort of intelligence, but sort of all source. Data to target how we do what we do, we have some new undercover authorities we use but that's, that's a challenge for us and for our enforcement. Another challenge is multilateral controls versus unilateral controls. What I mean by that is if we as the Bureau of Industry and Security put in export controls that restrict us industry from sending certain goods to certain places, but we do that alone. And none of our allies who also manufacture the same goods put similar controls in place, then the people we're trying to prevent from getting the sensitive technology can still get it. They're just getting it from companies that aren't based in the US. So all we've done is hurt US industry. And we haven't stopped the sensitive technology from getting to the place we don't want it to go. So we have to work hard for to make sure our controls are multilateral, where possible, but there are also some instances, you know, like when items are being used for human rights abuses, where it's so important that we do impose unilateral controls. And I guess I would say the third challenge or fourth challenge I would point to is that our adversaries are really sophisticated. You know, the FBI director, Chris Ray gave a speech a couple of weeks ago at the Reagan Library about, you know, just how pressing and persistent the threat from the Chinese government is, you know, in the use of front companies and how they're stealing sensitive us technology, through cyber hacks, how they use subsidiaries and shells to try to evade the export controls we put on them. You know, that's a challenge for us, too. And I would say that despite all these challenges, we have been doing really well. We partner with other federal law enforcement agencies to sort of build our capacity. And since the start of the Biden administration, we've had, again with our partners, 51 criminal convictions and 44 administrative denial orders, which means that people are no longer allowed to export items overseas. We've had 22 administrative settlements. And then if you go back 10 years, a decade I was talking about, again, with our partners, there has been a total of $3.6 billion in criminal and administrative penalties related to export enforcement.


Sarah Stewart  14:55

Wow, those do seem like big challenges, but I think that you're up to the task. I wanted to flesh out one of the challenges that you raised. And I think that this is an important piece. When we talk about multilateral controls versus unilateral controls. Is there something in between? Is there some, you know, going in with a small group of countries? And how does the US think about working with countries, when it comes to that short of going to, for example, the Wassenaar agreement?


Matthew Axelrod  15:35

Yeah, there is something in the middle, called plurilateral controls, right. It's not sort of everyone, but it's a, it's a smaller group. And yeah, we, and it's more on my colleague Thea Kendlers side of the house, who's she's the Assistant Secretary for Export Administration. But we work really hard to with our counterparts around the world to sort of build support for plurilateral, or multilateral controls, depending on the issue. And Thea, and other colleagues from the interagency were in Europe, I think it was two weeks ago, not surprisingly, to build support for sort of the export controls that have not yet been announced. But I believe the President will be speaking later today. And so folks should stay tuned. But you know, that that type of diplomacy and working with allies, and like minded countries in order to make sure that we're coming at problems from a position of where we can present a unified front is obviously very important.


Sarah Stewart  16:48

Absolutely, especially considering some of the threats that we've discussed, including human rights. As you're settling into your new role, you obviously got a number of threats coming at you some new, some old, you have a number of challenges, but you also have a positive agenda. I would I want you to talk a little bit about what are the key priorities that you are going to be focusing on in the coming months or year?


