Latest / Rittener Reflections / 18: Export Controls: Past, Present, and the Path Forward. – Pt. 2 Reality Check

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18: Export Controls: Past, Present, and the Path Forward. – Pt. 2 Reality Check · Rittener Reflections

• Jeff (00:00) Welcome back to this three part series of written reflections where we are seeking to understand the complex, critical and ever-changing world of export controls, the past, present and the way forward. In part one, which I called the long strange trip, we explore the historical arc of export controls. Today, we turn to the present and it's complicated from China's tech ambitions to Russia's impact on multilateral regimes, from AI's promise and peril to the post-COVID compliance landscape, exporters face a maze of challenges. My guest brings deep insight into how companies are adapting, what regulators are prioritizing, and where the real risks lie. I'm joined again by Bruce Jackson, whose depth of experience helps us make sense of this shifting terrain. Bruce, welcome back and thank you for joining me again today. Bruce Jackson (01:22) Thank you. Happy to be here. Jeff (01:25) In our session last week, you mentioned a couple of times the concept of not wanting the left hand to be doing something that the right hand is going to pay for. So I thought that was ⁓ a fascinating way of looking at it. And I thought maybe just to start this session, you could elaborate on that and then provide maybe just an example that illustrates this risk to internal mismanagement. Bruce Jackson (01:51) Yeah, it's not so much mismanagement as just a certain level of awareness. And it's particularly an issue, I think, that's prevalent in large corporate firms. think it could be, I was trying to think about whether this could be happening in smaller firms as well. I think it could. ⁓ Most of my examples on this tend to be in the large corporate environment. But ⁓ one example I'll use, because I've cite this when I talk about this issue is I recall back in the the 90s there were a number of state and local jurisdictions in the United States that were ⁓ imposing procure principally I think procurement restrictions on companies that were doing business with I'll name one country with with Myanmar with Burma and ⁓ because of the the allegations of human rights violations in that country and all that and And I recall one particular incident where a company I was engaged with, they were bidding on a big project in the San Francisco infrastructure project in the San Francisco Bay Area. And they were accused of being actually re-threatened with being kicked out of the bidding process because there was an affiliate, not even to their legal entity in the United States, but to a sister business over in Europe. that was participating in a one-man representative office for a European country ⁓ in Burma, basically a business promotion office in Burma. And ⁓ at that time there was, and it may still exist, I think there was ⁓ basically an NGO that was tracking these type of investments and pulling from public records what companies are involved in Burma and Myanmar. And they were reporting that. to state and local government procurement entities in the United States who were subscribing to that service, whatever. And so they knew about this. And so ⁓ there was a risk there that a multimillion dollar project in California would get lost because of one, and that one man in Burma might be 10 companies that are paying for him for that one thing about some potential projects there. And here's a situation where the left hand is gonna pay pretty heavily. for something the right hand's doing and there was no connection, but it was the trade compliance function that brought this up. And it was able to resolve it, not necessarily to the satisfaction of the part of the business that wanted that representation in Myanmar, but ⁓ I think it illustrates an example of that. then in another example, I mean, Jeff (04:22) Mmm. ⁓ Bruce Jackson (04:44) I think ⁓ of the Committee on Foreign Investment in the United States, the CFIUS process, ⁓ many of those who are practitioners in the trade field, while not necessarily experts in CFIUS get pulled into it quite a bit. ⁓ And because anytime there are major investments that raise national security issues, CFIUS is often involved in that. ⁓ And because of that, there can be... the reach of that is beyond just investments in the United States. It can have a much broader reach. And as a result, you can have activities that are going on halfway around the world that could be impacted by something that's getting reviewed by CFIUS. And those who are involved in the respective projects may not be even aware of that, right? Because oftentimes the interaction with CFIUS are conducted under legal privilege. Those are deals that may not even happen, who knows? And because of that, you've got compartmentalization within a company. which is also a further reason why having trade compliance with a nexus to the legal function within companies is so helpful because it could give you access to that information when necessary to make those considerations. And that is why I think trade compliance can be very strategic in what it brings to the table because you'll often hear, and I mentioned this I think in our last session that ⁓ I've had executives tell me, I don't really know why you're bringing it up, but I'm glad you did. No one else is. And so ⁓ that's really a gap that I think trade compliance can help fill, particularly if you're being strategic about it. Jeff (06:11) Yeah. Yeah, that's fantastic. Those are great examples. And I think in both examples, you mentioned the value add that the trade organization provided, right? And I think in any company, especially larger companies, know, one of the goals of business is to grow and sell and make revenue and please shareholders. And one of the roles of compliance professionals is to ensure that that strategy doesn't lead you into Bruce Jackson (06:29) Mm-hmm. Right. Right. Jeff (06:47) into deep waters, right? And that's where your illustration of the left and the right hand is so perfect. But as a leader, as a compliance leader, how can trade organizations actually bridge that gap between helping the business grow into places it wants to go, but at the same time, making sure you address the regulatory exposure? Bruce Jackson (07:09) Well, again, it's important. I've seen, particularly when I was a consultant, spent quite a few years as a consultant, when I would come into companies, I would see different cultures. You would have a compliance culture maybe where the compliance folks are kind of viewed as sitting in this little tower and that don't respond to the business at all. And then you see other companies, and then those who are in the tower, they may not disagree with that. but they feel like they're under siege and they're just trying to follow the rules, right? ⁓ But in other cultures, they're more integrated. It's more just part of the fabric of the business. So it's part of the culture where the leadership of the business understands that compliance brings value. They don't want any surprises, right? ⁓ They want to be able to anticipate things. They don't want any of that. And I think if the more that compliance professionals focus on ⁓ collaborative approaches with their business partners, the stakeholders internally within the business. We can be more of a snow plow rather than a fireman when it comes to ⁓ clear the path, to be a partner ⁓ with the business so they understand that we care just as much about the bottom line as they do and generating business. ⁓ we need to be aware of these guardrails, these issues that are out there. so that the left-hand doesn't pay for something the right-hand's doing. But that does involve senior leadership wanting and willing to involve compliance in those conversations, at least to have them part of that. And so one tool, one way of bridging that gap is to set up some kind of advisory group, internal group, where you have that already within your executive leadership team, but you have to consider, like, do you have subgroups of that or do you have a connection to get the views of these other groups. ⁓ And I'm not just saying trade compliance, there are other functions that need to be involved in that conversation as well. ⁓ other examples of where trade compliance needs to be involved is you could go and design a whole structure. We're probably going to talk about when we talk about ⁓ China specific issues, but you could go through a whole effort of kind of structuring the business how you want it to work. On the other hand, somewhere else in the business, they're talking about changing how they do internal reporting, changing how they recognize revenue that could impact that model you've just set up. And if the two groups aren't communicating about it, you could really have ⁓ things falling apart there. So again, I think that's why it's important. Jeff (09:49) Yeah, that's fantastic. You know, I, my experience working very for a very large multinational is, you know, when you, when you started to really peel back and understand the business, you started to realize all the connection points and all the relationships that you really had to build around the company because otherwise you, you're right, you miss something and something's happening over here. You didn't know. So I couldn't agree with you more Bruce. This is really, it's a really great. a way to look at it. ⁓ Let's do this. Last time we talked about the history and one of the things we didn't get a chance to really get to was sanctions. So let's talk about sanctions. Maybe you could walk us through how the sanctions are being used today. And then I think one of the areas that I everybody's focused on is Russia because with the Ukrainian invasion and so on, all of a sudden we saw just sanctions from everywhere. So maybe you could help us walk us through that. Bruce Jackson (10:44) Wow, that's a loaded topic and there's a lot to cover there and we probably don't have the time to go through all of it. I probably from just, I would like to mention just from a history perspective, just because I think it lays context for today is I think back to the early days, earlier days with sanctions. mean, the US has had sanctions programs for a very long time and some programs that were established a long time ago still exist today. A good example is the sanctions on Cuba. It will be a very good example there that they've existed for a very long time and they've evolved over time to some degree, but they've not gone away. And normally sanctions don't go away unless there is a leadership change in the targeted entity. With the changes in Syria now, we're waiting to see whether all of those sanctions eventually fall away. But there are things that still need to happen to make that. really fully implemented. So Cuba is a good example. And one of the things I would have thought about and we talked about a lot lots years ago was that, are they really working? Because sanctions, you have to look at, do they really work? And the example I put up as one that where sanctions did work is in the case of South Africa. Because those sanctions were not unilateral. You had many countries involved there. ⁓ you know, opposing apartheid and, and taking actions aimed at that country. And there you did see change. The sanctions did work ultimately. And, and at least from, from my perspective, looking back on it, they did, they did function, ⁓ because other countries joined in, even neutral countries in Europe joined in. So, so you had, ⁓ a pretty robust and effective effort there. Whereas other unilateral controls, you know, it's kind of the, don't like them controls and, and, the Those don't have the desired effect. And even within the national government, if you're not being consistent in how you implement them, the perception of other countries is, you're not really serious about it. So I think of the Iran sanctions in particular back in the 