FY27 BIS Budget: the AI Arms Race and the ICTS Office

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Committee on foreign affairs will come to order. I'd ask everybody rise, join me in reciting the Pledge of Allegiance. I pledge allegiance to the flag of the United States of America. And to the republic for which it stands, one nation, under God, indivisible, with liberty and justice for all. Good morning everybody. The purpose of today's hearing is to hear from the Under-Secretary overseeing the Bureau of Industry and Security. regarding the Trump administration's budget request for BIS in fiscal year twenty seven. In particular, the discussion will cover the AI arms race against the Chinese Communist Party, and the importance of information in Communications, Technology and Services Office, which reviews foreign technology threats. And I'm going to now recognize myself for an opening statement. Under Secretary Kessler, welcome to the House Foreign Affairs Committee. Welcome back, I should say, to the House Foreign Affairs Committee. You've been here before. This hearing is about beating the Chinese Communist Party in the AI arms race. It is a race that we can't lose. I think we all recognize that. We, the United States of America, and our great industries, like Anthropic, got to meet those first. But we all know that China is trying to steal our technology any way that they can, like Mythos, as an example, and we know that that's already old technology. We will see models far more powerful than mythos soon. And if we don't act now, China might beat us to the next advanced AI model. They already unleashed COVID on us, and I have no doubt that they are waiting to release the next super COVID, if that's what they could develop. Or a missile defense mythos that could get around any potential, any golden dome that the United States of America has. When CIA Director John Radcliffe says that the frontier models are developing akin to digital nuclear weapons, I take that very seriously. When Secretary of War Pete Hegseth says CXMT and Alibaba are Chinese military companies and that AI will redefine the character of military affairs over the next decade, I take that very seriously. These are real battlefields and real casualties. Today it's Ukraine, Iran, Venezuela. Tomorrow, potentially Taiwan and China. Those are the stakes of the AI arms race. President Trump has been clear about how to win. Stop the commies in Beijing from getting or using our crown jewel technologies against us. BIS is the tip of the spear in this tech war. The BIS Under-Secretary is not just a sheriff enforcing pre-existing rules. He is the lead general in the AI arms race, tasked with designing and enforcing strategies to fulfill the commander's guidance. President Trump has issued four main goals for BIS as a commander's guidance. One, no black wells for China. Two, close export control loopholes as stated in the America first trade policy memo. Three, tighten controls on chip making equipment and stop our allies from undermining our export controls from the AI action plan. Four, no Chinese military end users or remote access, as stated in the national security conditions in the H two hundred rule. These are the president's metrics for success. We need to know now what BIS needs to get the job done, and I mean the entire job, not just one part of it. Success is not stopping only some of the black wells smuggled It means stopping all of them. Success isn't stopping some chip making tools from Chinese AI chip makers. It means stopping all of the advanced tools. Success means putting every company that Department of War has identified as a Chinese military company on the entity list. Why? Because they are looking to create every AI inroad they can to accessing every American bank account. every American stock portfolio, every municipal water treatment center, all for the purpose of being able to cause destruction. Those are the stakes. They're looking to be able to more quickly assess every capability in the Pacific against the United States of America's military. The House Foreign Affairs Committee has done its part. We've marked up more than twenty export control bills to execute on the commander's guidance. And to be clear, these bills we're pushing on this committee are being proposed because they need to be there to get the job done. That's why we are proposing these bills. We support the president's request to increase BIS's budget because that's what is needed to get the job done in this high stakes race. There have been significant enforcement successes. Stopping approvals of licenses for blacklisted companies is an important achievement, and we congratulate you on the work that you've done there. But key orders from the president need to be fulfilled one hundred percent. BIS has not added entities to the list in twenty twenty five, since October of twenty five. We need to see more of those entities added to the list. BIS, it is important that BIS makes licensing decision, including denials in a timely manner and provides clarity to American businesses. That is something that we want to support you on. BIS and the House Foreign Affairs Committee working together have to carry out the president's vision. We have to win this new Cold War against the commies in Beijing that are trying to steal everything that they can, and you are the shield from preventing them from stealing everything that they can. I thank you for coming today, Under Secretary, and I look forward to hearing your testimony. I would ask now unanimous consent that the member from Michigan, Chairman of the Committee on CCP, Chairman Moulinar, be advanced to sit on the dais and participate in today's hearing without objection. Chair now recognizes uh Actually, I will say this first, because Ranking Member Meeks is not here right now. Other members of the committee are reminded that opening statements may be submitted for the record. We are pleased to have you under secretary. Uh, for Industry and Security, Jeffrey Kessler, before us today, thank you for joining us again. Your full statements will be made a part of the record. I'll ask you to keep your spoken remarks to five minutes, in order to allow time for members' questions. And I'll also thank you for the uh times that you've joined us in the skiff as well, uh to give us classified briefings. You made yourself very accessible, and we appreciate that. And I now recognize you for any opening statement that you may have.

Thank you, Mister Chairman. And good morning to you all. Let me start uh by offering my condolences uh to you, to this body, on the passing of your colleague, Senator Lindsey Graham, uh a statesman and a patriot whose service elevated and strengthened the country. Uh, Chairman Mast, um, uh and distinguished members of the House Foreign Affairs Committee, thank you for inviting me to testify today on the fiscal year twenty twenty-seven, President budget request for the Department of Commerce's Bureau of Industry and Security. BIS's mission is to safeguard the crown jewels of the American economy, our critical technology and supply chains. Under the leadership of President Trump and Secretary Lutnik, BIS is fulfilling this mission more strongly than ever. Consider the enforcement of our export laws. Before the Trump administration, the penalties for export violations were anemic. Licenses were being rubber-stamped, even for sensitive technologies and entity-listed companies. Too many in the business community viewed export controls as a cost of doing business, not a reason to change behavior. All of that has changed dramatically under this administration. From twenty twenty-four to twenty twenty-five, the total monetary penalties imposed by BIS increased more than eighteen-fold. From sixteen million in twenty twenty-four to three hundred and twenty-four million in twenty. And in twenty twenty six, we've already doubled the amount of administrative penalties imposed uh compared to twenty twenty five. BIS's enforcement unit has closed out several landmark cases. Uh within the past year, BIS announced a two hundred fifty-two million dollar settlement with applied materials on a case involving the illegal transshipment of semiconductor manufacturing equipment uh ninety-five million dollar administrative penalty on cadence design systems in a case involving the illegal export of semiconductor design software, and a settlement agreement totaling thirty-six million dollars, and penalties uh in a Bosch case involving the diversion of microelectronics and automotive software to a company on the entity list. In addition to these civil resolutions, our agents, BIS agents, helped obtain uh indictments, uh charging three individuals in a multi-billion dollar scheme to divert servers containing advanced semiconductors through S- through Southeast Asia. The problem now is that our resources are spread too thin, and we need more resources. Our enforcement officials are overburdened, they have more cases and more leads than they can handle, um and more than their peers at uh uh m- more than their counterparts at peer law enforcement agencies. BIS's enforcement unit should be orders of magnitude larger to safeguard critical technologies more effectively. And that's why the President's budget requests an increase for BIS's enforcement unit, um, from a hundred and twenty-two million dollars in fiscal year twenty-twenty-six, to three hundred and one million, um, in fiscal year twenty-twenty-seven, a hundred and forty-seven percent increase. This would enable the enforcement unit to increase from two hundred and ninety-nine positions to six hundred and sixty-nine positions. It would also enable BIS to increase the number of enforcement officials stationed overseas. from twenty-five to sixty-five. This appropriation would be a historic step toward transforming the agency to handle the national security mission that we have more effectively. The President's budget also ste- seeks smaller but important increases in appropriations for BIS's Export Administration unit, uh which handles licensing and supply chain investigations. This includes an eleven point seven million dollar uh increase in thirty-eight positions, to add specialized engineers and technical experts to support enforcement by performing the technical assessments and licensing determinations that form the basis for enforcement actions. It also includes an additional twenty million dollars to support BIS's Section-two-thirty-two program, to revitalize industries that are critical to national security. President Trump has revolutionized Section-two-thirty-two. In his first term, he used it to address the security threats posed by foreign steel and aluminum imports. And now in the second term, uh, BIS is using section two thirty-two more aggressively than ever, resulting in a manufacturing renaissance that's rebuilding our domestic industrial base, hiring American workers and strengthening our national security. BIS has launched more than a dozen investigations and the president imposed tariffs on steel, aluminum, copper, pharmaceutical semiconductors, autos, trucks, and lumber with other sectors under under consideration. Though we've instituted tariffs to address the national security threats, the benefits to the American people are enormous, and the administration has leveraged the authority to spur hundreds of billions of dollars in new investment in these critical supply chains. New factories are springing up across the country, including crude steelmaking capacity, aluminum plants, re-shored auto factories, massive new investments in semiconductor and pharmaceutical production, um, and an additional twenty million dollars investment uh in the group at BIS that administers section two two thirty-two is well worth the investment. Let me now turn to the Office of Information and Communication Technology and Services, or OICTS. This office is responsible for mitigating foreign adversary threats in the supply chain. OICTS is implementing, today, implementing an industry-wide regulation, the first of its kind, to limit foreign adversary presence in supply chains. It's called the connected vehicles rule. This rule prohibits foreign adversary software and US passenger vehicles starting in model year twenty twenty seven, which is what's being built now. It also prohibits foreign adversary connected hardware and US passenger vehicles starting in model year twenty thirty. BIS's enforcement of this rule has already made Americans safer. Following discussions with BIS, several auto companies have decided to excise foreign adversary technology from their US product offerings. These companies understand that BIS will not tolerate a risk of sabotage or data exfiltration in the cars that everyday Americans drive and they have changed their business plans accordingly. OICTS is currently heavily focused on implementing the connected vehicles rule uh correctly and in the future we expect the administration of this rule to become more routinized and as that happens BIS OICTS will consider creating new regimes for other sectors. that also have risks to their supply chains. But overall we expect the volume of work at OICTS to remain steady from fiscal year twenty-six to twenty-seven uh and that's why the President's budget doesn't request an increase uh for OICTS. I look forward to continuing the great work, the great collaboration that BIS has done with this committee, um and working with you all to make sure that BIS has the tools and the staff and the resources that it needs to keep America safe. uh, and to sustain our, uh, national and economic security. Thank you, and I look forward to answering your questions.

Thank you, Undersecretary Kessler. Uh, I will now recognize myself for questioning, and we will alternate between Republicans and Democrats, uh, for questioning throughout this hearing. Uh, I wanna begin by this. Uh, you talked about the increase for the BIS budget. I think we could easily see the need to double it beyond the, the number that we're, we're doubling it to right now, uh, because of uh the the nature of the threat that is going on right here and the importance of this to the globe so uh we know for a fact china is getting its hands on our most advanced ai technologies it's it's not hyperbole china has smuggled in thousands of blackwell chips they've smuggled them and they work to smuggle them everyday it is accessing perhaps hundreds of thousands of blackwells through data centers in places like like singapore malaysia thailand they are working to do this on a daily basis uh in other countries. And they're still, they have access to technology from the US and its allies uh to make its own chips, and they're trying to get that access uh through other allied countries on a daily basis. These are what China is working at every single day. That is uh the the way at which they present present the threat to your office. Uh that is why President Trump issued the America First Trade Policy Memorandum and the AI action plan where he told BIS, closed loopholes, strengthened export controls on chip making equipment, uh, and it has been a year since that commander's guidance, and I would like an update on this from you on, on where we're at. So just number one, have you aligned allied controls to US controls? And tell us about your use of the foreign direct product rule in doing so, please.

Absolutely. Thank you. Um, you know, we at BIS, we have made significant progress on several of the areas that you mentioned. Um, you know, when it comes to export controls, for example, on semiconductor manufacturing equipment, one of the most significant changes that we've made is to start applying the appropriate level of scrutiny to export licenses involving that technology, and export licenses involving exports to entity listed companies. You know, one of the things that surprised me, uh, when I was in my office, um, is to learn that the prior administration had granted thousands of export licenses to entity listed companies.

Is a problem.

Ma- major problem.

Can you get to a hundred percent?

I'm sorry?

Can you get to a hundred percent enforcement?

Well, that's always the goal, and I agree with you that that's the benchmark by which we should be judged. Um, to get to a hundred percent enforcement, we do need additional resources. We are too small of an agency. We know, and I testified to the same thing a year ago, we know that uh we're only capturing the tip of the iceberg. We have shut down smuggling schemes, um we have imposed major penalties on those who smuggle and divert our advanced technology, but there's a- uh unfortunately there is a lot of illegal activity going on that we haven't stopped yet, uh and we need a massive increase in the enforcement resources to be able to do that.

Extensive, and and much of that illegal activity is through Chinese military end users. As you well know, you probably know these companies better than than most members of Congress. You have to deal with them on a daily basis. We deal with a hundred other things. Uh, Secretary of War Hegseth has stated publicly, Alibaba, Tencent, CXMT, YMTC, and more, they work directly for the Chinese military. Um, so what does that mean for BIS policy when he identifies them as working directly for the Chinese military? Um, how do you qualify them as military end users so that we don't sell them that technology?

Look, we have to be realistic. Whenever we are thinking about exports into China, I think we all recognize that uh the government uh has significant control, exercises significant control over um over companies in the private sector there. Um, we don't have any illusions about that. Um, so we have to be very careful when we allow exports uh to there or to other country group D countries.

Do you see those companies that I just listed as Chinese military end users?

And

Alibaba, Tencent, CXMT, YS.

I see those companies as playing an important role in in the strategy of China to develop its indigenous AI industry.

Are they Chinese military? We know that Chinese has a effusion, civil, military uh use uh constantly. Any place that they confuse civil and military, they do. So are those

Okay, I believe these companies are on the twelve sixty H list, YMTC is on the entity list. Um, so, you know, uh, obviously these these com- companies come from the list,

Alibaba and Tencent?

but also on the twelve sixty H list.