Matthew Axelrod  17:19

Yeah, so Thanks, Sarah. I've been talking internally about them as sort of the three P's. So the first has to do with profile and sort of continuing to raise the profile of of the work that that folks here do, not just because they're incredibly talented and dedicated government servants, but also because I think it has important programmatic effects, right? I want companies to know, at the end most do, by the way, but I want to continue to get the word out that about what we do and and the reason it's important and so that companies will invest in their compliance systems, right. I believe that our work can have a powerful deterrent effect, which is, you know, we obviously we'd rather we prefer that the goods and the technologies not go on the on the front end, rather than us having to enforce and convict people on the back end. And I feel like the work of export enforcement that we've been a little bit of like the secret weapon of national security, and I'd like us to be not quite so secret, I think, you know, world events are about to make us not quite so secret. That wasn't quite how I would have preferred to raise our profile. But so that's one. The second is to strengthen our partnerships. So that's the second P is partnerships, both with industry, and academia, but not just industry, in academia, also, with our foreign law enforcement counterparts for some of the reasons we were just talking about, with the intelligence community who we work closely with, with and with federal law enforcement. We rely, you know, there only 170 of us on the export enforcement side, we rely really heavily on our partnerships with FBI and HSI and CBP and ATF in order to to force multiply. I'll give you one example of that partnership. You know, in 2018, there was an investigation by FBI and HSI into the export of firearms parts and manufacturing tools to Iraq. And we join that investigation because we had export tools and charges that could be brought and so as a result of are being brought in and partnering with FBI and HSI were able to bring charges against an individual in the Middle District of Pennsylvania in 2018. But because of those charges, FBI and HSI were able to continue to develop the case, and last week, that case was superseded, to add torture allegations against that individual. It's only the second time ever that a US citizen has been accused of torture and at least my understand that's the FBI HSI part of the case, but that our involvement, you know, helped allow the case to continue to progress and to get to that point where FBI and HSI, working with DOJ, were able to bring only the second torture case ever against a US citizen. And the third, the third priority is perhaps the most important which is to prioritize our enforcement. That's that's how I get a P prioritize our enforcement. Look, as we've been discussing, we're a small but mighty crew over here, we have to make sure that our resources are matched against the most pressing national security threats. And for us, that's first and foremost, China. As I said, FBI Director Ray, I think laid it out pretty convincingly a couple weeks ago about how the Chinese government is only getting more brazen, and their actions are more damaging. You know, since President Biden took office, we've had 18 criminal and administrative actions involving exports to China, including a 42 month prison sentence for someone who was sending raiding craft. So you know, the types of things that are for US special forces, which use raiding craft with specific types of engines to China for the express purpose of them being reverse engineered, and mass produced to the PLA. Also, since the start of the administration, we've added 81 Chinese companies to the Entity List, which is essentially a blacklist. And there are now a total of 500 Chinese entities on the Entity List. In April, we added seven Chinese supercomputing companies, and those are companies that sort of develop the technology that linked to the hypersonics I was talking about earlier. And in November, we put three military quantum companies on on the on Entity List, as well. And then the last thing on China is that just a couple of weeks ago, we announced that we're putting 33 Chinese companies on the Unverified List. The Unverified List is a red flag last, which requires additional due diligence from the US and that was because the Chinese government wasn't allowing us to do the end use checks we need to do and once we're able to do those end use checks, we can, those companies can come off the Unverified List. The other thing, when we talked about prioritizing enforcement is obviously Russia. And as I said, I don’t want to get ahead of the President's announcement later today. But he's he's made very clear that there will be severe sanctions. And I'll make very clear here, not that there should have been any doubt, that we will enforce the severe sanctions aggressively. Since the start of the administration, we've had 14 criminal administrative cases involving Russia, against the most recent and in September, we had a penalty nearly $500,000, on a company called Baraga technologies that were setting up a shell company in Bulgaria to sell radiation hardened chips with defense applications to Russia, and three defendants were previously indicted there, and we're still waiting there, hopefully be able to extra extradite them. So those are the three partnerships, profile partnerships and prioritized enforcement.


Sarah Stewart  23:43

You definitely have your work cut out for you, Matt. And we'll look forward to to hearing from the President later today on Russia. I wanted to follow up with you on a couple of things that I think are areas that are in the news quite a bit lately, but that are harder to understand. And so maybe it'd be a good opportunity for you talk to the audience about it. You talked about the Unverified List and this concept of end use checks. Can you elaborate a little bit more on what you mean by that? What my understanding is that China has not allowed end use checks without government notice and approval, which would undermine the effort conceivably about conducting the end use check in the first place and Russia doesn't allow them at all. Is that your understanding as well and what what more can be done?