90s. because you were sanctioning Iran, but still buying their oil for a time there. So these kinds of things. Jeff (13:00) Yes. Bruce Jackson (13:09) You need to think about how they work. if we jump forward now, and if we start in the context of Russia, Ukraine, mean, the first round of really kind of sanctions, the first salvo of this was really with the invasion of Crimea in 2014 and the actions there ⁓ that really led to, I think, a response from the US government. But still, there was also, I think, a perception that, OK, that's Is that Russia's sphere of influence and do we just leave that alone or what? mean, there were some rumblings on that, but there were hard sanctions that came in and you saw ⁓ OFAC restrictions there. And ⁓ I can recall an incident where a ⁓ company delivered, and I'm sure this happened many times, companies delivered product and then the banks froze the payments to them. Jeff (14:06) Mm-hmm. Bruce Jackson (14:07) And they went, why? Well, because the entity is hit by the OFAC 50 % rule. And you go, like, what? How? It was an entity in this country in Europe. How? And then you go trace it back and you go, wow, it was buried. It was really hard to detect. But the banks will find it. And this is something, too, I want to remind that I think everyone needs to remember. If you don't have the screening tools, don't worry. The banks have it. They're screening those transactions. And they have to report that to the government. Jeff (14:12) Mm-hmm. Bruce Jackson (14:36) It's going to get stopped, at least you're not going to get paid and your product, the customer may still have it if it wasn't subject to export control requirements or you have a license but you didn't get paid. So like, what are you going to do? And then you have to go and try to unravel those kinds of challenges. And then of course, coming back to Russia, the evolution of the sanctions and the restrictions that were put in place in 2014 and thereafter. Jeff (14:47) Right. Right. Bruce Jackson (15:05) And then ultimately with Russia's invasion of Ukraine, saw, you know, I would say greater multilateral coordination out there. mean, you certainly it was certainly better than it had been in 2014 and in prior sanctions initiatives, because I think the US administration had been pretty vocal in educating others that this was coming and it did happen. ⁓ And and of course, now ⁓ with those sanctions. the sanctions have been implemented and people have to comply with them. And it's not just sanctions, it's export controls and multiple countries are involved. That makes it more complex. And of course, they're finding Western, and I use Western term broadly to basically mean those who are not affiliated with Russia. And they're finding components, advanced microelectronics and whatnot in equipment on the battlefields of Ukraine. Basically, Jeff (16:01) Yes. Bruce Jackson (16:04) their organizations ⁓ basically that have ⁓ working with the Ukrainian government and ⁓ NGOs to analyze what they finding in that equipment and they're finding components from lots of different companies that we all know ⁓ and that how to get there. And because of the microelectronics are small and they can go in lots of different ways. Jeff (16:18) Yes. Yes. Mm-hmm. Bruce Jackson (16:31) So you have to think about this not just as someone formally selling things, also ⁓ smuggling and those kinds of things. Think of other activities that happen that are nefarious. So it makes the compliance task that much more challenging. Jeff (16:43) Yeah. Yeah. Yeah. Right. Well, I think you raise a really good point and that when you ask the question, you know, are these sanctions effective? And, you know, we've been now more than three years on this Russia sanctions path, right? And you're right. I remember back in 22, it was amazing to see the coordination. to see, because in the past, like you said, oftentimes it was really the US that led the charge and nobody else followed. with Russia, it was clear that you had governments in Europe, governments in the UK, Australia. I we're putting sanctions, but here we are three years plus. And the question, I guess, in everyone's minds is, are these working? And so I don't know if you have a thought on that. Is it just a matter of, you know, getting more people to participate or what's sort of the answer here? Bruce Jackson (17:44) So I haven't really discussed this topic with other exporters who've had their stuff found in the battlefields and this equipment, but it is interesting. From what I've seen, what I've observed, most of the microelectronics they found are obsolete, older stuff. ⁓ There may be exceptions. I'm not saying that there aren't exceptions to that. But at least from what I've seen, a lot of it is older, obsolete stuff. Who knows where it came from? It may have been scavenged out of a washing machine somewhere. I mean, who knows? In other cases, yes, you do have nefarious parties utilizing basically mailboxes at Chinese Secretarial Services. know that BIS has, that's why they put addresses on the entity list. is because they're seeing a lot of traffic through those addresses. So it's plain and simple there and getting greater accountability there. But the problem is because they're microelectronics, they're very easy to move around. And because historically, they're really not that controlled, right? They really aren't. mean, people say, it's sophisticated. No, it's some little chip they made 20 years ago. But it can serve a purpose. Jeff (18:56) Yes. Bruce Jackson (19:05) in a device that is being used on the battlefields. And particularly because of the confluence of civil and military technologies over the decades, it's not a surprise that this would happen. I I recall ⁓ when ⁓ Western governments were trying to figure out how ⁓ IEDs, improvised explosive devices were being used in Iraq, for example, ⁓ the roadside, these roadside bombs, that kind of thing. They were dissecting the cell phones and the other devices they found there, and then trying to chase, they