`[Senate Hearing 118-448]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 118-448


                  COUNTERING CHINA: ADVANCING U.S. NATIONAL 
                   SECURITY, ECONOMIC SECURITY, AND FOREIGN 
                   POLICY

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                                   ON

           EXAMINING U.S. NATIONAL SECURITY, ECONOMIC SECURITY, AND 
                                 FOREIGN POLICY

                               __________

                              MAY 31, 2023

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
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                Available at: https: //www.govinfo.gov /

                                __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
57-163 PDF                  WASHINGTON : 2024                    
          
-----------------------------------------------------------------------------------  

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                       SHERROD BROWN, Ohio, Chair

JACK REED, Rhode Island              TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey          MIKE CRAPO, Idaho
JON TESTER, Montana                  MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia             THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts      JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland           BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada       CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota                J.D. VANCE, Ohio
KYRSTEN SINEMA, Arizona              KATIE BOYD BRITT, Alabama
RAPHAEL G. WARNOCK, Georgia          KEVIN CRAMER, North Dakota
JOHN FETTERMAN, Pennsylvania         STEVE DAINES, Montana

                     Laura Swanson, Staff Director

               Lila Nieves-Lee, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                  Amber Beck, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                       Pat Lally, Assistant Clerk

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        WEDNESDAY, MAY 31, 2023

                                                                   Page

Opening statement of Chair Brown.................................     1
        Prepared statement.......................................    43

Opening statements, comments, or prepared statements of:
    Senator Scott................................................     2
        Prepared statement.......................................    44

                               WITNESSES

Elizabeth Rosenberg, Department of the Treasury..................     5
    Prepared statement...........................................    45
    Responses to written questions of:
        Senator Scott............................................    59
        Senator Fetterman........................................    64
Paul M. Rosen, Department of the Treasury........................     6
    Prepared statement...........................................    47
    Responses to written questions of:
        Chair Brown..............................................    65
        Senator Scott............................................    67
        Senator Fetterman........................................    69
        Senator Tillis...........................................    69
Thea D. Rozman Kendler, Department of Commerce...................     8
    Prepared statement...........................................    49
    Responses to written questions of:
        Chair Brown..............................................    70
        Senator Scott............................................    83
        Senator Fetterman........................................    89
Matthew Axelrod, Department of Commerce..........................    10
    Prepared statement...........................................    54
    Responses to written questions of:
        Chair Brown..............................................    90
        Senator Scott............................................    93
        Senator Warnock..........................................    97
        Senator Fetterman........................................   100

              Additional Material Supplied for the Record

Letter submitted by American Securities Association..............   103
Letter submitted by Senator Bill Hagerty.........................   111

                                 (iii)

 
COUNTERING CHINA: ADVANCING U.S. NATIONAL SECURITY, ECONOMIC SECURITY, 
                           AND FOREIGN POLICY

                              ----------                              


                        WEDNESDAY, MAY 31, 2023

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., in room 538, Dirksen Senate 
Office Building, Hon. Sherrod Brown, Chair of the Committee, 
presiding.

            OPENING STATEMENT OF CHAIR SHERROD BROWN

    Chair Brown. This hearing will come to order.
    For far too long, our policy around China catered to 
multinational corporations, and failed working families. It 
destroyed local communities, and it eroded our manufacturing 
base and our national competitiveness.
    This should not be news to anyone. It is why 23 years ago, 
then Congressman Lindsey Graham and I opposed permanent normal 
trade relations with China. We knew that corporations--we knew 
that corporations--would shut down production in Ohio and South 
Carolina and across the country and move production to China in 
search of lower and lower wages.
    That is exactly what happened. Since NAFTA's enactment in 
1994 and China's entry into the World Trade Organization, Ohio 
has lost at least 276,000 manufacturing jobs. That is over a 
quarter-of-a-million Ohioans who once had a good-paying job--
usually with top-notch benefits that comes with a union card--
suddenly finding themselves out of a job. It often takes a 
decade or more for families and communities to recover from 
that kind of loss.
    It devastated industrial communities in Ohio and around the 
country, and it helped buildup the Chinese military.
    Today, after years of misguided China policy, we are 
finally starting to do something about it. We passed landmark 
legislation to rebuild our infrastructure and invests in 
critical technologies--like semiconductors and advanced 
energy--that will build more secure supply chains.
    Ohio will be at the center of that kind of investment. 
Finally, we have buried the term ``rust belt.'' Now, we are 
finally making more in America.
    We need to safeguard critical technologies from the PRC's 
military and security apparatus, using national security 
measures. It is why we are holding this hearing.
    For years, this Committee has worked on a bipartisan basis 
to establish legal authorities to protect our national security 
from risks posed by the Chinese Communist Party. Five years 
ago, I worked with then-Chairman Mike Crapo to pass the Export 
Control Reform Act and the Foreign Investment Risk Review and 
Modernization Act. We strengthened our export control system 
and inbound investment screening authorities.
    Last month we did it again. Ranking Member Scott and I 
worked with a majority of this Committee to introduce the FEND 
Off Fentanyl Act. We have nearly all of the Committee Members, 
and almost half the Senate, as cosponsors.
    In 2021, fentanyl was involved in 80 percent of Ohio's 
unintentional drug overdose deaths. Over and over I hear from 
Ohioans that we need new, more powerful tools to prevent the 
flow of fentanyl into our communities.
    Our bill declares that international fentanyl trafficking 
is a national emergency, an emergency that is destroying lives 
and families across our country and that poses an extraordinary 
threat to the national security, foreign policy, and the 
economy of our country.
    Therefore, the bill uses our economic arsenal to target 
every step of the foreign supply chain, from Chinese chemical 
suppliers, to Mexican cartels, to money launderers profiting 
off the illicit drug trade.
    National security threats evolve, whether from regimes in 
Tehran, Pyongyang, Moscow, Beijing, or non-State actors or 
human rights abuses, IP theft, or illicit fentanyl trade. We 
must ensure that these tools evolve along with them.
    To that end, I look forward to hearing perspectives from 
the witnesses on a range of bipartisan legislative proposals 
and ideas. For example, Senators Casey and Cornyn are working 
on legislation that would address a gap in our existing 
national security authorities--risks posed by certain outbound 
U.S. investments.
    Senators Tester and Rounds, on this Committee, have 
legislation to address concerns related to Chinese ownership of 
U.S. farmland and agricultural businesses.
    Senators Wyden and Lummis, on this Committee, have a 
proposal that would impose export controls on personal data.
    And Senators Warner, on this Committee, and Senator Thune 
have legislation to address concerns related to information and 
communications technology transactions.
    The Committee will examine a range of other proposals to 
address challenges posed by China, related to Taiwan, 
technology development, digital assets, export controls, and 
other issues.
    We all agree that China is a real and growing threat. Our 
Committee must play a leadership role in countering that 
threat. Today's hearing is another important step, as we work 
together to safeguard our national security.
    Ranking Member Scott.

             OPENING STATEMENT OF SENATOR TIM SCOTT

    Senator Scott. Thank you, Mr. Chairman. Thank you to the 
witnesses for being here with us today.
    Every day there is a news story after news story about 
foreign adversaries searching for a foothold to expand their 
global reach. Whether it is China brokering so-called ``peace 
deals'' to Russia's continued invasion of Ukraine, or Chinese 
precursors sent to Mexico to fuel cartels' deadly fentanyl 
trade, America needs to have strong leadership.
    Today, we will be hearing from Biden administration 
witnesses from Treasury and Commerce, to better understand 
their thinking, and frankly, learn why the White House is 
choosing to follow instead of leading.
    Advancing U.S. national security, economic security, and 
foreign policy are all vital to our domestic security here at 
home. As I have said before, you cannot secure your house with 
the doors wide open.
    In our ever-connected and ever-evolving world, the United 
States and our vibrant economy are continuously impacted by 
other countries. We spend a great deal of our time on this 
Committee discussing our Government's response to our own 
economic issues, but it is vital to consider the decisions 
being made oceans away by Governments and countries with very 
different ideals and values than those we hold near and dear 
here at home in America.
    China is at the top of that list. For years, China has 
grown in force and strength, persistently engaging in coercive 
economic policies to further its interests and undermine those 
of the United States and our allies.
    To try and gain a leg up on America and our allies, China 
has resorted to intellectual property theft, unfair trade 
practices, and other harmful actions that ultimately challenge 
free markets and U.S. innovation. And innovation is the crown 
jewel of America's success. It is about the birth of ideas and 
the fertile ground for them to grow and to prosper.
    As the internet creates a web of connectivity worldwide, 
protecting American data from would-be bad actors, like China, 
becomes even more important. That is why I recently introduced 
the Know Your App Act to increase transparency and protect 
Americans by requiring app stores to label apps controlled by 
foreign adversaries. It is about empowering our parents with 
information to make informed decisions.
    Further, China exploited America's openness to do business 
on the global stage. But we cut our own selves off, with rules 
and regulations, dictating everything from climate requirements 
to burdensome building regulations taken to an extreme, making 
it more and more difficult to build here at home and perversely 
encouraging companies to search for more open environments 
around the globe.
    There should never be a world--there should never be a 
world--where a company finds China easier to do business, a 
better business environment. Our country was built on freedom, 
hard work, and innovation. We should encourage policies that 
foster these ideals in the marketplace, and that means 
lessening burdensome regulations.
    Furthermore, American companies should not be on an uneven 
playing field simply because they must abide by progressive 
regulations far stricter than the ones in China. We must work 
simultaneously to provide businesses with room for growth and 
opportunity here at home while also robustly responding to 
China's unfair practices globally.
    The United States possesses tools to curb China's economic 
aggression, including sanctions, export controls, and 
investment screening, but we must use these tools strategically 
and effectively. Policymakers must think beyond the Washington 
bubble and ensure that when the Government uses its economic 
security tools, it evaluates the economic impact on communities 
and small businesses across our country.
    From securing our farmland to protecting our U.S. 
technological innovators, this is the lifeblood of our economy 
and our communities. I know that firsthand from my home State 
of South Carolina, where advanced manufacturing is our engine. 
We have some of the largest global brands making their home in 
South Carolina. The foreign direct investment in my State is 
tremendous, from BMW to Volvo, an important component of the 
success that we offer the Nation from South Carolina. After 
all, efforts to advance national security will never succeed if 
the Government undermines the economic security and economic 
opportunities, of everyday Americans.
    Regrettably, under President Biden, America's economic 
strength has waned, and the Administration has led this country 
down a path of reckless spending that has led to a 40-year high 
of inflation, which every single American knows all too well.
    The more this Administration spends on progressive 
policies, the more their attention is diverted from issues that 
our communities actually need the Federal Government to focus 
on, like preventing the deadly fentanyl deaths that Chairman 
Brown alluded to.
    The Chinese Communist Party is facilitating the flow of the 
deadly fentanyl into our Nation through the Mexican cartels, 
leading to 70,000 American deaths. Fentanyl is the leading 
cause of death for young Americans--the leading cause of 
death--Americans who will never marry, have children, grow old, 
or make an investment into our economy simply because they took 
fentanyl. That is why I, along with Chairman Brown, introduced 
the FEND Off Fentanyl Act, which will target the illicit 
fentanyl supply chain, using sanctions to choke off the income 
of cartels and the Chinese laboratories that make precursors of 
this deadly drug. We must hit them, of course, where it hurts 
the most, which means in their wallets.
    We must boost economic growth and competitiveness through a 
renewed commitment to free enterprise, free trade, rule of law, 
and international U.S. leadership. And we must maintain our 
technological edge, promote capital formation, and ensure 
supply chain resilience.
    Let me close with this. Concerns about China's rising 
strength and aggression are certainly understandable. However, 
America can always outcompete China. Our economic system and 
our values have lifted countless people out of poverty by 
providing economic freedom for everyday people to work hard, 
apply their talents, and pursue their dreams. There is no 
better system in the world today. There is no better system in 
the world today.
    It is time we renew our commitment to the principles that 
made us the greatest Nation on God's green earth.
    Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Scott.
    I will introduce today's witnesses. All four of you were 
confirmed through this Committee and on to the Senate floor. 
Elizabeth Rosenberg has been back at least once since then. She 
is Assistant Secretary for Terrorism Financing and Financial 
Crimes at Treasury. Paul Rosen is Assistant Secretary for 
Investment Security at Treasury. Welcome to both of you.
    Thea Kendler is Assistant Secretary for Export 
Administration at Commerce. Welcome.
    Max Axelrod is Assistant Secretary for Export Enforcement 
at Treasury.
    I welcome all of you back. Assistant Secretary Rosenberg, 
you start. Thank you.