Matthew Axelrod  24:38

So first, let me sort of say what end use checks are, which they can be both sort of pre license before a company gets a license to ship something overseas. We have people in my shop that are stationed overseas, we have nine people they're called export control officers and they are stationed in Europe and the Middle East and in Asia. And there, we obviously don't have the resources to check every shipment. But when we have reasons to do the end use checks, and sometimes they’re random and we will have one of our people arrange to go and check to make sure that the place where the goods or technology is supposedly being shipped to is actually the place that is receiving it. And that the purpose, the folks that it was going to be used for is the actual purpose it's being used for. So you know, I'll give you one example, from recently, we had one where supposedly night vision cameras were being shipped to Hong Kong, with the idea that they were going eventually to a NATO country in Europe. And when we did an end use check in Hong Kong, the company in Hong Kong had no knowledge of the transaction, and the supposed employee who signed the end use certification didn't actually work there. Right, so based on our sort of understanding of what's happened in the past, like we believe that that shipment was going to get diverted into Mainland China. And that's why we do those those checks. It's true, we don't we don't have anyone on the ground in Russia anymore. We did. We don't any any anymore. Obviously, you know, as after today's events, we wouldn't anyway. And in China, we do have two ECOs in China. And we do work with the Chinese government to set up and use jacks that what happened is that we haven't been able to schedule them, the Chinese government has not been working with us the way they have been in the past, which is why for those 33 companies, they went on the Unverified List, we can't do the end use track, then it's going to require a higher degree of due diligence for people to export to those companies, we're hopeful, I'm optimistic that we'll be able to sort it through with the Chinese government to be able to schedule those checks. And then, you know, assuming those checks check out those companies would be able to come off the the Unverified List.


Sarah Stewart  27:14

Got it. And then one last question on the Entity List. You mentioned that under the Biden administration, you've added a number of Chinese companies to the Entity List. How difficult of a process is is that? Is that something that goes on for many months? How does the company get onto the list?


Matthew Axelrod  27:33

Yeah, not many months, there's an interagency process between us and three other agencies for putting companies on the list. And it can happen in a in fairly short order if everyone's in alignment, the standard is, if there's reason to believe that a company is acting contrary to the national security or foreign policy interests of the United States. And so, once a company's on a on a on the Entity List, you know, I refer to earlier as to kind of blacklist, it doesn't mean that nothing ever can get exported to those companies. It's just that there's a presumption of denial for a license, that presumption can be overcome and sometimes things do get licensed to get sent to companies on the Entity List. But it's, it's harder once you're on the Entity List.


Sarah Stewart  28:37

Okay, thanks very much. I think it's important that, as we're talking about all of these terms, that the audience and the greater American public that is reading about all these actions really understands what we're talking about. So I appreciate that. So I wanted to take some time now, I know you've got a couple of new initiatives that you are about to unveil and to roll out. And so maybe now's a great time for you to talk a little bit about what's on deck, and what our industry colleagues should be thinking about?


Matthew Axelrod  29:12

Thanks Sarah. So, as I said earlier, our goal is to spark deterrence, right? We want we don't have the resources to investigate or prosecute every case. And even if we did, much better for the goods and technology not to go places they're not supposed to go to begin with. So we're looking for ways to sort of force multiply. And there are two things that I can announce today, their reviews as opposed to actual “here's the changes we're making”, because I've only been here, I think this is week seven. But I do want to sort of tell folks that we are doing these these reviews and the first is we're reviewing how we can strengthen our administrative enforcement program, you know, I talked earlier about some of our criminal cases. But when cases don't go criminal, we still can enforce administratively here in house at the Department of Commerce that can result in fines, as well as the denial of export privileges, which is a pretty significant thing to someone who's in the business of exporting. We're taking a look at three things in particular related to our administrative enforcement program and how we can strengthen it. The first is at how often we use no admit no deny resolutions, as opposed to a resolution where there's an admission by the company to a statement of facts as to what actually occurred. And reason we're looking at that is in order to help deterence for companies to be able to look at prior resolutions and see what what actually happened in a statement of facts we think can be helpful. And also there's an accountability piece too, of course, if you know someone actually engaged in the conduct to admit to what that conduct is, so we're taking a look at that. And we're taking a look at whether our penalty amounts are properly calibrated to reflect the national security harm. You know, our penalty amounts are sort of tied to the value of the transaction, which, sometimes, you know, can be an appropriate barometer, but sometimes not right. It can be an inexpensive part that allows the missile to function. That's, uh, you know, we got to we're just thinking about that whether how do we make sure our penalties are, are calibrated to the right level? And then third, we're thinking about when and in what cases there should be parallel export enforcement administrative resolutions to accompany DOJ criminal resolutions. In other words, you know, sometimes when our cases, as they said, can go either administrative or criminal sometimes when they go criminal, we stand down administratively. And we're taking a look at, you know, does that make sense? When does it make sense to stand down administratively versus when does it make sense to, in addition to the criminal resolution, there also needs to be an administrative resolution with us. So those are sort of the three things that we're taking a look at, in our review of how to strengthen our administrative enforcement program. The second thing, the second sort of review we're doing is how our voluntary self disclosure program works. That idea of a voluntary self disclosure program is, you know, you at the company have uncovered something that happened, that shouldn't have happened. And rather than wait for us to come knock on your door and ask you about it, you come and tell us about it. And obviously, you get a big benefit as a company in how you get treated by us, because you told us about it. And that's what we want companies to do. And last year, we had 400 voluntary self disclosures to us. But of those 400, only three had some sort of administrative sanction as a result, and none of them went criminal. And look, that might be the right, you know, the right proportion, because many voluntary self disclosures reflects just minor technical errors that companies tell us about but a small subset reflect more serious deficiencies and require some additional follow up and investigation. And so we're just thinking internally about how best to identify and focus our resources and attention on those that require the follow up. And also how best for, you know, companies that tell us about a minor technical violation, how we can streamline resolution for them and get that sort of quick answers quickly through our system so that we can sort of concentrate our resources on that handful that require, the more involved follow up. And so we're taking a look at that. So again, thank you for letting me tell people that we are starting to review these things. We haven't landed on how we're going to do them. I don't have the actual policy to roll up. But I do you think it's important for industry and for the bar, to know that these are things we're taking a look at. And so, you know, the way things have operated in the past aren't necessarily the way they're going to operate going forward. As we conduct the reviews.

