Beneath the Surface of Export Controls and Sanctions Compliance

By David Williams, ACSS Editor
February 18, 2023

There’s much more than meets the eye in the administration of sanctions compliance and export controls. Regulations originate from contributions made by an intricate network of numerous agencies and other inputs.

A poll in an ACSS webinar found that 35% of attendees expressed surprise by the extent of the involvement of intelligence agencies in sanctions and export controls; 26% by the number of agencies in the intelligence community; 23% by the methods of the international sharing of information, and 16% by the complexity of how licenses are evaluated.

“There’s a lot more happening in the background than people realize,” said FTI Consulting Managing Director Matt Bell. Fellow FTI managing directors Stephen Wilcox and Thomas Andukonis, both former BIS directors, agreed.

Andukonis pointed to the Russian invasion of Ukraine as the catalyst for greater activity. “What we have seen with Russia is unprecedented interaction by a number of countries in sharing information. The US government is also sharing more information with industry.”

Andukonis said FTI had a client with a direct outreach from the FBI who shared intelligence about a bad actor in China who was seeking to procure items for Russia. “The FBI said, ‘Here is what we know. This is who they are. We know they have bought items from you in the past. We need you to keep an eye out and let us know the next time they place an order.’

“Government has always said that industry is in the front line. But they haven’t always given it the information. We have seen evidence of that changing, and more countries are coming together.”

Wilcox narrowed the focus to government agencies. “The agencies are speaking more with each other and coordinating efforts – the release of the FinCEN and BIS notice last year. OFAC and BIS coordinating sanctions and restrictions,” he said, citing two examples.

Dissecting the US Sanctions and Export Control Program

The US sanctions and export control program is regulated, monitored and enforced by multiple policies, law enforcement and intelligence agencies. Each agency plays a specific role in ensuring economic, national and international security for drafting policies and implementing them unilaterally and with multilateral support.

US enforcement agencies target potential violators globally with various criminal investigatory and administrative tools and intelligence collection methods. Most officers deal with OFAC’s licensing division for processing and the sanctions lists, and enforcement agencies. They liaise with BIS for export administration and licensing.

Andukonis describes the framework of the agencies as a “balancing act” to protect national security and economic security. “National security will always take precedence.”

Principal Agencies Controlling US Export Control Laws and Regulations

Agency Law Regulation Scope Enforcement Agency
Department of State: Arms Export Control Act of 1976 (AECA); International Traffic in Arms Regulations (ITAR) Defense articles; defense services; technical data ICE (Criminal), FBI Criminal, Counter- intelligence)
Bureau of Industry and Security Export Control Reform Act (ECRA) of 2018 Export Administration Regulations Defense articles; civilian and military items, software and technology BIS (Administrative & Criminal); FBI (Criminal & Counter- intelligence)
Department of the Treasury Trading with the Enemy Act of 1917 Title 31 Code of Federal Regulations Part 50 Administers and enforces economic sanctions programs FBI (Criminal); OFAC (Administrative)

National Security Council

At the heart of the system is the National Security Council (NSC), which reports to the chairman, the President. Members of the NSC include the secretary of state, vice president, secretary of defense, secretary of energy, secretary of the treasury, national security advisor, and attorney general, among others.

Developmental and agency partners that work with the NSC include the Defense Department, State Department, Homeland Security Department, Justice Department, Treasury Department, Commerce Department, Energy Department and the CIA. Permanent staff are appointed to handle certain national security matters, and agency representatives are assigned.

The US Intelligence Community (IC) is next. The IC is a group of US government intelligence agencies and subordinate organizations that work separately and collectively to conduct intelligence activities supporting US foreign policy and national security interests. The National Intelligence Program and Military Intelligence Program receive $80 billion in funding, Wilcox said. The CIA, FBI, Defense Intelligence Agency, National Security Agency and others all report to the Office of the Director of National Intelligence.

“National security always supersedes economic security,” said Wilcox. “But as economic security became more prevalent, the NSC became more intertwined with export controls. So the commerce department spends more time at the NSC.”