  STATEMENT OF ELIZABETH ROSENBERG, DEPARTMENT OF THE TREASURY

    Ms. Rosenberg. Good morning, Chairman Brown, Ranking Member 
Scott, and distinguished Members of this Committee. Thank you 
for the opportunity to testify today on ``Countering China: 
Advancing U.S. National Security, Economic Security, and 
Foreign Policy''.
    The United States and the PRC are the two largest economies 
in the world. Despite the current tension in our relationship, 
cooperation between the two countries is absolutely critical in 
addressing important global challenges like the climate and 
managing international debt distress. As Secretary Yellen has 
recently noted, the United States does not seek conflict but 
rather a constructive and fair economic relationship with 
China, one where we can work together, when possible, for the 
benefit of our countries and the world.
    Our economic approach to China is guided by three 
objectives: securing the national security interests of the 
United States and our allies and partners and promoting respect 
for human rights; seeking an economic relationship with China 
that fosters growth and innovation in both countries through 
healthy competition; and cooperating on the urgent global 
challenges of our day.
    As I have responsibility for coordinating Treasury policies 
to address, expose, and target national security threats, I 
will briefly address security challenges related to the PRC and 
the tools at Treasury's disposal to address them. I have 
provided more details on these challenges in my written 
statement.
    The first of our national security concerns related to the 
PRC is its challenge to global norms, norms that have 
maintained peace and had a part in enabling the PRC's economic 
growth. This includes acts of economic coercion, economic 
espionage, transnational crime, and human rights abuse.
    Furthermore, we are concerned with China's role in the 
illicit narcotics trade. That is why just yesterday Treasury 
sanctioned and exposed a drug trafficking network that included 
Chinese individuals and entities responsible for shipping pill 
press machinery for counterfeit pill manufacturing, including 
those involved with fentanyl-laced pill production.
    Another concern is the PRC's role in geopolitical conflict 
around the world, including related to Russia, North Korea, and 
China's militarization of international spaces. PRC's support 
for those countries I noted and increased tension along its 
borders, including in international waterways and airspace, 
further destabilizes precarious situations, increasing the risk 
from misunderstandings and miscalculation.
    On Russia, for example, we have sanctioned Chinese entities 
exporting items to Russia in support of its brutal, illegal 
invasion of Ukraine's sovereign territory. Chinese continued 
support for Russia will only prolong that conflict.
    I want to focus now on the suite of Treasury tools and how 
we deploy them in service of our national security concerns.
    First, Treasury publicly exposes threatening activity, 
including through financial sanctions. Public exposure and 
targeting individuals and entities through a sanctions 
designation gives financial institutions and other 
organizations a fuller picture of the illicit activity and 
greater ability to distance themselves from the threat. This is 
often the case for our drug trafficking sanctions, where we map 
and expose the networks moving narcotics and the funds.
    In addition, Treasury regularly engages the private sector, 
providing typologies and red flag indicators as well as partner 
and ally Nations who share similar concerns and can take 
complementary enforcement actions.
    Another way we protect our national security interests is 
by strengthening international anti-financial crime standards 
and by building partner consensus around them. Leadership in 
the Financial Action Task Force, or FATF, the international 
standards-setting body for anti-money laundering and countering 
the financing of terrorism is a major way we accomplish this. 
By leveraging this international forum and building agreement 
around models laws and best practices, we increase the cost for 
actors to reject these norms.
    To conclude, the United States can effectively manage our 
relationship with China by clearly conveying our interests and 
intentions, including about our specific national security 
concerns. Indeed, the health of the global economy rests on how 
we, both the United States and China, can manage our 
relationship and address pressing shared challenges.
    Thank you very much, and I would be happy to take your 
questions.
    Chair Brown. Thank you.
    Assistant Secretary Rosen, you are recognized.

     STATEMENT OF PAUL M. ROSEN, DEPARTMENT OF THE TREASURY

    Mr. Rosen. Thank you. Good morning, Chairman Brown, Ranking 
Member Scott, and distinguished Members of the Committee. Thank 
you for allowing me to be here today to testify on this 
important national security topic.
    At the Department of the Treasury, we understand the 
significant challenge that China poses to the economic and 
national security interest of the United States. I manage the 
Government's review of foreign investment coming into the 
United States for national security risks through the
    Committee on Foreign Investment in the United States. In 
this work we are focused on stopping the access and 
exploitation of sensitive technologies, infrastructure, data, 
and other assets by those who have the intent and capability to 
harm our national security.
    Recently, Secretary Yellen addressed the U.S.-China 
economic relationship. In her remarks, she conveyed that China 
and the United States can and need to find a way to live 
together and share in global prosperity. She also stressed the 
importance of our countries working together, when possible, 
for the benefit of the world.
    At the same time, Secretary Yellen was crystal clear when 
it comes to national security: the United States will secure 
our national security interests and those of our allies and 
partners. We remain firm in our conviction to defend our 
values. We will not hesitate to defend our vital interests, and 
we will not compromise on national security concerns, even when 
they force tradeoffs with our economic interests. We will fully 
and zealously exercise our economic tools to protect the 
national security of the United States.
    CFIUS is one important tool to address national security 
that pursues these objectives. The committee--comprised of the 
heads of several Executive branch agencies, which I help lead 
in support of the Secretary of the Treasury's role as Chair--
carefully reviews foreign investments in the United States for 
national security risks. When necessary, the committee takes 
action to address any such risks while seeking to maintain an 
open investment environment and the status of the United States 
as one of the top destinations for foreign direct investment in 
the world.
    Over the years, as the national security threat environment 
has evolved, so has CFIUS. First established, as you know, by 
Executive order in 1975, the committee has benefited from 
congressional action to codify and enhance its authorities. As 
was pointed out by the Chairman, most recently, Congress did so 
with the bipartisan Foreign Investment Risk Review 
Modernization Act of 2018. Among other things, FIRRMA provided 
the committee with important authorities over certain 
investment structures that had previously fallen outside of its 
jurisdiction and modernized our processes and procedures to 
better and more timely and more effectively review covered 
transactions. It also, importantly, provided the committee with 
much needed jurisdiction over certain transactions involving 
real estate in close proximity to sensitive facilities.
    Since I was confirmed to my role as Assistant Secretary for 
Investment Security, I have been focused on making sure CFIUS 
operates effectively and efficiently, bringing to bear all of 
our available resources and tools to support our important 
national security mission. This effort includes the issuance of 
the first Executive order since the committee was established 
to provide formal Presidential direction on additional risks 
that we are to consider when reviewing a covered transaction. 
It also includes the issuance of our first-ever enforcement and 
penalty guidelines to ensure that transaction parties are held 
accountable for failing to comply with our laws and for not 
upholding their obligations to mitigate national security risk.
    While Congress rightly put in place strict confidentiality 
requirements for information filed with CFIUS, we have and will 
continue to take enforcement actions on particular matters to 
protect our national security. We are also enhancing our 
tactics and techniques to ensure we are gathering more detailed 
information about foreign acquirers, more detailed information 
about deal structures, and thoroughly assess the national 
security risks arising in connection with any transaction.
    We also continue to enhance our ability to identify non-
notified transactions, that is transactions that are not 
voluntarily brought to CFIUS, and we are also engaging with our 
international partners and allies.
    Finally, as we protect national security in the context of 
inbound investments, we continue to contribute to the 
interagency discussions regarding policies to restrict certain 
U.S. outbound investment flows in specific sensitive 
technologies with significant national security implications. 
Our desire is to avoid situations in which U.S. investments and 
business know-how support and advance technologies that enhance 
military or intelligence capabilities in countries of concern 
that could undermine our national security and put Americans at 
risk.
    While we are proud of the Committee's work, our work 
remains unfinished, and there is always more we can do. We 
remain focused on being as effective as we can in our national 
security mission. And you have my commitment, Senators, that we 
will use all authorities available to protect the national 
security of the United States, including, in particular, 
against national security threats posed by the PRC.
    Thank you for the opportunity to appear before you, and I 
look forward to your questions.
    Chair Brown. Thank you.
    Assistant Secretary Kendler.

  STATEMENT OF THEA D. ROZMAN KENDLER, DEPARTMENT OF COMMERCE

    Ms. Kendler. Thank you Chairman Brown, Ranking Member 
Scott, and distinguished Members of the Committee. Thank you 
for inviting me to testify today about the Commerce 
Department's Bureau of Industry and Security's ongoing efforts 
to counter China's military modernization and human right 
abuses.
    In the past year, BIS and our dual-use export control tools 
have stepped into the spotlight. In February 2022, we cutoff 
Russian access to technology it needs to wage its brutal war 
against Ukraine. We barred the export of thousands of weapons 
components and other items needed by Russia's military, 
including classic dual-use items like radio frequency 
converters. Working with 38 allies and partners, we are also 
barring certain exports to countries helping Russia, including 
Iran and its drone programs.
    With the advanced computing rule we released in October of 
last year, BIS has hammered China's ability to use artificial 
intelligence and supercomputing power to develop its military. 
We are restricting exports of leading-edge semiconductors and 
also of semiconductor manufacturing equipment and related 
activities by U.S. persons. Even foreign-made chips produced 
with certain U.S. technology or tooling are restricted.
    China has tried to characterize our actions as meant to 
restrain its economic growth. Let me be clear. Advanced 
semiconductors are key to developing advanced weapons. They 
also support surveillance systems for human rights abuses. We 
focus solely on national security and human rights 
considerations when imposing these measures.
    It bears noting that when we impose controls involving 
products made overseas we work closely with other manufacturing 
countries. BIS embraces the significant responsibility of 
working with international partners to explain the rationale 
for our export control policies and, where possible, including 
them in our efforts.
    In addition to technology-specific controls, BIS has 
restricted exports to organizations acting against U.S. 
national security and foreign policy interests by adding them 
to our Entity List. Of the nearly 700 PRC parties on the BIS 
Entity List, over 200 have been added during this 
Administration.
    Since implementing these restrictions, we have seen the 
increasing impact of our controls, including through desperate 
efforts by Russia and China to obtain the items we have cutoff. 
This shows that our controls are working. And even as we hone 
current controls in our ever-evolving technological landscape, 
BIS is focused on our next moves--reviewing the cutting-edge 
technology areas of autonomous systems, quantum information 
sciences, biotechnology, and advanced materials and 
manufacturing.
    Export controls are not being used to pursue economic 
decoupling with China. Our approach to China is calibrated and 
targeted. China's military civil-fusion strategy, under the 
Chinese Communist Party's Government system, necessitates 
stronger export controls targeting advanced commercial items 
that can be used in military applications.
    We seek to counter China's military modernization by 
restricting key sensitive technologies without undercutting 
U.S. technological leadership or unduly interfering with 
commercial trade that does not undermine national security. 
This is all part of the review of our approach to China that 
Under Secretary Alan Estevez has identified to this Committee.
    Moreover, BIS never acts alone. I am deeply grateful for 
our partnership with the Defense, Energy, and State 
Departments, as well as the intelligence community and law 
enforcement agencies. Following collectively agreed-upon 
policies and considering all sources of information--open 
source, business proprietary, and classified--we work together 
to closely scrutinize license applications involving 
transactions with China.
    Last calendar year, license applications involving China 
were about 13 percent of all the license applications we 
received, 5,064. We denied or returned without action about 26 
percent of China applications. And on average, we spent a lot 
more time scrutinizing these applications, 90 days last year, a 
little over double the 43 days we took to process non-China 
applications. We prioritize comprehensive review, and we are 
taking the time to ensure that China license applications are 
carefully reviewed.
    BIS is laser focused on aggressively and appropriately 
contending with the strategic technology threat posed by China. 
We will continue to use all our tools to counter China's 
efforts to outpace the United States and our allies to the 
benefit of its military.
    Thank you, and I welcome your questions this morning.
    Chair Brown. Thank you.
    Assistant Secretary Axelrod, you are recognized for 5 
minutes.