So these are Chinese military end users.

Well, military end user is a technical designation under our rules.

Do you assess them to be Chinese military end users like the secretary of war does?

Um I completely agree with the secretary of war.

That they are Chinese military end users.

I will, I will go and look at his statement and see exactly what he said. Um, you know, look, the um these companies obviously,

He said that Alibaba, Tencent, CXMT, and YMTC

they coordinate very closely

work directly for the Chinese military.

then I'm sure that that is correct.

My time has expired. Uh, Ranking Member Meeks, I believe you wanted to give a statement and ask your question.

Yes. And first I just wanna welcome to the committee, uh, Representative Debbie Wasserman-Selch, Representative Bell, and uh, Representative Duncan, um, uh, Pocan, excuse me, Pocan to the committee, uh, and uh, glad to have you here. Uh, let me thank you, uh, Chairman, for in this critical hearing under secretary kessler uh i want to welcome you uh and thank you for appearing today and also thank you actually you one of the individuals of the administration have come to my office several times to talk and try to work things out and i want you to know that i do really appreciate that uh and uh uh and hopefully that will continue you know of course i've uh got a lot of questions for you and uh since the last time uh you testified in front of this committee, which was nearly a year ago, um, I think much has changed and you are here to, uh, guest to justify, uh, the President's budget request for BIS. That requires us to examine BIS's record over the past eighteen months, uh, and answer the many questions before this committee and provide the American people with a clear accounting of what BIS has accomplished and where it has fallen short. Uh, I've been deeply concerned, uh, by the Trump administration's mismanagement of export controls. Rather than treating export controls as one of our most important national security tools the president has turned them into a bargaining chip in a broader negotiations with China and as a result the administration has issued virtually no significant new export control rules with respect to China and Russia despite being in office for a year and a half. Instead, it has weakened existing safeguards, including by approving licenses for advanced AI chips destined for China. Moreover, the administration hasn't added a single entity to the entity list since last October. And according to CSIS, this marks the longest period of entity list inactivity since two thousand and eight, when export controls was nowhere near the center of our national security strategy. The Biden administration added nearly sixteen hundred entities to the entity list. President Trump and Secretary Lutnik have added only a hundred and forty in a year and a half. Are we supposed to believe that Russia and Chinese companies are no longer trying to acquire sensitive technology for military and other malign uh purposes? In your testimony, you mentioned the need to codify the Office of Information and Communications Technology and Services, also known as OICTS. Yet many of the China actions and rules uh that office was developing have been shelved or rejected. As a result, the office has not unveiled a single new rule during the second Trump administration. The policy perilous and negligence at BIS got so bad that Chairman Mass was compelled to organize a twenty-four bill export controlled mark-up in April. That raises an obvious question. Why should Congress drastically increase the budget for an agency that has failed to fully use the authorities it already has? I hope you will be able to answer that question today. But it's not just the policy that concerns me. Under Secretary Lutnik's watch, uh, BIS has become less effective and less transparent. which have been unacceptable delays in license reviews, which are harming our economy and technology leadership. Engagement with industry is at an all-time low, making compliance and cooperation difficult. Just last month, BIS had to issue guidance reminding companies that it will still i- that it was still enforcing its own rules because many companies uh were no longer sure. Major policy actions are increasingly being implemented through private letters to individual companies rather than transparent rules that apply equally to everyone. Legitimate questions about consistency, accountability, and whether export controls are being applied fairly. And we have seen years of expertise and now uh and know-how pushed out or leave voluntarily because of mismanagement and declining morale within the agency. The bottom line is simple. BIS is not meeting its missions as I can see it. Under Secretary's, Lutnik's leadership, BIS has dropped the ball on rulemaking and entity list designations, uh, while focusing entirely on enforcement. And enforcement is indispensable, let's be clear about that, but it is far less effective when the underlying rules are outdated and inefe ineffective. The President's budget request largely doubles down on that imbalance by emphasizing enforcement while doing little to address the underlying policy deficiencies. And so I have long been an advocate for more funding and resources for BIS, but before Congress provides a significant funding increase, this administration must demonstrate that BIS is effectively using the authorities and resources it already has so I look forward to our discussion today. Uh, and questions. So, my, uh, go straight to questions. So, I wanna know, and my first question to you is in a, is how many licenses has uh BIS approved for the H two hundred and equivalent chips uh sales to China?

Thank you, Ranking Member Meeks. Uh, that information is confidential, but we have provided disclosures to the committee. um, that lists the license applications for the H two hundred and its equivalents that we've received and the status of each. So I'd just refer you to our confidential submissions.

OK. So you have provided, your staff has provided it, but it's it's it's confidential or classified?

Multiple times.

Is that what you're saying by, is that that what you mean?

Confidential. It's not I I

It's not classified?

don't think it's classified, it's confidential.

We have it available on the SCIF.

OK. As of today, have shipments of the H two hundreds or equivalent chips started to China or Hong Kong?

To my knowledge, uh, yes, but very few.

Okay, so you know

And that's something that we provided, we provided an up again, like we provided a a confidential update recently to the committee on that.

So, there have been shipments, but You say it is not, so we don't know. Do you know how many license approvals have led to the shipment thus far?

We do. And and again, we've given that information to the committee, um, and I'm happy to provide it to you in a confidential setting.

Again, OK. Um, but we cannot, the American people, it's all confidential, uh, and or in the skiff.

That's because of the s-

Uh, I'm trying to be transparent.

Well, that's because of the statute and the rules around uh, disclosing, publicly disclosing information related to license applications. There are restrictions on my and my agency's ability to publicly disclose information about license applications, but we do, uh, try to make it, uh, available to the committee and we have done that. Um, but I think for the American people the bottom line is, uh, very few, uh, shipments against licenses for H two hundreds and equivalents have taken place. It's a very small quantity of chips. Um, so, uh, it's it's it's it's it's trivial, a trivial amount.

Well, I just think, I will take advantage that the chairman says it's in uh the skiff. I will do that, but I would hope that we could be transparent to the American people, so that everyone would know. So, you know, per the Export Administration's regulations, uh the EAR, uh the Department of Defense, Energy and State have the authority to review any license applications submitted under the e a r but every single h two hundred license bis has approved to date so whatever that number is they have uh the authority to review license uh uh the uh the and the applications that's been submitted um so my question to you is um did all three agencies formally review and sign off?

Well, all three agencies, all four agencies, um review license applications for the H two hundred and provide their recommendations. Um so that's that's the process that we follow.

So all three checked off on it?

Well, I'm not going to comment on the positions that agencies took in a deliberative context. Um, but all the agencies review all the H two hundred and equivalent license applications that we receive.

Well, shouldn't we know, because we, I need to know, and I think the American people need to know whether any agency's opposition, for example, was overridden, or was any agency simply never given the opportunity to review, you know, we need to, you know, this is, we have oversight responsibilities here in the United States Congress. Uh, and so that that's our jobs. And that so to not know whether or not, uh, all three agencies checked off on this, uh, as required by law, um, and or whether or not, uh, they had the opportunity to review is something that we need to know. Can you give us an answer to that?

Well, I, I'm, I'm testifying now that all agencies have the opportunity to review these licenses. Um, and also that, uh, the positions and the views that each agency takes in the context of an inter-agency discussion is deliberative, and I'm, I'm not going to comment on it.

Again, transparency. Let me just ask this last month the Department of Defense published its latest Chinese military companies list. Interestingly, since December, BIS has approved licenses to sell H two hundred chips to at least four companies that are on that list, uh, including three that were just added last month by this very administration. Can you explain why BIS approved licenses for H two hundred sales to companies that the Department of Defense deems to be Chinese military companies?

We grant uh H two hundred licenses based on a rule that we issued in January, which explains the criteria that we examine for reviewing these licenses on a case-by-case basis rather than a presumption of denial. And the applicant has to meet rigorous national security requirements, including um making sure that the chips actually perform at the level that they're supposed to perform at and not higher. getting inspections, uh, domestic availability of comparable chips, and so on. Um, so that regulation has the basis for the decisions that we make in any particular case.

Mr. Chairman, I

And I, you know, and there have been, and just to be clear, I mean, there are cases where we approve the license applications we receive. There are cases where we deny, um, the license applications we receive. So we examine each one closely on a case-by-case basis.

Mr. Chairman, I, before I yield back, I'd just like unanimous consent to submit into the record

Without objection. Representative Biggs is recognized. Representative Biggs.

Thank you, Mister Chairman, Under Secretary Kessler, thank you for being here today and thank you for your leadership at BIS in putting American national security and our American workers first. The connected vehicles rule is exactly the kind of bold action that President Trump promised the American people, using our full authority to keep the Chinese Communist Party out of our critical infrastructure and out of our driveways. It should terrify every single American to think that Beijing could remote remotely access or even control cars on our roads. And I wanna commend BIS recent decision to deny the EV company Polestar, which is owned by Communist China's Geely authorization to sell twenty twenty-seven model year vehicles in our country. I raise this because it matters directly to my home state of South Carolina. The Polestar three is built in Charleston, in the same plant that builds Volvo vehicles. And Volvo has been owned by Geely since twenty ten. BIS approved Volvo to keep selling here while denying Polestar. I don't doubt they're a good reason for that distinction, but South Carolina auto workers, the suppliers and dealers, they have naturally been asking what separates a yes from a no, and I think giving them the clarity would help BIS's mission. So I have three questions. The first, Even in general terms, what separated the Volvo approval from the Polestar denial so that our manufacturers have a clear road map to follow?

Thank you. Thank you very much for the question, uh Congresswoman. Uh For any, so there there there's a general prohibition on the import of technology, software, um starting in model year twenty twenty seven. um, that has foreign adversary technology. And we were able to reach, um, an agreement, a specific authorization, with Volvo, that we believe, uh, is very strong, very robust, and effectively mitigates the national security risks that we believed otherwise would have existed. Um, you know, we just were not able to reach that kind of agreement, uh, with, um, with other companies that we have, uh, Denied. Um, and that's the difference. The details of of those are are confidential.

Thank you. So secondly, are there other China-linked automakers currently under BIS's review through the same process?

There there have been uh multiple companies in similar situations that are before us, both automakers and suppliers.

OK, my third question. As South Carolina continues to grow as an automotive manufacturing powerhouse, how is BIS making sure this rule keeps the Chinese Communist Party out of our supply chains while ensuring that America wins the future of the auto industry?

Well, you know, I think it's about, uh, creating and standing up this strong new role and then enforcing it effectively, and that's exactly what our office, our OICTS office is doing right now. Um, this is a whole new program. A first of its kind rule under this authority, where there's never been um this type of program established under this legal authority. Um, and uh, you know, we're setting up right now the enforcement apparatus to make sure that importers, and dealers, and manufacturers all adhere to the rules, that when we enter into an agreement like the one that that you you know, that that I referenced with Volvo, that the terms are abided by. Um, and so, um, you know, I think strong enforcement of this rule, uh, and continuing to work closely with industry is how we make sure it remains successful.

OK, thank you. Mister Chairman, I yield back.

Gentlelady yields back. Representative Keating, you are recognized.

Thank you, Mister Chairman. Kessler, uh, are you familiar with the UAE-based company G forty two

i am

are you aware of the chair who the chairman of that G forty two is

i am

who is that

i believe it is i believe it is pung shau

sheik tanun in other ways

uh sheik tanun

yeah are you aware uh of his other position sheik tanun's other position with ua government

i'm aware that he has a position with the ua government

and what is that position

I don't know off hand.

He's National Security Advisor. So are you aware uh also that uh in the course of uh export controls, I mean the very powerful semi-connector chip uh deal that was done in May, uh did you have other discussions uh as a member of the administration with other members of the administration? On that change? For those very powerful sensitive computer chips that we were worried about getting in the hands of the Chinese. We must have had some discussions with other members of the administration.

All all major decisions that BIS makes, we make in consultation with

So who did you discuss that with in the administration, sir?

our great partners in the administration. Which decision are you asking about?

About the approval of to G forty two in cheek to noon, uh about these computer chips that array security concerns and fall into the hands of being followed in the uh being in the hands of the Chinese uh who made that decision who made that decision

so w- when when the Commerce Department makes a consequential decision

so you're aware but did you have uh any discussions at all with Steve Whitcroft who's the envoy in the area uh certainly he would be someone that would have it you'd have a discussion with if you were dealing with G forty two transfers uh and and dealing with that area since he's the envoy of the Middle East

I'm not going to comment on,

Why not?

I'm not going to comment,

Why not?

I'm not going to comment on discussions that

Why not? It's very relevant, sir.

I'm not going to answer your question.

You just said you're not gonna comment.

I'm not going to

I'm asking why.

My answer is that I'm not going to comment on discussions that I had or didn't have with any particular individual

Good, I'm not asking you to comment on the discussions.

administration.

I'm asking you who you discussed it with. Did you have a discussion with Steve Witkoff?

When I'm

I don't care what you said to him. First answer the question. It's no security risk, it's no confidentiality. He's the envoy in the Middle East. Did you have a discussion with Steve Witkoff?

Respectfully, sir, I'm I'm trying to answer your question.

No, you're not. You're trying to avoid it, frankly.

I'm I'm trying to I'm trying to tell you that, uh, you know, I'm not going to disclose the content of deliberations that I have.

I'm not asking you the content, sir.

I'm not gonna I'm not gonna provide a chronology.

I'm first asking you, did you have the conversation? At least you can share that with us.

I'm not gonna provide a chronology or an inventory of individuals.

You're not g- No, no. I didn't ask for a chronology. I asked you, did you have a conversation with Steve Witkoff?

Respectfully, sir. Um, I'm I'm not gonna

There's no respect here if you don't answer the question, sir.

I'm trying to tell you that I am not going to provide

No, you're not. You're trying not to answer. So tell me the basic question,

I'm not

did you have a discussion with Steve Witkoff?

I'm not gonna

That's pretty simple.