Implementation occurs when the regulations are ironed out. “They are only as good as the enforcement. The agencies enforce them and provide statistics and intelligence information to the IC.”

Creation of Task forces

The NSC will review information from intelligence agencies and create a task force for input from the US government community. Then it will develop a policy direction, such as for BIS and OFAC.

“Some BIS people had explained to the NSC that CIB was causing problems with in-country diversion of commodities, specifically 3A001, that were being sent to Russia and China but were being diverted for military use,” said Wilcox. “Before deciding, they created a task force from all intelligence organizations and BIS to see whether they should eliminate CIB for those countries.”

On the OFAC license review process, Andukonis said those that are not as complex and don’t involve other agencies will go through more quickly. “The intelligence community does weigh in with its involvement as it goes through its process of approval and denial.”

Wilcox said that for some high-risk transactions, BIS and OFAC, despite being the regulatory organizations that might approve the license, they can “lose control of the decision-making process because IC and other government agencies can weigh in heavily.”

Wilcox said that the Department of Defense would block the transactions if anything is seen as a threat to national security. “People might assume OFAC and BIS are not approving licenses without understanding other organizations are not approving them.”

Agencies can pass information to NSC or directly to OFAC and BIS. “NSC plays more into decision-making because the NSC has that collaboration of intelligence agencies and regulatory agencies under the one roof to provide direction to OFAC and BIS from the White House,” Wilcox said. “After they implement and publish in the Federal Register, industry has to comply with those lists.”

How Does the IC Influence Investigations?

The IC undertakes  a preliminary inquiry in the form of a criminal, administration or counterintelligence investigation. “BIS agents outside the US can visit entities, and that information will be provided to the IC,” said Wilcox. “When the investigation concludes and judicial proceedings follow, there can be intelligence debriefings as part of a plea bargain. Most export control cases never see the light of court because they have already proven the elements of the crime.”

Wilcox said It would be hard for someone to escape prosecution at that point. “If the intelligence debriefings don’t happen during the judicial proceedings, after someone is incarcerated, they can get a reduced sentence for cooperating.”

There are multiple opportunities for US agencies to collect information. “The US likes to get its hand on certain people because they like to get the intelligence information from the foreign person because all illicit acquisition and procurement is made by foreign governments, terrorist organizations and or organized crime,” Wilcox said.

International Sharing of Information

The US government has many methods of sharing and collecting information inside the US and from foreign partners. It has three end-of-use monitoring programs:

  • The State Department’s Blue Lantern – direct commercial sales of US munitions list, articles, technology, services and brokering.
  • Golden Sentry – foreign military sales of defense articles and services via government-to-government channels.
  • Department of Commerce’s un-named program – dual-use items and munitions on the Commerce Control List and “600 series” items. Andukonis estimates BIS conducts about 1000 end-use checks annually.

Other countries have end-use programs: Germany, Switzerland and Japan, to name a few, said Wilcox.

Wilcox said that BIS had added entities to lists even when they didn’t have jurisdiction over a particular commodity. “One assumes this mitigated national security risk. If a company doesn’t obtain anything of US origin or is subject to EAR [Export Administration Regulations] but provides a capability to some other country, that company will be added to a list. Even when there is no US nexus other than threatened risk.”

Answers to Compliance in Data

Data mining is a technique gaining momentum in intelligence work. “Data analytics are significantly used more today than by governments even only a few years ago,” said Bell.

“E2C2, the Export Enforcement Coordination Centre, has agencies bringing industry into meetings to talk about what they see from data of export filings. Data doesn’t just go into a black hole – it gets crunched by the government for targeting purposes. Agencies use data mining and have hired a lot of data scientists.”

Bell shifted his narrative from discussing US government data collection and analysis methods to addressing ACSS members. “Make sure you analyze your data. Be proactive. It’s a good way to spot potential problems.”

• ACSS members can access the webinar Interplay Between US Agencies on Sanctions & Export Controls in On-Demand Webinars. The central library of On-Demand Webinars has a wide selection of webinars featuring top sanctions compliance and export controls speakers dating to 2016. Become a member to enjoy access whenever you want, just one benefit of ACSS membership.

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