      STATEMENT OF MATTHEW AXELROD, DEPARTMENT OF COMMERCE

    Mr. Axelrod. Thank you, Chairman Brown, Ranking Member 
Scott, distinguished Members of the Committee. Thank you for 
inviting me to testify today on our ongoing efforts to deny the 
People's Republic of China access to restricted U.S. 
technologies.
    As the Assistant Secretary for Export Enforcement at the 
Department of Commerce, I oversee a team of law enforcement 
agents and analysts who carry out a critical national security 
mission: keeping our country's most sensitive technologies out 
of the world's most dangerous hands.
    At no point in history has this mission been more 
important, especially when it comes to the PRC. As our 
intelligence community's most recent annual threat assessment 
notes, ``China has the capability to directly attempt to alter 
the rules-based global order in every realm and across multiple 
regions as a near-peer competitor that is increasingly pushing 
to change global norms and potentially threatening its 
neighbors.''
    Here is what my team has been doing to meet this 
unprecedented moment. First, we have enhanced our enforcement 
policies; second, we have expanded our partnerships at home and 
abroad; and third, we have taken aggressive enforcement actions 
to impose real costs on those who seek to violate our rules and 
undermine U.S. national security, both in China and elsewhere.
    On enforcement policies, we have updated them to ensure 
that our finite resources are best positioned to have maximum 
national security impact. Last June, for example, we announced 
that we are raising penalties for more serious violations, 
prioritizing the most serious cases, and eliminating no-admit, 
no-deny settlements. We also made our administrative charging 
letters public when filed, so now as soon as we allege someone 
has violated our rules, everybody knows it.
    In October, we issued a policy announcing that when a 
foreign Government fails to schedule our end-use checks in a 
timely way, we generally seek to move the unchecked parties 
onto our Unverified List, and then, from the Unverified List to 
the Entity List. Prior to this policy, the Chinese Government 
had not scheduled a single end-use check for us in over 2 
years. In the 7 months since the policy was issued, we have 
completed over 90.
    Next, partnerships. Given the scope of the threat we face 
in protecting U.S. technology from misappropriation by the PRC 
Government and others, we know we must amplify our efforts 
through robust partnerships. It is why we joined with the 
Department of Justice, the FBI, and Homeland Security 
Investigations to form the Disruptive Technology Strike Force, 
which works to protect advanced U.S. technologies from being 
illicitly acquired by Nation-State actors such as China, 
Russia, and Iran.
    We also have developed close partnerships with industry, 
academia, through our Academic Outreach Initiative, the 
intelligence community and Treasury components like OFAC and 
FinCEN. In the past year we have put out multiple joint alerts 
and advisories with these partnerships designed to educate 
industry and academic on how best to comply with our rules and 
detect violations of them.
    We also partner closely with our international 
counterparts, bilaterally, multilaterally, and through our end-
use check program. We are working with the G7, the EU, and our 
Five Eyes allies to create an enforcement coordination 
mechanism that will help us work more closely together to 
combat export control evasion.
    And finally, our enforcement actions. Just 2 weeks ago, 
alongside DOJ, FBI, and HSI, we announced the first wave of 
Strike Force actions, including charges in five different cases 
across the country, three of which touched the PRC. In two 
California cases, the defendants are charged with stealing 
sensitive American technology and shipping it to restricted 
Chinese entities. In a third case, from Manhattan, the 
defendant is alleged to have used a sanctioned Chinese entity 
as a front company to aid Iranian ballistic missile 
procurement.
    And last month we announced a $300 million penalty against 
Seagate Technology for selling missions of hard disk drives to 
Huawei, even after Seagate's only two competitors have stopped 
selling due to our Foreign Direct Product Rule. It is the 
largest standalone administrative penalty in our history, and 
it sends a clear message about the need for companies to comply 
with our rules and about the power of our administrative 
enforcement tools when they do not.
    In conclusion, as Beijing seeks to spread its technology-
driven authoritarianism the world over, our export enforcement 
team remains hyper-focused on preventing the PRC from illegally 
obtaining sensitive U.S. items.
    Thank you again for the opportunity to testify today about 
our work, and I look forward to your questions.
    Chair Brown. Thank you.
    Secretary Rosen, can you describe the gap in existing 
authorities and the national security risks that an outbound 
investment mechanism would address?
    Mr. Rosen. Thank you, Chairman Brown, for that question. I 
appreciate the Senate's and Senator Cornyn's and Casey's 
leadership and other members on this important topic. What the 
Administration is looking to do here, and actively assessing, 
is establishing a program that gets at U.S. investment money 
and the know-how and expertise that goes with that money into 
sectors of concern in countries of concern, in a narrow and 
targeted way that gets at the investments that would develop 
the technologies that would be used from a military or 
intelligence way against the United States.
    We currently assess that looking at our existing tools, 
including those at the table, including export controls which 
include items, for example, and covered and critical 
technologies, or my colleague here talking about sanctions and 
targeting individuals or entities. And, of course, CFIUS, which 
monitors inbound investment. We current assess we do not have 
an effective tool to target the money and sophistication with 
know-how that goes into these sensitive and most critical 
technologies into countries of concern.
    Chair Brown. What happens if we do not address this?
    Mr. Rosen. I think we risk leaving a gap in terms of some 
of our national security concerns and addressing some of the 
issues that I laid out, Senator.
    Chair Brown. Secretary Rosenberg, last month Ranking Member 
Scott and I introduced, as he said and as I said in our opening 
statements, the Fentanyl Act. At an Oversight hearing in the 
House, Brian Nelson, the Under Secretary for Terrorism and 
Financial Intelligence, spoke about his trip to the Mexican 
border and Treasury efforts at addressing the fentanyl crisis 
by targeting Chinese suppliers, Mexican cartels, and money 
launderers profiting from the illicit drug trade.
    Senator Rosenberg, yes or no. Do you agree with the Under 
Secretary about the nature of the threat and the targets to 
address the fentanyl crisis?
    Ms. Rosenberg. Mr. Chair, thank you for the question. I 
certainly agree about the nature of the threat and those 
particular targets. This is a challenging issue on which we 
have the opportunity to work using our existing authorities. 
And regarding the legislation that you had noted previously, 
cosponsored by yourself and a number of others, it is another 
opportunity for us to work closely with you under additional 
authorities to get after this problem.
    Chair Brown. I assume that means you will commit to helping 
us work to make this become law.
    Ms. Rosenberg. Certainly, Senator. I would be very happy to 
work with you and your colleagues on bringing this to fruition 
and to using its authorities.
    Chair Brown. Thank you. Secretaries Kendler and Axelrod, 
last year a significant increase in funding through Ukraine 
supplemental bills enabled BIS to take aggressive action to 
respond to Russia's war against Ukraine and to expand our 
engagement with U.S. allies on export controls. As important as 
export controls are to countering Russia's aggression, they are 
increasingly viewed as a critical element in China-U.S. policy, 
specifically ensuing that American innovation does not wind up 
in the wrong hands.
    Would you, starting with you, Senator Kendler, describe how 
BIS used the funding it received through supplemental 
appropriations and what additional investments are necessary 
for BIS to address risks posed by China?
    Ms. Kendler. Thank you, Senator. We used the Ukraine 
supplemental funding, which was very valuable to us, to ramp up 
license review involving Russia, to review technologies that 
Russia was trying to obtain that it needed for its military 
machine, to step up data analysis of trends and procurement and 
trans-shipment, and for international cooperation and education 
on the Russia threat and Russia's procurement practices, and 
how we could address those through the 38-plus members now of 
the Global Export Control Coalition, designed to restrict 
Russia's military capability.
    I do support the President's fiscal year 2024 budget 
proposal. We can always do more with more, and the Ukrainian 
supplemental funding model would certainly be an example for 
how we could do more with respect to the China military 
modernization and human rights threat.
    Chair Brown. Secretary Axelrod, same question.
    Mr. Axelrod. Yes. Thank you, Senator. We used the Ukraine 
supplemental money in an impactful way. We were able to bring 
on 16 special agents and 6 intelligence analysts, and in 
addition we were able to hire 2 export control officers, one 
for Finland and one for Taiwan. By adding agents and analysts 
it means that we are able to do more investigations, which down 
the road will lead to more penalties. We can do more compliance 
checks. We can do more outreach to industry. We can do more 
nomination packages for the Entity List. It has been a very 
effective resource for us, Senator.
    Chair Brown. Thank you.
    Secretary Rosenberg, really quickly. My time has run out. 
Discuss the challenges building multilateral conditions and how 
Congress can support your multilateral efforts on export 
controls and sanctions.
    Ms. Rosenberg. The multilateralism of the use of our tools 
is essential for their utility. We have learned that over the 
past year and a quarter that we have been seeking to respond to 
Russia's brutal war. We engage directly at a high level in 
order to build those coalitions.
    As Assistant Secretary Kendler mentioned, there are formal 
bodies, groupings of bodies to develop and find commonality in 
the approaches that we take. We use our attache program. We 
offer and receive technical guidance to align our various 
authorities. And, of course, we issue designations wherever 
possible, sanctions designations, in coordination with our 
foreign partners.
    Chair Brown. Thank you. Senator Scott.
    Senator Scott. Thank you, Mr. Chairman.
    Secretary Rosenberg, I have noted with some interest the 
Executive branch's surge to its economic statecraft tools to 
hold Russia accountable for its unjust war in Ukraine. In the 
last few months we have sanctioned hundreds, if not thousands, 
of Russian entities responsible for perpetuating the war in 
Ukraine. Not only were we able to identify these obscure 
targets but we were also able to coordinate these actions, as 
you just talked about, a multilateral approach with our 
international partners in Europe. This, to me, seems like a 
testament to U.S. Government and in the dominance we can 
provide to the marketplace when we focus our attention on set 
targets.
    The NIH reported that in 2021, we saw more than 70,000 
Americans lose their lives to fentanyl. So my question is, as 
we think about the weight--I did an interview this morning and 
talked about the individual loss of life. But we think so often 
about the 70,000 people who have lost their lives to fentanyl, 
and sometimes the number itself is so overwhelming that we 
forget to personalize it. And I think about my friend in 
Charleston, South Carolina, Dr. Alan Shao, whose son, Alan Shao 
II, 27 years old, lost his life to fentanyl just 2 months ago.
    And I think about the tools that we may have at our 
disposal that could disrupt some of the cartels, and I think 
about perhaps it is easier to go to the front line, the top of 
the food chain. But the middle-level folks seem to need to be 
targeted as well.
    From your vantage point overseeing TFFS, what is possible 
for us to do to use more of the tools to disrupt the financials 
of not only the top of these cartels but the midlevel as well? 
Is there more that we can do in that area? And if so, how do we 
get there?
    Ms. Rosenberg. Thank you, Senator, for the question. I very 
much appreciate the approach that you have just noted, not just 
of identifying the individuals who are the leaders of 
particular cartels or networks to move drugs and to move money, 
but also all of the individuals who work as the front line, if 
you will, for bundling money, for packaging materials and 
equipment, and of course, the illicit drugs themselves.
    We have found that it is essential to be able to identify 
and expose, and of course, designate with sanctions the front 
companies, the exchange houses or money services businesses, 
the other kinds of businesses that function as fronts in order 
to launder this money and move the goods and services. 
Furthermore, being able to explain through the use of 
typologies or those red flag indicators to other financial 
institutions or businesses that might come in contact with them 
the challenges and the risks involved so that they can avoid 
them is essential to this work of exposing and disrupting.
    Senator Scott. So just to put a fine point on it, I heard 
what you said but I did not fully hear an answer to my 
question, however. What else can we do, from your perspective, 
to use the tools that we have at our disposal to disrupt the 
flow of cash to these cartels? Is there more that we can do, 
from your perspective? Certainly I think we have started 
targeting some of the heads, and certainly think about the fact 
that we have 45 cosponsors to my legislation on fentanyl, to 
get Democrats and Republicans, 22, 22 on each side, to do 
something together is like Peter walking on the water these 
days, right? It is almost a miracle.
    So the question is, is more legislation like that helpful? 
Harmful? Do you need more tools?
    Ms. Rosenberg. I appreciate the question. In addition to 
what I noted there is something else I want to mention here as 
far as what we can do additionally, and that is two things. One 
is to expand our relationships with foreign partners, 
specifically Mexico, which is something that was featured in 
the sanctions designation yesterday. It called out our 
partnership with Mexican law enforcement officials, which is a 
way that we can do an even better and more thorough job of 
getting at money movement and drug movements that traverse 
several different countries, which is so often the case when we 
have Chinese precursor chemicals moving through Mexico into the 
United States.
    One thing that is very significant, and that I warmly 
welcome from the legislation for which you are a cosponsor, is 
the expansion of the statute of limitations on enforcement 
against IEEPA to 8 years from 5. Respectfully, I would request 
that this be expanded even further to 10 years, which would 
allow us additional significant benefit in compliance and 
deterrence.
    Senator Scott. Great. The legislation that I am sponsoring, 
that is good to hear. And if I get another round--I am out of 
time----
    Chair Brown. You can ask one more question.
    Senator Scott. Thank you. I will get to a quick question 
for you, Secretary Rosen. One of the things I have spent some 
time on is trying to figure out how to disconnect TikTok from 
having surveillance opportunities of our kids. And one of the 
ways that we try to do that is in legislation that we have 
worked on called Know Your App Act, which is a forward-looking 
solution to ensure Americans are empowered to decide for 
themselves how to best protect their data and their security.
    From your viewpoint as Assistant Secretary for Investment 
Security, do you think providing users with the country of 
origin of their application is a useful consumer protection 
measure?
    Mr. Rosen. Thank you for that question, Senator, and I 
certainly share the concern emanating from the legislation. 
More information on these topics for parents and also just 
general transparency is very important, particularly when you 
are talking about countries of concern, and particularly when 
you are talking about countries of concern with laws on the 
book that see no line between being able to access and 
manipulate that data.
    So I am certainly willing to work with you on that and 
understand those issues.
    Senator Scott. And my last point, not a question, but I 
will have a question for the record on CFIUS and how we can 
look back and track the progress that has been made over the 
last couple of years and/or the impediments to progress from 
your perspective as it relates to using that very important 
tool to perhaps put that target on the backs of folks that we 
think we need to. Thank you.
    Chair Brown. Thank you, Senator Scott.
    Senator Reed, of Rhode Island, is recognized.
    Senator Reed. Thank you very much, Mr. Chairman, and I 
thank the panel for excellent testimony. Private markets are 
notoriously opaque. Unlike other financial institutions, 
private equity funds and hedge funds are exempt from 
requirements to maintain anti-money laundering programs, verify 
the identities of their customers, and report suspicious 
transactions to the Government, which I think is a huge 
oversight.
    Secretary Rosenberg and Senator Rosen, has Treasury 
observed individuals and companies with ties to the Chinese 