I'm not gonna provide an inventory of the individuals

I didn't ask you for any inventory. I didn't ask you for content. I asked you a pretty simple question. Did you have a discussion with Steve Witkoff?

I believe that you're asking for information about discussion

Oh no, don't believe what I'm asking. Answer what I'm actually asking.

I don't wanna provide information.

You don't wanna provide, of course you don't. Tell me the simple answer. This is so elementary.

Yeah, I'm not gonna provide information about

This it's it's not covered by any confidentiality, it's not anything, I'm not asking for content,

Absolutely is. You're asking about

I'm asking for an answer.

You're asking about deliberations that led to a decision.

No, I'm not asking about deliberations. I'm simply asking, had you had the cont- a conversation with Steve Whitcroft about this. I'm not asking you content, deliberations. You can't answer that question.

Look, I've I've given you my answer. I'm not gonna

No, you haven't, sir. How can you say you've given them the answer? There's nothing more fundamental or simple than I'm asking you. Did you have a conversation with Steve Whitcroft about this?

I'm not gonna I'm not gonna provide an inventory of individuals because it's deliberative.

Why? Why aren't you doing that, sir?

It's deliberative. Right, the

It is not deliberative if you had a conversation.

This. I'm not gonna provide an inventory of

You're evading the answer, sir. Why are you evading the answer?

Because it's not

Why are you evading the answer? Could it be the conflict of interest is there? with Whitcough and World Financial and the Trump administration, which the president personally benefited by? Could it be that? Could it be a fear?

I'd be,

Are you afraid to give an answer, sir?

I'd I'd be happy to give you an explanation.

You're not happy to give me an answer? I can't believe that you won't even admit,

Let's talk about, let's talk about the UAE,

if you had a conversation with Steve Whitcough about this.

talk about the UAE decision that we took last week.

Mister Chairman, I yield back.

Representative Davidson is recognized.

Uh, thank you, Chairman. Thank you, uh, uh, Mister Kessler, for being here today and for uh just providing clarity about the the role the administration is doing to protect our national security and uh i appreciate you doing that. Um you know one of the uh things that we spent a lot of energy on is getting an export control framework together. We worked you know across not just state department but commerce, treasury. Um you know this is kind of a whole of government effort and you know the budget needs to increase uh to be able to accommodate those kinds of roles. Could you give us an update on how that's going and how important it is to not only create the authorization, but to fund the office that you guys need to provide this oversight.

Well, absolutely. Well, enforcement is really at the heart of the work that BIS does. Enforcement is the reason that uh, Sure. you know,

Mm.

that the export control regime is effective. But now, we just need that. Mm-hmm. Um, enforcement is what creates the incentive for companies to comply, and it's what keeps the Mm-hmm. It's a problem. technology that we all care about out of the hands of our adversaries. We have to solve it. Now, um, You know, we have surged enforcement. Um, I see. thanks uh in part to the to the additional appropriations that Congress has provided for fiscal year twenty-six. Yeah, it's awesome. Um, we've prov we've we've hired a a huge number of people just this year already, Just a little more. around seventy people.

Mm.

Of course. Um, and we plan to continue hiring throughout the year. But as I mentioned in my opening testimony, I think that BIS ought to be orders of magnitude bigger,

You would be able to.

uh, to effectively fulfill its enforcement mandate. We know that our enforcement officers are overburdened. We know uh that there is illegal activity happening um that we're not able to stop, because of the paucity of resources. Uh and so we're asking Congress, the President's budget asked Congress, for an additional significant increase in in resources so that we can uh continue transforming BIS into an enforcement powerhouse.

Tha- thank you for that, thanks for the additional explanation, and look one of the things we wanna do is make sure we have bright lines, clear things, so there's not some unambiguous uh standard out there that it's not regulation by enforcement, but companies are clear on what they're supposed to do. Toward that end, a past uh working to pass a bill, the Biological Intellectual Prop- Property Protection Act, that would restrict the export of US intellectual property instance and information related to synthetic bio biology uh to foreign entities like China. Uh, we know this has happened in the past, we're concerned that it could happen in the future. Um, you know, how important is it to have bright lines? Does that make enforcement easier?

Well, it sounds like it would be helpful, and I'm happy to take a look at the legislation and and work with your office on it.

Yep, thank you for that. And, you know, one of the early enforcement actions really has been AI, and one of the most important technologies we're trying to restrict is related to computing, whether it's quantum computing, uh, chips, uh, technology. But artificial intelligence is, uh, a bit of a an arms race of sorts with China and, you know, sort of a rapid enforcement action, um, uh, against a version of Claude happened already, so I know that the details of those uh you know, discussions and negotiations are um confidential or classified generally on some of these things but you could you go into the kinds of things that are considered as you're trying to take uh an urgent enforcement action like that.

Yeah, absolutely. Um, you know, one one thing that we expect of companies that are involved in developing frontier models is that they follow the procedure and the policy that's set out in the president's executive order. uh on AI from June. Uh and um that's an important step uh both in ensuring the security of the models, and in instilling confidence uh in the government that if there are vulnerabilities that we uncover them we know about them and we're prepared to deal with them. Um you know the government uh has several bodies that work with companies to evaluate the security of frontier models including Casey at the Department of Commerce, not NBIS but Uh, it's at the Department of Commerce. Um, and so we encourage companies developing these types of models to work with us closely.

Yeah, thank you for that. And then, you know, I think one of the concerns a lot of my constituents have is their data, their pro- uh, you know, private information. You know, uh, frankly, they're concerned about our own government collecting their information. They're concerned about companies monetizing and harvita- harvesting it. Uh, you know, some of that's outside your control. We need a domestic privacy bill. But when you look at crossing the border, how are we how are we protecting Americans? Um, sensitive, personally identifiable information, uh, geo-location data, all kinds of things that you can buy from data brokers. How are we uh limiting the export of that kind of data?

Well, um, you know, some of that, some uh some technical data is controlled, so it falls under the export controls. And that's one thing that we're doing. And there are other authorities too, uh, for example, that the Department of Justice has. um, to limit the export of of sensitive personal data. Um, so there's a variety of legal tools, both inside and outside BIS that we can use.

Alright, thank you. Um, my time's expired and I yield back.

Representative Barra.

Representative Barra, you are recognized.

Thank you, Mister Chairman, um, on behalf of my colleague from Massachusetts, I'd like to ask you now for his consent if I could enter two articles, um, into the record.

Without a doubt.

Thank you. Um, thank you for being here, Secretary Kessler. Um, You know, I have the the privilege of serving on the intelligence committee as well. Um, and one thing that we think about, you know, let's use um um mythos as as an example. You know, I think Anthropic did the responsible thing as a as a company when they realized some of the powerful tools that were um becoming available coming to the government. You know, working with with folks to to make sure there's responsible application of these tools. Um Within um BIS um and within Congress, one thing that we think about with the frontier labs that are out there, with how rapidly these technologies are emerging, um do you have the tools or do we have um the authorities in place that compel these companies to come to us as the the federal government um to say hey here here's a tool that we may not want our adversaries to get a hold of. We may not actually want our our own public to get a hold of yet. We don't fully understand. Um, does that make sense, you get what I'm thinking about,

It does.

and this is a place where I think the administration, not in a partisan way, but in a national security way, in a way of protecting the public, because we see how fast these technologies are evolving.

Right, well, thank you for the question. Uh, you know, I I I think that we showed the world that we do have the tools Um, in the in the case of Anthropic, right, we had national s security concerns. And we responded quickly, uh, to address them and to control the dissemination of the model. Uh, and we worked with Anthropic to address our concerns, and Anthropic responded admirably. And we, uh, you know, and after too much time had passed, we lifted the controls, um, and, uh, ensured that they continued to work with us. as they develop guardrails and and make sure that their model's secure.

And again,

So

I I applaud Anthropic for doing the responsible thing and the right thing, and and and working um together with us. What I worry about though, will that next frontier lab, will that next company that comes across a very powerful model or powerful tool do the right thing? Um, I hope they do. But, you know, what are the tools and things that we should be thinking about as a federal government to create a compelling narrative that says, " Hey, wait a minute, Yeah. You have to work with us here on this.

Absolutely. Well, so I I think, you know, uh, as as the executive branch, we work closely with all the frontier labs, all the American frontier labs, um, and encourage them to cooperate with us closely as they develop and prepare to release these frontier models. Uh, we work with them to assess the security risks. Um, and again that's done through parts of the government like Casey, which I mentioned, uh, through the White House. Um, and, and they know now, uh, that if, if there's a company that, that isn't following the rules, isn't following the pathway that's set out in the executive order from June, that we have tools at our disposal to limit the dissemination of the models.

I mean, I guess I, one thing that I would encourage, um, the administration would, to, to work with Congress, cuz I do think it would be important for us to put those guidelines in place, um, to put kind of the code of conduct, again, I do worry about how quickly things are evolving. I do worry about whether these models get in our adversaries' hands, you know, uh again You do, you know, coming from California, you see a lot of the innovations that the frontier labs are doing, and I I don't want to just um hope that each lab will do the right thing. I wanna have a compelling case that says, hey here's the guidelines, here's the things that would compel you to come to the administration and compel you to come to Congress to so.

Yeah, I I mean, look, I I agree with you and I agree with the concern that you're expressing. Um, this is obviously a rapidly evolving landscape. It's a it's a new world. Um, and we're developing we've used and we're developing new tools to encourage cooperation with the government. And we're also um, you know, developing the framework for Frontier Labs to cooperate with the government and to make sure that our concerns are addressed. So, um, like

Right. And again, I'm I I guess I would argue, and I I think for this committee as well as, you know, um, for Congress, that we ought to work with industry, again,

Mm-hmm.

that I suspect most people wanna do the right thing. We ought to work with administration. It shouldn't be, you know, a partisan issue, it should be an issue of how do we protect our intellectual property, our advantages, but also our national security and and safety. So, again, I would look forward to working with your um office as well as others to try to create those guardrails and industry

i'd be happy to

thank you oh you're back

representative eisel thank you chairman mr. kessler uh i appreciate that you've been uh uh very available for conversation and and and correspondence um so i hope you'll take my uh my opening here as uh as positive um first of all would it surprise you to know that during the four years of the biden administration uh applied materials grew by six percent lamb research shrunk by eighteen percent while the chinese makers including naura grew by ninety three percent and asmet amec grew by two hundred and fifty four percent are those figures that would uh you'd find credible and uh not surprising

I find them credible.

Would it, would you find it credible that it hasn't really reversed by very much, that those Chinese institutions continue to grow by double and triple digits? While American companies find themselves still behind the power curve on regating their volume and dollar leadership.

Right. I find that credible as well.

So, as we look at this, uh, and by the way, Mr. Chairman, I'd like to put in for the record, with unanimous consent, an article from Bloomberg, secretive or secretive Chinese chip maker is built to dodge US curbs.

Without objection.

Thank you. Um, your your title is an amazing one. First of all, you're part of the Department of Commerce, meaning that your job is to promote commerce. Bill uh, business industry and security is an interesting two-part obligation, isn't it? both to promote our our industry and protect it and then the security side of it, uh uh in your case primarily on exports, right?

That's correct.

And more broadly commerce is dealing with both exports and imports from a standpoint of protecting industry.

Correct.

So for the record here, is one of the challenges that you face, that we have to support, eh through our funding and authorization, the balance between our industry which is a global industry when we look at chip production, chip makers, uh and and the products that allow for those making, they cannot be global leaders if they are cut off from substantially half or more of the market. Is that correct?

Well, I think it's important for, it's important for the United States and for the Department of Commerce to support and protect the industry that makes the tools the naked semiconductor industry.

I I appreciate I appreciate that,

We have a

and and that's why I brought up those companies. If if we take for example QualComm in my home district, QualComm lost in the five G race. China won. Wasn't because they didn't work hard, it was because China owned the market for the utilization. If they had a chip that worked, they got first dibs on it. That balance is one that we failed in. In other words, today, many of our chip makers find themselves with only one market to sell through to the global market, and that's China, meaning that their chips have to pass from here through China to get to Europe and the other countries, because the products are substantially assembled in China. That's a fair statement, isn't it?

Look I you used the word balance, and I agree with you that it's important to find the right balance, right? We want to make export markets accessible for our companies, and we also wanna make sure that we respect national security. And in this case, we're talking about a set of, as you know, we're talking about a set of technologies that are very sensitive from a national security perspective.

Well, but here's my conundrum. And it's one you and I have spoken about before, but I wanted to make sure we put it in the record. you have a average of sixty six days or so for approvals and that's that sounds pretty laudable about two months between application and approval however the companies that we've been talking about the chip manufacturers the manufacturers for the chips uh the uh nvidia type companies and beyond they don't find sixty six days, in some cases they are un uh undesignated and they are part of the i don't have an answer ever. So how do we go from a good average, which includes, you know, somebody making gun parts, uh, all the possible controlled items, and get down to the global leadership areas, quite frankly, the one, two, three, and four, and five trillion dollar companies in which America dominates, however China assembles. How do we, how do we get it to where it's sixty-six days for those companies, Because I'm concerned that one thing we know is they're not getting the quick answers. In some cases they're not getting the approvals at all, or the denials.

Well that's that's true. So the, you know i- in the vast majority of cases for licenses that we handle, uh approvals, decisions and approvals come quickly. As you said, you know, it it could be as little as two weeks. Uh it could be a month or two. And again, that's the vast majority of cases that we handle. One of the changes that I've made, and one of the changes that I committed to make, when I was going through my confirmation process, was to stop the rubber-stamping of licenses that involve serious national security equities. As I mentioned before, under the prior administration, um, there were thousands of licenses granted to entity-listed companies. And I think that's not the outcome that, uh, the members of this committee expect to see. And so I have been BIS on, you know, under this administration has been applying more scrutiny to those licenses with their national security equities. And I think that that's the, that's the right outcome. Um, so that's, that's how, that's how the licensing process is working now. And again, I think that it's, it's entirely appropriate that when, that when there are serious national security equities, we'd take a close look. We would involve technical experts within BIS. Um, we would make sure, we would talk to the companies, make sure that we understand from the company's perspective. what the reasons might be for granting an export license application. And so we're very thorough.

