Strengthening Export Control Enforcement

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The subcommittee on South and Central Asia will come to order, and the purpose of this hearing is to discuss the administration's plans for enforcing US export control laws. Members will have the opportunity to explore legislative options to strengthen the enforcement of US export controls, and block adversary access to sensitive US and allied technology. I now recognize myself for an opening statement. We are here today to discuss the AI arms race against the Chinese Communist Party and our law enforcement efforts to protect America's crown jewel technologies. Just last night, Reuters reported that DeepSeek's latest AI model was trained on illegally smuggled NVIDIA Blackwell chips, America's most advanced AI chips. President Trump wisely banned China from getting that chip, but China is finding them uh finding them anyway. China's AI chips cannot compete with ours, so Beijing is resorting to theft instead. This chip smuggling story has is just one example of how China's AI ambitions are living off of stolen American technology. Beijing's AI giants like DeepSeek and Moonshot AI are stealing the intellectual property of America's leading AI labs through a method called distillation. The theft of our AI models is so brazen that when one Chinese model was asked to identify itself after being released this month, it called itself Claude, the name of one of America's leading AI models. China is also smuggling the technology it needs to make AI chips. In twenty twenty four, Huawei smuggled components from TSMC to make the equivalent of one point five million of its most advanced AI chips. The only reason the US government even learned of the smuggling is because a tech blog discovered it and notified BIS. Huawei's stockpile of smuggled AI chips from TSMC is still paying dividends for China more than a year later. Based on public reporting, it's unclear whether Huawei has produced any AI chips without that smuggled stockpile. We are still waiting to see what TSMC's penalty will be for the worst violation of export controls in American history. The evidence is clear. Without US and allied technology, the CCP would lose the AR, AI arms race. So, Beijing resorts to stealing. But to date, the United States has struggled to fully stop the CCP's AI theft. That brings us to today's hearing. Assistant Secretary Peters is tasked with cracking down on violators of our export control laws. Thankfully, BIS's export enforcement is doing what it can to enforce our rules. On the first day of the administration, President Trump in the America First Trade Policy memorandum instructed his team to strengthen enforcement on our export controls. The administration administration requested and the house supported a seventy-seven percent increase to BIS's budget, with most of that going to export enforcement. Although, however, the Senate only agreed to a twenty-three percent increase. That is a good start, but it's not where we should be. America's adversaries are working around the clock to circumvent our export controls and the status quo will not meet the urgency of this moment, is my fear. I look forward to partnering with BIS on this mission, as Congress also plays a major role in this story as well. Yesterday's news of DeepSeek using smuggling ch- smuggled chips is only one of many. Every few months we learn of multi-million or even billion dollar AI chip black markets in China. Last year, the Financial Times reported that over a billion dollars in NVIDIA chips had been smuggled into China in just three months. Don't take it from me. In the recent confirmation hearing for the next leader of CyberKom and the NSA, Lieutenant General Joshua Rudd stated, quote, China is aggressively seeking to acquire advanced AI chips to accelerate its development of AI enhanced weapons." I introduced the Chip Security Act to help meet this challenge. The Chip Security Act ensures that AI chips are not smuggled to China by scaling up best security practices, encouraging innovative technologies, and directly supporting the Trump administration's AI action plan recommendations. Without this bill, we can be confident deep-seat can never again use with, uh, sorry, with this bill, we can be confident that deep-seat can never again use the black market to get the AI chips it needs. This committee is ready to help the Trump administration win the AI AI arms race against the Chinese Communist Party. We cannot fail in this enforcement mission. Every case that BIS brings against these smugglers is one step closer to ensuring that the free world and not the Chinese Communist Party wins the defining technologies of our time. And with that, I yield back, and the chair now recognizes the ranking member from California, Representative Kamlager-Dove, for an opening statement.