Communist Party investing in U.S.-managed hedge funds and 
private equity funds?
    Ms. Rosenberg. Thank you, Senator, for the question. I will 
be happy to begin. This is a concern for us. It is a national 
security concern. When we are thinking about, if you will, 
vulnerabilities in our AML system that may result from 
inadequate regulatory treatment for certain areas. What you 
have just noted here, with respect to regulatory treatment for 
areas of investment advisors, for example, private money, that 
is an area that we have been looking at quite carefully. We 
have seen Russian oligarchs, unfortunately, exploiting this as 
well as other fund managers launder millions of dollars through 
our system in this way.
    I am also quite concerned about it when it comes to Chinese 
money moving into the United States, including that may 
influence our investment security that my colleague has 
responsibility for.
    We would be very happy to work with you. We appreciate the 
leadership of Congress on this issue, where I know that there 
is significant concern.
    Senator Reed. Secretary Rosen.
    Mr. Rosen. Thank you, Senator, for that question. From a 
CFIUS perspective, it is a critical issue and goes to sort of 
issues of ultimate beneficial ownership and participation in 
these funds. One of the things that we are redoubling our 
efforts on is to look behind the investors, really digging in. 
Not just looking at general partners but who are the limited 
partners? What is the information about the limited partners? 
How much information do they get?
    And so when it comes to these kinds of investment funds, 
really doing the diligence to not just look at the deal 
structure but who is behind it, and not being satisfied with 
just a shell company, understanding who is actually doing the 
investment.
    Senator Reed. But they have no legal obligation to tell 
you.
    Mr. Rosen. They cannot get through CFIUS if they do not 
tell us. So while we do not have the regulatory framework that 
requires these specificities, if they want to get through the 
CFIUS review process they are generally highly motivated to 
give us that information.
    Senator Reed. Let me put this in perspective. From 2020, 
2021, and 2022, over $2 trillion of Chinese investments were 
placed in private funds. That is a lot of money, and it is 
going to a lot of places. Secretary Rosenberg, are you aware of 
any investment in national defense companies, our major clients 
of the Department of Defense?
    Ms. Rosenberg. Thank you, Senator, for the question. I 
would defer the specific answer to that to my colleague from 
CFIUS as well as, of course, the Department of Defense. But I 
would note from my perspective, thinking about the regulatory 
treatment broadly for investments, foreign and domestic in this 
sector or management of investment funds, that is an area of 
vulnerability for the United States, where we must approach it 
from several different perspectives, not just the regulatory 
treatment but, of course, also any national security 
implications resulting from foreign funds flowing in as well.
    Senator Reed. Well, I think there are profound national 
security implications. I do national security work on the Armed 
Services Committee.
    Let me ask you a question. In 2015, the Treasury proposed a 
rule to impose AML requirements on private equity funds and 
hedge funds, and I have called for the Department to finalize 
the rule, including a letter I sent in March of 2022, more than 
a year ago. So why have you not finalized this rule since this 
poses a, I think, potential and maybe actual serious threat to 
the national security of the United States?
    Ms. Rosenberg. Thank you, Senator. I want to agree with and 
affirm your national security concern that you have identified 
just now and in that letter to begin with. This is an area that 
I am quite concerned about and that I have asked my team to 
look at broadly, gathering further up-to-date information, 
which we have done in the form of the money laundering threat 
assessment for the United States, and where we are seeking to 
direct resources now in order to find appropriate regulatory 
treatment at this time, bearing in mind that since 2015, much 
has changed in this sector as well since that time.
    Senator Reed. Well, knowing where they are getting their 
money from, knowing where it is going has a profound effect 
given that $2 trillion in 3 years that is flowing in from China 
on our national security. I am concerned from a national 
security standpoint. You know the old saying, we are shooting 
ourselves in the foot. In fact, both feet.
    Thank you.
    Chair Brown. Thank you, Senator Reed.
    Senator Kennedy, from Louisiana, is recognized.
    Senator Kennedy. Thank you, Mr. Chairman.
    Secretary Rozman Kendler, Madam Secretary, we are talking 
about restricting the American private sector from making 
investments in foreign countries in the interest of national 
security. Are we not?
    Ms. Kendler. Senator, I think you are asking about outbound 
investment restrictions. Is that right?
    Senator Kennedy. Yes.
    Ms. Kendler. Yes, that is the nature of----
    Senator Kennedy. And sometimes that may be necessary. Am I 
correct?
    Ms. Kendler. I think that is correct, yes.
    Senator Kennedy. OK. My question is, is the Biden 
administration doing the same thing for the foreign aid that it 
gives to foreign countries? For example, the Biden 
administration is giving over $1 billion in foreign aid to 
South Africa, is it not?
    Ms. Kendler. Senator, I am sorry. I would have to defer 
that to a different department.
    Senator Kennedy. Well, are we reviewing that as to whether 
it is in the interest of national security?
    Ms. Kendler. I am sorry, Senator. We look at technology 
transfers, and we are reviewing those carefully to determine--
--
    Senator Kennedy. Yeah, but if we give them the money, they 
could use it to buy technology. Correct?
    Ms. Kendler. If it is restricted under our regulations I 
would say no, sir, respectfully. Our export controls are in 
place to restrict technology transfers, whether it is goods, 
software, or technical data.
    Senator Kennedy. I understand that. But the Biden 
administration is still giving a lot of foreign aid. And what I 
am asking is, is it reviewing that foreign aid with the same 
national security standards that you are proposing to restrict 
the private sector?
    Ms. Kendler. I am sorry, Senator. I am simply not in a 
position to answer that, but I would be happy to take it back 
and continue working with you on that.
    Senator Kennedy. The Biden administration is still giving 
money to the Wuhan lab, is it not?
    Ms. Kendler. I am sorry, Senator. I focus on technology 
transfers. I am not familiar with that.
    Senator Kennedy. Do you know if we are reviewing that money 
in the interest of national security?
    Ms. Kendler. I do not. I am sorry.
    Senator Kennedy. OK. Could you get me an answer for that 
one?
    Ms. Kendler. Yes. We will find the right people to get to 
you.
    Senator Kennedy. OK. Secretary Rosenberg, in your opening 
comments you said it is important that we maintain a 
relationship with China so we can work together on, I believe 
you said, climate change and debt relief. I thought you might 
have also said to contain the threat of nuclear warfare, but 
that is just me.
    I want to ask you about the debt relief. Many foreign 
countries owe debt that they cannot pay back, do they not?
    Ms. Rosenberg. Yes, Senator, that is true. And if I may, 
with respect to nuclear proliferation----
    Senator Kennedy. Yes, ma'am, but I do not want to get off 
on nuclear proliferation because I am going to run out of time.
    And some of those countries that owe money that they cannot 
pay back, owe that money to the American people, either 
individually or as businesses. Is that correct?
    Ms. Rosenberg. I do not have particular responsibility over 
foreign debt matters, although I do----
    Senator Kennedy. Well, you mentioned it. Am I correct?
    Ms. Rosenberg. I did mention it, and I do believe you are 
correct, while I do not have specifics at my disposal.
    Senator Kennedy. I understand. And the Biden administration 
is leaning on these Americans to whom these foreign countries 
owe money to forgive that money, is it not?
    Ms. Rosenberg. Senator, I would be happy to follow up with 
you further on that. If I may, with respect to Chinese debt 
dependency----
    Senator Kennedy. Yeah. If you could just answer my question 
first. The Biden administration is leaning on American 
individuals and businesses to forgive debt to foreign 
countries, is it not?
    Ms. Rosenberg. I would have to follow up with you with 
further information.
    Senator Kennedy. Is it not?
    Ms. Rosenberg. I unfortunately do not have an answer to 
that question.
    Senator Kennedy. Oh, you know the answer. You mentioned it 
in your opening remarks. It is.
    Ms. Rosenberg. Unfortunately, Senator, I do not have an 
answer to that question.
    Senator Kennedy. Do you know what the Paris Club is?
    Ms. Rosenberg. Senator, this is not my area of 
responsibility.
    Senator Kennedy. Do you know what the Paris Club is?
    Ms. Rosenberg. Yes, Senator.
    Senator Kennedy. Well, the Biden administration is leaning 
on American businesses and individuals to forgive debt that 
foreign countries owe them, but China is refusing, is it not?
    Ms. Rosenberg. Senator, I would be very happy to follow up 
with you.
    Senator Kennedy. You do not want to talk about that?
    Ms. Rosenberg. Unfortunately, this is not my area of 
specific expertise.
    Senator Kennedy. Yes, ma'am, but you are a smart person and 
you mentioned it. I have a feeling you know about it.
    Ms. Rosenberg. Unfortunately, I am not in a position to 
offer specific information at this time.
    Senator Kennedy. You will not or you cannot?
    Ms. Rosenberg. I do not have at my disposal details that 
you are looking for right now, though I would be very happy to 
follow up----
    Senator Kennedy. But am I right that the Biden 
administration is leaning on the American people to forgive 
debt that foreign countries owe them while allowing China to 
skate?
    Ms. Rosenberg. Senator, I believe I understand your 
question and the significance of it. Nevertheless, I am not in 
a position to answer it with specificity at this time.
    Senator Kennedy. You will not or you cannot?
    Ms. Rosenberg. I am not able to answer with specifics on 
this question, but I would be more than happy to follow up with 
you with my colleagues.
    Senator Kennedy. In private?
    Ms. Rosenberg. Certainly. I am sure----
    Senator Kennedy. Do you not think the public needs to know 
this as well?
    Ms. Rosenberg. I appreciate the point, and I would not 
dispute that either. Unfortunately, I am not able to offer you 
an answer to those questions.
    Chair Brown. Senator Kennedy----
    Senator Kennedy. Would you check on the Wuhan lab?
    Ms. Rosenberg. I will----
    Chair Brown. Senator Kennedy, you can make her answer as 
public as you would like, once she answers you, or someone at 
Treasury answers you.
    Senator Menendez, from New Jersey, is recognized.
    Senator Menendez. Thank you, Mr. Chairman.
    At a time of increasing challenges from adversaries seeking 
to threaten the international order, from perch as Chairman of 
the Senate Foreign Relations Committee I am increasingly of the 
view that the United States has to lead the creation of an 
economic alliance among like-minded countries that can provide 
a framework for cooperative action in response to military 
aggression, violations of sovereignty, economic coercion, and 
retaliation by adversaries.
    So while I welcome the G7 leader statement calling for the 
creation of a new coordination platform on economic coercion to 
promote cooperation within and beyond the G7, I think we have 
to go further. I am currently drafting legislation that would 
direct the Administration to create a common economic defense 
mechanism that would counter economic coercion, build supply 
chain resilience, promote stronger export controls, and protect 
critical technologies. So I would like to have each of your 
offices' assistance in creating this bill.
    My first question is will each of you commit to working 
with my office on creating input and drafting this legislation?
    Ms. Rosenberg. Yes, Senator. Certainly.
    Mr. Rosen. Yes, Senator.
    Ms. Kendler. Yes, Senator.
    Mr. Axelrod. Yes, Senator.
    Senator Menendez. Thank you all very much. I look forward 
to working with you.
    Out lack of outbound investment oversight in sensitive 
industries has the potential to harm our national security and 
hamper the competitiveness of U.S. industry because of our 
technical prowess, capital, and the unique know-how that access 
to the U.S. capital markets provides. The President's budget 
requested funding to support the establishment of such an 
outbound investment review mechanism by Executive action.
    So Assistant Secretary Rosen, how will you scope a 
screening tool such that it is broad enough to prevent U.S. 
capital and expertise from financing investments in critical 
sectors that undermine U.S. national security but narrow enough 
to actually be implementable?
    Mr. Rosen. Senator, thank you for the question, and I think 
you sort of hit the nail on the head, which is we are working 
to craft a narrow and focused program on national security that 
achieves these core objectives. And what we are thinking, 
currently working toward is a program that restricts the flow 
of U.S. investment dollars that comes with know-how and 
expertise into certain and specific sectors and subsectors of 
concern, such as advanced semiconductors, artificial 
intelligence, and quantum computing, that can be used by 
countries of concern--in this case particularly the PRC--for 
the benefit of their military, intelligence capabilities, and 
mass surveillance.
    And so we are focused on being narrow and tailored, but we 
are also focused on a program that is understandable by the 
public and the business community and administrable.
    Senator Menendez. What steps are you taking to bring other 
major capital markets on board so that our allies and partners 
are prepared to take similar steps?
    Mr. Rosen. Another excellent point. We have been engaged in 
a robust dialogue with our allies and partners. You have seen 
some of the outputs of this from the G7 statement, by the 
President of the European Commission as well. And under 
Secretary Yellen's leadership we have been engaged in a robust 
dialogue, not just to sort of share what we are thinking but 
also to help share what our national security concerns are so 
that other countries can assess whether something similar is in 
their best interest, because we believe when you go 
multilaterally it is always more effective.
    Senator Menendez. All right. I appreciate that and I look 
forward to seeing the work.
    I commend the Administration for the unprecedented range of 
sanctions it has imposed on Russian actors in response to the 
invasion of Ukraine. And while I believe we need to focus on 
enforcement, we need to address the fact that China continues 
to enable Putin's war machine.
    Assistant Secretary Rosenberg, what steps are you taking to 
target enablers of Putin's inner circle and war-making 
capabilities, including such enablers in the People's Republic 
of China?
    Ms. Rosenberg. Thank you, Senator, for the question. We are 
strongly committed to ensuring that Russia is not able to gain 
access to money and materiel to fund its war and to enforcing 
our sanctions, as you have noted. We have made clear to any 
individual or entities that might go forward and evade those 
sanctions that we will not tolerate this, including 
specifically with respect to China at the level of president-
to-president.
    In order to make good on that commitment that there should 
be consequences for enablers of sanctions evasion, we have 
designated a number of Chinese entities and individuals that 
have participated in the evasion of sanctions. With respect to 
Russia, starting just this year, in January we designated a 
firm known as Spacety that was providing satellite imagery of 
the battlefields in Ukraine to the Wagner Group in fighting the 
war. We have also designated, in April and this month as well, 
a number of entities that were involved in providing financial 
front services as well as participating in procurement 
networks.
    Senator Menendez. But not many individuals. Entities, but 
not many individuals.
    Ms. Rosenberg. We have designated many Chinese individuals 
in the past and would not hesitate to do so if there was an 
opportunity----
    Senator Menendez. Could you forward to my office the public 
list of the individuals and entities that have been sanctioned 
in this regard?
    Ms. Rosenberg. Certainly, Senator.
    Senator Menendez. Thank you. Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Menendez.
    Senator Hagerty is recognized, from Tennessee.
    Senator Hagerty. Thank you, Chairman.
    At the recent G7 meeting in Japan, President Biden 
described the China spy balloon incident in which a Chinese 
high-altitude surveillance ship violated American sovereignty 
as, quote, ``silly.'' To be frank, I do not find the Chinese 
spy balloon incident to be silly, and neither did the American 
people.
    That is why, in my capacity as Ranking Member of the 
Banking subcommittee that oversees export controls I sent a 
letter to Secretary Raimondo yesterday. In this letter I 
requested export licensing data from Commerce Department's 
Bureau of Industry and Security to see what American 
technologies were approved for export to China's aerospace 
sector, including to those in China who manufacture these types 
of spy balloons and their payloads.
    Mr. Chair, I would like to submit this letter for the 
record.