Thank you, and thank you for the extra time, Ms. Chairman, to yield back.

Representative Kamlager-Duff.

Secretary, Undersecretary Kessler, uh, thank you for appearing today before this committee and for meeting with me two weeks ago. You are charged with leading one of our most important national security agencies at a critical moment in world history. as AI technology transforms society and that is why your job is so important. Restricting the sale of our most advanced AI chips to China is a national security priority. Would you agree that we must maintain our competitive advantage with AI over China?

Well, thank you. It's good to see you again, um, Congresswoman, and I appreciated the meeting with you too. Um, and yes, I think it's essential that the United States maintain its lead in AI,

Great.

um, in quantum, uh, in semiconductor technology, and all the sensitive technologies, um, that are going to define, uh, the economic competition of the twenty-first century.

Thank you so much. I, too, agree with you. So last week, you and Secretary Lutnik loosened export controls on the United Arab Emirates, making it easier to export advanced AI chips, military equipment, commercial satellites, and spacecraft. Specifically for this hearing, the rule allows the UAE government and designated companies, including Emirati AI leaders like G forty-two and core forty-two, to access advanced AI chips and servers without needing individual licenses. So the conflicts of interest between the president, his son, and any dealings with UAE are rampant. Donald Trump Junior and Eric Trump co-founded World Liberty Financial. In January twenty five, just before President Trump was inaugurated, a UAE royal, who was the UAE National Security Advisor, purchased a forty nine percent stake in World Liberty Financial, reportedly netting Trump two hundred and sixty three million dollars. In May, of twenty twenty five, World Liberty Financial announced that its new stable coin, USD one, would be used by Abu Dhabi investment firm MGX to finance a two billion dollar investment in crypto exchange company Binance. And who is the chairman of MGX? That same UAE royal national security advisor who bought forty nine percent stake in World Liberty Financial. Now we have your announcement easing export controls on, you guessed it, the United Arab Emirates, who now stands to gain access to frontier AI chips. So I have to ask you, Secretary, have you or Secretary Letnick had any discussions about the UAE and world with world liberty financial or members of the Trump family.

Well No, not for me. Um but uh you know what I can tell you is that this UAE decision that we made, I I believe is uh an appropriate revision to the export control country groups, um that recognizes the UAE's status as a key ally in the region.

Right.

Um the

I I I I wanna I have limited time. I wanna appreciate that you said no, not from you. I am curious about Secretary Ludnick, and I am curious to know if there have been any correspondence, any emails, any disappearing signal chats, any meetings that you have seen or you have heard. And the reason why I ask is because Secretary Rubio came here just not long ago, and when asked similar questions, he said, well you, Congresswoman, just don't know where to look.

Look,

So I wanna ask, where should we be looking?

I I can't

Where should we be looking for this information? Because, I have to tell you, it smells of conflict of interest. It smells like it could be an illegal pay to play scheme. And you are an accomplished lawyer. You went to Yale, you went to Stanford, you know about these things and you, I believe, would know an illegal pay to play scheme when you see it.

Why I

And the reason why I ask these questions is because when you are written up, when this will be your legacy, this will be your legacy. And if we, I hope we do not hear or read about a scheme like we did the mining deal scheme, with Setwork Secretary Ludnick when it comes to the Emirates and these chips. And I hope that your name is nowhere on those correspondences or signal chats, or meeting dossiers that come up.

I will be proud for the actions that we've taken, including with respect to the UAE, to be part of uh my legacy and what the administration does. I think that uh forging closer ties with the UAE encouraging the UAE to invest in the US tech stack, encouraging it to invest in US AI data center build-out, strengthening the partnership between the United States and the UAE, I think that it is uh one of the um one of the most significant achievements of the administration.

Well, if there's a pay-to-play scheme,

And the UAE

just know the Supreme Court protects the president.

Representative Huizenga.

It doesn't protect you.

Representative Huizenga, you are recognized.

Uh, thank you, Mr. Chairman. I want to start uh by asking permission to enter into the record a letter that was sent to uh secretary letnick october dated october thirtieth twenty twenty five um and uh uh mr.

Not objection.

kessler in this in this letter uh chairman Mast uh chairman molinar chairman garbarino chairman crawford and myself uh identify high risk tech sectors such as advanced medical equipment industrial machinery and robotics energy generation and storage sub-c cable systems and semiconductor manufacturing equipment that need to be uh addressed using ICTS authorities to protect the US market from technology threats. Um, however, since then uh there has been no further action beyond enforcing the Biden era policies. It's my understanding that Secretary Lutnik is excited to use these authorities to protect critical US sectors from CCC uh C C P technologies. Uh, has anyone instructed you not to use the ITC uh or I'm sorry, ICTS authorities to protect US technology sectors from the, from the Chinese?

Look, the decision to use ICTS authorities in any particular case, it would be a decision that the administration makes. Um, and we would obviously consult

I understand, but nob- nobody has, nobody has instructed you not to.

And for any decision that we would make, we would consult with other parts of the administration. We make sure we move forward in a coordinated way. Right, we're, we're a team. And there are sectors.

Got that, but now now now you're not answering what I thought was gonna be a fairly simple, uh, question, that no one had instructed you to to do that. Um, so now it begs a bigger question as to who is then seemingly or potentially putting up a roadblock to the use of uh of the ICTS.

Yeah, I'm not saying that there's a roadblock, and we are using ICTS. As I, as I mentioned in my testimony, we're using the authority aggressively in the context of uh passenger vehicles. And, you know, what I'm telling you is that we look at it like there's a set of sectors that have um, where we're concerned about possible um espionage risks,

OK.

infiltration, data exfiltration,

I I I I got it,

and we look at them

and this is now taking up half of my time, which I thought was gonna take a minute. Uh, because I'm not getting what I thought was gonna be a simple answer. So, uh, you and I talked a little bit about about this yesterday, about no rulemaking that has been attached to this, and why that might be the case. Um, you indicated, uh, that you would be willing to work with me on that.

Course.

OK. Um, this, this has to be addressed. We have not, uh, I mean, from October we, you, you got the chairman of Intel's chairman of homeland security, chairman of the china select, chairman of foreign affairs committee, and I'm just a little old subcommittee chairman who happens to have uh operational responsibility for this. It just, it boggles the mind that this administration is not utilizing their relationships here on the hill uh to be able to address these things. Um, I'm gonna, I'm gonna have to hit two other things. Um, BIS is supposed to close loopholes, not create new ones. I know you and I t- had some debate back and forth about whether this is a loophole or not about the Blackwells in China. Uh, why did BIS issue guidance in May of thirty-first saying that Chinese companies can keep any Blackwell chips that they had bought? And if, whether those were legally or illegally obtained, shouldn't you make, be clear with the Chinese that uh, that can't keep any black wells that they may have gotten through either smuggling or other loopholes?

The guidance that we issued on May thirty first clarified and reaffirmed uh a pre-existing policy that had been in place since November twenty twenty three. And that is that companies that send advanced AI chips to countries in country group D or companies that are headquartered there but located outside country group D five that they need to get a license from BIS. And if they hadn't, it would be a violation, and what the guidance says is they should self-disclose.

And shouldn't there be a little bit more behind that? Okay, I I gotta move on, I because I it's this is we are we are talk this is this is a multiple conversations that we have had that is just a frickin' circle that you talk in. And I'm sorry, but this is unacceptable. So, Let's let's talk about uh CXMT, which I understand from your conversation with the chairman, you have a less clear view of the standing of their standing within China. Um, we've already seen strict export controls on US companies to sell technology uh to the to the memory maker CXMT our allies don't. Key Dutch company ASML even has a friendship garden, whatever the hell that is, with CXMT. So it's hard to imagine anything more America-last than letting our allies sell to our adversaries. when we don't. So I wanna know what are you going to do about it, and what's the administration gonna do about it?

Well, I agree with you that this is a a major concern, um, and you're right that our companies aren't able to sell to CXMT. Um, and uh, we're concerned, I'm concerned about the article that you mentioned, and we raise it directly with our uh, counterparts in, including in in the Netherlands. And I was in the Netherlands a couple of weeks ago, uh, raising these concerns. We are, we continue to seek alignment. We continue to insist that the backfilling by foreign companies and foreign countries and export controls stop. Um, and we're not going to rest until we achieve that.

It doesn't seem that's the case.

Rep

Now with that, Mr. Chairman, I yield back.

Representative Bell.

Thank you, Mr. Chairman and the Ranking Member. Effective export controls depend not only on strong laws, but also on a robust US diplomatic and enforcement presence overseas. Today that presence is under strain. Dozens of ambassadorial posts remain vacant, and many of our embassies and diplomatic missions are operating with reduced staffing, which limits our ability to engage foreign partners and enforce US policies abroad. Export control officers are BIS's front-line enforcement officials overseas. They monitor compliance with US export controls, investigate potential violations, and work with foreign governments to protect sensitive American um technologies. In two thousand twenty-four, BIS approved licenses for over five hundred billion dollars in exports, yet BIS had only eleven or twelve export control officers stationed at US diplomatic missions around the world. Mister Kessler, how many export control officers do you currently have stationed in China?

In China there are three.

OK.

But I agree with you on the importance of

Well, well hold on, I wanna I wanna follow up with my limited time.

yeah.

Um What more needs to be done to bolster BIS's enforcement efforts and its ability to c- conduct in-use monitoring in China.

Yeah, let me just tell you that, you know, w- when I came into office there was only one uh in China. Now there are three. Um, we believe, and I think agree with you strongly, that we should be increasing the number of export control officers uh worldwide. And we have a plan in this fiscal year to bring it up to twenty-five. And in the President's budget, uh if if it's approved, we would be able to bring it up to sixty five, and that is getting closer to the level where I think we need to be. The the

And so the budget request cost for on that n- on that note, for a large increase in expert control officers, how many additional will be focused specifically on China first?

Well we haven't um we haven't assigned each of the sixty five to countries, to specific countries.

But with China our main adversary,

What I can tell you is that Yeah, yeah,

what do you

but what I what I can tell you is that, you know, it's important to have not just export control officers in the country, but also in countries where we're concerned about diversion.

I I get that, but I only have five minutes.

And we, you know

So, in in China, how many do you, how many will be focused on China?

Well, you know, I I don't have I I I don't have a number to give you right now. I haven't assigned the sixty-five to individual countries, but I can tell you that we're gonna continue to focus on the risk of diversion to China, and other country group D countries.

Well, what about Russia?

Uh

How many do you think, how many will be assigned to Russia? Have you thought about that?

We, we typically focus the uh export control officers on countries where we're concerned about diversion, including to Russia. Um and so, you know, for example, I I believe that we have one in in Finland.

I I wanna stay focused on the questions just again, just because I'm limited in time. Um, so you don't have a number yet as far as Russia either, is that correct?

I don't have a number, but I'd be happy to follow up with any other information that I can give you.

OK. Fair enough. Regarding Russia, it is known that Russia continues to rely on third par- third country procurement networks to obtain controlled technologies. What additional authorities or international partners does BIS need to more effectively disrupt these networks?

Well, I think it's about enforcement resources. It's about uh making sure that we can track multiple national security challenges at once. And that's the reason that we've been pursuing the uh the enforcement surge this year, um and that we requested additional enforcement resources for this fiscal year, and a massive uh increase for the next one. I think it's about making sure that BIS can become an enforcement powerhouse.

OK. Last year when the administration signed AI deals, AI deals with the UAE and Saudi Arabia, it signed agreements with both of those governments to put security guard rails in place to protect US technology and prevent access to US technologies. Why are we placing, why were we placing those guardrails? Was it to prevent diversion to China?

Well, when we make deals with other countries to facilitate the export of advanced AI chips, we wanna make sure that we're doing that in a way that's consistent with national security, right? We welcome other countries, including Gulf countries, investment in American technology. We welcome their decision to build their own tech infrastructure on the American AI stack. Um, and we also are mindful of national security and wanna make sure that we're clear about what our expectations are.

And and last question. Now that we have lifted controls on s-

Your time has expired.

Thank you.

Thank you.

Thank you, sir.

Representative Kim.

Thank you, Chairman. Uh, Undersecretary Kessler, thank you for coming and uh testifying before us today. As you know, Chinese companies are not allowed to buy America's most advanced AI chips. So what do they do? They go straight to the source and hire companies like TSMC to manufacture the chips for them. And they hide these activities by creating shell or front companies. In two thousand twenty four, TSMC manufacturer AI chip was discovered inside Huawei's hardware by research firm Tech Insights. This was traced to a Huawei front company called SoftGo that received three million AI chips from TSMC and following that revelation BIS put in place the foundry due diligence role to make sure chip makers like TSMC do not accidentally make more AI chips for Huawei. But there are now questions about whether overseas Chinese subsidiary companies in places like Malaysia and Singapore are exploiting a loophole. So, Under-Secretary, pursuant to the foundry due diligence rule, are you currently enforcing a license requirement for a chip maker to be able to build AI chips for unapproved companies operating outside of arms embargoed countries?

Well, thank you for the question. What I can tell you is that if a, if a foundry, like the one you mentioned, provides advanced AI chips to a sh a front company for another company that's in country group D five, that would absolutely be a violation. That would be something that we could investigate uh and enforce against. And that's under the current rules. So I don't think that this this is a loophole. I think it's quite clear.

OK, um. We are, we wanna make sure that you are actually enforcing the current, uh, rules in place, and then of course, you know, we don't wanna make sure that, uh, we do not, uh, you know, allow, uh, China to be able to go behind our backs, and I need to make sure that BIS is enforcing it as strongly as possible.

Of course, this is a major priority for us.