Thank you, Mister Chair, for holding this important hearing, and thank you to Assistant Secretary Peters for being here. Export controls are only as effective as our ability to enforce them, and today's hearing is an opportunity to examine and address the major barriers to better enforcement. Over the past few years, insufficient funding has been one of the most consistent challenges to our export enforcement capacity. BIS has had to execute complex new rules related to Russia's invasion of Ukraine and China's access to AI technologies using outdated IT systems and only eleven export control officers conducting end-use checks overseas. I'm glad that Congress has finally stepped up and increased BIS's budget by twenty-three percent, for the twenty twenty-six fiscal year. My bill, the Export Control Enforcement Act, would increase the number of export control officers who are the backbone of our global enforcement efforts. With these new resources, I hope BIS's first action is to hire more ECOs, in line with my legislation. But funding is not the only ingredient for effective enforcement. The massive scope of BIS's remit means success is only possible if enforcement is treated as a team effort. across the inter-agency, in partnership with industry, and in coordination with our allies. And given that the volume of controlled transactions will always exceed whatever resources BIS may have to monitor them, clear, stable, and predictable regulations are necessary to reduce self-imposed complications. I am alarmed at how the Trump administration has gutted some of the key pillars of effective enforcement, including robust cooperation with industry, and our allies. This administration's self-defeating export controls policy and bureaucratic mismanagement have exacerbated enforcement challenges and hurt the effectiveness of our controls. First, Trump's erratic use of export controls as negotiating tools are deeply disruptive to the enforcement process. Temporarily imposing controls to gain leverage in trade talks upends enforcement priorities and burns up finite investigative bandwidth. Similar disruptions are caused by BIS's weaponization, um, making it far more complicated for enforcement officers to identify what constitutes EAR violations. Secondly, this administration has dangerously undermined the multilateral cooperation that is essential to effective enforcement. Partnering with overseas industry and local law enforcement dramatically enhances BIS's ability to prevent and disrupt violations in real time. yet BIS has gutted the International Policy Office, dedicated to managing coordination with foreign counterparts and ECOs abroad. The Bureau also stopped providing technical assistance and capacity building to help countries identify and prosecute illegal diversion, after Rubio's foreign aid freeze. Meanwhile, Trump's antagonism toward our allies is undermining our export controls regime. We cannot expect countries to restrict their industry or direct their law enforcement to support our national security priorities, if Trump is outright threatening their core territorial and economic interests. We certainly can't expect our partners to take seriously the threat of China's AI dominance, while Trump turns around and sells potentially hundreds of thousands of advanced AI chips, straight to the PRC. As if pulling back from international cooperation weren't enough, The administration has also reduced coordination with the private sector, which is key to supporting industry compliance. BIS has discontinued regular industry training sessions across the country and effectively shut down many of its technical advisory committees, which it uses to solicit expert input on export controls. BIS also canceled its yearly update conference, which educates over a thousand companies annually on how to comply. with new controls. Finally, it's hard to see how Trump's use of expert controls to engage in eye-popping levels of corruption wouldn't defang related enforcement efforts. If a company like G forty-two is getting AI chips because their chair bought a half a billion dollar stake in Trump's crypto company, can we really be sure that Trump won't interfere in an enforcement action against his business partners? This compromising of our national security is precisely why financial conflicts of interest are illegal, and why I sent a letter to the Commerce Inspector General requesting an immediate investigation into this arrangement. I hope today we can have an honest conversation about the obstacles that need to be addressed to improve our enforcement efforts. I look forward to a robust discussion and I yield back.

General Leidy yields back. Uh, I am now going to request unanimous consent to enter into the record. Uh, three articles, one from the Wall Street Journal, the underground network sneaking NVIDIA chips into China. Uh, the other, the New York Times, with smugglers and front companies, China is skirting American AI bans. And the third from the Financial Times, NVIDIA AI chips worth a billion dollars, smuggled into China after Trump export controls, uh, without uh, without uh, any objections, so so ordered. Um, the other members of the committee are reminded that opening statements may also be submitted for the record. And we're pleased to have Assistant Secretary of Commerce for Export Enforcement for the Bureau of Industry and Security at the US Department of Commerce, the Honorable David Peters, before us today. Uh, the uh, the, the committee recognizes the importance of the issues before us and is grateful that you are here to speak with us today. Uh, we know that, uh, you were confirmed, I believe, in October. Uh, we had a forty three day interruption of government operations, which I'm sure did not help your work or frankly, it didn't help our work. Uh, but here we are today and, uh, we're glad that, uh, you are here. Your full statements will be made part of the record. And I'll ask to keep your spoken remarks, uh, to five minutes or so, in order to allow time for member questions. So with that, I now recognize, uh, Assistant Secretary Peters for an opening statement.