Sarah Stewart  34:26

I think it's really important that there's a lot of transparency coming from the government to our industry colleagues on these types of issues. I greatly appreciate your candor and I'm sure our viewers also appreciate that because it's going to really impact how they're thinking about designing compliance systems and working internally. Do you have any advice for industry colleagues on how to start thinking about these issues, what type of collaboration do you envision with the private sector here? I'm sure that they are all ears.

Matthew Axelrod  35:09

I have some for the specific initiatives and then some just sort of more generally. Look, we would be happy and interested in hearing from folks, if people have views on how, you know, on the stuff we just laid out about ways to strengthen our administrative enforcement program, and on voluntary self disclosures. Right, a happy to have a conversations with industry groups about that. And one of the reasons I'm glad to be able to do this with you is, it's the start of me doing more sort of both public speaking, but also, you know, interactions with sort of stakeholders and always happy to meet with folks and talk with folks. And there are some aside from that, I think some specific tips for industry, who care about these issues, and one is to make sure that your company has an export and management compliance program. Big companies do and but smaller companies maybe sometimes don't, or don't think that items that they're exporting would be the types of items that we would care about. But, you know, truth be told, it's not always the highest end technology that we care about, we do care about that. But we also care about, you know, the sort of smaller component parts that may even not have a specific export classification number, but it's, it's an important part, because it's US made and it's reliable, and, you know, people overseas want to put it in their weapon systems, right. That's still really important to us. And so we encourage everyone to have a robust compliance program, and you know, voluntary self disclosure. So like I said, we got 400 last year, we like getting voluntary self disclosures, we think it's important. And as I said, it's always better to knock on our door before we knock on yours, no matter what changes, if any, we end up making to how we sort of think about our work process, our voluntary self disclosures are always going to be benefit to coming in, and we encourage people to come in. I think people can look over their contract clauses, right to either look over their contracts to make sure that there are clauses from parties overseas that you're dealing with to make sure that they're representing that they are in compliance with US export laws. If you ask for such a clause, and your foreign partner isn't giving it to you, you know, that seems like a red flag. And then lastly, I would encourage folks to get to know their local office of export enforcement agent. We're in 30 cities around the country and our agents don't just do investigations, they are there to educate industry and academia, about how the rules work, right. Some of what we do is complicated and folks want to comply. They don't know how and they have questions - they should feel free to reach out to either their local agent or to us here at headquarters. We have duty folks who answer questions all the time from exporters. So either, you know, call here to headquarters, or really I would encourage people to get to know their local folks in their community as well.