figured out, we can trace where these components came from, right? And then the companies that were supplying it go, my gosh, we don't sell that country. Well, of course not, it's going somewhere else. But it shows how rudimentary technologies can be quickly Jeff (19:32) Yeah. Right, right. Yes, yeah, yeah, yes. Bruce Jackson (20:01) converted in. So this is not a problem that's going to go away. So the trade compliance professionals should rest easy. ⁓ job security is there because these problems don't disappear. Jeff (20:14) Right. And I can tell you, Bruce, I had the opportunity to actually spend a weekend in the embassy in Brussels with ⁓ multiple tables scattered around the room with parts that were brought from Ukraine, from the battlefield. And I can tell you without going into how much detail, I can tell you that most of what I saw was old. Bruce Jackson (20:25) Huh? Jeff (20:41) was multiple generations old. And I had our engineer there and there was an interesting conclusion that the engineer was able to look at the parts and they were, you know, chips sitting on boards and it was obvious to that engineer that the skills that were used to configure that board for whatever that weapon was, was very rudimentary. In fact, I recall the engineer say, this clearly was done in Russia because China is much more sophisticated and would do it differently. So it's very interesting. And what we all kind of concluded from that was that, you know, at the end of the day, the item they were putting together, cobbling together, only had to work once. As opposed to you think about how you design products to work for years. anyway, just fascinating. I won't go too much more into that, but you're absolutely right. It's a real tough problem. Bruce Jackson (21:16) Yeah. Exactly. Jeff (21:40) And I think it really challenges exporters and you see, we see, you know, rules being put forward that are trying to address this, you know? And so I think just ⁓ this last week or two weeks ago, a week ago, we saw BIS ⁓ actually publish a rule that everyone was kind of anticipating and it finally got ⁓ published and it's... Bruce Jackson (22:04) Yeah, yeah. Jeff (22:08) We all knew it as the BIS 50 % rule. And then what they're calling it now is the affiliates rule. I've attended a couple of best practice discussions. even this week I was at a conference and where exporters were talking just exclusively about this rule and the challenges, the difficulty of how do you really understand the full Bruce Jackson (22:13) That's right. Jeff (22:35) nature of a business and who owns it and so on. So I'm just kind of curious, you know, how did this come about and what do you think are the challenges that ⁓ exporters really have to address to solve this? Bruce Jackson (22:48) Okay, so I guess my own approach on it is somewhat colored by just by experience and, you know, we joke, I can't remember if I said it in the last session, but we joke that oftentimes compliance is, you know, hours and hours and weeks and months of boredom and followed by a moment of sheer terror, you know, because something happens, something terrible comes up or happens, you know, an invasion somewhere or they, you You've discovered, the shipments have been happening without a license. ⁓ You know, you have moments like that. Panic. Yeah. And yet I think so. So coloring my view of this is you have to step back and look at how do you do business with your customers? That's the first thing I would ask. Who are your customers? What does your supply chain look like? Because when I when I think about how you deal with a customer, if you've got established relationship with your Jeff (23:20) Yeah. I think the word is panic. Panic. ⁓ Yes. Bruce Jackson (23:47) with your customers, even if you're dealing with distributors and they have established relationships, how they deal. let's assume that they are doing screening and they're doing the export checking and your distributors are respecting law just like you. Let's just assume that for this discussion. Then if you talk about adding affiliates, I mean, particularly in the micro-electronic space, you're not normally, if ultimately your chip is gonna be, component that goes in a cell phone or a computer or whatever. The ultimate end customer, they need to get those chips. If suddenly those chips are missing, that's a potential, yes, there's a theft potentially there, a diversion or something. Yes, that could certainly happen and so you need to trace that. those sales are going to be ultimately to that well-known company. And they're well-known and they have vetted. And if the fact that they ask, I mean, you're not normally gonna be selling and delivering to them through some affiliate in some country somewhere else. You've got an established supply chain that's vetted, right? So unless one of those entities in your vetted supply chain is suddenly added to the list, then the affiliates rule probably doesn't have a huge impact. Now there may be exceptions to that, particularly during design phases, design in phases where you're asked to send something or somebody maybe orders something online. ⁓ Jeff (24:51) All right. Bruce Jackson (25:12) And yeah, you're going to see probably a big uptick in that area. That's the area I am concerned about. Those who are affiliates that get hit by this, they may try to reroute in how they interact and say, well, we're not going to able to get it from these countries. Maybe if we use our guy in Germany to go and download this or order it, maybe we can make it happen that way. But then that becomes a new customer and you're going to be screening them and setting them up. And because they're new and you don't know them, you might do some vetting, right? So tools like the various ⁓ beneficial ownership tools that are out there, they're going to do well from this rule, right? They already are if you're doing a screening for OFAC compliance, the 50 % rule and military end use screening, but they're going to do well because, ⁓ and rightfully so, ⁓ they have