Thank you, Chairman Huizenga, Ranking Member Kammlager-Dove, and distinguished members of the subcommittee. I appreciate the opportunity to testify today. Among its many responsibilities, the Department of Commerce's Bureau of Industry and Security, or BIS, is charged with the civil and criminal enforcement of the nation's dual-use export control laws. The stakes of this mission have never been higher. Our adversaries are determined to gain access to our best dual-use technologies to erase America's economic and military preeminence. Export enforcement, or EE, stands at the forefront of protecting America's technological edge. And under the historic leadership of President Trump and Secretary Lutnik, enforcement today is stronger than it's ever been. The offices of export enforcement and enforcement analysis, both components of EE, are staffed with highly skilled federal law enforcement agents and intelligence analysts. Though under-resourced, EE punches well above its weight. For example, we recently secured high profile indictments and arrests in the Southern District of Texas and the Middle District of Florida of individuals and entities engaged in smuggling and unlicensed exports of advanced AI chips and GPUs. Additionally, recent trial convictions, including one just last week in the Southern District of Florida, and sentences throughout the country for export control violations, demonstrate the quality of our criminal investigations. Moreover, in the past twelve months, BIS has announced significant administrative penalties against companies that have run afoul of the export administration regulations. Last year, we reached a ninety-five million dollar settlement with Cadence Design Systems for unlawfully exporting critical semiconductor design technology and just two weeks ago we announced a two hundred and fifty-two million dollar settlement with applied materials for selling semiconductor manufacturing equipment to a company on the entity list. This was a statutory maximum penalty and the second largest stand-alone penalty ever imposed by BIS. The message to everyone paying attention should be clear. Follow the law or face the consequences. With more resources, our enforcement would be even stronger. In fiscal year twenty twenty five, f- uh BIS collected far more in criminal and administrative penalties, forfeitures and restitution, roughly two hundred and seventy-eight million dollars, than our funding, which is approximately a hundred and ninety-one million dollars. As a financial matter, the American people get far more out BI far more out of BIS than they put in. And with more funding, increased penalties and stronger deterrence are sure to follow. The FY twenty-six budget, which gave BIS an increase of approximately forty-four million dollars, was a significant step in the right direction, although it fell f- it fell far short of the hundred and twenty-two million dollars requested by the president's budget. With this increase in funding, BIS is prioritizing hiring more personnel. That means more agents, more analysts, more overseas export control officers, as well as obtaining advanced analytics and threat relevant training programs. This will enable better accountability of license trade abroad, more investigative leads, more investigations, increased criminal and civil penalties for violators, and ultimately greater deterrence. To achieve these goals, we also encourage Congress to increase statutory civil penalties. Uh, currently, the maximum civil penalty allowed for violations under the Export Control Reform Act or ECRA, stand at twice the value of the unlawful transaction or three hundred thousand dollars adjusted for inflation whichever is higher. Compare that to violations of the international traffic and arms regulations, where the Arms Export Control Act authorizes a penalty of approximately one point two million dollars per unlawful transaction. Too often, companies treat BIS's administrative penalties as a mere cost of doing business. And the reality is that ECRA's financial penalties are not enough to punish and deter bad actors and create a culture of compliance in companies. Beyond increasing financial impenal financial penalties, it would also be helpful to extend the statute of limitations under ECRA from five years to ten which is similar to Congress's recent revision to other statutes. This is justified by the complexities inherent in investigating

Thank you, Assistant Secretary Peters. Thank you, Assistant Secretary Peters. I appreciate that input and, I appreciate that input. And, uh, uh, With that, I'm now going to recognize uh the cong- gentleman from Texas, Congressman Self, for five minutes of questioning.

Uh, thank you, Mister Chairman, and thank you for being here. Uh, did you say that was a two hundred and fifty-two million dollar penalty? OK, thank you. Look, we uh, we know that both TSMC and NVIDIA, TSMC uh, has smuggled chips. NVIDIA has always built, builds chips just under the threshold that Congress sets. So with that, I'm concerned about the gaps in uh our export controls. And I agree with you, they're too far uh they're too low to deter bad behavior. Um, my ECRA penalties increase act, I wanna go directly to a comment you made. It increases it from two times to four times the basis of the transaction. And the base penalty from three hundred thousand one point two million. Now that may level it up, but we're talking about vast sums in these chips if they get exported. Is that enough in your mind to deter bad behavior?