    Chair Brown. Without objection, so ordered.
    Senator Hagerty. Thank you.
    Assistant Secretaries Kendler and Axelrod, do you agree to 
fully comply with my request for export licensing data which 
Section 1761 of the Export Control Reform Act of 2018, or ECRA, 
requires the Commerce Department, if asked, to share with my 
subcommittee?
    Ms. Kendler. Senator, we will certainly comply with the 
terms of ECRA in responding to your letter.
    Senator Hagerty. Mr. Axelrod.
    Mr. Axelrod. Same answer, Senator.
    Senator Hagerty. Thank you. I am very concerned about news 
reports that the Biden administration continues to conceal 
attempts for more transparency on China's spy balloon incident, 
including a taxpayer-funded FBI report on this incident. That 
is why I am using my authority under ECRA to ensure 
transparency on the extent to which U.S. technology exports 
have contributed to threats like China's spy balloon program.
    On April 26th, Secretary Raimondo told Congress that the 
Department has put over 200 companies on the Entity List for 
export controls during her tenure. This statistic appears like 
an accomplishment at face value, but it falls drastically short 
of the previous Administration's standard. Frankly, in 2020, 
the Commerce Department added 147 companies to the Entity List, 
and in 2021, that number decreased to 85, and in 2022, that 
number further decreased down to 68, to Chinese companies that 
have been added to the Entity List.
    Assistant Secretary Kendler, what is the explanation for 
this drastic decrease in the Commerce Department's Entity List 
listings?
    Ms. Kendler. Senator, I would like to make sure that you 
have the right information. I believe it is 205 entities that 
have been added under the Biden administration in China.
    Senator Hagerty. Are you disputing the level that I am 
talking about? These numbers add up to that number over the 
course of 2\1/2\ years. Just in the last year of the previous 
Administration, 147 companies were added to the Entity List, 
and what we see is a decrease year over year to get to the 
total that you just named. Why are we decreasing? Why are you 
decreasing the activity, in light of the fact that we have seen 
more and more of Chinese--the CCP, I should say--predatory 
behavior?
    Ms. Kendler. Senator, I just want to make sure that we are 
being clear that these are Chinese entities, not overall 
entities. It is correct that 205 entities in China have been 
added to the Entity List.
    Senator Hagerty. Why has there been a decrease year over 
year? That is my question.
    Ms. Kendler. Can I get back to you on that? I want to make 
sure that we are operating with the same data, please.
    Senator Hagerty. The data shows that there has been a 
decrease, and I want to understand the trend and what is 
underlying the trend.
    Ms. Kendler. We are deeply focused, as one of the two 
pillars of export controls, on entities that pose national 
security and foreign policy threats to the United States, 
particularly in China.
    Senator Hagerty. I am very concerned about this decrease. I 
am also concerned about the fact that the Commerce Department 
still permits exports of U.S. technology to China's most 
worrisome State-owned defense enterprises, including--and I 
want to be specific here--Aviation Industry Corporation of 
China; China Aerospace, Science, and Industry Corporation; and 
China Aerospace, China, and Technology Corporation.
    Let's turn to another issue that very much concerns me, and 
that is Huawei. When I served as U.S. Ambassador to Japan I 
worked very closely with a kitchen cabinet of Japanese 
Government leaders, Japanese business leaders, to understand 
the threat of Huawei and what they could do in the 5G arena. I 
took my analysis back to Washington. I met with the President. 
We put a lot of pressure on the situation and persuaded this 
Government to take action against Huawei and 5G. I did the same 
with the Government of Japan, to get Huawei out of 5G.
    I want to talk to you now about this issue, which clearly 
is of deep importance to me. I was very upset and disturbed to 
see an article in Reuters on May 11th that cited internal 
emails indicating that State Department delayed significant 
U.S. measures against China after the spy balloon incident, 
including far-reaching export controls on Huawei. This is in 
May of this year.
    So Assistant Secretaries Kendler and Rosen, has the 
Commerce Department's Bureau of Industry and Security prepared 
a draft rule to revoke export control licenses related to 
Huawei?
    Ms. Kendler. Senator, we do not have a draft rule in place 
at this time. However, we are looking very closely----
    Senator Hagerty. Tell me, have you received any guidance 
from within the Commerce Department or from anywhere in the 
interagency to back off and not do this?
    Ms. Kendler. Senator, we are working closely, and we are 
under deep analysis of this issue. Huawei----
    Senator Hagerty. I am very concerned to see this 
Administration basically back off and kowtow, just so they can 
obtain high-level meetings with officials in China. This makes 
no sense. We should be speaking from a position of strength, 
not weakness, and this backing off is absolutely unacceptable.
    Ms. Kendler. Senator, we have not backed off this issue.
    Senator Hagerty. Mr. Chairman, I am----
    Chair Brown. Thank you.
    Senator Tester, of Montana, is recognized.
    Senator Tester. Well, I want to thank you, Mr. Chairman and 
the Ranking Member for having this hearing, and I want to thank 
all of you for testifying today. I appreciate your testimony.
    I will start with you, Mr. Rosen, and thank you for what 
you are saying, and thank you for what you do. Would you 
classify food security and national security as being 
equivalent, food security and national security?
    Mr. Rosen. Yes, Senator. Issues of food security, 
particularly when it comes to supply chain, are core national 
security issues.
    Senator Tester. Thanks for that. In my real life I am a 
farmer, and interestingly enough, a couple of years ago I 
started getting phone calls from folks about folks who were 
buying up land in north-central Montana. And then I did some 
farm bill listening sessions earlier this year, and there was 
an issue that came up in every one of the forums that I had. 
That resulted in myself teaming up with a number of Members of 
this Committee, Senator Rounds, to deal with American farmland, 
or should I say potential American farmland that would be 
bought up by China, Russia, Iran, or North Korea.
    So the first question I have for you is, right now a 
covered transaction does not include farmland unless it is next 
to a designated military base. Is that correct?
    Mr. Rosen. So there are two prongs to this analysis, 
Senator. You are correct that one of the prongs, from a purely 
real estate purchase perspective----
    Senator Tester. Yep. Yep.
    Mr. Rosen. ----is proximity, as Congress articulated. The 
other note is we have control jurisdiction, too, if the 
purchase involves the acquisition of a U.S. business.
    Senator Tester. OK. But what I want to focus on--we will 
get to agribusiness in a second--but I just want to talk about 
the farmland situation for a second. So right now if a piece of 
farmland is bought by an out-of-country individual or 
corporation, what are the triggers that would make you look and 
see who bought that land? Are there any triggers?
    Mr. Rosen. So if it fell within our jurisdiction, under one 
of those prongs, we would look very closely at it.
    Senator Tester. So if we were to pass this legislation--I 
think there are 30 bills out there to do this and this is just 
one of many--to regulate who is buying land and potentially 
even prevent a company or an individual from those four 
countries--and I am not talking about a U.S. citizen. I am 
talking about people from those four countries--do you have the 
capacity to be able to enforce it?
    Mr. Rosen. Well, I think your legislation that you have 
with Senator Rounds and Senator Cramer and others raises this 
very important issue, and I want to work with you to figure out 
how we can address it. From a resource perspective, you raise 
an excellent question. Depending on the scope of what you are 
considering, we would have to assess what that would bring in 
and whether that is targeting national security.
    Senator Tester. Yeah. So I have no idea how much land is 
being bought in this country by folks from outside this 
country, OK. We are just talking about four countries in this 
particular case. It is really a focus on China--let's be 
honest--but the others are important too. But this bill does 
not work unless CFIUS can do the enforcement. You have to have 
an enforcement tool. You cannot just say we are not going to do 
this, and you are the enforcement tool.
    So the real question I have is I do not want to write 
something that sounds good, you put good press releases out on 
it, but really it does not do anything because we do not have 
the enforcement agency to do it. And since you are the 
enforcement agency, do you have capacity to do it, and how much 
more capacity--what would you need to be able to have capacity, 
to be able to enforce a bill that would stop China, or all four 
of the countries--China, Russia, North Korea, Iran--from buying 
farmland in this country?
    Mr. Rosen. Senator, I appreciate the question, particularly 
as it relates to administrability and resources. And what I 
would say is it would depend on the scope. If we brought in 
every single investment, that would be a different 
consideration than targeting the investments that you have a 
particular national security concern with. But what I can 
commit to you is I am willing to go at this issue with you and 
figure it out and work toward a solution.
    Senator Tester. So Senator Reed asked some questions on 
investment funds, and we talked about how important it was for 
laundering money. We talked about how important it was for, 
from his perspective and mine too, by the way, of potentially 
investing in military production firms.
    I am going to tell you that I do not know how much land is 
being bought right now in this country, and we have not even 
gotten into agribusiness, by the way, which is just as big a 
concern. But we have got to figure this out before it gets to 
be a crisis. And I would hope that Treasury, Ms. Rosenberg, Mr. 
Rosen, we can work with you. Because I just think this is a 
huge problem. Whether it is for laundering money or whether it 
is for national security or whether it is food security, it is 
all the same thing. And if we could get your help we might be 
able to get a piece of legislation that actually functionally 
works.
    Mr. Rosen. You have my commitment to work with you, 
Senator.
    Senator Tester. Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Tester.
    Senator Vance, of Ohio, is recognized.
    Senator Vance. Thank you, Mr. Chair. I appreciate you for 
hosting this Committee. And I want to focus a little bit on 
perhaps the unintended consequences of some of our Russia and 
Ukraine policy over the last year. Let me direct my question to 
you, Ms. Rosenberg, and thank you all for being here.
    I have been on this Committee before. Sanctions policy in 
Russia has been a complete and total failure. We thought that 
we would shrink the Russian economy by 10, 20, 30, even 50 
percent, yet we have shrunk the Russian economy by very little. 
If you compare it to the performance of other regional 
economics, let's say in terms of the performance of its 
currency, it is actually doing pretty well, relative to other 
world currencies.
    So the foreign policy establishment claim that one of the 
strongest sanctions measures was the disconnection of Russian 
banks from SWIFT. Scholars claimed that this would kneecap the 
Russian economy, but while the Washington foreign policy 
establishment was preoccupied with crafting a sanctions regime, 
they failed to consider that Russia had been developing their 
own alternative to SWIFT, which is, of course, the SPFS.
    Ms. Rosenberg, I want to ask first, has the SPFS grown in 
response to being cutoff from SWIFT, and by how much has it 
grown?
    Ms. Rosenberg. Thank you, Senator, for the question. We are 
aware of and looking at the Russian payments rail system, if 
you will, the SPFS, which grew significantly earlier on, in the 
prior stage of Russia sanctions in 2014, when it saw some of 
the writing on the wall about its inability to access certain 
international financial institutions or partners, and it began 
developing at that time.
    Senator Vance. Yeah. So my understanding, at least the 
Russian claims are that they have integrated about 50 foreign 
banks just in the last couple of years onto the SPFS system, 
and to your point it sounds like they integrated a lot more 
before, from maybe 2014 to 2020, perhaps 2021.
    The other really concerning thing, of course, is that India 
and Iran seem to be getting closer and closer to the Russian 
financial system, even as they are getting further and further 
away from the American financial system. And in particular 
India, which we should all recognize as the most important 
geopolitical counterweight to China in the region, it is a very 
bad thing for them to be getting closer to Russia and China and 
the Russian financial system.
    Just for my edification and anybody else who is listening, 
could you speak a little bit to the national security 
importance? What do we get out of cooperative organizations 
like SWIFT as the dominant global bank power, and what kind of 
access does our law enforcement have that they would not have 
if you had major foreign powers shifting off of SWIFT?
    Ms. Rosenberg. Thank you for the question. I have also 
noted, with great concern, some of the developments and 
expanding efforts by Russia with several specific partners to 
have direct and bilateral financial flows. You mentioned India 
and Iran. Those are not the only ones. There are other 
countries where this is a great concern. And as you pointed 
out, this is designed to be an effort to relieve and mitigate 
its dependency on international financial system.
    So the reason why Russia, as we see it, is seeking to do 
this is because it has less and less connectivity with 
international financial architecture. It is not just SWIFT. It 
also the correspondent banking relationships that have been 
cutoff so significantly by the European and U.S. and British 
sanctions that have sanctioned a designated number of banks and 
severed those relationships.
    But the concern that I hear you expressing is a concern 
that we also have. We cannot rest knowing that we have 
designated over 80 percent of Russia's financial system and 
restricted their access to SWIFT system. That is insufficient 
if they are still able to move around them and gain access to 
international financial channels.
    Senator Vance. Yeah, I appreciate that, and certainly agree 
with the emphasis there. My concern, I guess, is that our 
Ukraine policy has had this massive unintended consequence. And 
if we had gone into this 18 months ago knowing that we would 
maybe be pushing India closer to the Chinese, to say nothing of 
Russia, we are pushing Russia and India closer to the Chinese, 
or encouraging the creation of an entirely alternative 
financial system, it is really important that our law 
enforcement has access to some of these financial transactions. 
It is one of the ways we catch international crime. It is one 
of the ways that we prevent international terrorism.
    If the consequence of our Ukraine policy is weakening that 
financial system and strengthening an alternative financial 
system, I think it is one of the many consequences for our 
country that our policymakers have not fully incorporate, and 
frankly, that the American people are not fully aware of. 
Because you do not see the effect of this stuff right away. We 
may be dealing with consequences for years or even decades to 
come.
    But I appreciate your work on this and I appreciate your 
answer to the questions. Thank you, Ms. Rosenberg, and thanks 
to everybody else.
    I yield.
    Chair Brown. Thank you, Senator Vance.
    Senator Warren, of Massachusetts, is recognized.
    Senator Warren. Thank you, Mr. Chairman.
    Fentanyl is fueling the most severe drug crisis our country 
has ever seen. In 2022, synthetic opioids like fentanyl were 
responsible for 75,000 deaths, more than two-thirds of all drug 
overdose deaths last year. Fentanyl is now the leading cause of 
death among Americans 18 to 45.
    China is the leading supplier of the chemical ingredients 
called precursors, that drug cartels us to produce fentanyl and 
other synthetic opioids. China also plays a major role in 
laundering money for the cartels.
    Assistant Secretary Rosenberg, you are responsible for 
leading and coordinating anti-money laundering policy. Now 
Treasury has caught a number of Chinese companies that were 
providing fentanyl precursors. Were any of these Chinese 
companies using cryptocurrency in their illegal drug 
transactions?
    Ms. Rosenberg. Thank you, Senator, for the question. 
Unfortunately, that is a mode that some of these precursor 
manufacturers and illicit drug organizations have used. The 
receipt of bitcoin payments in cryptocurrency wallets.
    Senator Warren. OK. So we are talking about these Chinese 
companies that are supplying precursors to fentanyl, and they 
are getting paid in cryptocurrency. And you have to ask why 
this would happen, because crypto is supposedly banned in 
China. But new research from the blockchain analytics firm, 
Elliptic, shows that more than 90 companies based in China are 
raking in tens of millions of dollars' worth of crypto selling 
these fentanyl precursors. The number of crypto transactions 
associated with Chinese fentanyl brokers increased by 450 
percent just last year alone.