the tool for this because these are not, this is the ultimate challenge. These are not entities that are on a government list that you can screen. Jeff (25:51) Mm-hmm. Mm-hmm. Right. Yes. Yes. Bruce Jackson (26:11) So you have to have some intel. mean, before, ⁓ know, going back some years before these tools were in wide use, it was very labor intensive to do this kind of investigation. And people would say, ⁓ go to the website and look at the companies and try to do some research there. if you're looking at the, and you click, they have a nice English language version. So I'm gonna click on the English language version for their website. If I'm that company, I'm probably not going to put everything in the English language version that's in my Russian or my Chinese version. And so it's much better to use tools that allow some of our browser providers, maybe even all of them, will do a translation. And you find more stuff when you do that rather than use their English language version, right? So you have to be clever. And even then it takes a lot of effort to try to dig into this. And it may still be ambiguous at the end. And so it gets very difficult. But all of that's to say, if you step back for a moment, Look at your supply chain, how you deliver to customers, where is your risk? I think the risk is probably bigger for kind of web-based service providers or those that do software as a service or other kinds of things that where the customers could be anywhere. And so anyone could sign up an online account. How are you going to screen that if it's an affiliate and they're not on a list? You're going to have to have a more robust process, more like most likely for that. Jeff (27:20) All Yeah. Yeah. Bruce Jackson (27:39) Again, before panicking about this, we need to kind of think about the best way to approach it. And I do think the government should recognize that. It's not an easy thing. But I get it. mean, this is whack-a-mole, right? It's whack-a-mole, you know? Yeah. Jeff (27:53) Yeah, yeah, yeah. And I think just to connect it back to our discussion on Russia and the sanctions, I think that's really what's driving this. Just what we talked about, the fact that these items can show up and are being diverted and being purchased from different sources, it's another effort to try to dig deeper down into that supply chain. So one of the challenges, I think, and I don't know if you have any thoughts on this, but if you're a company that sells through a distributor model, right, and you know your distributor and you know the ownership and you have all that nailed down, Bruce Jackson (27:57) Yeah. Yeah. Yeah. Jeff (28:22) but they may have another 25 to 100 people that they sell to. So do you need to go look at those 25 and do this same sort of assessment to see what the ownership ⁓ is of those ⁓ end users. And they may not even be end users, they may be resellers for all you know. So it's a very, the whole thing is very complex. And so the question is how far down do exporters have to go to feel satisfied they've done enough? Bruce Jackson (28:48) Right. Well, you have to look at everything from your contract with your distributors. You have to understand their model, how they're selling, ⁓ who their customers are to a sense. But the distributor, mean, if you're the distributor, at least in certain industries, sharing all their customer data with you kind of cuts them out of the whole thing. It depends on the type of industry, because in some cases, the industry is set up that even the end customer, if you said, let's take the distributors out of it and just ship to the end customer, the chip's gonna go into a phone or it's gonna go into a computer or whatever, just ship it to them. If it shows up on their doorstep, they're gonna go like, what's this for? We can't do anything with this. This needs to go to our assembly and test facility. It needs to go here and there. it's not that cut and dried anymore. It's very complex, particularly in microelectronics. I will say this, because I do think on the sanctions thing, what I'm seeing, because we've been working as well, I've been working with with these NGOs and with these other entities that are trying to trace the supply chain. You have this, you you've got your distribution path and it goes so far and then it stops, right? And then you have the procurement networks, they're building these drones or this equipment who have their own path and you can get some of that data and research it back, but there's still a gap, there's an abyss. between the two and how is that happening? Is that smuggling? mean, what is happening in between? And trying to close that gap, getting more coordination ⁓ across industry and with national governments. mean, we think as well about, and I think there's been testimony on the Hill on this, maybe you were even in the hearings where you look at ⁓ these countries where the diversion's happening. Jeff (30:17) Alright. Bruce Jackson (30:45) I after the Russian invasion of Ukraine, there were a lot of, there's a big spike in microelectronics going through countries that normally don't traffic in that, and trade in that kind of goods. And those poor customs officials, probably underpaid to begin with, or not paid anywhere close, I mean, really tough. could, who knows, they may be being bribed, they could be like all kinds of things going on there. they just don't know, they don't have the tools, the sophistication that we have in other countries. Jeff (30:53) Yes. Yes. Yes. Bruce Jackson (31:12) whether it's Japan or Europe or Singapore or the US, to be able to track and be able to account for what these items are. And I know the US government and other governments are trying to help these countries upgrade, make more robust their programs. But that's part of it too, is building a more robust network and also getting greater cooperation and coordination from other countries. But if you're a country neighboring Russia, There's a lot of pressure on you to not to play nice with Russia, I would