Thank you for the question, Congressman. Uh, I appreciate your work uh, on this bill, and and I appreciate your support for increasing these penalties. As I stated uh, during my opening, uh, as I stated during my testimony a moment ago, Increased penalties are really key here, um, in in and amongst other tools to make sure that we are creating a culture of compliance, and establishing what is critical, that is effective deterrence. Listen, four times uh the value of the unlawful transaction is certainly a good place to start, but I'm not entirely certain it's where it's where this discussion should end. I do think that there is, you know, potentially a sweet spot where If the penalties get too high, it discourages our voluntary self-disclosure program. But four times the uh value of the unlawful transaction, I I really believe is is where we ought to be starting this conversation, i if not h if not dramatically higher.

OK, have you seen any evidence of companies actually pricing in the cost of violations into the cost of doing business? Do you see that?

I don't know if I'd say the evidence that I've seen in our ongoing enforcement actions shows directly that they are pricing in the cost of potential enforcement. What I do see, um and I you know without speaking about any particular case or company, is just an underinvestment in compliance and due diligence to know your customer procedures. And that reflects in the nature and and and uh I'll call it, quality of the violations that we see. Stuff that you would have to imagine with an effective compliance program just simply wouldn't happen.

OK, I wanna go to the affiliates rule, because you rolled uh BIS rolled out the affiliates rule last year I believe, to crack down on it. Now, that basically is a parent company if it's blacklisted in all subsidiaries that are owned fifty percent or more. My stop shells act uh wants to codify that, but we've got to understand that goes two or three or four levels deep. Can you address the affiliates rule for us Uh, does it help our export controls? And would this bill help? Uh, because it it the stop-shells act is you've got to go that deep sometimes to figure out if it's an affiliate or not.

Uh, again, thank you for the question, and I and I appreciate your support as reflected uh in your interest in this legislation. What I'd say is, if we take the af- the affiliate's role is is potentially a significant tool. What I'd also say, however, is that separate and apart from whether the affiliate's rule or some version of it exists, companies still have due diligence requirements, they still have compliance requirements, they still have an obligation to know who their customers are.

Mm-hmm.

So my message would be we need to start beyond whether the affiliate's rule is currently in effect or not, and and focus specifically on the due diligence obligations of the companies that are purporting to do the exports. What does this mean? Do you know who your actual customer is? Do you know who your customer's customer is? To what extent is your compliance program designed to catch potential entity listed co- companies already on the entity list get getting access to your materials, or potential military end users? Um, so

OK. Oh, OK, so what gaps remain? Let's say we we talk about the increase the penalties, we talk about uh the stop-shills act, what gaps remain uh, to evade the fifty percent ownership.

Well, Con- Congressman, I think another important issue is one that I referenced during my opening statement, and that is the extension of the statute of limitations. Um, as should come as no surprise, these investigations are inherently international. They are very complex. They tend to be very document heavy. And to the extent that we're trying to gather evidence from overseas, although five years seems like an extended period in which to get enough evidence to finish an investigation.

Right.

Oftentimes that that that may not be the case.

Uh, thank you for your answers, Mister Chairman. I yield back.

Gentlemen, this time has expired, with that, uh, the chair now recognizes the ranking member, uh, Sidney Kammelager-Dove, who represents the home of the next Olympics, uh, where we will see once again great American victory. So, uh, with that, uh, for five minutes.

That's right. Oh, that's so nice. Uh, thank you, Assistant Secretary Peters. Uh, do you know how many Blackwells have been sold to G forty two?

Uh. Sitting here today, car car swimming, no, I don't know the exact number.

OK. Do you know how many H two hundreds have been sold to Chinese end users so far?

Uh, my understanding is that so far none have been sold.

