Tag: Export Controls

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Red Flags Rising

Red Flags Rising: S01 E28: The Long-Awaited “50% Rule” – Key Takeaways and Liability Pitfalls to Avoid

Mike and Brent return with their take on a hotter-than-hot topic, the Bureau of Industry & Security’s new “50% Rule,” effective yesterday, September 29, 2025. Mike and Brent discuss the news of the rule’s announcement and the basics of what it does (00:46); the fact that the rule was effective immediately upon filing for public review, i.e., on September 29, 2025 (02:24); the fact that 50% is not some threshold under which risk goes away (06:19); how commentary suggesting that a “loophole” has been closed is not entirely accurate because such a loophole never existed in the first place (08:12); the requirements (including a description of due diligence performed) under a new, unique license application process (09:45); what enforcement risks are likely to arise in the government’s implementation of the new rule, especially if the government compares pre-rule trade flows to post-rule trade flows (10:43); the importance of not making a quick decision in how to respond to the new rule that you might later regret (12:23); the dangers of misreading the new rule to permit entity-shifting as an appropriate response (15:53); BIS’s caution that the rest of the U.S. Export Administration Regulations (EAR) still apply, separately from the Entity List (18:43); the admonition by BIS that “exporters, reexporters, and transferors have an affirmative responsibility to know the ownership of the foreign companies that are parties to a transaction” (19:45); the statement in the rule that those same actors “must adopt a risk-based compliance program to assist them in complying with these requirements” (20:14); the new “Red Flag 29” added to the BIS Know-Your-Customer (KYC) Guidance (21:05); and the importance of the explanatory text’s reference to “control” (irrespective of ownership) by a listed entity as a “red flag” requiring further due diligence (21:59).

Mike and Brent conclude with another installment, back by popular demand, of Brent Carlson’s “Managing Up” segment (24:57).

Resources:

Brent’s new contact information: brent@redflagsrising.com

Mike’s new contact information: michael.huneke@morganlewis.com

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Mike LinkedIn

The U.S. export controls “Country List” (Supplement No. 1 to Part 740)

The BIS Press Release (with a link to the new rule)

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Compliance Into the Weeds

Compliance into the Weeds: Fracht – The Bonkers Sanctions Case

The award-winning Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to explore a subject more fully. Looking for some hard-hitting insights on compliance? Look no further than Compliance into the Weeds! In this episode, Tom Fox and Matt Kelly discuss a recent OFAC enforcement action against a Swiss-domiciled freight forwarding company, Fracht.

The case stands out for its complexity, involving a single, high-value transaction that exposed the company to significant sanctions risk through dealings with both Venezuelan and Iranian entities. Tom and Matt break down the compliance failures, the role of senior management, and the extensive remediation steps taken post-incident. This episode offers actionable lessons for compliance professionals on supply chain due diligence, the importance of compliance involvement in urgent deals, and the consequences of sidelining compliance functions.

Key highlights:

  • OFAC Enforcement Details
  • Anatomy of the Transaction
  • Third- and Fourth-Party Risks
  • Senior Management Involvement
  • Compliance Failures & Supply Chain Visibility
  • Remediation & Consequence Management

Key Takeaways for Compliance Professionals:

  • Always involve compliance in high-value, urgent transactions.
  • Ensure robust due diligence for all counterparties, including third- and fourth-party risks.
  • Senior management must be accountable for compliance failures.
  • Remediation should include policy updates, staff training, and ongoing oversight.

Resources:

Matt on Radical Compliance 

Tom

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A multi-award-winning podcast, Compliance into the Weeds was most recently honored as one of the Top 25 Regulatory Compliance Podcasts, a Top 10 Business Law Podcast, and a Top 12 Risk Management Podcast. Compliance into the Weeds has been conferred the Davey, Communicator, and W3 Awards for podcast excellence.

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Red Flags Rising

Red Flags Rising: S01 E27 – Open One Eye, Close One Eye

Mike & Brent break down the investigative report by the Editor-in-Chief of Gamers Nexus, Steve Burke, and his colleagues into GPU smuggling into China, which was recently featured on the ChinaTalk podcast with Jordan Schneider.

Mike & Brent discuss the context for the report (00:51), its key takeaways (03:14), what it means and what it doesn’t mean for U.S. design companies and anyone subject to U.S. export laws (05:47), and why the “high probability” standard provides a path forward for companies facing reports such as this (12:30).

They conclude with another installment of Brent Carlson’s ever-popular “Managing Up” (16:03).