Well, last June you testified before the our uh before our subcommittee on South and Central Asia that export control alignment with Japan and the Netherlands remains quote unquote incomplete. But that's been one year since you said that. So Dutch and Japanese companies continue to sell chip making tools or provide service and repair services to more advanced chip factories in China, the US companies are prohibited from selling to or working with. So can you provide any updates on BIS's progress in aligning our expert controls on chip making equipment and have you set any specific deadlines?

Well, thank you for the question again. You know, I I what I can tell you um and I I need to respect the confidentiality of discu- diplomatic discussions that I have. I can tell you that there is cooperation um with foreign governments on on uh export controls um but I I unfortunately I I have to report that the cooperation remains incomplete there's still more work to do um and that's a conversation that I have constantly um particularly with allies um and uh so there's more work to do.

Certainly. You know, BIS has historically worked with the private sector through technical advisory committees as well as internal compliance uh departments. So, Under Secretary, you have previously discussed the importance of a dialogue with industry, given the speed and the scale of the technologies that is under your jurisdiction. So can you talk about the collaboration between BIS and the private sector? and how the industry assists BIS on issues of compliance or enforcement.

Absolutely. Well, we work very closely with industry on a day-to-day basis at all levels in BIS, um, whether that's answering their questions, helping them understand the rules, or getting input on the rules that we should have and fixes to the rules that we should make. Um, so, you know, both in in formal channels and informal channels, we're constantly consulting with with industry.

OK. Thank you. My time's up.

Representative Costa.

Thank you very much, Mr. Chairman. Uh, thank you, Mr. Secretary, for appearing uh before the committee today. Um, I uh wanna ask you a kind of a threshold question uh that will be the basis of my other questions, but I know the focus has been on China uh this morning, um, but I also believe that both China and Russia oppose a adversarial threat to our country and to our allies. Would you agree?

Well, we we have. Russia poses national security risks. That is true.

OK. Um, and just for your uh, uh, you may know this, but I I am one of those members that really disagreed with uh, the President on the handling of the um, the issue of uh, uh, Navita and the selling of its uh powerful H two hundred ships to China. I I think that that is in an area where we uh we a direction we don't wanna go. But let me focus on uh, with regards to BIS's budget, uh, the efforts um, with Russia. You know, since they lost their illegal invasion in Ukraine in twenty twenty two, the United States and G-seven countries began using various tools and statecraft to restrict Russia's finance and military capacity, uh, with various degrees of success, one would argue. Uh, a key one I think being export controls have been very difficult. As you know, these tools are central to exerting maximum pressure on Putin in order to in- bring an end to this war as we all wanna see happen, and certainly the President has tried. Um, but at the negotiating table it seems that in the first three years following Russia's invasion US has imposed a range of new sanctions export controls over Russia with the Biden administration over seven hundred Russian entities to the entity list but under uh the Trump administration the US and Russia seemed to have fallen off a cliff. And twenty twenty five, it seems US did not have any Russian entities to the entity list, but it even more importantly, I think, comes to enforcement obviously, both with us and with the G seven countries. In uh Senator Graham's memory, um um in reference to the sanction bill that he was the s- the, his bill and the proponent, how do you explain this drop off? in the US export controls on Russia. And why, why does it seem in my view that we've taken the foot, the administration's taken the foot off the gas when it comes to exerting pressure? The president likes to leverage and takes great pride in that. We've got great leverage opportunities here. Why?

Well, I don't see the same drop-off that, that you do, sir. You know, we continue to enforce, we continue to maintain um, the export controls uh, that apply to Russia, and we continue to enforce them. Um, and I think the most important step that we can take is to strengthen enforcement across the board.

Well, and I agree, and you answered I guess while I was out uh in another hearing uh, my colleague's question about adding more uh experts within BIS in the area of enforcement and as it relates to Russia. D- did I hear that correctly? D- it's that intention to do so?

Well, we would, we want to add experts within BIS across the board.

Well we need to, I think we need to strengthen our export controls, and and how you're gonna use this proposed additional funding, I think many of us are concerned with, not only on Russia but China as well. They pose a threat, I mean uh, both uh President Zelensky indicated here within the last month they are in retrieving um missile um that had been um uh sent to to Ukraine and and crashed that um those um components within those Russian missiles had parts, uh, chips and circuit boards that were manufactured either in the US or in Europe. I mean, that means they're getting around the enforcement, right?

Any time we hear reports like that, we look into them, and that obviously raises a a question about about enforcement and adhering to our rules.

Oh enforcement, effective enforcement is what we want.

Absolutely.

And, and it seems to, that the, the Russians are very cagey and capable, We've, I think from hard experience in the last several years, uh in circumventing uh these uh these sanctions.

Well, we're fully committed to cracking down on all enforcement, uh all all circumvention, all diversion that we know of.

Well, uh it seems to me that it's important that you report to the committee uh to the degree of additional funds and I am one of those who thinks it ought to be you ought to have more resources, frankly. uh in terms of our efforts to enforce effectively the sanctions both posed toward russia and china

yeah mmm

do you agree

i appreciate that yes and uh uh you know

willing to report back to this committee uh with the jurisdiction uh on

i we're happy to work with you on that

what progress we can mark here uh before the end of the year

i'm happy to work with that uh i'm happy to work with you on that absolutely

alright uh the balance of my time is expired uh more to be continued thank you

And uh best wishes, Congressman Costa. I don't wanna ruin your reputation, but I agreed with everything you said. I now um uh recognize myself and indeed, Under Secretary Kessler, I'm grateful for your service, but I'm also extraordinarily uh appreciative of your South Carolina family heritage and you're uh you're always welcome back to visit with the family.

Thank you, I appreciate that.

But you, please come back. With the visionary leadership of President Donald Trump and Ambassador Tom Barrack, Syria is emerging as a partner of the United States fifty-four years of Baathist socialist dictatorship, sixty-eight years of alliance with the Soviet Union. Last Wednesday, Senator Lindsey Graham met with Syrian President Ahmad al-Shara in Ankara, as both attended the NATO summit. It is so meaningful that Senator Graham changed his position of concern about Syria to support Syria in line with President Donald Trump, give Syria a chance. I am grateful for the issuance of the export license of Nokia for the Syrian parliament. This ensures America is a partner by choice, not adversaries. With the upcoming lifting of the state's sponsor of terrorism designation, which I hope you expedite, how do you plan to further ease export controls such as possible for US companies to invest and export to Syria to keep Syria thriving and support the sovereignty of Syria for the benefit of all of the Middle East? the st- possibility of a stability, peace and prosperity that President Trump, I think, is correct identifying for the first time in three thousand years. And with that in mind, what what can we do?

Well, thank you, thank you, sir, for the question. Um, you know, I've been proud to support uh the fresh start that the Syrian people are making, and to facilitate increased trade and investment with Syria uh through the export controls. Um, as I know you know, we we issued a regulation last year, uh which eased export controls on Syria, and that's made a big difference, including in the case that you mentioned. Um, you know, right now, uh, uh, there, uh, as you mentioned there was a notification uh to Congress about the SST designation of Syria and, um, you know, we are going to talk to, uh, our inter-agency partners, the State Department, and uh, make sure that we keep the export controls in tune with other changes that are happening to the law, um, so that we can continue to encourage trade and investment.

And, and again, what an extraordinary opportunity we have after, uh, decades of, uh, of socialist rule to have a potential for a free and dynamic and stable and peaceful and prosperous, uh, Syria. So I wish you well on that.

Thank you.

And I wanna join with secretary on, uh, Costa y Costa. There's evidence uh disturbing evidence that, American components used in Russian weapons of mass destruction. As it, I have sent several letters to the the affected secretaries urging additional measures to be deployed, to prevent sensitive technologies, from reaching enemies of freedom to kill Ukrainian families. Adversaries should never benefit, from, American ingenuity. So grateful, uh, as we're pending right now, uh for the Russian sanctions bill to be addressed as the Lindsey Graham sanctions bill as he was a champion for Ukrainian victory. What is being done to close loopholes and prevent American companies from exporting radar com radar components and other sensitive technologies to war criminal Putin?

Look I think I think in my mind this is about strong enforcement, right? We need to make sure that whenever there's a violation happening, whenever we detect possible violations, whether it's through evidence from the battlefield or evidence from our companies, that we act swiftly to address it. And that's why we've requested the additional resources that we have in the budget, uh, to continue to, to surge enforcement.

And, and again, thank you very much for your service, and again I'm, I'm so thrilled to find out, find out, uh, your South Carolina heritage. It, it's certainly meaningful to me and, uh, my constituents. Uh, with that in mind, we now to go to my friend from California, Congresswoman Jaya Paul.

Thank you, Mister Chairman, from Washington. But Uh, Mister Undersecretary, it's good to have you here today, thank you. Your agency plays an important role in American AI policy. Both foreign and domestic AI companies are actually built on a mass surveillance regime that prioritizes winning the so-called arms race, by putting private Americans' information at risk. Through expert controls and other mechanisms, your agency is in a unique position, I think, to ensure that AI systems are safe, effective, and equitable. Last month, shortly after Anthropic released its new Fable-five and Mythos-five models, your agency sent the company a cursory letter that a license would be required for any foreign person to access their models. In response, the company shut down access to these models for all users. After two and a half weeks of negotiations between the Trump administration and the company, your agency partially reversed the restriction. Did you participate in any of those discussions with Anthropic?

Well, this was uh an action that was taken under the export control authority. So yes, I was involved in the actions that we took.

And is it true that the reason your agency issued the letter was because Amazon CEO Andy Jassy raise concerns to White House officials about the ability to bypass the AI's, AI model's guardrails?

Whenever we see a risk to national security, whether it's from an a frontier model or something else, we want to act swiftly to address it. And that's what we did in this case.

But did you, were you responding to concerns that Amazon CEO raised to you? Is that where the concern came from?

The concern, look, we we have a whole of government apparatus that evaluates frontier models. It wasn't just, you know, it wasn't like um uh based on a phone call, it was based on our evaluation of the risks of the dissemination of the model, um and our our concerns about what we what we didn't know. Um and that's why, you know, that's why we issued the controls, we worked with the company, they cooperated over the course of of a few weeks, um admirably with the administration um and when we were able to resolve our concerns and uh uh you know ensure that they would continue to work with us and continue to help us um understand the vulnerabilities in the models then we lifted the controls.

Thank you. Um I ask because there's a political article that suggests differently, it says that Amazon quote " raised concerns to the White House" and quote " was responding to an administration request" for feedback and so I guess what I wanna know is did you did your bureau make an independent analysis of the security risks? You can just say yes or no.

Well, you know, the um the assessment of the risks is not um housed in BIS in the first instance, I would say. Um, you know, I mentioned Casey before when we were talking about uh this topic.

I guess I'm just asking you what independent analysis you made

Casey's Well the US government makes its own independent assessments of the risks of frontier models. Absolutely.

So you did your own independent analysis to come up and

The government does. Yes.

And,

Uh, uh, yes.

and, and the other three agencies with jurisdiction on export controls, they all signed off on the restrictions?

Well, when we, when we issue as informed letters, we don't, um, necessarily go through the same kind of inter-agency process that we would do when we have a license. Um, but, uh, I think it's important to know that the government is conducting its own independent assessment of frontier models.

Well, that is very important because I do think that at the end of the day, these issues are too complex. and important to be decided on political favoritism or the advice of a big tech CEO, even though he's my constituent, Amazon is located right in my district, I wanna make sure that we have vigorous export controls and a well-established inter-agency process and so in the future can you commit to issuing rules in the federal register with clear guidelines that would apply to all AI companies and models rather than issuing letters to companies ad-hoc basis.

Well, okay, I think it depends on the circumstances, but the executive order that the president issued on AI in June, uh, is a step towards establishing an industry

But it's not this. I mean, the restrictions that you put in place were just for this one company. Are you gonna establish clear rules and guidelines, publish them in the register so everyone understands what they are, so that there's not a perception that you're favorit- y- you're giving favoritism to one company over another?

I expect that the government uh will develop uh more rules on the release of frontier AI models. Um, yeah, so I I think that that that's going to happen.

So that's where we have to commit to that.

Ladies, something's expired, and we now recognize the member from New Jersey,

Thank you.

Mister Kane.

Uh, thank you, Mister Chairman, and thank you, Under Secretary Gessler, for being here today. Uh, America is in an AI arms race with China. As we compete for the latest memory chips, computing chips and language learning models, America needs to fund and to support robust export controls that place America at the front of the AI arms race. Under Secretary Kessler, whistleblowers have long been a cornerstone of America's intelligence gathering operations. However, the Bureau of Industry and Security, BIS, does not currently have a whistleblower reward program. Do you agree that a whistleblower program would strengthen intelligence gathering? and enforcement efforts at BIS.

I think that that that sounds like a constructive idea. I can tell you that whistleblowers right now play an important role in our enforcement efforts. We have cases that we generate based on credible leads from whistleblowers. Um, so yeah, I think that that uh facilitating more of that type of activity and disclosure to commerce is constructive.

The stop stealing our chips act. which i co-led with representative johnson of texas creates a whistleblower incentive program at the bis recently this bill recently passed the house foreign affairs committee with overwhelming bipartisan support and passed out of the senate with unanimous consent i look forward to seeing this bill considered on the house floor in the very near future um i also appreciate your leadership in strengthening america's pharmaceutical supply chain and advancing domestic manufacturing My district is home to numerous rare disease drug developers who are typically small biotechs with only a few FDA approved products. Their patients are often children who have few to no treatment options. So I was encouraged that the administration's section two three thirty-two pharmaceutical tariff proclamation, the president recognized that the supply chain of rare disease therapies would receive a zero percent tariff rate. Could you provide an update on when the Department of Commerce expects to publish the federal register notice clarifying the ment- the implementation of the section three D zero percent tariff uh treatment for pharmaceutical products?

Yes, um, I expect that in the next, I would say, month or two, um, certainly before uh, before September.