So far none. OK. Well, that's interesting because there've been different reports, uh, with different numbers. Um. So I actually think that is important, um, for a department to know, um, that has enforcement control authority. Um, so once you get that information it would be great if you could share that with this committee. Um, do you know how BIS is able to determine if a Chinese company has violated, um, the restrictions as they are laid out? Um, and how you're able to determine if a Chinese company is being truthful about its customers and their end uses.

Well, well thank you for the question, Congressman, I I appreciate it. Um, again, as uh the official responsible for enforcement, our our authorities derive primarily from the Export Control Reform Act, as well as the EAR. We have a number of law enforcement tools a and and and information gathering tools available to us. These start in many instances with our overseas export control officers about whom you referenced. uh during your opening statement and I and I and I appreciate your attention on the role that that they play. We also have access to uh a variety of sources of information, some public publicly available, some on the classified side, and that drives uh a considerable amount of our analysis of whether um of whether there are potential violations of law.

Mm-hmm. Well, I I certainly think it's you know, I think that information is important and and then this tends to be a bipartisan issue. I think most of us think that information is important because many of us are concerned with um Chinese access to these chips and then how they will be used. So would you say that stopping the diversion of controlled technology is an important priority for your office?

Absolutely, Congresswoman, it's it is the priority for us in export enforcement, stopping the you know preventing diversion is our is our bread and butter task.

I am so glad that you said that. Um, so my next question is, does BIS plan to use its new funding to restart the technical training and capacity building that was helping partner countries to better identify and prosecute illegal diversion?

Uh, thank you for the question, Congresswoman. We, you know, we interact with a variety of countries with respect to with respect to this. I disagree somewhat with with the premise of the question that we in export enforcement are not involved in uh partnership with uh foreign law, our foreign law enforcement partners.

Hmm.

Um we we remain actively involved as not only part of our ECO programs uh run out of our embassies abroad, but also just as a as a general matter of course, we we are regularly in contact with foreign law enforcement agencies.

Yes. So I should I should restate, that was not the premise of the question. The question is now that you've gotten a little bit more funding, if you would be willing to commit to more training and capacity building, because we wanna make sure that our partners in other countries are working in tandem with us and have the resources that they need that we need them to have, in order to be able to identify and prosecute illegal activity.

Thank you, Congresswoman. I'm I'm sorry if I if I misstated the premise of your question. Um, of course, as we get new funding and as we and and we hope to expand our ECO program, um that is inevitably going to result in more host nation law enforcement, you know, LE to LE interaction with an eye towards having, you know, helping them to help us to ident identify potential violations of law.

So you're saying you need new funding, the more funding, not the current funding that you got.

What I'm saying, Congresswoman, is now that we have the new funding, our expectation is to

Mm.

use it in part to expand our ECO program, which I expect is going to bleed into additional LE to LE partnerships.

OK, well that's helpful to hear. Uh, as you also heard me in my opening statements, I talked about the annual update conference. Uh, so are you willing to commit to working with your export administration colleagues to resume BIS's participation in its technical advisory committees, and to hold the annual conference?

Congressman, we work with our export administration colleagues on a on a daily basis on a variety of issues as far as the tax are confer are concerned again that is primarily an an EA function we had some interaction previously with I believe it was the regulatory and policy tack um I'm not sure what the status of that is but I'm happy to take that back to my colleagues in EA uh and get an answer for you.

I would appreciate it if you could get back to us on a few of those things, including But also if you're able to access the number of chips that have been sold, I think that would be of use to the committee as well. Thank you and I yield back.

General Lady's time has expired. Uh, with that, uh, the chair recognizes the delegate from Guam, Mister Moylan, for five minutes.

Thank you, Mister Chairman, Assistant Secretary Peters, thank you for coming on in tonight uh today and you made it pretty clear that halting China's AI advancements and maintaining US leadership is one of our most critical uh for us and uh National security, it's a challenge every day that you have to go through. Uh, and then we have some the, what we call the China AI power report act. It requires BIS and state department to create an annual report on China's entire ecosystem, including its computer, compute capacity, supply linkages, and applications to its military and industries. And if we don't have that, then I'm afraid we're just simply shooting our darts blindfolded in the dark. Uh, the challenges we need to address is recruiting and retaining people who understand their national security imperatives, but also have industry knowledge and technical inst expertise. Uh, just last month, a federal jury convicted former Google engineer, Leon Ding, for stealing thousands of pages of documents on Google's AI trade secrets. While stealing those secrets, he worked to stand up a new technology company in China to use that exact stolen Google tech. So, Mister Peters, what are some of the lessons uh learned from that case and what sort of precautions should our technology companies have to reduce insider risks for stealing our technology?

