Key Tasks and Players
The Strike Force will work closely with experts throughout government – including the FBI, BIS, Homeland Security Investigations (HSI) and 14 U.S. Attorneys’ Offices in 12 metropolitan regions across the country.
The Strike Force will focus on enhancing administrative enforcement of U.S. export controls, as well as investigating and prosecuting criminal violations. The Strike Force announcement highlights technologies related to supercomputing, artificial intelligence, advanced manufacturing equipment and materials, quantum computing, and biosciences. In order to achieve its objectives, the Strike Force will:
Investigate and prosecute criminal violations of export laws
Enhance administrative enforcement of U.S. export controls
Foster partnerships with private-sector organizations
Use international partnerships to coordinate law enforcement actions and strategies
Utilize data analytics and intelligence to develop and perform investigations
Conduct field office trainings
Build relationships between the Strike Force and members of the Intelligence Community
Relationship to Export Control Initiatives
The creation of Strike Force follows BIS’s July 2022 four policy changes intended to strengthen its administrative enforcement of the Export Administration Regulations (EAR), including significantly higher penalties. The launch of the Strike Force will likely lead to an increased number of BIS enforcement actions, as well as greater coordination between the United States and foreign governments, and the use of analytics to target specific jurisdictions and exporters .
This development reflects the Administration’s continuing focus on using export control policy and enforcement to advance its national security priorities. In October 2022, BIS issued an interim final rule to deny China’s access to certain semiconductor and advanced computing technology and to inhibit China’s ability to manufacture those items domestically in order to protect U.S. national security and foreign policy interests. See Hogan Lovells alert on this topic here. This is another example of how the Administration has scaled-up its use of export controls to generate desired outcomes in the areas of technology security and economic competitiveness.
Connection to US Inbound Investment Screening Regime and Potential US Outbound Investment Mechanism
In 2018, The Foreign Investment Risk Review Modernization Act of 2018 expanded the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to include certain non-controlling foreign investments in certain types of U.S. companies. The jurisdiction of CFIUS extends not only to every transaction through which a foreign person acquires a controlling interest in a U.S. business, but also to non-controlling investments in which a foreign person acquires certain investor rights in a Critical Technologies, Critical Infrastructure, or Sensitive Personal Data U.S. business, or a so-called “TID U.S. business” —namely, a U.S. business that (i) produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies, (ii) performs certain functions with respect to covered investment critical infrastructure, or (iii) maintains or collects sensitive personal data of U.S. citizens. Consistent with this emphasis on the national security implications of advanced technologies, on 15 September 2022, President Biden signed executive order 14083 (EO), which provides guidance to CFIUS and highlights several areas critical to national security for CFIUS to consider during its reviews. EO 14083 identifies the following sectors as “fundamental to national security”: microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy (such as battery storage and hydrogen), climate adaptation technologies, critical materials (such as lithium and rare earth elements), and “elements of the agriculture industrial base that have implications for food security.”
In addition to the U.S. inbound investment screening regime, in remarks announcing the Strike Force, Deputy Attorney General Lisa Monaco reiterated that the United States continues to explore options for monitoring the flow of outbound investment in dual-use technology. The concept has been referred to as a “reverse CFIUS” based on its similarity to the current review of inbound foreign direct investment by CFIUS.
On December 29, 2022, President Biden signed into law an omnibus government spending package, which includes explanatory statements regarding outbound investment initiatives. The Consolidated Appropriations Act, 2023 provides the U.S. Departments of Treasury and Commerce with $10 million dollars each to consider establishing “a program to address the national security threats emanating from outbound investments from the United States in certain sectors that are critical for U.S. national security.” The new funding and reporting requirements in the omnibus appropriations law will likely provide momentum for significant federal action on outbound investment screening in 2023.