imagine. So it's got to be hard. It's got to be really, really hard there. Jeff (31:46) Yep. Yes, I'm sure. Yeah. Yeah. Yeah. No, you're spot on. During the testimony that I was involved in that that very issue was posed. It was, know, how do you account for a spike in sales in this country? And that was one of the expectations. What are you doing to to manage that and to look into that? So it's definitely definitely something that's on. The regulators minds. Bruce, let's, we've been talking Russia and sanctions, but let's shift. I'd like to move over towards China because, you know, over the last few years, we have seen a number of new regulations that are clearly, ⁓ you know, targeting China, trying to either restrict items from going to China, slowing down China's own ability to produce and so on. And ⁓ so I thought maybe we could park on that for a little bit and, you know, Bruce Jackson (32:18) Okay. Jeff (32:41) ⁓ So, what's, if you can kind of unpack a bit, what's really driving this, you know, this barrage of export regulations that are, you know, whether it's semiconductors, right, and the equipment that's used to make semiconductors, or it's the AI chips, or it's the connected vehicles. I mean, you see all of this. What's really going, what is BIS or the government trying to do? Bruce Jackson (33:04) Well, I I think it's, don't think it's just the U.S. I think it's other countries as well that are concerned about this. Probably the U.S. is out front there though, because of raising the concerns. And they will, I think in many of these rules within the first few paragraphs of the introduction or preamble of these rules, they will talk about official Chinese government policy regarding civil military fusion. Okay, so basically pulling from the civilian industry to support. their military industry and also just the longer term plans of the government. And I'm not going to speak to that. mean, I, you know, that's, you know, that's above my pay grade. I'm not going to go digging into that kind of topic too much, but, but that is, I think the key, key drivers just real concerns about it. I mean, I remember looking at the connected vehicle rule, which concerns the use of, ⁓ of, of, of basically Chinese, primarily China source, but they're Russia's in the rule too, I like, and I think there's another country, Venezuela or something mentioned in there, but it's it's China. China is the concern there of components from China ending up in basically automated driving systems and vehicle control systems that are then used on the US highways. And I think ⁓ the first 170 pages or so of that rule, it was like 220 pages, something like that. First 170, Our first 170 or 180 pages are basically, this is why we are doing this. That's a very, very long section of preamble to get to the actual rule itself. And that's an effort to try to really get it across to industry and the public that this is a big concern. so that's why I view this rule in many ways as very, that particular rule very consequentially. We don't have to go too deep into that, but. But I do, and I can certainly explain why I mean, I think that, but that is really what's driving it. And so I think that's a challenge because for decades, for decades, the US policy was, you know, expand trade. We want to build trade with China. And in many areas we still can, of course, but when it comes to microelectronics and other technologies that are very useful for Jeff (35:01) Mm-hmm. Mm-hmm. Bruce Jackson (35:31) military applications can find their way there that that's that's posing a risk. So that's that's I think what it's hard to make that shift. So it's okay over here to sell them, you know, food stuffs but not not okay over here. Yeah. Jeff (35:45) Yeah. So with these rules and if you're one of the companies that's ⁓ directly impacted, your whole business now has been completely, and we've seen this in a number of 10K filings that there's a huge amount of dollars that all of a sudden are off the books, right? Because you can't sell. And so as you think from a company's perspective, if that's really... the intent of the government, whether it's US or multinational governments, and that's the intent, then do companies need to start thinking about pulling out of China and finding other places to sell? mean, does this really change the game in terms of your business relationship with China? Bruce Jackson (36:34) I I think China is a huge market. It's a huge country on the planet. no, I don't think that's reality-based. think that's not something, mean, longer term, just go back through the millennia. it's been, ⁓ I can certainly see there's room for Jeff (36:44) Mm-hmm. Mm-hmm. Yeah. Yeah. Bruce Jackson (36:59) know, maybe developing specific policies in terms of how you trade with China, particularly for multinationals, ⁓ that, you know, how they trade and how they interact, how they grow their market there, ⁓ they need to think about that. But I think simply saying, no, we got to cut off all trade with China, I don't think that's that's not feasible. that does. ⁓ And to me, I don't think that makes a lot of sense. But there are certainly those that probably think that's possible. You know, I don't I don't think that is. yeah. Yeah. Jeff (37:26) Yeah, right, right. So then many companies are talking about, in order to manage this, we'll develop sort of a China for China strategy where what we produce in China will stay in China and that we don't have to worry about. Do you think that's viable? Bruce Jackson (37:44) Yeah, I mean, I think yes, I think it can be but you've got to be able and willing to respect how that's going to impact your business because it's probably going to have a bigger impact than you think and while you're off doing it's kind of a left-hand right-hand thing where you're off doing these things in China, which is kind of supposedly self-contained, you're still going to be public about it in China because you want to grow your business in China. And if you, on the other hand, have a project getting