Resources:

Steve Burke & Gamers Nexus’ Report

More about Gamers Nexus

Jordan Schneider’s ChinaTalk Episode

Brent LinkedIn

Mike LinkedIn

Mike & Brent’s “Fresh Looks” Series

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Red Flags Rising

Red Flags Rising: S01 E26 – Grab the Carrots, Avoid the Sticks, and Get Ready for More Transparency

Mike and Brent pick up the discussion from Episode 25 with some further thoughts on the proposed revenue-sharing arrangement between the U.S. government and certain exporters, including what should be anticipated from the U.S. government in terms of increased transparency (01:36), give their take on the Maintaining American Superiority by Improving Export Controls Transparency Act signed into law by the President, including both what it does do and what it doesn’t do (10:27), and provide their takes on the long-running media speculation about a so-called “50% rule” that would extend the Entity List maintained by the U.S. Bureau of Industry & Security (BIS) automatically to subsidiaries or affiliates owned 50% or more by a listed entity (18:53), including questions that the debate raises about what due diligence is being done now on subsidiaries and affiliates of listed entities, and important distinctions between U.S. economic sanctions—from where the 50% rule concept is being borrowed—and U.S. export controls that suggest the rule is better suited for the former than the latter.

They conclude with another installment of Brent Carlson’s “Managing Up” (26:25).

Resources:

Brent LinkedIn

Mike LinkedIn

Mike & Brent’s “Fresh Looks” Series

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Red Flags Rising

Red Flags Rising: S01 E25 – Deals, More Deals, and Protective Backstops

Mike & Brent dive into the latest geopolitical developments surrounding technology exports and the interplay between leading tech companies and the U.S. Administration.

Specifically, they discuss the latest news regarding U.S. conditions for licensing the export of Nvidia’s H20 chip to China (00:38), the impact of the deal on trade negotiations between the U.S. and the People’s Republic of China (and vice-versa) (04:59), the difficult position companies generally are in regarding export controls due diligence and the multiple potential meanings and consequences regarding public officials’ statements around export controls (16:01), the latest news regarding Intel’s CEO’s interactions with the U.S. Administration and how they illustrate vividly the “whipsaw” effect companies and executives face as geopolitical winds swirl (20:09), the relevance of the “pretend mistake” tactic in dealmaking—or, as Mike referred to it in the context of U.S. export controls, the “revoked forgiveness” tactic (22:40), and, practically speaking, how companies can best anchor themselves amidst the geopolitical storm by designing and implementing a “high probability protocol” to best anticipate core trends in U.S. export controls enforcement and serve as an important compliance backstop (25:36).

They then conclude with another installment of Brent Carlson’s “Managing Up” (26:59).

Resources:

Brent LinkedIn

Mike LinkedIn

Mike & Brent’s “Fresh Looks” Series

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Compliance Into the Weeds

Compliance into the Weeds: A Deep Dive into Cadence Design Systems’ Export Control Violations

The award-winning Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to explore a subject more fully. Looking for some hard-hitting insights on compliance? Look no further than Compliance into the Weeds! In this episode of Compliance into the Weeds, Tom Fox and Matt Kelly discuss the recent enforcement action against Cadence Design Systems for export control violations.

They explore the company’s illegal sales of sensitive technology to a Chinese university connected to the Chinese military, resulting in $140 million in penalties and a three-year probation. The conversation delves into topics like weak subsidiary governance, challenges in monitoring Chinese subsidiaries, and the complexities of conducting investigations in China. They also reflect on the broader implications for U.S. companies operating in China and the intractable risks involved.

Key highlights:

  • Cadence Design Systems Case Overview
  • Subsidiary Governance Issues
  • Details of the Misconduct
  • Resolution and Penalties
  • Challenges in Compliance and Monitoring
  • Complexities of Doing Business in China

Resources:

Matt Kelly in Radical Compliance

Tom

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A multi-award-winning podcast, Compliance into the Weeds was most recently honored as one of the Top 25 Regulatory Compliance Podcasts, a Top 10 Business Law Podcast, and a Top 12 Risk Management Podcast. Compliance into the Weeds has been conferred a Davey, Communicator, and W3 Awards for podcast excellence.

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Red Flags Rising

Red Flags Rising: S01 E20 – China, AI, and Export Controls – Facing a Moment of Truth

Mike and Brent follow-up on Episode 19’s discussion of “stack sweeps” with a discussion of the current “moment of truth” facing trade compliance teams dealing with high-probability, catch-all enforcement risks as explained in their recent WorldECR (Issue No. 141, July/August 2025) and Dow Jones Risk Journal article, “Anticipating the moment of truth: how to prepare for ‘high probability’ catch-all enforcement.” Specifically, they discuss the recent decision by the U.S. to allow (licensed) sales of certain advanced integrated circuits to China (00:42), their WorldECR/DJRJ article and how the Bureau of Industry & Security (BIS) guidance of May 13, 2025, which emphasized the “high probability” standard and catch-all provisions of the U.S. Export Administration Regulations (EAR), inspired the article (or at least inspired Tom Blass of WorldECR to ask us for an article) (07:10), how the underlying catch-all provisions are not “new” as of May 13, 2025 (10:26), how compliance teams can’t “zero-risk” export controls risk and need to adopt risk-based approaches (12:17), the relevance of the “inchoate” offenses under the EAR, i.e., aiding, abetting, conspiracy, evasion, acting with knowledge, and misrepresentations (13:21), the limitations of end-use and end-user certificates under the May 13, 2025 policy and guidance documents (14:47), their thoughts on the reportedly pending “50% rule” for the Entity List (18:32), the impact of the ability of malign actors, political parties, and military-intelligence actors to exercise influence even without shareholdings (19:25), why the most risky counterparties are those not on the Entity List (20:49), and the three key takeaways in their WorldECR/DJRJ article (24:09). They conclude with another installment of Brent Carlson’s “Managing Up” segment (30:28).