Well, thank you for the question, Congressman, again. Part of our core responsibility within export enforcement is to make sure that we are in regular communication with companies answering questions that they have about how to best um comply with the export administration regulations and their obligations under ECRA. I'm happy to say uh that in the time that I've been at BIS we've been we ha we have really endeavored to be responsive to questions from the business community you know there are a variety of ways that the business community may interact with BIS obviously we're aware you know they're federal law enforcement agents so at times they may show up with requests for documents they may show up with subpoenas They may show up to interview members of the company in support of an investigation. But there's also just standard routine outreach that has no connection to any particular investigation or subject matter, but where we seek to go out and educate our partners in the business community. Cuz truly it's through them that we tend to identify a lot of these potential violations of ECRA and the EIR so I I I see that as a core part of the obligations of my office of and we've been actively engaged in that in the time that I've been in my current role.

Thank you. And how about the disruptive technology strike force? Is that still active?

Uh, again, thank you for the question. Disruptive technology strike force was a was an edifice of the prior administration. What I'd say is separate apart from whether there is something currently called the disruptive technology strike force, we are still focused on priority areas of enforcement. That was We work hand in glove with our partners in other law enforcement agencies, including the FBI, HSI, DCIS. We also work very, very closely with our prosecutorial partners in the US Attorney's offices, as well as the National Security Division at the Department of Justice. We have regular syncs. I am regularly in contact with the leadership in the US Attorney's offices where a significant percentage of our

Th thank you, and um uh you mentioned enforcement is how important that is and why it's uh we welcome um which is why I welcome the twenty-three percent budget increase in FY twenty-six, but data uh packages and tools have been essential for technical insights and they are what reveals the gap in our enforcement so beyond the budget marked for supporting more agents, how is BIS budget budgeting for data collection tools, analysis and IT modernization.

Again, thank you for the question, uh, Congressman. IT modernization is definitely a priority, uh, not just for export enforcement but but throughout the Bureau of Industry and Security it's my understanding that an IT modernization program has been put in place and is being actively implemented uh, in the time that this administration has has been in charge. Um, and there is a I'm reticent to quote the exact dollar amount, but a significant There are significant resources invested in our IT modernization.

Very good. Thank you, sir. Appreciate your presence here today, Mr. Chairman, I yield. Gentleman's time has expired. Uh, with that, the gentleman from Indiana, Mister Shreve, is recognized for five minutes.

Thank you, uh, Mister Chairman. And thank you, Secretary Peters. It was good to visit, uh, with you just for a few minutes before. uh, our hearing got underway. So y- you uh shared with me that you've been working in this space, the export control space, since seventeen for - for nearly a decade, which is longer than certainly I have or many of us uh hear on the dais. It's - it's fast moving, uh as the evolution in semiconductor technology uh is dizzying, uh and threatening, certainly to our - our country. Um These rapidly uh evolving advancements in the increasingly complex export controls span hundreds or thousands of of pages of of regulation. It's hard for congressional staff and certainly even members of Congress to interpret the intricate rules of BIS, um, and I'm concerned that our export control officers also will face difficulties in consistently applying them. Um, to help address these gaps, I recently introduced a BIS strength app with our ranking member, come under a dove. The legislation authorizes the appointment of highly qualified experts to fill some of the identified expertise gaps uh that we have within BIS. Mister s- uh Peters, my question for you is while it's clear we need to bring in additional expertise in this fast-moving sta- space, which steps Are you, is your department taking to ensure that our current export control officers understand these complex regs so they can effectively administer and enforce them?