Thank you. And and will you commit to working with me and the Congress to ensure that the implementation of the pharmaceutical tariffs reflect the unique consideration of rare disease supply chains, or to protect rare disease patients from unintended consequences?

Of course, I'd be happy to work with you on that, work with other members of Congress on that.

Thank you. Um, and then, and the third question is, the BIS's export control enforcement work is critical to winning the AI arms race with China. I'm glad to see this reflected in your robust funding request for the fiscal year twenty twenty seven. Can you discuss how BIS would leverage the increased funding requested to prevent diversion of AI chips from their intended destination?

Well, absolutely. I mean, I think it's more of what we're doing. We already devote considerable resources, as a proportion of our of our budget, we devote considerable resources to stopping smuggling schemes involving AI chips, diversion schemes. Uh, and that's what led, for example, to the case that involves Supermicro, which I'm I mentioned in my opening statement. Um, I think we just need more of it. We know that there's more happening. Um, we have active cases. Uh, but we're concerned that there are cases that we either haven't detected, or that we just don't have the resources to chase down. So I, again, I think it's, I think it's just about increasing the, uh, resources dedicated to enforcement and encouraging the enforcement unit of BIS to do more of what they're doing.

Thank you. Uh, you're back.

Now I recognize the gentleman from Rhode Island, Mister Amow.

Thank you. Thank you for being here, uh, Mister Kessler. Uh, as you know, your job is to help American businesses take their world-class products to international markets while protecting our most vital trade secrets. But, under your leadership at Commerce, the Bureau of Industry and Security has become less effective and less efficient. You stopped providing the rules of the road for companies operating in China, or Russia. You haven't added a single bad actor to the list of prohibited entities companies can't sell to since October. But all the world's bad actors didn't just disappear last October. The problems are still there, and frankly, you're just ignoring them. Not only are you making Americans less safe by letting the bad guys run rampant through the world's markets, you're actually making it harder for Americans to do business. Delays at BIS have doubled average processing time for export licensing, causing American businesses to lose contracts and undermining our leadership in technology worldwide. Right now, BIS has limited engagement with American businesses as they struggle to comply with our increasingly complex expert controls. In the past, the BIS provided real s- support to American businesses, including training seminars and advisory opinions. Businesses knew they could count on BIS. Empowering bad actors while undercutting US companies is the exact opposite of your job. But frankly, that's what you're doing. So, Mr. Kessler, do you want businesses to comply with our export controls?

Sir, uh, I disagree with much of what's in your question.

But, yeah, yes or no?

Uh, and and I wanna, I wanna clarify a couple of things.

Okay.

One is, uh, yeah, I think you said that the processing time has doubled?

Yes.

That's incorrect. the processing time uh the average processing time for licenses was sixty two days in twenty twenty five uh versus sixty days in twenty twenty four. So it's approximately the same. Um as far as the entity list goes, what I think is important is enforcing the list. We have a robust list uh but it's important to enforce it. And not grant not grant licenses.

But so you don't you don't believe that anybody uh no e- excuse me, Mister Kessler, so you don't believe there have been grounds to add anyone since October?

We have added a hundred and forty entities to the entity list. And we will continue to add entities to the entity list when we as an administration think that it's appropriate to do so. But I think it's important to enforce the list. Under the Biden administration, thousands of licenses, thousands of licenses were granted to entities on the entity list. There was rubber stamping happening for exports to entity listed companies.

And do you think that you,

That's something that has stopped under this administration.

Mister Kessler, Mister Kessler,

And I think that's

i- but but let's go back to my original question. I I I wanted you to to have some time, but my question here is, do you want businesses to comply with our export controls?

Absolutely.

Then why aren't you helping them when they're begging for assistance? BIS traditionally hosted an annual uh update conference each March, but that was canceled and the last conference was in twenty twenty five. So why haven't you hosted the annual conference?

We keep track of the number of times that we assist companies that approach us with

I asked about the conference.

questions. In twenty twenty five.

Mister Kessler. I'm asking,

We did it thirty five thousand times.

Mr. Kessler, excuse me, Mr. Kessler, I'm I'm speaking. So, and I asked you a question. Why haven't you hosted the annual conference?

What I'm trying to explain is that we help companies routinely on a daily basis, many times a day, such that in twenty twenty five, we did it thirty five thousand times. And that was more than the prior year. It was an increase over the prior year. We will continue to host an update conference.

Okay, so do you, so that.

Yeah.

So that's answering my question. So you plan to ho- host a conference this year?

Uh, likely this year.

Good. OK. Because the challenge here is when you reduce BIS's ability to work with American businesses, that's dangerous. It reduces compliance with our export controls, increases the chances that our sensitive technology ends up in adversaries' hands. There are consequences. So, just flippantly saying we do it in a lot of ways, but we're gonna cut off in a in a central way, uh, is not satisfactory to me. You know, this is why I introduced the strengthening export controls compliance act to BIS to re-engage with industry. The bill passed this committee earlier this year with overwhelming bipartisan support. So my colleagues share my sentiments. This bill improves compliance with our expert controls, strengthens national security, allows BIS to focus on its enforcement resour- its enforcement resources on bad actors rather than honest mistakes. So that's a win-win. So he- here's here's the top line. I I'm hoping that you make the changes needed to restart engagement, to do it. uh, with the thoroughness that's that's required, uh, to increase compliance and to protect national security, the stakes are high. And so it isn't just, you know, an informal process. Use the tools that you have at your hand to do something that's important to the safety and security of this nation. With that, I yield back. Representative Barr.

Thank you, Mr. Chairman. Undersecretary Kessler, thank you for your testimony here today. Um, in response to, um, that that last round of questioning,

Huh?

um you're being accused of running a less efficient export control system. What what is a more efficient export control system? More entities being added to the list but constant licensing? Or a thoughtful process of adding entities with the proper issuance of licenses without automatic issuance of licenses? What is the more efficient system?

Well, I I think the latter.

Yeah, I do too. I do too. And um, I appreciate the administration and your focus on enforcement. Because if you really wanna get tough on adversaries and make sure we don't have the technology transfer that we're concerned about, the enforcement piece is really the difference that this administration is making from the prior administration. So for years we've we've seen only eleven export control officer station worldwide. Uh, and these are the officials whose job it is to make sure that the products that we sell worldwide actually go to where they're supposed to go and don't go to where they're not supposed to go. We had only one single officer in Southeast Asia, a hotbed of smuggling, uh, but now, um, a- as you testified earlier, the BIS is in the middle of a hiring surge of new export control officers. So, elaborate on BIS's plan for deploying these new export control officers. Where will they be stationed? Uh, one of my colleagues was concerned that there were not enough in China. Tell us a little bit about your plans, um, with respect to to hiring more uh export control officers.

Sure. So under the current budget, uh, we expect to have twenty-five and placed by the end of the fiscal year. Right now we have three in China. We're gonna have multiple, we we already have some in Southeast Asia, we're we're gonna increase that in Southeast Asia. We expect to increase it in the Middle East. Um, we're increasing it, or increasing our presence in Central Asia. Um, we want to have a presence uh across the world uh anywhere that we have significant American technology flowing.

Well, th- this criticism from the other side of the aisle seems pretty misplaced. When you're c- when you're adding enforcement, not reducing enforcement, and you're focusing on the areas where we we see most of the problem, I think the criticism needs to be directed uh to the to the past, not to the present. Um, let's talk about AI chip smuggling. Um, Under Secretary, we've banned advanced AI chip sales for China, but Beijing is desperately working to smuggle these products anyway through illegal networks. Uh, Epoch AI estimates that between two hundred and ninety thousand and one point six million H one hundred equivalent chips were smuggled into China uh through the end of twenty twenty five that could represent about a third of China's to- total AI chips. Um, how does BIS's new enforcement posture uh uh surge of enforcement, taking to account the scale and seriousness of this issue.

Well again, we have surged our enforcement efforts. Um that's why there was an eighteen-fold increase in penalties imposed, from twenty twenty four to twenty twenty five. Uh and it's already showing results. You know, there was a Financial Times article recently that said that um the price, you know, there there is a black market for chips in China, and because of BIS's enforcement activities, uh the price of small chips had doubled. And that's an indication that our enforcement activity is working to address the concerns that you're raising.

As you and I have discussed um legislation that I've been working on for years, uh the uh uh new screening for outbound investment was made a part of the NDAA, it is now law, uh uh the uh Coins Act as it's called. Um that law was uh rooted in a recommendation from the US-China Economic Security Review Commission, So we now have this new inter-agency tool to screen outbound investment. And one of the requirements that it imposes on commerce is uh a- as well as treasury and and the department of war is an alignment uh of these lists. So you manage the entity list, there's the twelve sixty-eight list at the Pentagon, uh there's the CMIC list at treasury, and the idea is that um w- we shouldn't allow uh uh, US investment into a foreign entity, uh, that helps facilitate the development of technology when BIS is restri- is using export controls to - to restrict the transfer of that technology. Um, have you begun with the Pentagon, with Treasury, to start to align, uh, the - the entity list with some of these other lists so that, um, the export control system that we have works in tandem with restrictions on outbound investment.

Well, these are discussions that that we have all the time with the other agencies about the different lists. Um, so yes, discussions are going on.

Well, just as a a friendly reminder, uh commerce under this new law uh is required now to work with Treasury especially in making sure that there's coherence in our outbound investment screening and our export control regime. so that we are working in coordination with one another and I and I urge you and and and the other relevant agencies to to collaborate and inform Congress uh according to the new law. Finally on on-shoring manufacturing, we appreciate your work, uh Under Secretary, in advancing the President's America First trade policy to protect American businesses from Chinese trade actions and to support onshore manufacturing. I've heard from a number of companies that are looking to move their manufacturing facilities from out from outside of the United States into Kentucky in direct response to the President's agenda. As part of your role at BIS, you oversee section two thirty-two investigations. How is your department helping these companies expedite uh their attempts to move to America these uh these supply chains?

Well, it varies from program to program, but section two thirty-two is all about strengthening these critical industries, these critical supply chains. Um, there are different tools that we have available to us for different industries. Um, but you know, for example, in in the pharmaceutical sector, um, we have a program to incentivize companies that make new investments in US pharmaceutical manufacturing and in on- on-shoring, their manufacturing capabilities. So it varies from sector to sector, but you know, I can tell you that if there's any, any companies that you or other members know of, um, that would like uh, assistance in on-shoring, we're there to help.

Well, we've talked about wood products and the dumping problem there, but thank you for your service. I appreciate your answers and I yield back.

Representative Castro.

Uh, Under Secretary Kessler, uh, I wanna start with something that I hope that we can agree on. Um, the most capable AI models being trained today, uh, they require large concentrations of advanced computing chips. Uh, is that something that you agree with?

Yes.

And would you agree that the Chinese military and entities affiliated with the Chinese military should not have access to these trips to ch- these chips to train their own AI models?

Well, I think it's important for American technology to be used for American companies in training our models.

Right, and in not Chinese models and companies that are affiliated with their own military.

Right, they should be strengthening America.

Sure. Well, so I guess my question is on June eighth, the US Department of Defense um listed Alibaba, a Chinese company, as having ties with the People's Liberation Army. In May it was reported that the Commerce Department authorized ten Chinese companies, including Alibaba, uh to purchase Nvidia's H two hundred, a highly capable AI chip as you know. Uh and my question is has the Department of Commerce authorized any transactions with Alibaba since the Trump administration took office?

All the information about H two hundreds is before the committee. It's confidential, I'm not, I can't discuss it here, but uh the committee has information about the licenses that we've received.

Uh no I understand that in this forum that you can't comment on specific licenses. Um, but would you agree that as a major Chinese company developing advanced AI models while being affiliated with the Chinese military, that American companies should not sell any advanced chips to Alibaba? Uh, and if any licenses were granted, uh, will you revisit those decisions?

Well, what I think is that it's important though, the approach that we've taken is to limit the quantity, um, of chips to any particular company, each do hundreds. First of all, you know, I think it's important to recognize that we're talking about a chip that is several generations behind the leading edge. uh a chip that American companies aren't buying right now, and that we have an elaborate set of national security requirements that have to be fulfilled in order for us to consider the license on a case-by-case basis, rather than under a presumption of denial. We issued this regulation in January, uh which sets out all those conditions. And so, yeah, I I believe that the requirements that any company has to meet uh to get a license, including all the requirements in the January in the January regulation, including the quantity requirements, those are robust, uh, and those should give us comfort about any exports of these chips. Now, I, I also wanna make clear that there have been minimal, um, exports of any H two hundreds to China so far, uh, and

Well, I, and I guess, no, and I appreciate the answer, and I'm trying to fully understand kind of the contours of your decision making, uh, because you made the comment that certain chips are older generation chips than others. So, So I guess, are you willing to sell older generation chips to a company affiliated with the Chinese military as long as it's not the latest technology? Or kinda what what's the contours of that decision making?

Well the different

Without getting into a specific license or company.

Yeah. Uh, there are different degrees of s sensitivity, right? Um, and that's how our export control regime is set up.

Mm-hmm.

Uh, there are levels, there are classifications, for older technology, for technology that is kind of irrelevant now. Um, I'll

But but just to just to nail down just an answer to the question, uh, is the Trump administration willing to sell, um, some of these advanced chips to companies affiliated with the Chinese military, if the conditions are right?

Well, we screen the parties carefully that, um, are the subject of license applications that we receive. So,

Sure.

for example, if a company is on the entity list, we're not gonna approve a license for chips to that company. So we would we would apply a very careful analysis to any license that we get before us.

No, thank you for that. I have one more subject.

No, we have we have rejected, we have rejected licenses.

I appreciate it. No, I have one more subject that I gotta get to in my question.

Yeah.