considered by a government and you're getting government approvals for something in either the EMEA region or US or someplace, and it goes before a government committee is reviewing and say, well, you're doing this over in China. I don't know if we like that so much. So we're not sure we're going to approve your project. You know, then there may be some trade-offs there. You have to decide which one is more important, right? To your business, to your enterprise. it may not always be possible to do both or you may have to alter what you're gonna do ⁓ in those cases. yeah, that's the challenge. I think that there are a lot of companies out there looking at China for China policies and are starting to do things in that direction, because that's what they have to do because of the nature of their products, technology, whatever. Jeff (39:07) Right, right. Well, to make matters even more complex and challenging, we now saw this last week that China has enhanced their export control program. And for the first time, they are actually ⁓ applying extra-territoriality measures to capture China origin, either technology or items actually that are being re-exported or built into products and move on. So I'm assuming you've probably looked at that, but... Bruce Jackson (39:35) yeah. Jeff (39:35) Do you think that this is posturing for potential ⁓ trade discussions or trade agreement with the Trump administration or do you think this is ⁓ the wave of the future for China? Bruce Jackson (39:48) I I'm just guessing, but I'm guessing that Chinese government probably wouldn't have done this if they hadn't gotten other treatments from the US administration. And I'm not just talking about the current US ministry, but the prior one too as well. I mean, are we surprised? I wasn't surprised. I actually chuckled when I was reading about these actions that China was taking. And we should be surprised by that. Jeff (39:51) Yeah. Yeah. Yeah. Yeah. Yeah. Bruce Jackson (40:17) Yes, that could be, it could be a way for the future, it depends, but it could also be a negotiating point. I mean, I would imagine it's a negotiating point. I mean, I would think, you know, that's, ⁓ you know, we gave them a roadmap for what they could do to as counter actions and they're, you know, they're clever, they'll figure things out too. So yeah, there'll be some, there clearly is going to be some negotiation on some of this to try to relieve some of the tensions in these areas. Yeah. Jeff (40:21) Yeah. Yeah. Yeah. Yeah. Yeah, it's, you know, I can just say working with, you know, another company I'm advising, it's a little bit frightening to think about this because, you know, not only am I now going to have to submit expert license to BIS, I'm going to have to submit expert license applications to the MOVCOM. And just as completely, you know, complicated the... the whole program. So anyway, we'll see. Stay tuned. We've got, I'm sure, a lot of twists and turns down this road here on this particular area. Bruce, finally, ⁓ let's talk about technology transfers. What have you seen in terms of managing technology controls now and even also traveler compliance? mean, how have you seen that play out? Bruce Jackson (41:38) So yeah, so technology control, it's a topic near and dear to my heart because I've had to work with that ⁓ throughout my career. And I've had to deal with some really some cutting edge issues in that arena. At least I view them as that way. And it's because no two businesses are the same. No two corporate entities are the same in terms of how they interact with each other. The culture in the companies can be very different. Jeff (41:43) Mm-hmm. Mm-hmm. Mm-hmm. Mm-hmm. Mm-hmm. Mm-hmm. Bruce Jackson (42:07) Certain types of cultures are very regimented. ⁓ And so when you're trying to figure out how to manage technology control, you can piggyback on that regimentation and that compartmentalization to make it easier. And then other companies, other ⁓ corporate entities are cowboy behavior, people doing whatever they want, nobody respecting rules at all, and you've got to have another way to manage it. Jeff (42:17) Mm-hmm. Mm-hmm. Mm-hmm. Bruce Jackson (42:36) you may think, we'll just do the regimented way here. Well, then you're going to kill the whole cultural spirit of this business and people are going to leave. And you just know that. I I've seen it happen. So you're going to want to design a program and a way of managing it that makes that easier. But anyway, so there's a lot of effort that has to go into the thinking around how you implement a program. You can't just take some government checklist, put your company logo at the top. Jeff (42:42) Mm-hmm. Bruce Jackson (43:06) and sign and say, this is our technology control plan. That's old thinking. And that's not effective. It's not going to work. In some cases, it could work, but that's not the way to really design a program that's going to be effective. But then there are things that come up that are really, in my view, kind post-pandemic situations where ⁓ in the pandemic, everybody figured out they could work remotely. Jeff (43:19) Yeah. Right. Yeah. Yeah. Mmm. Yep. Bruce Jackson (43:36) And so that means I can work from anywhere, right? And the problem is you can work from most places. Okay, yeah, there'll be, but there are a handful of countries, few, where no, you can't do that from there without running up against sanctions, export controls and other issues. And people may be thinking that, ⁓ it's not an issue. I mean, we have a program that requires Jeff (43:51) Mm-hmm. Mm-hmm. Mm-hmm. Mm-hmm. Mm-hmm. Bruce Jackson (44:05) ⁓ manager sign off and finance sign off for travel. And we go through a process, any hand carries have to be checked and all that. But what happens when that person is just going on personal vacation or holiday, go see family or whatever, and they don't have to get their manager's approval other than for the time off, and they don't have to tell their manager where they're going, and they just go there. And then they are