    So Assistant Secretary Rosenberg, why are drug suppliers 
and cartels increasingly turning to crypto for large-scale drug 
sales and money laundering?
    Ms. Rosenberg. Thank you, Senator, for the question. The 
reason why they would find this appealing is the same reason 
that other financial criminals would find it appealing, which 
is to say there is an element pseudonymity they seek in using 
this kind of payment mechanism. Also, you are able to, 
unfortunately for these purposes, process a large value, 
financial value----
    Senator Warren. Lots of dollars' worth of transactions.
    Ms. Rosenberg. Yes, of bitcoin in this instance, a large 
amount, a high value of such currency across a national border. 
And if you can achieve a person-to-person transaction or a 
decentralized transaction, then you are avoiding the kind of 
scrutiny, know your customer, financial disclosure that you 
would get if you used a more traditional financial institution.
    So those anonymity-enhancing features are generally what 
financial criminals that you are noting here find attractive.
    Senator Warren. OK. So they are using crypto. This is their 
payment of choice for these fentanyl dealers. This is looking 
good for them.
    Ms. Rosenberg. It is one, but unfortunately there are 
others, but it is certainly one.
    Senator Warren. But this is one that they are focused on 
here.
    So Elliptic's research found that these 90 Chinese 
suppliers sold enough--let's talk about the volume--this group 
sold enough precursor drugs in exchange for crypto to produce 
$54 billion worth of fentanyl pills. That is enough fentanyl to 
kill nearly 9 billion people, all paid for by crypto. When one 
of the companies was asked whether their Mexico-based customers 
paid in crypto, they replied that the cartels, and I am going 
to quote, ``always use Tether or Bitcoin to pay. It is no 
problem.''
    Now the Office of National Drug Control Policy has 
identified crypto as, quote, ``central to the rise of drug 
sales in the United States.'' Senator Marshall and I believe 
that Congress has talked about fentanyl long enough. We propose 
to do something to fight back. And that is why we are 
reintroducing our Digital Asset Anti-Money Laundering Act, 
which closes loopholes in our anti-money laundering rules and 
cuts off drug suppliers and cartels from using crypto to fuel 
their illegal business.
    Assistant Secretary Rosenberg, will closing the holes in 
our anti-money laundering rules give regulators stronger tools 
to address crypto's use in the fentanyl trade and at least help 
cutoff payments from drug cartels to Chinese drug suppliers?
    Ms. Rosenberg. Yes. I am certain that will help, and I hope 
that we will be able to encourage some of our foreign 
counterparts, other jurisdictions, to do the same, which would 
go a long way in helping, as well.
    Senator Warren. Thank you. Crypto is helping to fund the 
fentanyl trade, and we have the power to shut that down. It is 
time. Thank you.
    Chair Brown. Thank you, Senator Warren.
    Senator Britt, from Alabama, is recognized.
    Senator Britt. Thank you, Mr. Chairman. Thank you to all of 
our witnesses for being here today.
    I am greatly concerned about the growing relationship 
between Iran and China. These two countries have long worked 
together, China purchasing Iranian oil and Iran buying Chinese 
goods. We have seen Chinese firms repeatedly caught in aiding 
Iran's missile production and different defenses, and we have 
also seen, as we have discussed here today, China laying the 
foundation, both for technology and infrastructure with Huawei, 
in order for Iran to be able to surveil and censor their own 
people.
    I saw and heard in Mr. Axelrod's testimony that we must 
have robust partnerships, which I could not agree more with. I 
think China understands that as well, which is why I am so 
concerned with regard to China's role in bringing Iran and 
Saudi Arabia together not too long ago.
    Assistant Secretary Rosenberg, despite intensified 
sanctions, Iran has continued to increase its oil exports, and 
China seems to be the largest beneficiary of that. What is the 
Administration doing to stop Chinese purchase of Iranian oil 
and petroleum products?
    Ms. Rosenberg. Thank you, Senator, for the question. I 
share this concern you are articulating about Iran being able 
to continue to sell petroleum and petrochemical, or petroleum 
products. Indeed, China is a purchaser of great concern, and 
not just as a purchaser but also facilitating trading 
activities, providing storage, that broader supply chain.
    What we have been doing in response to this concerns is 
getting out there to designate and clarify what is occurring 
that is of such great concern. So for example, in a series of 
designations, different designation packages this year and last 
year, we went after dozens of Chinese recipients, also the 
providers of storage and of trading and brokering, not just 
Chinese individuals, by the way, but also elsewhere in the 
region, including where that is part of the supply chain to 
China, in order to get after and expose purchases of petroleum 
and petroleum products.
    Senator Britt. So let me ask you this. If ports or 
refineries are knowingly accepting shipments of oil from Iran, 
are they violating U.S. sanctions?
    Ms. Rosenberg. Yes. Our authorities say where there is a 
knowing significant purchase----
    Senator Britt. So that is a yes. So if so, have any Chinese 
ports or refineries actually been sanctioned?
    Ms. Rosenberg. With regard to the specificity here, what we 
are doing is getting after nodes in that chain where we can 
have the biggest disruption effect. So it may not be the end 
recipient, and it is also not a refinery.
    Senator Britt. Do the sanctions allow if a port knowingly 
accepts it? So should we not be actually pursuing this with 
these ports, these Chinese ports, that are accepting this 
petroleum and oil products from Iran?
    Ms. Rosenberg. Yeah. So wherever there is an entity that is 
engaging in one such transactions, yes.
    Senator Britt. OK. But you are saying to date we have not 
sanctioned any Chinese port or refinery.
    Ms. Rosenberg. I did not say that, actually, and I would be 
happy to follow up with you on the specific entities. But it is 
our goal to find those where the disruptive----
    Senator Britt. So we have sanctioned some.
    Ms. Rosenberg. We have sanctioned many entities in China 
related to this trade.
    Senator Britt. The port, though.
    Ms. Rosenberg. I would be happy to follow up with you on 
specific entities in order to answer your question with detail.
    Senator Britt. OK. I would hope if they are knowingly 
accepting it, as you said, and it is within the realm, that we 
are actually doing what we say we are going to do and following 
through with these sanctions.
    So my question to you is, if we have these sanctions in 
place and yet Iranian oil exports hit new heights at the end of 
last year, and obviously we know that China's purchase of 
Iranian oil has risen to record levels, either we do not have 
the right sanctions in place or we are not enforcing them. 
Would you agree?
    Ms. Rosenberg. I think the authorities we have are strong 
and efficacious. I, too, have noted, along with our colleagues 
in the intelligence community and throughout this Government, 
that this is a growing concern. I never think that sanctions 
are the only tool that can advance our purposes here, but we 
must----
    Senator Britt. So what else should we do then? Because we 
should not have these sanctions in place. Either we do not have 
the right sanctions in place, or we are not enforcing them, or 
to your point, there is another tool that we are not using. So 
what is that?
    Ms. Rosenberg. There are a variety of things that we must 
do, a number of which we are doing, in order to get at the 
supply chain. So for example, where there are jurisdictions 
that are involved in the trans-shipment, those are further 
opportunities, including in the Gulf and in Southeast Asia, to 
engage with the leaders of those countries and businesses there 
in order to clarify for them the consequences of violating our 
sanctions. So that is a diplomatic and technical engagement, as 
well as sanctions designation. For example, Malaysia.
    Senator Britt. Well, and I would like for us to just drill 
down into this. I know that I am out of time. But when we are 
seeing Iran offer discounted oil to compete with Russia and the 
Chinese marketplace and circumvent our sanctions regime in 
coordination with China, it is incredibly concerning. So it is 
my position that we either are not using the right sanctions, 
or we are not enforcing them to the level that we can, and 
either one is unacceptable.
    Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Britt.
    Senator Cortez Masto, of Nevada, is recognized.
    Senator Cortez Masto. Thank you, Mr. Chairman.
    Let me jump back to what I heard Assistant Secretary 
Rosenberg talk about, the need to get some of our allies and 
other countries supportive of what we are trying to do here 
with respect to the illicit activities that are happening. So 
let me start with this, because I know, just in general, the 
malign neglect on the PRC's part has allowed money laundering 
to flourish, and it is really underwriting some of the drug 
trafficking in North America and fueling the probability of 
that drug trade. The PRC has made commitments, however, to 
crack down on illicit finance, yet it fails to investigate its 
own money laundering schemes and blocks other Nations from 
doing so.
    So can I ask, what actions has Treasury taken, if any, or 
is it even possible, to secure the Chinese Communist Party's 
cooperation with international investigations of illicit 
financial activity?
    Ms. Rosenberg. Thank you, Senator, for the question. This 
is a concern, just as you have noted, and it has been a 
frustration, I think, to many in the U.S. Government that when 
Chinese entities have gone after the predicate crimes 
associated with illicit drug activity, to the extent they have 
done so, they are often not also going after the associated 
financial transactions to those, which is something that we 
have sought to engage Chinese counterparts about in our 
concerns so that we can pursue those activities. They can 
pursue then and we can pursue them together.
    When I noted in my opening statement the value of engaging 
China to deal with areas of mutual concern, I noted a few. 
Another one of that list is cooperation on counternarcotics 
efforts. So that is an excellent reason, in my mind, that we 
should have constructive and clear communication between our 
two countries, to get at this problem, where we clearly have a 
link between their supply and the recipients in our country, 
unfortunately.
    Senator Cortez Masto. And that is right. Anybody who has 
ever worked just on the Federal law enforcement side knows--you 
follow the money. You follow the money. That is the key to 
taking out a lot of the illicit activity, whether it is around 
drug trafficking or human trafficking, what we see. And so 
Treasury plays an important role.
    And for that reason let me talk about it, because as a 
Nevadan I am deeply concerned about the easy access to fentanyl 
in our communities, and that is why I cosponsored the 
bipartisan FEND Off Fentanyl Act, a crackdown in transnational 
drug trafficking networks.
    Assistant Secretary Rosenberg, you said earlier, in 
response to Senator Scott's question of what more can you do, 
you talked a little bit about the need to extend the statute of 
limitations, and in the bill it extends it to 8 years, but you 
are seeking to extend it to 10 years. Can you explain why that 
is important for Treasury?
    Ms. Rosenberg. Thank you for that question. I would be 
happy to. And just to note, that would extend it in line with 
similar authorities given to the SEC for pursuit of enforcement 
activities.
    There are three key reasons why it would be useful to 
expand out to 10 years, the first of which is that--and for 
anyone who has looked carefully at a complex web of this 
nature, where we are seeing these procurement networks and 
associated financial activity and money laundering activity--
they are difficult, complicated to investigate. They involve 
multiple different fronts, beneficial owners in a variety of 
different jurisdictions, opaque corporate structure. So having 
the time to be able to put that together, specifically 
including when they go across border, and we are trying to work 
with, for example, our Mexican counterparts on the law 
enforcement side, unfortunately, it just takes time, a lot of 
time, to do a complex investigation. That is one.
    The second one is having to do with compliance. So having a 
longer statute of limitations here clearly signals to those 
covered institutions, covered entities that have an obligation 
here and watching IEEPA restrictions, that they must comply 
with, that they must comply for a longer period of time. That 
is to say there is a longer period that they need to be looking 
at.
    And then the last one here, deterrence, related to the same 
thing, which is to say if there is a longer period here that 
they must be aware of when they are thinking about violations, 
IEEPA violations, it will deter them from skating up to the 
edge or taking certain risks if they know that they may be 
investigated and prosecuted for that 10-year period.
    Senator Cortez Masto. Thank you. And I know my time is 
almost up, but I am curious, and I will submit this for the 
record. But as we talk about fentanyl and we track it 
precursors from China into Mexico into the United States, to me 
that is similar to the methamphetamine issue we had decades 
ago, where the precursors were coming from China into Mexico 
into the United States. And so at some point in time I am 
curious, what have we learned or not learned? What tools do we 
need, and we should have a better understanding of how to track 
and stop fentanyl if we were doing so with methamphetamine 
decades ago.
    It is a question for a later time for us to have a 
discussion, but I am always curious, what more tools do we need 
to give you, or is it more of just a coordination of Federal 
agencies and State and local agencies with some of our allies 
and partners?
    But I know my time is up. Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Cortez Masto.
    Senator Daines, of Montana, is recognized.
    Senator Daines. Chairman, thank you.
    Montana is not exempt from the crisis we are seeing with 
fentanyl, and as well as Senator Cortez Masto said, meth. In 
the last 10 years the United States has seen exponential 
increases in trafficking, interdiction, overdoses related to 
fentanyl. As we say, though, you do not necessarily die of an 
overdose of fentanyl, you die of exposure to fentanyl. Think 
about a little Sweet'N Low packet. If that were fentanyl it is 
enough to kill 500 people.
    As you know, the trafficking and the sale of drugs like 
these are made possible through advanced illicit finance 
schemes such as trade-based money laundering or obscured 
beneficial ownership. We talk about the supply chain, China, 
Mexico, and then into the United States. I spent 6 years living 
in China with Procter & Gamble, launching brands there. We had 
two kids born in Hong Kong. We were there to compete against 
the Chinese brands. By the way, we beat them, handily, these 
great American, high-quality products competing then against 
Chinese brands.
    But the cost of crimes can not only be measured by Chinese 
subversion of U.S. interests around the globe but also in terms 
of American lives. While the Office of Terrorism and Financial 
Intelligence, with the help of the Corporate Transparency Act, 
have done excellent work to curb these behaviors, the simple 
fact is this: there is still a major concern for the U.S., 
international partners, and financial institutions around the 
world. More needs to be done to combat these illicit financial 
flows that impact everything from fentanyl to the acquisition 
of military end-use technology.
    Assistant Secretary Rosenberg, fentanyl overdose deaths in 
Montana in the last 2 years are up 1,700 percent. We are a 
northern border State with a southern border crisis. The 
trafficking of fentanyl and its precursors is largely conducted 
or facilitated by Chinese actors. These Chinese networks can 
operate outside designated local jurisdictions through the 
establishment of shell companies, which often serve as front 
for illicit activities. Beneficial ownership information is a 
critical part of uncovering these shell companies and 
combatting drug trafficking. I have concerns about the 
direction the beneficial ownership rulemaking is taking.
    Ms. Rosenberg, how do you envision success when combatting 
drug trafficking, particularly fentanyl trafficking, given the 
limited to access to BOI?
    Ms. Rosenberg. Thank you very much, Senator. You have 
raised very significant challenges with which I would agree are 
frustrating for us as we are thinking about how to see into the 
networks that are involved in both moving the drugs and in 
laundering the money associated with those drugs, to all parts 
of the United States.
    I do believe that with these kinds of crimes, as with a 
whole host of other criminal financial activity, the ability to 
see into and understand the ultimate beneficial owner of shell 
companies in the United States will help. It will not be the 
only thing that will help us because when we are dealing with 
structures where even that information is not clear to us, we 
will still be struggling to put together the pieces. So, 
unfortunately, I do not think that will be that silver bullet 
for us, but it will be helpful.
    Senator Daines. To expand on that, most financial 
institutions prefer to self-regulate and avoid sanctions 