Sarah Stewart  38:40

This is great advice. I hope everybody's been taking some good notes. So we're going to turn now to a couple of comments and questions before we wrap up. One I think you'll appreciate which is a comment about voluntary self-disclosures, and that there has been a slowdown in the past few years of review. So the comment is, you know, welcoming the streamlining and expeditious review of the voluntary self disclosures. Another another question that we have and you know, I don't know how much you're going to be able to speak to this, but the question is about the foreign direct product rule and any expansion of that going forward. And, you know, without getting ahead of any announcements or any other thinking, maybe you could at least provide some of your insights on what is the foreign direct product rule? It's been in the news a lot lately and it’s not super intuitive. So if you could lay that out and provide any insights that you have on that question, that would be great.

Matthew Axelrod  39:49

Sure. So, with the caveat that I'm happy to talk about how the foreign direct product rule works generally, how it's worked with Huawei, which is where it's in place at the moment. But my comments will be limited to that. As a general, I think the best way to think about it is, ordinarily, our export controls, most of our export controls apply to US origin goods, things that were sort of made and manufactured in the United States. The foreign direct product rule extends our export controls to things that are made and manufactured outside of the United States, but that are made with technology, that is US origin. So in other words, something can be manufactured somewhere else in the world but if it's made on a machine that has a particular US technology in it, that that's that US technology that allows that machine to make the thing, the foreign direct product rule will reach that as well and means that you need to comply with our export control rules and regulations and would need a license or whatever else is required. It's the same as if that good had been shipped out of the United States. I hope that was clear. I know, it's a little complicated, but I think trying to boil it down into plain English, that's how the foreign direct product rule works.

Sarah Stewart  41:22

I mean, it's pretty expansive. And do you know do any of our partners have similar types of laws and regulations?

Matthew Axelrod  41:34

It's a good question. I don't actually know the answer. Only week seven, so.

Sarah Stewart  41:39

We will get to the answer and maybe we'll have to do another conversation.

Matthew Axelrod  41:49

I'm sure there is an answer but I don't know if other countries also have similar sort of foreign direct product rules or not. My belief is the only time it's been used, to date, is with regard to Huawei. So it's not something that we we use every day.

Sarah Stewart  42:08

Sure, no, understood. Well, we are just about at time, I wanted to give you a minute or two, if there's any last remarks that you want to make, Matt, this has been an incredibly constructive conversation. I think we've given industry colleagues a lot to chew on and think about, I know that you've got a lot on your plate, today especially, is a day where all of us are going to be watching the news, I'm sure quite closely. So I just want to thank you from Silverado and offer you the chance to make any closing remarks.

Matthew Axelrod  42:48

Thanks, Sarah. And thanks so much to Silverado for hosting me today. I've really enjoyed our conversation. I guess in closing, I would, I would just say that, I think that the role of export controls and export enforcement are only becoming more and more important as a national security tool. If you think about sort of big picture, the way things are trending, and you go back to our conversation about the sort of the rise of the threat from state actors, you know, hopefully, we don't find ourselves in military conflict with with state actors, very often. But there are these sort of things that I don't have the right word for it, but that state actors are sort of engaging in struggles back and forth. And this, this is one of them, right? The Cyber front is is another and how, you know, the sort of cyber challenges we faced from countries like North Korea, and Russia and China. But I think that given the state of the world and the nature of the threats we face, I do think that export controls and export enforcement are a critical piece of the national security effort that the US government is bringing to bear in order to keep our country safe. Not just in the short term but in the long term. And it's one of the reasons I'm so proud to be here with the dedicated men and women of the Bureau of Industry and Security who have been doing this every day for years and will continue to do it. And as I said, I think you know, their profile is going to continue to grow. They've been doing it all along and I feel just really lucky to be here and excited to be a part of it.

Sarah Stewart  45:00

Well, I couldn't agree more. And in closing, just want to thank you for your leadership. We are going to be watching all of these initiatives and following all the work that you're doing closely and just really thank you for your time and your public service.

Matthew Axelrod  45:18

Thanks, Sarah. Thanks, everyone.

Sarah Stewart  45:20

Thanks, everybody.


Pillar

Trade and Industrial Security