Well, tha- thank you for the question, Congressman, uh, I really appreciate your interest i- in this area, which is obviously very important to us. I think there, there's an important distinction to be made between our domestic special agents, who are, you know, badge and gun carrying, uh federal law enforcement agents and our export control officers who are located in located abroad. Our export control officers, not all of them, but many tend to be uh have a law enforcement background often within uh the Office of Export Enforcement. Like many of them are special agents from OEE who apply for the opportunity to go abroad and fill the ECO program. Um so what I'd say is To to answer your question directly, as far as the ECOs are concerned, these are by and large uh men and women who have spent many years enforcing ECRA and the EAR and its predecessor statute um as line agents domestically. They're very, very knowledgeable about the regs. Um they're often responsi we we, as I stated earlier, we partner with other federal law enforcement agencies, not in every case but almost every case. And often it's incumbent upon us to make sure, say, our partners at HSI or the FBI or DCIS are familiar with uh the regulations that we're attempting to enforce against potential defendants. Um so as far as the I I have great confidence that our ECOs abroad are already are there with an already established strong foundation in the rules that they're there to enforce to the extent that they have questions, we have significant resources stateside to help them, both through my office as well as our partners in export administration. We also have access to our uh office of chief counsel within the Bureau of Industry and Security.

Well, it takes some comfort in hearing uh of your confidence level. It would it would seem to me that it would be extraordinarily difficult to keep up uh uh with the subject matter expertise uh but uh appreciate knowing that you've got that that confidence as you're much closer to it on the ground. I wanted to uh turn briefly to Iran specifically. Um in their use of restricted components for UAVs, uh including the Shahid drone, the uh Iranian UAVs have been deployed both directly and indirectly uh by groups against Israel and uh our US partners It poses a significant security risk, particularly uh given our country's uh heightened presence in the region. Uh Secretary Peters, what steps is BIS taking to disrupt global networks that supply components such as these microelectronics and navigation systems to Iranian uh UAVs please?

Well again, thank you, thank you for the question, Congressman. This is among our chief areas of enforcement is to prevent our technology from winding up in weapons that could potentially be used against our allies as well as our own forces abroad what what i'd say is we take a we take a a priority approach to our enforcement buckets the the iranian question is among the the the top of our priorities and we have all of the same tools available to us under ekra and the ear to enforce against violators in that space as we do i in other spaces so typically Leads will come in suggesting the diversion of uh microelectronics, GPUs, and so on and so forth to, you know, problematic end users, potential military end users, companies on the entity list. And we investigate them in many of the same ways as we investigate other other matters that fall within our charge.

Thank you. My time's expired. Gentlemen, this time has expired. Uh, with that, the gentleman from New Jersey. Mister Kane is recognized for five minutes. Thank you, uh, Mister Chairman, and thank you, Assistant Secretary Peters, for being here today. China is notorious for its efforts to obtain illegal access to American innovation, often by invading export controls. Its efforts to steal America's innovative technology and gain a foothold in the AI race must be thwarted. I look forward to hearing from our witness today about how we can continue to strengthen America's export control regime, shoring up America's uh technological edge and ensuring that america wins the ai race mister peters a june twenty twenty five article from the center for new american security indicates that china has been abating the us export control regime to smuggle somewhere somewhere between ten thousand to once uh excuse me to several hundred thousand ai chips into china in twenty twenty four alone i know that at bis you are working hard to reduce these numbers Can you share the primary means through which you investigate and address export control violations?

Uh, yes, I'd be happy to, and and thank you for the question, I'm I'm pleased to see your interest in this area, obviously it's it's very important to us. We, again, as I as I said a moment ago, we have the full complement of law enforcement tools and authorities available to us under ECRA and the EAR for this problem set, as well as every other problem set to which we are addressed. Um. Generally speaking, the law the the process is not dissimilar from that which our other federal law enforcement uh partners engage in. That is, we receive leads. Those leads get assigned out to an appropriate field office. An agent takes charge of it. They do an initial investigation. They'll work the case to a point where they believe they have enough to go to a United States attorney's office to open up and potentially gain access to a grand jury, and then issue additional process out of the US attorney's through the prosecutors in the Department of Justice, that they would that that our law enforcement partners and other agencies would in any other kind of case. What's what perhaps makes us unique uh not only our office uh is not only our office of enforcement analysis in which we have internal intelligence analysts and access to trade data, we also have, as I've mentioned several times throughout this hearing so far, the advantage of our export control officers overseas. And although they are, you know, currently few in number, and we hope to we hope to fix that soon with the money that we've received, the information that they get through end use checks is invaluable. And it feeds what I like to refer to as a virtuous cycle of uh of information that's not only relevant to my partners in export administration, uh my collie- rather actually my colleagues in export administration, but also to our law enforcement investigations, be they criminal or civil. And and, you know, you you bring up, Congressman, the issue of, you know, AI chip diversion. Uh and I'd like to direct your attention to a December eighth, twenty twenty five press release um out of the southern district of Texas, related to a matter that we call Operation Gatekeeper, in which uh we have arrested several individuals uh responsible for smuggling you know hundreds of millions of dollars of ai chips and gpus uh to to the places that you mentioned as areas of concern so