Um, yeah, Under Secretary Kessler, transnational criminal organizations continue to fuel instability across Latin America and the Caribbean, as you know, and one of the principal drivers of their power is their access to firearms, of which the vast majority are trafficked from the United States. Uh, I'm glad that the State Department has acknowledged this issue, and is using foreign assistance to help countries track where these firearms are coming from. Uh, do you agree that the, that these cartels, which the administration has designated as foreign terrorist organizations should not get any weapons from the United States?

So, absolutely, we should be restricting the access of cartels to weapons.

Well, then I guess uh, that's why I'm confused because in September twenty twenty five, you rescinded the April thirtieth, twenty twenty four BIS regulations that added safeguards for the export of firearms and stopped notifying the congress about exports of these weapons. Uh, and the Trump administration's State Department uh, if the Trump administration's State Department and Secretary Rubio are trying to help Mexico and countries like Haiti track and stop these firearms from getting into the hands of designated foreign terrorist organizations, uh, then why did you as the head of BIS make it easier for these cartels to get weapons by removing the safeguards instituted at BIS.

Well, that regulation went far beyond what you're describing. That regulation established a presumption of denial for thirty-six high-risk countries. Uh, it was, uh, extremely burdensome. It cut off, unnecessarily cut off American firearms exporters from, you know, uh, I believe hundreds of millions of dollars a year, uh, in business that

Oh, this is, uh, this is our principal way. I know I'm over time.

Time has expired.

Yep. I'll get back with you on it. Thank you.

representative self is recognized.

Uh, thank you, Mr. Chairman. Uh, Mr. Undersecretary, we uh have been looking at your your presentation here and your PowerPoint. Um there's a lot of positions here. I wanna I wanna ask you a question. Um I wanna look at should we be looking at inputs or outputs? A lot of the committees that I'm on, we look at inputs what are we gonna what are we gonna do to add to the department what are we gonna do to uh encourage growth but i wanna look at outputs here because we were told not by you probably a year ago i don't remember the man's name uh that china could not smuggle enough ai chips to overtake the us it was almost a flat statement and i'm not sure they have to because my question to you is should we be looking at policy or enforcement because your presentation is enforcement heavy. Let's just be honest.

Absolutely.

It is enforcement heavy. Uh, I I could go through your charts, but I won't. But the information that we were we were we're given that there are no new export controls on equipment, uh the license to buy H two hundred but not black wells is is there, there are no new enti entity list additions for almost a year now, Uh there are no new location verification uh controls put in place. So my question is are we do we really need to look at enforcement? Or do we need to look at the policies that we have in place? And I understand you may you you have a dearth of of employees, but if you'll just take the overall view there of why should we not be looking at some of these policies that seem to be lacking as opposed to only looking at enforcement inputs. I wanna talk about outputs.

Why I agree with you that outputs are important and outcomes are important, and we should be focusing on the outcome of enforcement and how much, how much are we enforcing? And as I mentioned, we increased enforcement eighteen fold uh from twenty twenty four to twenty twenty five, and I think that's significant. Under the prior administration unfortunately there were significant under enforcement and under deterrence of violations of of the laws. Now, we should look at policy too, and Congress should look at policy too, and we should look at that together and find areas where we think the policies need to be changed. Um, but I don't think that more regulation equates to more national security. Uh, and so, you know, what I see as the the highest priority for BIS and the biggest hole to fill is in enforcement. BIS oughta be an enforcement powerhouse. We ought to be, for example, having licensing processes that are rigorous, that appropriately handle applications that involve items of national security concerns,

Let's look let's let's look at some policy that you might take a look at,

not rubber stamping.

the AI AI action plan. So I think you've got the the requirement for the policy, the negotiated policies in place, they just haven't been enacted. So I I go back to my point. So I'll I'll leave you with this. What three metrics, if we do this investment, and I think you used the term, uh, I've forgotten the exact term, but generational investment or something like that. What are the three metrics that a year from now Congress could say you either met the metrics or you didn't?

I think that penalty amounts is the single most important metric, right? I I see a huge increase,

Penalty amounts? Dollar amounts?

yes, penalty amounts, because we know that there's,

Well

and I'll tell you why. we know that there are significant violations out there that are happening. We know that we've made a lot of progress from twenty twenty four to twenty twenty five. And we're seeing so far in twenty twenty six, continued progress in increasing the penalty amounts. We wanna know, is BIS catching the bad guys? Is are are the violations getting stopped and are we effectively deterring,

So

the wrongdoing that that we know is happening?

So you're not particularly uh fussed about the AI action plan not getting implemented.

Well, of course we wanna implement the AI action plan. There are several parts to the to the action plan. Um, you know, part of it is export promotion, part of it is uh, you know, semiconductor manufacturing, equipment controls, which we're enforcing strongly. Um, so absolutely, we wanna implement that plan.

Uh I I think I'm gonna submit the three metrics question to you in writing and and just ask you to take a look at that. What do we look at in a year from now for outputs of this investment,

Happy to do that.

should we make it?

Happy to do that.

Mr. Chairman, I yield back.

Representative Stanton is recognizing.

Thank you very much, uh, Mr. Chairman. And thank you, Under Secretary Kessler, for being here today for this important hearing. It is very concerning that since you took over the Bureau of Information Security BIS in March of last year, BIS has published the fewest rules of any year in more than two decades. The administration has also not added any new entity to the government's blacklists since October the longest period of inaction since two thousand eight and export license applications have piled up for so long that American companies have lost business waiting for approvals as rules stall licenses pile up in the foreign companies that could pose national security risks duck commerce blacklists, sensitive technology has more room to float in China and other adversaries, And in the absence of action from BIS, Congress has stepped in advancing bills aimed at tightening US AI chip export controls and closing perceived loopholes. One of those bills is the Match Act. Match Act would impose extensive new controls on US semiconductor tools, and compel allies to do the same by controlling their tools extraterritorially, or by restricting the sale of US components to their comp- to their companies. I'm concerned that If passed, the Match Act will have severe consequences for allied equipment supplier, excuse me, will have severe consequences for allied equipment suppliers, chip manufacturers like TSMC and in Arizona and Intel, also in Arizona, reliant. Under Secretary Kessler, from your perspective, is the Match Act the right approach? As written, do you agree that the Match Act would hurt our domestic semiconductor ecosystem?

Well there, you know, There's a policy motivation for the match act, which I appreciate, which is that we need greater alignment between uh the US export control system and foreign export control systems, because we don't want foreign countries to backfill. Um, you know, the administration is going to first of all, we're we're willing to work with Congress on any legislation in this area. Um, and again, I appreciate the motivation behind it. We wanna make sure that any legislation that's passed, uh, gives the administration new tools and doesn't constrain its authority.

Thank you. Uh, your perspective is very helpful, as this legislation advances in the House and Senate. The introduction of the Match Act highlighted the importance of achieving export control alignment with our allies. However, reporting indicates that your office has significantly curtailed staff-level engagement with our foreign government counterparts. This is in addition to pulling back from participating in traditional export control dialogue, like the Wassenaar arrangement with allies. This is a confounding decision, given the importance of achieving export control alignment to stay ahead of China in the AI race. Mister Under Secretary, do you agree that export controls are generally the most most effective when they are implemented multilaterally, and in close coordination with our allies and partners?

I do agree that it's important to coordinate export controls with allies and partners. I I also believe You know, I believe that we need to be protective of taxpayer resources. And uh not every single uh convening of export officials in foreign capitals is meaningful. And so we we keep a close eye on the travel that our employees conduct.

It's been well over a year since section two thirty-two semiconductor tariff investigations was initiated. Can you give us a status update and can you commit to a rough time frame for when industry and Congress should expect a determination.

I'm sorry, for which investigation?

The section two thirty-two semiconductor tariff investigation.

The investigation's complete. Um, the president issued a proclamation. Um, and it described, uh, several phases. So, um, that's that's already happened.

Thank you very much. Uh, I yield back.

Representative Fein is recognized.

Thank you, Mr. Chairman, and thank you, Under Secretary Kessler, for being here today and answering all of our questions. Um, I've got a few, cuz I think really what you're doing is incredibly important. So, under President Trump, he's placed BIS as the cornerstone of his AI action plan and America first trade policy. One of the key components of these policies is ensuring that US exports American AI to our allies and partners to prevent their dependence on our strategic rivals, technology. Now, I'm particularly concerned about the exposures of our allies to a malign AI full-stack. We don't want foreign AI to become the standard. We'd like our AI stack at all parts of the value chain to become the standard. It's the differe- it's like it's VHS versus Betamax, except one of them is American and one of them is not. And so that's why I have filed a bill in HR sixty nine ninety six, the full AI stack export promotions act, which was marked up and passed in this committee. Unfortunately, ongoing delays in license approvals and confusion over the future of the AI diffusion rule have caused uncertainty and hampered exports to allies and partners. Can you comment on BIS's role in facilitating the expert, the export of US AI to our allies?

Well, I agree with you that it's important to encourage our allies to build and invest in the American tech stack. Uh, it's essential. Um, and that's part of the thinking behind the action that we took recently with the UAE, behind the Middle East deals that we've been doing. Um, you know, we want to encourage these companies to build on the American tech stack, to invest also in the United States, in our tech ecosystem. Um, so the the the am the administration and I personally agree with that a hundred percent. Um, you know, uh your i your your question referenced some confusion, um, but I don't think there has been confusion about the rules. I think the rules have been clear. Um, you know, uh So, uh, and and I I don't think either that there have been I you you you mentioned licensing. And the timelines for licensing for routine licenses have been quite fast. Um, they've been some, you know, they've been pretty much the same since twenty twenty four. Um, but we do apply a high level of scrutiny to those licenses that involve sensitive technologies.

OK. So, w- what you've mentioned at a high level, but what specific actions are you taking to speed up the licensing process? And can you give some clarity on if BIS plans to formally replace the AI diffusion rule with something else.

Right. Uh, I I don't wanna replace the diffusion rule because I don't think the rule is worth replacing. It's a bad rule, um, and we're glad that it's gone.

Okay.

We're glad that it's not being enforced. Um, and it would have uh, it would have stymied the global AI ecosystem. Um, so, we don't wanna replace it. Um, there will be future regulatory action uh, in the area of, of chips and AI. Um, it's a quickly evolving area and the rules need to keep up with it. Um, but, um, but we're not gonna replace diffusion.

So, so the AI action plan specifically calls on BIS to encourage partners to follow US export controls by using tools such as the foreign direct product rule, and secondary tariffs. Allied export controls are still significantly weaker than our protocols, but BIS hasn't yet used these tools to achieve alignment. Are there certain authorizations that you don't have that prevent you from doing what you need to do which we could work on here in Congress to help you?

Well, I think we have the authority. I think that, you know, the administration is constantly attending to, both myself and BIS and the administration as a whole, constantly attending to this issue of disparity between our export contr- our export control regime and those of our partners and allies. Um, and as I, as I mentioned previously, we're um, set on remedying those disparities.

Well, I I appreciate everything you do, as as someone who Iran just turned into a Lego figure last night, I think the uh the the influence of AI around the world is uh it can be good and it can be bad, and I certainly hope as we move forward it's us that are in charge and not bad guys. So thank you for being here and, Mister Chairman, I yield back.

Absolutely.

I would love to see that Lego figure. Representative Deen, you're recognized.

Thank you, Chairman Mast and uh Ranking Member Meeks, for holding this hearing. Thank you, Under Secretary Kessler, for being here and, uh, giving us updates and informing us today. Under Secretary, last year you testified, uh, that one of your top priorities was to bolster enforcement by adding staff. I wanted to follow up on that. Given the budget increase BIS got last year, what progress have you made in bolstering resources, staffing, focused on enforcement?

Well, this year we've hired, uh, and I could get you the exact numbers after the hearing, but we've hired about seventy people, added about seventy people, uh, and and almost all of them are in enforcement. And we're gonna continue to do that through the end of the fiscal year. We have already selected more candidates to add to enforcement. There should be about sixty more coming in the door, uh, by the end of the

That was my next question.

By by the end of fiscal year.

What vacancies do you have?

Yeah, and that that includes um, that includes the additional export control officers that I was discussing with other members. Uh, so on that front we'll go from twelve to twenty-five.

What, how many vacancies total?

Well, we, we are aiming to uh, onboard about sixty more people by the end of this fiscal year. And then,

OK.

of course, if the appropriation, if the budget request is approved, then we'll have, we'll have hundreds more in the following fiscal year.

Yeah, the budget request is nearly double. So, yeah, OK.

Right.

Um, Under Secretary, I am worried uh, that US made technologies, including microchips, continue to be found in Russian military systems, deeply undermining our support for Ukraine and fighting back against Russia's illegal war of aggression. Uh, and I know many of my colleagues, uh, have raised these things. Uh, I'm troubled by the weakening of export controls in this administration. Uh, as others have discussed, BIS has not added a single entity to the entity list since October of last year. It's at its lowest level, if I'm reading the charts correctly, since two thousand and eight, uh, no doubt eroding the efficacy of the list. Is staffing an issue there? Why have you not added others to the entity list?

Well, I have a different perspective, um, that enforcement of the list is critical.

I did hear you say that,

Uh, yeah.

but let's talk about adding of entities. Of course I encourage enforcement. Let's talk specifically about adding entities.

When we see a national security risk, we respond forcefully, whether whether it's through adding an entity to the list. We also have other tools available, including informed letters, including uh enforcement actions and other authorities.

Have you Are you concerned?

The other part's

Are you concerned when you see that gap, October till now, uh are you concerned? Do you question your team and say what's going on here? Why why have we not added anything?

That's not how I measure success. Um. My perspective is that enforcement is extremely strong now. It's stronger than it ever has been. And that's the path that we need to continue on.

What has enforcement gotten us?

Enforcement has gotten us stronger deterrence. Um, it's gotten us, uh, you know, uh, an awareness within the business community that export controls aren't merely a cost of doing business. They're something that companies actually need to, uh, actually need to plan around and change their behavior around. I think, I think that the

Get it, but why, why are these uh technologies still showing up in russian

I think

mili- military equipment.