Resources:

WorldECR

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Mike LinkedIn

Mike & Brent’s “Fresh Looks” Series

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Red Flags Rising

Red Flags Rising: S01 E16 – The Israel-Iran Conflict’s Implications for U.S. Export Controls

Mike and Brent follow up on Mike’s being quoted in the Dow Jones Risk Journal regarding the unexpected export control consequences of the Israel-Iran conflict. They discuss the geopolitical context (00:39), the article by Richard Vanderford and Mengqi Sun (01:22), the risk that Iran tries to evade U.S. export controls (and sanctions) by procuring replacement parts and equipment through third-party intermediaries (02:12), the cautionary tale of an Alabama resident sentenced to five years in U.S. federal prison for diverting items to Iran (03:29), the need to be cognizant of “catch-all” U.S. export controls related to ballistic missiles and WMD programs (including nuclear) and those controls reliance on the full definition of “knowledge” to include “an awareness of a high probability” (04:42), increased tracking and investigative activity by the U.S. government (06:19), how companies need to think about responding to “red flags” (06:45), the likely impact of forensic review of battlefield recoveries on requests by Israel and NGOs to companies for assistance in tracing item or component flows to Iran (07:44), and the likelihood of increased, rather than decreased, activity by U.S. agencies as a result of the conflict (09:52). They conclude with another segment of Brent Carlson’s “Managing Up” (12:26).

Resources:

The Dow Jones Risk Journal article (June 13, 2025) (subscription req.)

The Wall Street Journal Morning Risk Report (June 16, 2025)

Brent LinkedIn

Mike LinkedIn

Mike & Brent’s “Fresh Looks” Series

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Red Flags Rising

Red Flags Rising: S01 E14 – Getting a Grip on U.S. Export Controls Guidance

Mike and Brent unpack the May 13, 2025, due diligence guidance from the U.S. Bureau of Industry & Security. They describe what happened on May 13 (00:00), the guidance from BIS on General Prohibition 10 and Huawei Ascend chips (03:34), the related BIS policy statement (04:13), and then focus on the BIS “Industry Guidance to Prevent Diversion of Advanced Computing Integrated Circuits” (04:47), specifically the underlying U.S. national security concerns (05:50), relevant key takeaways from Episode 13’s special guest Dana W. White (06:51), the significance of the Industry Guidance’s reference to the WMD and military-intelligence catch-all provisions (08:29), the historical pre-1993 “KYC Guidance” cross-referenced by BIS in the new Industry Guidance (11:53), how the historical “KYC Guidance” is often misunderstood through selective quotation devoid of relevant context (13:34), the new “red flags” identified in the May 13, 2025 Industry Guidance (16:10), the key takeaways of the Industry Guidance (17:55), a warning about over-reliance on the Industry Guidance’s statement about existing end-use certificates (18:47), and the practical implications of the Industry Guidance for trade compliance teams (19:36). They then conclude with the next installment of Brent Carlson’s “Managing Up” (21:26).

Resources:

BIS May 15, 2025 Industry Guidance

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Mike LinkedIn

Mike & Brent’s “Fresh Looks” Series

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Red Flags Rising

Red Flags Rising: S01 E13 – Dana W. White on U.S. National Security & Export Controls

Mike and Brent welcome Dana W. White, Managing Partner at the Juno Collective, to share her thoughts and analysis on China and U.S. export controls, drawing on her extensive career in public service, including various national security-related roles. Mike, Brent, and Dana discuss Dana’s national security background (00:49), what happens “behind the scenes” that leads to U.S. agencies determining national security threats exists (02:28), how knowledge-sharing is both the strength and the Achilles’ heel of free societies (06:11), how U.S. businesses and business leaders play an important part in our national security (07:26), the challenge of finding reliable data points from which to infer export controls compliance risks (09:37), what business leaders should understand about how the relationship between the U.S. and China is different today than when China joined the World Trade Organization (11:21), how Dana and the Juno Collective help clients to understand and mitigate risks (13:46), and the common pitfalls companies face when responding to inquiries by the U.S. Congress (18:45). They conclude with yet another segment of Brent Carlson’s “Managing Up” (20:23).

Resources:

More about Dana W. White and the Juno Collective: https://www.juno-collective.com/about

Contact Dana W. White: dana@juno-collective.com

Brent LinkedIn

Mike LinkedIn

Mike & Brent’s “Fresh Looks” Series