but the but that the violation was not discovered by bis but by a small tech block originally when when so the question here is um you've issued the foundry due diligence rule which significantly enhances bis's ability to insure that um huawei and other chinese networks are not illegally using front companies to gain access to TSMC's branch manufacturing capacity. Is that enough? Is that strong enough?

The the foundry's the again, I think it's important to understand the functionality of of BIS. Export administration, my colleagues in export administration are largely are are solely responsible, I should say, for issuing policies and rules. Our, you know, on the export enforcement side, we are responsible for enforcing those rules. I I I wanna answer your question, I do wanna go back to Operation Gatekeeper for a moment if I could. It's my I I I will go back and check this to make sure I'm providing you accurate information. It's my understanding, however, that that investigation did not initiate from a Tech Insights blog. It that may be a reference to uh uh another matter. In in either instance, we investigated that case with our law enforcement partners um and secured,

Mm.

you know, vital cooperation from an initial defendant that led to uh that led to uh uh arrests in um in in fall season.

And is the due diligence, the founder due diligence rule strong enough?

Uh, the founder due diligence rule is one of many issu- is one of many issues that that we are addressed to. Um, you know, we are always looking and working with our colleagues in export administration to make sure we have the best possible rules to attack our to attack these problems.

Thank you. I go back. Gentlemen, this time has expired, uh with that I'll grant myself Um, it's interesting, today's sort of been uh national security through uh the uh the the various levers of trade and commerce uh this morning we had Under Secretary of State for Economic Growth Energy and Environment Jacob Helbergin uh sitting where you're sitting to uh to testify on the advancing national security through commercial diplomacy. Here we are talking today about some of those levers of enforcement uh of those things. Um, and I'm assuming as you can tell by my opening statement, I'm especially worried about the extensive smuggling of AI chips to China, in violation of our export uh control laws. Uh, in just in November and December of last year alone, uh, we saw two major cases against smugglers of our advanced AI chips come to light. And thank you for your work in trying to bring those smugglers to justice. Uh, despite ample US government and public

Simply put, yes.

Uh.

There is chip smuggling, it is going on. We are actively addressed to this problem. It is among our top enforcement priorities. We, this is one of the things that we get up thinking about every day in export enforcement, and I'm very grateful for the skill and diligence of our agents, our analysts, and our export control officers, uh, who are, who, who live and breathe this at the ground level.

Right. Well, pass along our thanks to them, uh, as well if you would. Um, I think what most people don't understand is the scale of America's sale of AI chips, worldwide, how massive it really is. Uh, america uh in america will make upwards of ten million ai chips ai chips this year with many of them sold uh internationally from southeast asia the middle east and even to armenia places like uh that where you wouldn't necessarily think of them as tech hubs uh however america has only eleven export control officers that you've been talking or rather those on the front lines responsible for ensuring export control compliance worldwide Um, given the scale of the AI chip sales and BIS's limited personnel, would you say it's been challenging for BIS to have certainty that the chips that America is selling uh around the world and selling abroad uh have not eventually been smuggled to China?

Well, thank you for the question, Congressman. A again, enforcement is, there there are always there are just inherent challenges with enforcement, whether it, you know, domestically there are challenges. Obviously those problems, you know, are are increased in an overseas setting where you're required to rely on host nation law enforcement support in order to accomplish your mission. Um of course with more resources we can do more. We are going we are doing a lot now. We these new resources will enable better accountability of our trade abroad. As I've mentioned several times, I anticipate an expansion of our ECO program. Um, so, you know,