Well, I think that first of all, I think that the penalties ought to be even higher. Um, and uh, you know, that's pa- partly uh something that we can achieve through a legislative fix.

Course the penalties on russia should be higher also,

Um

I would say that.

Sure, yeah, penalties across the board. Right, there's a statutory cap on penalties which we think should be higher. Um, but, you know, the types of situations that you're referring to, this leads to Right, if we see that US technology is recovered on the battlefield, uh of a co- of a country that shouldn't have those technologies, it leads to enforcement actions which can lead to penalties,

Let me,

which can lead to deterrence.

let me dig down on the Russia piece specifically, uh how many staff at BIS are focused solely on enforcement with regard to Russia? Um, you can imagine, uh like so many of us, totally uh engaged in Ukraine and why in God's name we have not been more uh effective in bringing peace to Ukraine and and putting down this aggressive um set of moves and war crimes by Mister Putin. So how many staff are focused solely on enforcement with regard to Russia?

We don't we don't s

The number, the number.

we we we don't we don't split up um uh generally, we don't split up officials that way like devote them to individual countries, but we do have dozens of at least dozens of uh staff members who are focused on country group D five countries

Well, I I I know my time is up, and I and I thank you, uh we're all concerned that BIS is under-resourced, um but I I very much worry, uh how are those resources being used and how are we really curtailing, uh the malign uh things that are going on. So I thank you for your testimony. I yield back.

Representative Moylan, no. OK, then we will go to Representative we're going to Miller or Burchett?

Miller.

Miller. Miller, you're up.

Thank you, Mr. Chairman.

You're welcome.

I will uh take advantage of my opportunity. Uh, thank you, Mr. Chairman, and thank you, Under Secretary Kessler, for taking the time to meet with us today. When we think about strategic competition with the People's Republic of China, most folks probably think about the Department of War, the CIA, or maybe even the State Department. But one extremely important and often overlooked agency on the front lines of this fight is the Bureau of Industry and Security. also known as BISS, uh, at the Department of Commerce. What should make every American proud is the fact that the road to success for the CCP runs through the theft of American technology and talent, not their own. It is for that reason that no other country on earth spends more time and money trying to steal our technology and trying to get the edge, other than China. Fortunately, we have BISS to enforce our export controls to stop them. However, current statute is not without loopholes and work-arounds that our enemies Under the under the Export Control and Reform Act, the definition of foreign person is too narrow to include the US incorporated affiliates of companies that are subject to export controls. Meaning that all an entity-less company must do is access sensitive technology is to establish a US affiliate company which seems to be pretty easy to do. I introduced the adversaries act to have the office of information and communications technology and services evaluate this loophole and enhance BISS's ability to address this problem that we currently have. Under Secretary Kessler, once again thank you for being here, uh, sure it's gonna be, you know, a little bit longer, shouldn't be too much longer. Um, under your leadership, has BISS looked into this problem and do you believe that an expansion of BISS authority to list US incorporated entities affiliated with foreign adversarial companies on the entities list is necessary?

Thanks for the question. I mean, I I Obviously we spend a lot of time on enforcement issues related to the entity list. As I mentioned, uh you know one of the priorities has been to make licensing more effective, as regards companies that are on the entity list, why we shouldn't shouldn't be rubber-stamping license applications for exports to companies on the entity list. Uh you know in general, uh I support legislation that would expand commerce's enforcement authority. Um And so I'm happy to take a look at the legislation that you mentioned and and work with you on it.

Yeah, thank you very much. Uh, Michael from our team has been doing a fantastic job and we will get it over to you and your team uh so we can hammer out the issues but it's definitely something that we could work together and find a lot of common ground um yeah definitely.

Sounds great. Sounds great. Thank you.

And just, can you give us some insight into how wide spread, you know, really this problem is or that you're seeing? Uh, and as I'm talking about it, do we have, you know, good visibility into instances where our adversaries are using this, you know, circumvention tactic right now?

We we know that there is a lot of circumventing and diversion that goes on all the time. We don't know uh the full extent of it, uh but we can guess, based on our experience. Um also, just based on the caseload that our enforcement officers have, uh they have uh an enormous number of uh cases and leads per agent, which suggests that there's, you know, I as I mentioned in my testimony, far more than their counterparts at pure enforcement agencies, and that suggests that there unfortunately is a lot of enforcement activity, uh, uh, sorry, a lot of, a lot of, um, uh, violation that goes undetected. Uh, and so that's part of the reason that we're asking for the budget increase for enforcement.

Yeah, well, I believe it is, it is needed, and you guys are doing a, you know, phenomenal job, and thank you for, you know, making sure our country is safe. Uh, thank you, Mister Chairman, I yield back.

Thank you.

Representative Johnson.

Thank you, Mister Chairman. Um, Under Secretary Kessler, thank you for being here today. Um, the Bureau of Industry and Security plays an important role in enforcing our nation's export controls, protecting our critical industries, and securing our most sensitive technologies. These issues have been among my key priorities during our tenure in Congress, and I'm very proud to have introduced a bipartisan whistleblowers aiding National Security Act, which would ensure that whistleblowers have a protected pathway to the State Department to report export control violations. Um, I wanted to acknowledge Representative Keen and his shout-out to my bill, um, while he was here during his time and to the importance of it. Man- many mem- many members today, um, have asked you about the importance of export controls and whistleblower protections. And, um, I think through some of your prior testimony you acknowledge that this is a very important tool uh that the federal government has.

Yeah, thanks for the question. I mean, I, as I mentioned in response to the other question, we we have significant enforcement activity, leads, cases, um, that are the product of whistleblower reports. So I think this is an important part of our enforcement practice.

Yes, and so, Mister Chairman, I hope that we can uh, I know this is passed through the committee, I would love to see it on the floor um, and get this thing through the finish line. Um, because I do think that whistleblowers play a critical role in our expert control uh environment in particular. Um, you've had a lot of questions from both sides of the aisle. There's a lot of concern here in the Congress over China having an unfair advantage in the AI race, um, and making sure that we have US dominance in that space. And we, um, I hope you're hearing the concerns, sir, that this committee has about the lack of updating of our lists. the lack, and your defense of that, hasn't really answered anyone's questions about why new actors aren't being added to our monitoring lists. It's very concerning to us, because Russia is consistently renaming companies, new companies are are morphing into different entities, and there is a gap. And I hope that if, rather than taking a very defensive posture on that topic, that you'll listen to the concerns of members of both sides of the aisle. on this issue and you'll go back and take a good hard look at the practices that your agency has been engaging in to address this gap of our security, cuz it's something that this body, our m- members on this committee are very, very concerned about. Um, another issue, I wanted to talk about China for a second. In April, over seventy of my colleagues and I signed on to a letter led by Congresswoman Dingell opposing door market access for Chinese automakers in the US. The Biden administration's Department of Commerce implemented strict restrictions on these imports, and yet this administration recently announced an exemption for at least one China-connected automaker. Since your bureau granted the exception, the Chinese government released new standards requiring all new vehicles to support continuous monitoring, data recording and remote management. So you granted an exception for China to have an automaker in this country, that after that exemption was granted, then China reformed its rules requiring continuous surveillance. I'm very, very concerned about that, sir. So how are you gonna mitigate the concerns that a China connected company that you granted an exemption to one day could be required by the Chinese government to fill software with spyware on our people?

Well, first of all, I wanna clarify that the I think the rule that you're referring to, we the Trump administration is the only administration that's implemented this rule. The prohibitions kick in in model year twenty twenty seven, which is now. Um, so uh, you know, we are the ones who are leading the implementation and enforcement of this rule. Now, you're asking about a particular we we call them specific authorizations, a particular it's a license essentially. um, for companies to operate in the United States, continue to sell despite the prohibitions that are in place under this rule. What I can tell you, uh, is that we ensure that there are very strong national security conditions in any license of that type. Um, very robust conditions, which would prevent the the exfiltration of data to a foreign adversary, Um, we ensure that the tech stack is is clean, and we put safeguards in place to make sure that that's the case.

Well, sir, you would I we're running out of time, but I just wanna end with obviously it's very concerning that we would grant exemptions to Chinese companies in this country given their assault on our technological security. And I think it's something that the administration needs to look at very closely, and I'm out of time. I yield back.

Mister Kessler, you have the distinct uh honor of witnessing a new member here, Representative Gallagher, who just joined our committee. It is committee tradition that new members give us a fun fact about themselves.

Thank you, Mr. Chairman. It's a it's a pleasure to be joining the committee and uh uh thank you for that opportunity. Uh, I think maybe the fun fact is uh I'm a sixth generation Californian, um so my family you know came uh to this great country settled in california and we liked the place so uh you know we stayed a while uh

it's not really tradition but thanks for giving us a fact

yeah thank you

what part of california is this

this is northern california just south of yuba city california mister chairman

ok

max miller could

i'd love to have you sometime i'll look forward to joining you

max miller could have warned you but he he chose also not to warn you though

good ask

we'd mess with you

Thank you, Mr. Chairman.

You're recognized. You can ask all the questions you want right now. You get ten minutes. No, you get five.

Uh, no, I'm I I am good.

I'm just kidding.

Uh, I've been listening very much to the conversation. I think w- very interesting conversation right there. California, actually our governor, has done a lot of uh exemptions and and benefits for Chinese companies. So I'm very glad to see some real enforcement uh from your department on that front, um, in ensuring that uh that we don't allow those those types of things to happen. So uh congratulate you on on that work. uh obviously these are very important to us to insure that uh we're not having uh you know trying to get smuggled um you know uh technology uh and and i and so i appreciate your work and uh we'll continue to uh be monitoring that and and working with you thank you.

Thank you.

Alright we'll leave you alone. Representative Burchett you ready my friend number one in our hearts.

Four thirty five on the chart thank you sir. Mister Under Secretary, I'm gonna ask you several questions, and as the four hundred and thirty-fifth most powerful member of Congress, I usually go towards the end of most of these discussions, so everyone in my

We just went over this, Tim. He's number four thirty-five.

Do what?

He's new. He's number four thirty-five. You can't be four thirty-five anymore.

You can't just step in and take my spot, Mister Ch- Mister Chairman, but what I I reclaim my time? No, I hate it when people say that. That sounds so arrogant. Uh, but anyway, um, I want you to act like every one of my questions is one of the most brilliant questions you've ever heard, since I'm sure you've already heard them multiple times. And as Max Miller droned on about something, I wasn't really even sure what he was paying attention to. He told me I don't pay attention very well, and I I really not, sorry, then he mumbled something about that. I wasn't really paying much attention when he told me that. So. So, how is the Bureau of Industry and Security planning to align its priorities with US national security interests?

Well, strong enforcement. It starts with strong enforcement, sir. You know.

Is your is your microphone on?

I'm sorry, is there what?

I couldn't hear you.

Oh. Is that better?

Yes, sir.

Okay. Yeah, it starts with strong enforcement. Um, you know, we have extensive rules that restrict the exports of goods and software and technology to foreign adversaries. Uh, and we need to enforce those rules, and in the past that hasn't happened. And that's why our budget request focuses on stronger enforcement, bigger enforcement, uh and making sure that that we have an effective deterrent in place.

It didn't, it didn't pass over my publicly educated brain that my colleagues across the aisle when they um they tend to forget that they were in power for four years and it was pretty much wide open. And now you're seeing the adults in the room and and they're acting as if uh you know, they got the rug jerked out from under them, I just, I find that kind of odd, I'm sure you do too, but increased export controls can lead to over-regulation of American businesses while countries like China bypass the system. Do you all have an an oversight mechanism to combat that?

Sorry, to combat what?

Combat um, Let's, let me go back over it. Um. I'll just re restate the question, if that's alright. Increased expo I reclaim my time. Increased export controls can lead to over-regulation of American businesses.

I see. Yeah, no, I mean, of course we want to avoid over-regulation, right? And as I mentioned in response to some of the other questions, more regulations don't equate to more safety. We need to be careful about that. Um, export controls, they carry serious penalties. Uh, we want companies to invest in compliance. But because of that, we need to be careful when we impose new requirements that that that we're not, you know, we're not forcing companies to overinvest in something that doesn't have a national security dividend.

Okay, why why is the Bureau of Industry and Security licensing process so time-consuming?

Well, for the vast majority of licenses, the process is fast and efficient. Right, as I mentioned in response to some of the other questions, The average processing time in twenty twenty five is about the same as in twenty twenty four, and that's sixty days, uh for many types of licenses, uh that uh for for different reasons can be approved more quickly than they are, sometimes in in a matter of weeks. Um the licenses that we apply more scrutiny to, there's a reason. Um the licenses that involve sensitive technologies, that involve entity listed companies, um that involve sensitive regions of the world, Those are the ones that we are very careful with. And I think again, I think that that's the appropriate way to handle those kinds of licenses, because we don't want rubber stamping.

Y'all have a plan to exp exp expedite any of that? That you're having that you have delays with.

We wanna expedite all of it, right? The the goal is to make all licenses go through the system as quickly as possible, but we don't wanna compromise national security.

Yeah, I think sometimes we uh tend to throw the baby out with the bath water on that. And I I agree with you on that. Mr. Chairman, I yield back my thirty six seconds.

This is the end of the hearing. I mean, do you wanna close it out, Mister Burchett? Or do you

Maybe a little song.

If that's what you like. If I know it, I'll join you.

That's okay. I'm not this is I'm a semi professional uh singer as you know,

OK.

and this is not a union setting, so I'd be violating my my oath.

Like Tennessee River or something? You don't wanna sing that?

No, no.

OK. Alright. Fair enough.

Thanks so much, though.

You're welcome. Another day. Under Secretary Kessler, thank you for joining us today. I see no more individuals requesting to ask you questions. Uh, thank you for your valuable testimony. I thank members for their questions. Members of the committee may have some additional questions uh for you, Under Secretary. We will ask that you respond to those in writing. And this committee stands adjourned.