just thinking, well, I'm just going to check email while I'm there. Jeff (44:09) Mm-hmm. Mm-hmm. Bruce Jackson (44:35) Right? And then amongst the email they're checking, they get an email from a customer that has a spec sheet attached to it or some technical documentation or not even that. Wouldn't even require that necessarily. And suddenly they've triggered a violation, not only for themselves, but also for their customer or supplier or whatever. And you've added liability. And also if the government in that country knows you're there, Jeff (44:43) Yes. Mmm. Mmm. Mmm. Bruce Jackson (45:03) ⁓ And they go, hmm, we're trying to hack into their system. ⁓ We can piggyback on that employee, put some lean on them and give into their system. So it's not, I mean, the problem is travel is so personal. People just, know, I know what I'm doing. I can protect myself, blah, blah, blah. No, you don't. You don't know all the issues. You're not thinking, I this is not, and I'm someone who's traveled a lot. You've traveled a lot. We all travel a lot, but we can't account for every. Jeff (45:20) Yeah. Yeah. Bruce Jackson (45:31) potential scenario where something could go wrong. so ⁓ just how to manage that ⁓ is a challenge because the travel is so personal. And we're talking not just about company travel, but we're also talking about ⁓ travel, personal travel, where you're going to do some work from someplace that's restricted. understanding those rules is, know, leading on your compliance team is important to interact with them and manage it. Jeff (45:46) Mm-hmm. Yeah. Yeah. Yeah. Yeah. Bruce Jackson (46:01) we're seeing increasing issues in this arena because it's really post pandemic. It came up during the pandemic and we're really seeing it after. Again, ⁓ as a larger scheme, it's not that many countries that are affected, but there are some and we have to be mindful of it. Jeff (46:03) Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. So it really, really, really challenges your compliance program, as you said, to, to maybe build in, you know, controls and checkpoints where you never thought you would, right? Like someone's personal travel and for certain countries, right? And so it's, I think this is just kind of indicative of, of so many parts of our compliance programs is that we, the traditional way we've kind of managed compliance is being challenged all over the place. Bruce Jackson (46:35) Right, right. Jeff (46:47) and we have to look at things much more closely. And so it is a challenging time. you know, maybe just, it's amazing how fast time goes here, Bruce, but as we're at the end here, I thought maybe the way we could kind of conclude is just from, you know, from your season veteran in this area, you know, if you were to give one piece of advice to our listeners today, ⁓ what would that be? Bruce Jackson (47:13) Wow. I mean, I would say stay curious about why people in other functions do things the way they do and why they do them. They're doing what makes sense to them. so avoid the judgment, the quick judgment, you know, and that applies to everything from the employee that maybe you went to a country ⁓ and you're like, what are they doing? Are they working with that government on something? Don't go down that path. I mean, just Jeff (47:23) Mm-hmm. Bruce Jackson (47:41) Stay curious, find out what's going on. All the way to the other extreme of, my gosh, you know, we got this affiliates rule. How do we manage it? Think about your business. How do you manage things today? How, you know, where are the true risk areas in that arena? And I, you know, advocate for your function up the chain. ⁓ Let's, you need to have a voice at senior levels. You need that corporate commitment. I mean, every bit of guidance, everything from the, Jeff (47:47) Yeah. Yeah. Yeah. Yeah. Bruce Jackson (48:09) The federal sentencing guidelines in the US, the Department of Justice, to other things that are out there, none Wolfowitz report 25 years ago, to things that are issued by various governments around the world, talks about the need for corporate commitment to trade compliance. That is the number one thing. And in fact, when I've talked to you, because I used to do a little headhunting on the side to help my consulting clients, the number one thing that candidates said during the interview process that was most important to them. Jeff (48:18) Mm-hmm. Mm-hmm. Bruce Jackson (48:38) how committed is the company to compliance? Because this is my livelihood. This is what I do for business. And if they're not going to listen to me, why am I here? And that is the number one thing I would say to compliance professionals is you have to be heard. And I agree. I wouldn't take a job if the leadership isn't going to listen. Yeah. Jeff (48:43) Yep. Yep. Yeah, yeah, yeah, yeah, yeah. Right, right. That's great, great advice. think what we're finding is that the leadership is realizing they have to listen and they have to pay attention to this because it's gotten so much more higher visibility. So I agree with that. And we're going to talk a lot more about how do we manage compliance going forward in our next session. But let me go ahead and just conclude for our listeners. know, export controls today, as you've all seen, They're more than a set of rules. They're a reflection of global tensions, technological disruption, and institutional strain. And so for exporters, the challenge isn't just compliance, it's strategic navigation. So in our final episode, we'll look ahead, what the future might hold, how AI could reshape our programs, and whether we're heading toward a bifurcated global economy. Please join us as we try to see clearly now or not. Thank you very much. We'll talk to you again real soon. Jeff (50:16) You have been listening to Written Reflections, a forum addressing the dynamic, complex, and essential nature of cross-border trade in our ever-changing world, and an opportunity to reflect on some of life's most important issues in a world of incredible uncertainty and unpredictability.