New U.S. Disruptive Technology Strike Force spotlights need to focus on diversion

At a Glance…

On February 16, 2023, the Department of Justice (DOJ) and the Department of Commerce announced the creation of a joint Disruptive Technology Strike Force. The strike force will be co-led by the assistant attorney general for the DOJ’s National Security Division and the assistant secretary for export enforcement at the Bureau of Industry and Security (BIS).

Authors: Michael J. Lowell; Manasi Venkatesh; Lizbeth Rodriguez-Johnson; Paula A. Salamoun; Ozra O. Ajizadeh; Justin W. Angotti; Kirsten S. Lowell; Leigh T. Hansson; Yves Melin; Alexander Brandt and James Willn

Working with experts across the government—including the FBI, local U.S. attorneys’ offices, and Homeland Security Investigations—the strike force is intended to strengthen supply chains and target illicit actors who attempt to acquire and use critical technological assets to threaten national security. Countries of concern include China, Iran, Russia, and North Korea.

The strike force will focus on enhancing administrative enforcement of U.S. export controls, as well as investigating and prosecuting criminal violations. The joint announcement about the strike force highlights technologies related to supercomputing and exascale computing, artificial intelligence, advanced manufacturing equipment and materials, quantum computing, and biosciences.

In remarks announcing the Disruptive Technology Strike Force, Deputy Attorney General Lisa Monaco also 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 the Committee on Foreign Investment in the United States (CFIUS).

Deputy Attorney General Monaco’s comments come on the heels of Congress’s $1.7 trillion funding package passed at the end of December, which includes a provision calling on the Biden administration to establish an outbound investment screening mechanism. The funding bill also includes $20 million to fund the screening mechanism if the president takes executive action.

Preventing and responding to potential diversion

The strike force is expected to build on existing multilateral efforts to prevent the diversion of advanced technologies to countries like Russia and Iran. Companies should proactively implement or review their export controls compliance programs to ensure they address all of the elements recommended by BIS and other agencies.

If a company learns—from the press or the government—its products may have been unlawfully diverted, the company should have an internal plan that clearly outlines:

• The company’s point of contact for all press inquiries;
• Instructions to employees about escalating government inquiries to appropriate personnel, including the company’s general counsel; and
• Steps the company can take to review existing records and identify the source of any potential diversion, as well as how the company can minimize the risk potential diversion in the future.

The company should also:

• Investigate the information received because export control laws can often be enforced on the basis of strict liability or constructive knowledge;
• Conduct further due diligence on any other customers who may pose a similar diversion risk, particularly resellers and distributors;
• 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, Office of Foreign Assets Control, and Directorate of Defense Trade Controls enforcement actions. Cooperation with the government’s investigation and an effective remedial response may also be important mitigating factors.

Additional takeaways

• Increased enforcement efforts: The announcement follows BIS’s July 2022 policy changes intended to strengthen its administrative enforcement of the Export Administration Regulations (EAR), including significantly higher penalties. The launch of the Disruptive Technology Strike Force will likely lead to an increased number of BIS enforcement actions and DOJ criminal prosecutions.
• Voluntary self-disclosures: The announcement also follows recent changes to the DOJ’s corporate enforcement policy that place increased emphasis on voluntary self-disclosures. Because of the strike force’s joint nature, companies that believe they may have violated the EAR should consider whether to file a voluntary self-disclosure with DOJ in addition to BIS.

This article was initially published by Reed Smith LLP – here.