As we pass the midpoint of a year marked by assertive enforcement of dual use laws, the Department of Commerce’s Bureau of Industry and Security (BIS) published an updated version of its Don’t Let This Happen to You! Guide. That guide, which was last updated in March 2024, includes numerous case examples illustrating BIS’s criminal and administrative enforcement actions. The update also comes with two additional BIS publications addressing measures to reduce diversion risks and a six-year review of BIS’s licensing strategy.

No need to worry—we’ve summarized all the key points for you below. This way, you can enjoy your holidays without having to sift through the detailed (though fascinating) dozen pages of BIS guidance.

1. Key Highlights of the Updated Guide:

(i) Voluntary Self-Disclosures: The updated guide reemphasizes the importance of voluntary self-disclosures in mitigating enforcement actions. BIS encourages entities to proactively report any compliance issues they uncover, highlighting several recent case studies where voluntary disclosures led to reduced penalties. We detailed BIS’ policy on disclosures in our earlier article, available here.

(ii) Anti-Boycott Laws: BIS reaffirms its firm stance on anti-boycott laws, reminding exporters of their obligations under these regulations. The guidance details specific examples where non-compliance resulted in substantial fines and investigations.

(iii) Firearms Exports and Illicit Transfers: Special attention is given to the export of firearms and the illicit transfer of goods to countries like Iran and China. BIS highlights consequences for non-compliance (spoiler alert: it involves significant fines).

2. Notifying Transaction Parties of Diversion Risks

In a separate, but related guidance, BIS emphasized how it proactively engages with industry to flag risks and inform the regulated community about licensing requirements in specific cases. BIS has detailed its practice of flagging potential diversion risks through “Supplier List” letters, “Red Flag” letters, “Is Informed” letters, and Project Guardian Requests.

3. A 6-Year Lookback at BIS Licensing

In a third publication, BIS has released key statistics highlighting the Agency’s focus on China, through licensing scrutiny and expansion of Entity List designations.

(i) Increased Licensing Scrutiny: From 2018 to 2023, BIS significantly ramped up its scrutiny of export license applications, especially those involving exports to China. This period saw a dramatic rise in applications, with BIS processing nearly $560 billion in 2021 alone, resulting in a considerable number of denials and revocations.

(ii) Strategic Use of Entity List: The Entity List has been a crucial tool in BIS’s strategy in the recent years. The number of Chinese entities designated on this list grew from 218 in 2018 to 787 by the end of 2023. This expansion included major companies like Huawei and SMIC, subjecting them to unprecedented and strict licensing requirements. The inclusion of these entities has allowed BIS to impose comprehensive controls over both the export of crucial advanced technologies, but also more basic technology.

(iii) Foreign Direct Product Rule (FDPR): BIS’s application of the FDPR to Huawei in 2020 extended U.S. export controls to items produced in foreign countries using U.S. technology. This extension of the FDPR significantly increased the number of licensing applications and provided the U.S. government unprecedented oversight over these transactions.

Figure 1 – Total Value of License Applications Involving Huawei and Affiliated Parties on the Entity List

(i) Summary of Licensing Data (2018-2023)

• Volume and Growth: From 2018 to 2023, BIS and its interagency partners reviewed 3,934 license applications involving Chinese Entity Listed parties.
• Approval and Denial Rates: Out of the total applications reviewed, 2,641 licenses worth approximately $335 billion were approved, while 1,293 licenses valued at $545 billion were denied, revoked, or returned without action (RWA).
• Entity List Designations Impact on Licensing: By 2023, 16% of all license applications for China involved an Entity Listed party, up from less than 1% in 2018.
• Revocation of Licenses: Since the beginning of 2024, BIS has revoked eight additional licenses involving Huawei. On a separate, but related note, last week, the House Appropriations Committee released its committee report following its approval of the FY 2025 Commerce-Justice-Science Appropriations Bill. The report directs BIS to rescind all licenses issued to entities to sell to Huawei, SMIC, or their subsidiaries no later than 30 days after the enactment of the bill. The report also recommends that BIS consider whether Chinese-manufactured LIDAR companies meet the requirements to be added to the Entity List.

What’s Next?

As we move forward into the second half of the year, staying informed about BIS changes to the export regulations and updates or new compliance guidelines will be essential for maintaining your business operations smoothly, in compliance with export restrictions. Keep an eye out for further updates from the BIS and other regulatory bodies to ensure you’re always a step ahead. Stay tuned for more updates, and enjoy the rest of your summer!