violations and any civil penalties associated with conducting 
businesses with bad actors. That is just good business 
practices. Would you agree that an active relationship with the 
private sector would be a multiplier for identifying and 
tracing illicit financial flows?
    Ms. Rosenberg. I do not disagree. I think it is essential. 
It is absolutely essential for understanding. They are the ones 
that report to us suspicious activity reports, and they help us 
map together the indicators, the typologies that we can then 
generalize and reflect back publicly so that they can do their 
jobs even better.
    Senator Daines. One more question for you, Assistant 
Secretary Rosenberg. As you know, many times the best way to 
trace the source of international crime and terrorism is to 
follow the financial footprint, whether we are talking about 
illicit activity in South American free trade zones or shell 
corporations in Macau. How is the Corporate Transparency Act 
and the greater Anti-Money Laundering Act of 2020, failing to 
provide the necessary tools to attack illicit financial flows?
    Ms. Rosenberg. Senator, I think there are a variety of 
different pieces that we will need in order to understand the 
risks associated with criminal financial activity and address 
them effectively. So the authorities that were required per 
AMLA, and the CTA, in particular, for beneficial ownership, 
that will go a long way toward one of our greatest 
vulnerabilities and deficiencies in this system, which is the 
anonymous companies' problem.
    There are a variety of other challenges we see that we need 
to address. We had the opportunity to speak earlier in this 
hearing about investment advisors or the private wealth 
industry, where there are also vulnerabilities in our approach 
and in our regulatory system. That is another area where we 
need to devote attention in order to be able to get at this 
broader challenge in front of us.
    Senator Daines. Thank you, Mr. Chairman.
    Chair Brown. Thank you, Senator Daines.
    Senator Van Hollen, from Maryland, is recognized.
    Senator Van Hollen. Thank you. Thank you, Mr. Chairman. I 
thank all of you for your testimony and for your service.
    In early January, President Biden signed into law a bill I 
authored along with former Senator Sass called the Protecting 
American Intellectual Property Act, and I want to thank the 
Chairman for his help in getting that passed. The idea was 
pretty straightforward, that garden-variety litigation is often 
not a sufficient defense when you have got sophisticated 
foreign actors backed up by foreign Governments trying to steal 
very important U.S. technologies, Exhibit A, of course, being 
the PRC.
    The President, as I understand it, has not yet designated 
the implementing agency. I recognize this falls among agencies. 
Can anybody provide an update today, and I will start with 
Assistant Secretary Rosenberg, as to the status of the 
President's decision? The reason I want to emphasis this is the 
bill requires a report to be due by later this month that 
identifies and designates foreign entities that are engaged in 
the serial theft of U.S. technology and to apply sanctions. So 
I would welcome any update on where all that may stand.
    Ms. Rosenberg. Thank you, Senator. I, too, understand that 
this legislation has yet to be delegated by the President to a 
Cabinet agency. That said, as you, I am sure, appreciate, IP 
theft is something that many of our agencies are focused on and 
interested in and where we already have some activity that we 
would be able to advance further when this authority is 
delegated.
    Senator Van Hollen. No, I appreciate that, and the idea was 
to give U.S. Government a little more firepower in helping U.S. 
companies that are subject to this kind of serial theft of 
technology. Again, this is not intended to interfere with 
garden-variety litigation in the courts, but there are, as you 
know, many examples over time where especially Chinese entities 
backed by the PRC have engaged in theft of U.S. technology. The 
idea here is to catch that early and preempt it. So I 
appreciate it. The report, as I said, is due later in June, so 
I appreciate you looking into that.
    I do want to take this moment to commend all of you for 
your efforts to identify critical technologies to put on our 
export control list, especially those technologies like 
advanced semiconductors, the equipment to manufacture advanced 
semiconductors--congratulations on the agreement we reached 
with the Netherlands and Japan when it came to that advanced 
manufacturing equipment--because I think that is essential. 
Obviously it requires very good coordination with our allies 
and others around the world, and I know that has been a theme 
of this, and I think all of you are very well aware of that 
fact. And I just want to urge you to continue to move in that 
direction.
    I think Secretary Yellen gave an important speech at SAIS. 
Secretary Raimondo has spoken about this. National Security 
Advisor Jake Sullivan gave remarks at Brookings, the EU 
president. So I think this idea of, as I think I have heard 
described as small gardens and high walls, in other words, 
really protects those technologies that are vital to our 
national security, and not cover a lot of things but have very 
high walls.
    I do want to, in my closing time here, though, ask about 
the issue of outbound CFIUS or outbound investment. You know, I 
am reading the statement here from the G7 which reads, ``We 
recognize that appropriate measures designed to address risks 
from outbound investment could be important to complement 
existing controls of targeted controls on exports and inbound 
investments, which together protect our sensitive technologies 
from being used in ways that threaten international peace and 
security.'' So that is the G7.
    I understand it is a broad statement, Assistant Secretary 
Rosenberg, could you just identify what principles we are going 
to be applying as we decide how to implement outbound 
investment controls? As you know, there is a lot of discussion 
and concern. The devil is in the details. And so I am 
interested in your thoughts on that, and any other witnesses.
    Ms. Rosenberg. Thank you, Senator. I would be happy to 
defer to my colleague, Assistant Secretary Rosen, to take that 
question.
    Mr. Rosen. Sure. Thank you. Thank you, Senator, for the 
question and highlighting the G7 statement. In fact, 
international engagement has been a key component of our 
efforts. Taking the time to get this right has been one of our 
core principles as well as engaging with our stakeholders and 
Congress as well.
    We are focused, when it comes to principles, on national 
security. We are focused on a tailored, narrow, administrable, 
understandable approach that gets at these core equities that 
would clearly and directly impact U.S. national security in a 
way that is understandable to the community that is going to 
have to comply with them, and in a way that directly enhances 
and protects our national security. So those are some of the 
fundamental principles that we are focused on.
    Senator Van Hollen. I appreciate that. Thank you.
    Chair Brown. Senator Cramer, from North Dakota, is 
recognized.
    Senator Cramer. Thank you, Mr. Chairman, and thank you to 
all of our witnesses. It will not surprise you, Assistant 
Secretary Rosen, that I want to talk to you about the same 
topic that you visited with Senator Tester about. Obviously, 
his emphasis on making sure you can enforce was not 
unimportant. I think I want to give you the tools to do that 
first. But I do hope considering what you said to him about 
food security being a critical supply chain that we would 
prioritize that for sure. But we can get into that at another 
time.
    Specifically, though, in relation to the legislation that 
you were talking about, the PASS Act that he and I and Senator 
Rounds and others are on, it is another legislation related 
specifically to the food supply chain. Do you believe that the 
role of the Secretary of Agriculture as a standing member would 
be helpful?
    Because one of the frustrations I saw, from our vantage 
point during that last awful year of nightmare in Grand Forks, 
North Dakota, where Fufeng had purchased 370 acres near Grand 
Forks, some 12 miles from the Grand Forks Air Force Base--and 
you also mentioned sensitive facilities in your opening 
statement as one of the criteria--that we were very frustrated 
that after CFIUS took the first 60-plus and another 15 or so 
days to conclude that they did not have jurisdiction, it was 
very frustrating to watch that play out.
    Would it have helped to expand CFIUS with the Secretary of 
Agriculture as a standing member so that food supply chain is, 
in fact, a higher priority?
    Mr. Rosen. Thank you, Senator, for the question, for our 
continued dialogue on what is a very important issue. And I 
will repeat what I said to Senator Tester. Food security, 
particularly in the supply chain, is a critical national 
security issue.
    As you know, I cannot talk about any particular case or 
comment on any particular case. That said, I want to address 
your comment a bit more generally about USDA if I may.
    Senator Cramer. Thank you.
    Mr. Rosen. So USDA is a critical ally and partner in CFIUS, 
and given the importance around these food security issues that 
we have talked about, we have set up a process where USDA has 
full visibility into the case filings, they have visibility 
into the materials, they are regularly involved in our regular 
CFIUS meetings, and they have an opportunity to not just 
participate but lead, just like a permanent member would, cases 
that present specific food security or agricultural issues. And 
when they do that they are participating, by and large, just 
like a full member.
    So the process that we have set up ensures, from my 
perspective, that we do not leave any food security or 
agricultural issues as they relate to national security 
unresolved. And so that is how we are working with them 
presently.
    Senator Cramer. And I appreciate that, and I appreciate the 
obvious secrecy with specific case. But if the Secretary and 
the Department can have access, in the meantime if we could 
pass legislation that would codify that, I think that would 
probably strengthen your hand a little bit.
    Just sort of building on that, and you used the term, 
again, ``sensitive facilities,'' and I am quite certain I am 
not saying anything that is classified. But as you know it was 
quite public last month in the Administration the Department of 
Defense added eight military bases to receive broader 
jurisdiction, provide broader jurisdiction for CFIUS, given the 
sensitivity of the bases.
    I suspect this is basically a call by the Department of 
Defense, but would you have suggestions on whether we should 
just more broadly add all military bases to this jurisdiction? 
Because it seems to me that if we start designating certain 
bases as more sensitive than other bases we might, in essence, 
be signaling to the enemy where are priorities are. I mean, 
would it not make sense to just apply that more broadly to all 
of our military and defense installations?
    Mr. Rosen. Senator, thank you for that question and for 
your support in that expansion. At my insistence and working 
with the DoD we did start the regulatory process for adding 
those eight bases. We added 300,000 square miles of additional 
real estate coverage. The way that Congress set up our 
authorizing statute, and FIRRMA, was very intentional not to 
blanket the United States real estate jurisdiction. And we give 
great deference to our partners at the Department of Defense 
and elsewhere to designate for us what is sort of a proximity 
risk.
    But these are certainly important questions. They are hard 
questions that I am happy to continue working with you on.
    Senator Cramer. I am going to just wrap up with this 
question, and you can either answer it or not. But when it 
comes to land itself, whether it is agricultural or otherwise, 
it is not like we are going to grow more. I do not think we are 
going to take over Alberta or anything. But it just seems like 
it is such a precious commodity that maybe we should just 
consider more blanketed restrictions. But just my thought, my 
comment. I am not even overly committed to it. It is just 
something to think about. Thank you and thank you for your 
help.
    Chair Brown. Thank you, Senator Cramer.
    Senator Smith, of Minnesota, is recognized.
    Senator Smith. Thank you, Chair Brown, and thanks to all of 
our panelists. I am going to ask a question first of Senator 
Rosenberg. This is around illicit finance risks with crypto. I 
know several of my colleagues have touched on this a little bit 
before.
    China banned cryptocurrency trading about 2 years ago, but 
it appears that some of these restrictions are not really 
working. Bank filings of the failed crypto exchange FTX show 
that 8 percent of its 9 million users were from China. And 
there have also been reports alleging how employees of the 
exchange Binance and trained volunteers were teaching Chinese 
users how to evade the ban, including by passing its own know-
your-customer and residency verification systems.
    So Assistant Secretary Rosenberg, to what extent do you 
think that these bad actors in China are exploiting these 
weaknesses to engage in money laundering or other illicit 
activities, and how are we able to monitor or understand that 
risk?
    Ms. Rosenberg. Thank you, Senator, for the question. I 
appreciate that point that you have made. We are also quite 
concerned about jurisdictions, not just China but other ones 
where even if there is ostensibly a policy that bans certain 
kinds of activity for their nationals they are, nevertheless, 
still involved in such activity. As I noted, there are other 
jurisdictions where this is a problem.
    For us in the United States, one of our greatest 
vulnerabilities with respect to virtual assets is when other 
jurisdictions insufficiently put in place requirements, laws, 
rules, regulations, disclosure, and insufficiently enforce 
them. Because where that creates an opportunity for a lot of 
activity in the dark or outside of awareness from their 
regulators, including specifically where countries say it shall 
not be allowed, but nevertheless it is clearly happening, 
because that does not give them an opportunity to work with us 
on enforcing against activity that may cross borders and 
violate our laws.
    Senator Smith. And do you have thoughts--what are your 
thoughts about how regulators or Congress can address this 
apparent ease with which crypto users can work around these 
trading restrictions, and what should we be doing more of or 
differently?
    Ms. Rosenberg. To the point that I was just making where 
that greatest vulnerability of ours is when other jurisdictions 
have inadequate rules and enforce against them, I think that 
the American people would be very well served if we, together, 
with one voice, made it quite clear to other jurisdictions that 
have inadequate regulatory structures and did not adequately 
enforce, that they must step up to the plate because their 
weakness leaves us all vulnerable.
    Senator Smith. Thank you. Let me turn to Ms. Kendler. 
Assistant Secretary Kendler, we are aware of how the People's 
Republic China military-civil fusion strategy creates unique 
obstacles when we are trying to restrict export of technologies 
that have dual use. You know, it is hard to identify what those 
technologies and users are and uses are. So robust enforcement 
of these export controls is important for our national 
security, but it is complicated.
    So could you talk a bit about what trends you are seeing 
and attempts to evade dual-use technology export controls, how 
should we be partnering and working with agencies to mitigate 
that risk for dual-use technologies that might be diverted to 
China's military capacities.
    Ms. Kendler. Thank you, Senator. We share your concerns 
about PRC procurement strategies that are directed at its 
military modernization and human rights abuses. From the 
licensing perspective--and I will defer to my colleague, 
Assistant Secretary Axelrod when it comes to the enforcement 
and evasion issues--from a licensing perspective, we have 
pursued two pillars. One is based on technology identification, 
restricting cutting-edge technologies in a calibrated way for 
the PRC, and then also looking at entities that are of specific 
military modernization concern, national security and foreign 
policy concern. And that is the basis for our structure.
    Senator Smith. That is great. Thank you. And Mr. Axelrod, 
please.
    Mr. Axelrod. Yeah, thank you, Senator. There is no higher 
priority for us than combatting that threat. It is one of the 
reasons why we stood up the Disruptive Technology Strike Force, 
which I co-lead along with my counterpart at the Department of 
Justice. It is 14 operational cells around the country focused 
on preventing sensitive technology from going to places of 
concern, including China. We rolled out the first five actions 
of that strike force just a couple of weeks ago, and three were 
related to the PRC.
    Senator Smith. That is great. Thank you, Mr. Chair.
    Chair Brown. Thank you, Senator Smith.
    Senator Lummis, from Wyoming, is recognized, and Senator 
Smith will chair the Committee for the remainder 15 or 20 
minutes. Senator Lummis.
    Senator Lummis. Thank you, Mr. Chairman.
    Ms. Rosenberg, I think it is very important that we ensure 
digital assets are not being used for illicit finance, so the 
Lummis-Gillibrand Financial Innovation Act will be reintroduced 
soon, and it will include an entirely new title on combatting 
illicit finance.
    My first question is, do you agree that digital assets 
today are subject to the U.S. comprehensive laws on money 
laundering and sanctions?