Other Related DOJ Priorities
This announcement by the DOJ builds on its significant activities related to the criminal enforcement of the export control laws as well as an increased DOJ role in assessing voluntary self-disclosures. For example, just recently on February 22, 2023, DOJ expanded on policy announcements for Main Justice components in 2022 by announcing a new nation-wide policy to incentivize companies to self-report criminal activity. “In determining the appropriate form and substance of a criminal resolution for any company, prosecutors should consider whether the criminal conduct at issue came to light as a result of the company’s timely, voluntary self-disclosure and credit such disclosure appropriately.”
As discussed this new policy expands on the “Monaco Memo”. In September 2022, Deputy Attorney General Lisa Monaco issued a memorandum that directed each prosecutorial DOJ component to review and update its policies on corporate voluntary self-disclosures to reflect the guidance’s core principles. In the context of national security cases involving export controls and sanctions, the Monaco Memo describes the importance of ensuring that companies have some clarity as to the potential benefits of voluntarily disclosing to DOJ. “Indeed, timely voluntary disclosures do not simply reveal misconduct at a corporation; they can also reflect that a corporation is appropriately working to detect misconduct and takes seriously its responsibility to instill and act upon a culture of compliance.” DOJ also stressed that the department does not want to deter companies with good compliance programs from acquiring companies with histories of misconduct, and will not treat as recidivist any company with a proven track record of compliance that acquires a company with history of compliance problems, so long as those problems are promptly and properly addressed in the context of the acquisition.
On March 2, 2023, during the speech at the American Bar Association's (ABA) annual National Institute on White Collar Crime in Miami Florida, Deputy Attorney General Monaco highlighted the importance of voluntary disclosure again, he said “I want every general counsel, every executive and board member to take this message to heart: where your company discovers criminal misconduct, the pathway to the best resolution will involve prompt voluntary self-disclosure to the Department of Justice.” On the same day of the ABA annual meeting on White Collar Crime, it also featured a timely panel on the government’s enforcement agenda for sanctions and export controls. The speakers included Matthew Axelrod, Assistant Secretary for Export Enforcement, BIS; Matthew Olsen, Assistant Attorney General, National Security Division, DOJ; and Andrea Gacki, Director, Office of Foreign Assets Control, US Department of Treasury (OFAC). The panel discussed the Strike Force and emphasized that enforcement of the sanctions and export control laws is here to stay.
“Whole of Government” Approach
The creation of the Strike Force is the latest step by the Administration toward a “whole of government” approach to its novel use of export control policy and enforcement to counter U.S. national security concerns. The U.S. government is far more integrated than ever before on export compliance between and among agencies as well as with U.S. allies and partners. Another recent example of such approach, is a joint compliance note issued by BIS, OFAC, and DOJ on March 2, 2023. The note highlights several of tactics used by malign actors to evade Russia-related sanctions and export controls. The note helps private sector to identify warning signs and implement appropriate compliance measures.
Companies should continue to refine their export controls compliance programs to ensure they address all of the elements recommended by BIS and other agencies. A Hogan Lovells alert on this topic is here.
Compliance plans should include a procedure that clearly outlines the response in the event that a possibly unlawful diversion of goods is detected. Steps in such a procedure may include:
Review classification of technology and products and confirm how U.S. export controls apply to activities outside the United States;
Review existing records to identify the source of any potential diversion and determine how the company can minimize the diversion risk in the future;
Investigate information received because export control laws can be enforced on the basis of strict liability or constructive knowledge;
Conduct further due diligence on customers who may pose a similar diversion risk, particularly resellers and distributors;
Consider the use of data analytics to identify risk areas;
Review existing compliance policies and procedures to ensure they adequately address diversion risks; and
Reinforce the importance of export controls compliance with employees through internal messaging or training, as appropriate.
A company’s ability to demonstrate it has an effective, well-resourced compliance program is a key factor in DOJ, BIS, OFAC, and Department of State Directorate of Defense Trade Controls enforcement actions.
If you have questions about the Strike Force or export controls compliance, please reach out to the Hogan Lovells contacts.
Authored by Kelly Zhang, Beth Peters, Ajay Kuntamukkala, Andrea Fraser-Reid, and David Sharfstein.