US Commerce Secretary Howard Lutnick provided a keynote speech at this year’s annual conference for the US Commerce Department’s Bureau of Industry (BIS) that promised tougher penalties for persons and entities running afoul of export-control mandates. He went on to say that export controls would now be a regular part of trade deal negotiations with the country’s international partners.

Export-control rules have increasingly targeted China, so an expansion could include any number of other countries. Lutnick did not say if there would be immediate changes to the export-control regime pertaining to Russia. He also didn’t address the possible staffing issues that could arise from the recent cuts being made to the federal government’s workforce.

Much of the discussion at the BIS conference centered on concerns over possible diversion of sensitive technologies to China, particularly concerns about such tech tools being diverted to mainland China, Russia or elsewhere when initially being shipped to Hong Kong and other places.

BIS also outlined a new “Know Your Customer” compliance effort that it has initiated through what it is calling a “Red Flag Letter,” which is a letter BIS will use to notify a company of a potential compliance issue with a transaction suggesting that the exporter conduct additional due diligence. 

Compliance tips, predictions

BIS officials had some compliance tips to share: They said that to mitigate this risk, BIS enforcement officers advised companies to pay close attention to customers, locations and routes – as well as the rationale – for any shipments going through Hong Kong.

Another red flag is an uptick in orders from new locations of products affected by recently changed regulations, such as when a new Russia sanctions package gets added or another type of chip is controlled. Compliance teams should take notice of such changes when monitoring sales, the officials advised.

BIS confirmed that these letters are meant to be informational only for the exporter.

Matthew Axelrod, who served as Assistant Secretary for Export Enforcement at Commerce under President Biden, told the WSJ that aggressive export controls are likely, and while he anticipates some regulatory simplifications, he foresees bipartisan support for restricting China’s access to US military technologies, along with significant corporate export enforcement actions overall in 2025.