    Ms. Rosenberg. Thank you, Senator, for this question, and I 
appreciate the legislative focus. We would be happy to work 
with you going forward. It is certainly true that financial 
institutions that offer services in the digital asset are 
covered by AML/CFT obligations.
    Senator Lummis. Thank you. My next question, also for you, 
is from a practical standpoint in combatting money laundering 
and sanctions evasions in digital assets, would you rather have 
new legal authorities or new personnel and funding to equip 
Treasury to fight bad actors in the digital asset space?
    Ms. Rosenberg. Thank you, Senator. I am very grateful for 
that kind of a question. With respect to the first part of it 
on legal authorities, I would really welcome opportunity to 
work with you. It would depend on what they are, and I would 
welcome an opportunity to work with you on what they are.
    When it comes to additional bodies and additional resources 
to get after this problem, that I think you and others on this 
Committee, certainly in our agency, acknowledge is a challenge 
and a problem, we can do more with more, and would welcome the 
opportunity to get after this problem with more resources.
    Senator Lummis. Well, I will make sure that when Senator 
Gillibrand and I are working our bill through the system that 
we stay in touch with you.
    Ms. Kendler, I want to turn to you. The Bureau of Industry 
and Security monitors the export of advance technologies, so 
they do not end up in the wrong hands. But you do not currently 
regulate the export of Americans' personal data to our 
adversaries like China. As a result, there are no rules 
outlawing the sale of data on sensitive topics, including 
information on military and intelligence personnel to the 
Chinese Government.
    Do you agree that personal data on Americans, particularly 
our service men and women, can be exploited by foreign 
adversaries in ways that are harmful to national security?
    Ms. Kendler. Senator, I do share your overall concerns 
about this issue. The approach of export controls has been on 
goods, software, and technology, not on personally identifiable 
information. But I do share your concerns, yes.
    Senator Lummis. Well, thanks for that answer. I, too, am 
concerned about the national security threat posed by the 
export of Americans' personal data. So I am co-leading with Ron 
Wyden an important bipartisan bill, the Protecting Americans' 
Data from Foreign Surveillance Act, and I am joining Senators 
Wyden, Hagerty, and Rubio. So this is very bipartisan and 
includes other Members of this Committee. And I look forward to 
working with all my colleagues, on this Committee and off, on 
strengthening U.S. competitiveness against China in digital 
assets, distributed ledger technologies, which are beginning to 
really blossom in terms of the capabilities of using 
distributed ledger technology and data exports. It is a growing 
area of interest, it is a growing area of concern, and it 
certain is a growing technology that we all need to be aware 
of. So thank you very much.
    Mr. Chairman, I yield back.
    Senator Smith [presiding]. Senator Warnock.
    Senator Warnock. Thank you so very much, Madam Chair.
    In 1919, President Woodrow Wilson described sanctions as an 
act that does not require force and would not, quote, he said, 
``cost a life, outside of a Nation boycotted.'' More than 100 
years later, we know that the truth is more complicated than 
that. We know that this tool, although peaceful, and that it 
does not rely on the use of guns or bombs, still has severe 
consequences and can have a devastating effect on societies.
    In our globalized and connected world, sanctions on one 
Nation usually affect others. Sanctions on a global economy 
like China, for example, would likely affect folks all around 
the world, and we know that these effects can last for 
generations.
    Ms. Rosenberg, how do you measure the effectiveness of 
sanctions in targeting decisionmakers and the ruling groups of 
Nations?
    Ms. Rosenberg. Thank you, Senator, for that question. In 
measuring effectiveness, I think it is utterly essential to 
define the objectives against which you are measuring those 
particular sanctions. For example, with respect to our Russia 
sanctions we have sought to do two things, in particular, to 
deprive Russia of the money and financial funds and also of the 
battlefield equipment that it needs in order to fight its war. 
That is different than saying a goal would be to collapse an 
entire economy. We are quite focused. And so when evaluating 
the efficacy of these sanctions you must measure it against 
what your goals are in the first instance.
    Now, one of the reasons why it is useful to have 
partnership with Members of Congress and the Administration is 
so that we can discuss together the goals of various sanctions 
authorities so that we can be aligned and working with common 
purpose, and then evaluating their efficacy against the 
objectives we have set out together.
    Senator Warnock. So a kind of laser focus on the goal so as 
not to create consequences that cascade beyond what you are 
trying to do. At the same time, even with that kind of focus, 
with the world being so connected, there is the concern that 
this affects poor and working-class folks in other countries, 
particularly with a global economy like China. How do you take 
all of that into account as you think about this?
    Ms. Rosenberg. Just those concerns you mentioned but other 
ones, too, that we must all be concerned with, like 
competitiveness of American businesses and institutions and our 
ability to innovate and promote growth in our country, and, of 
course, those of our allies. These are exactly the right 
questions, and I think as sanctions policymakers we must 
constantly be asking ourselves every time we implement a new 
sanction, will this have the desired purpose, will it have 
unintended consequences, and seek to mitigate those unintended 
consequences at every step, before, during, if it occurs 
afterwards, to try and address them. We do that often using 
licensing or updating the authority.
    Senator Warnock. OK. Ms. Kendler, can you speak to how you 
think about this or considerations that you take into account?
    Ms. Kendler. Yes, Senator, I agree with your focus on these 
issues and share your concerns. When we impose export controls 
we do so in a very calibrated and targeted way. For example, 
the advanced computing rule we put in place last October was 
focused on the most cutting edge of technologies, so as not to 
disrupt legacy technologies that have limited national security 
purpose. Our focus was on the cutting-edge technologies that 
would most effect national security, because of their use in 
artificial intelligence and supercomputing.
    Senator Warnock. Thank you so much. We have to carefully 
consider innocent families and children and those without power 
when we use these tools, very, very powerful tools.
    The Commerce Department recently announced a collaboration 
with the FBI and the Department of Justice, Disruptive 
Technology Strike Force to target illicit acquisition of 
technology and assets by foreign adversaries like the Chinese 
Government. This seems to follow in the footsteps of the 
Department of Justice's, quote, ``China Initiative'' in 2018, 
to address potential economic espionage. DOJ ended that 
initiative, as you know, in 2021, following criticism from 
civil rights groups that it targeted scientists of Chinese 
descent and produced several prosecutions that actually ended 
in dismissals or acquisitions.
    As DOJ officials acknowledged, the Department heard from 
members of the scientific community that targeting scientists 
over sometimes minor research grant infractions could, quote, 
``lead to a chilling atmosphere for scientists and scholars 
that damages scientific enterprise in our country.''
    I have been hearing from a lot of folks in my State on 
this, Georgians of Chinese descent, including scientific 
researchers at some of our universities, about the climate of 
fear around any engagement with China, even lawful interaction. 
Mr. Axelrod, as Commerce begins this new initiative to target 
espionage by the Chinese Government, which is a serious threat, 
which we have to engage, what steps have you taken to address 
civil rights concerns and any actual or perceived targeting of 
scientists of Chinese descent?
    Mr. Axelrod. Thank you for the question, Senator, because 
you have hit on a two critically important things. One is to 
take action against the threat from the PRC, which is why we 
have established the Disruptive Technology Strike Force with 
the Department of Justice. And then a second is to make sure 
that Chinese Americans or people of Chinese descent who are 
here studying or working in the United States are not targeted 
and do not feel targeted.
    And I believe one thing we have done in that regard, 
separate from the strike force, which is really more focused on 
things happening in PRC, is our establishment of an Academic 
Outreach Initiative. Because in academic community, in 
particular, it is essential that we both safeguard sensitive 
research but also, at the same time, maintain that open, 
collaborative environment so that we have people from foreign 
countries coming here to help contribute to the research and 
development that is sort of the hallmark of our academic 
setting.
    So we identified 20 universities, in particular, that we 
thought were maybe at higher risk from foreign countries, and 
we are working with them and partnering with them, with on 
really a shared endeavor, which is to protect their research 
community and protect their research from forces abroad that 
would seek to obtain it.
    Senator Warnock. I have much here, but thank you, Madam 
Chair.
    Senator Smith. Thank you, Senator Warnock.
    Senator Fetterman.
    Senator Fetterman. Thank you, Madam Chair.
    United States businesses have made large investments in 
high-tech companies tied to the CCP. Is that a fair statement?
    Mr. Rosen. There has been U.S. investment in PRC 
businesses, yes, Senator.
    Senator Fetterman. And we need more increased scrutiny on 
these types of investments to protect our supply chains and our 
national security interests. My friend and my colleague, 
Senator Bob Casey, has spoken on that issue a lot. Are you 
familiar with any of that? Because the officials in the Biden 
administration have outspoken about potential Executive order 
to outbound investment screening.
    Mr. Rosen, can you speak about how transparent the U.S. 
companies' investments in CCP companies can promote a U.S. 
national security and de-risk our economic relationship with 
China?
    Mr. Rosen. Yes, Senator Fetterman. Thank you for raising 
that important issue and understand the question. It is 
certainly the Administration's goal to get at U.S. investment 
dollars that are coupled with particular expertise and know-how 
to make certain development and advancement of certain specific 
cutting-edge technologies, for instance, in artificial 
intelligence and semiconductors and quantum computing, to help 
advance the development of those in ways that could negatively 
impact U.S. national security. It is something that the 
Administration has been working on for some time because we 
want to get it right and we want to be careful. And we have 
also been engaged with the Senate and the leadership of that 
legislation, as you have identified, because we want to work 
with Congress as we move forward.
    Senator Fetterman. Well, clearing on that, sir, what 
resources does the Administration need on this front? Could you 
share any updates on the timeline on the release of the 
Executive order on this?
    Mr. Rosen. Thank you, Senator. Well, what I can say is as 
we work to develop it, I am happy to keep you and the rest of 
this body updated in terms of the resources that we would need 
to be effective, and we appreciate the support that has already 
been expressed by the Senate and by Members for our efforts in 
that regard.
    With regard to timelines, what I can say is that we are 
working quickly but diligently, and we are working with not 
just stakeholders in the United States Government but also 
external stakeholders in private industry, in Congress, our 
allies, because we want to ensure that if and when we do 
something in this area that it is targeted and tailored but 
also takes into account any potential unintended consequences. 
And so, obviously, the ultimate decision is up to the 
President, but we are working hard on that.
    Senator Fetterman. Thank you. And I cede the balance to the 
Chairwoman.
    Senator Smith. Thank you so much, Senator Fetterman.
    Well, thank you to our witnesses for being here today and 
for providing testimony.
    For Senators who wish to submit questions for the record, 
those questions will be due 1 week from today, on June 7th. To 
the witnesses, you have 45 days to respond to any questions.
    Thank you again, and with that this hearing is adjourned.
    [Whereupon, at 12:15 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIR SHERROD BROWN
    For far too long, our policy around China catered to multinational 
corporations, and failed working families. It devastated local 
communities and it eroded our manufacturing base and national 
competitiveness.
    This shouldn't be news to anyone. It's why 23 years ago, Lindsey 
Graham and I opposed permanent normal trade relations with China.
    We knew that corporations would shut down production in Ohio and 
South Carolina and across the country, and move production to China in 
search of lower and lower wages.
    That's exactly what happened.
    Since NAFTA's enactment in 1994 and China's entry into the WTO, 
Ohio has lost over 276,000 manufacturing jobs.
    That's over a quarter-of-a-million Ohioans who once had a good 
paying job--often with the top-notch benefits that comes with a union 
card--suddenly finding themselves out of a job. It often takes a decade 
or more for families and communities to recover from that kind of loss.
    It devastated industrial communities in Ohio and around the 
country.
    And it helped build up the Chinese military.
    Today, after years of misguided China policy, we are finally 
starting to do something about it.
    We passed landmark legislation that rebuilds our infrastructure and 
invests in critical technologies--like semiconductors and advanced 
energy--that will build more secure supply chains.
    And Ohio will be at the center of that kind of investment. Finally, 
we have buried the term ``rust belt.'' Now, we're making more in 
America.
    We need to safeguard critical technologies from the PRC's military 
and security apparatus, using national security measures. It's why 
we're holding this hearing.
    For years, this Committee has worked on a bipartisan basis to 
establish legal authorities to protect our national security from risks 
posed by the Chinese Communist Party.
    Five years ago, I worked with then-Chairman Mike Crapo to pass the 
Export Control Reform Act and the Foreign Investment Risk Review and 
Modernization Act.
    We strengthened our export control system and inbound investment 
screening authorities.
    Just last month we did it again. Ranking Member Scott and I worked 
with a majority of this Committee to introduce the FEND Off Fentanyl 
Act. We have nearly all of the Committee Members, and almost half the 
Senate, as cosponsors.
    In 2021, fentanyl was involved in 80 percent of Ohio's 
unintentional drug overdose deaths. I hear over and over from Ohioans 
that we need new, more powerful tools to prevent the flow of fentanyl 
into our communities.
    Our bill declares that international Fentanyl trafficking is a 
national emergency--an emergency that is destroying lives and families 
across America and that poses an extraordinary threat to the national 
security, foreign policy, and economy of the United States.
    Therefore, the bill uses our economic arsenal to target every step 
of the foreign supply chain--from Chinese chemical suppliers, to 
Mexican cartels, to money launderers profiting off the illicit drug 
trade.
    National security threats evolve--whether from regimes in Tehran, 
Pyongyang, Moscow, Beijing, or non-State actors or human rights abuses, 
IP theft, or illicit fentanyl trade. We must ensure that our tools 
evolve along with them.
    To that end, I look forward to hearing perspectives from the 
witnesses on a range of bipartisan legislative proposals and ideas. For 
example:
    Senators Casey and Cornyn are working on legislation that would 
address a gap in our existing national security authorities--risks 
posed by certain outbound U.S. investments.
    Senators Tester and Rounds have legislation to address concerns 
related to Chinese ownership of U.S. farmland and agricultural 
businesses.
    Senators Wyden and Lummis have a proposal that would impose export 
controls on personal data.
    And Senators Warner and Thune have legislation to address concerns 
related to information and communications technology transactions.
    The Committee will examine a range of other proposals to address 
challenges posed by China--related to Taiwan, technology development, 
digital assets, export controls, and other issues.
    We all agree that China is a real and growing threat. Our Committee 
must play a leadership role in countering that threat. Today's hearing 
is another important step, as we work together to safeguard our 
national security.
                                 ______
                                 
                PREPARED STATEMENT OF SENATOR TIM SCOTT
    Every day, there's news story after news story about our foreign 
adversaries searching for a foothold to expand their global reach. 
Whether it's China brokering so-called ``peace deals'' to Russia's 
continued invasion of Ukraine, or Chinese precursors sent to Mexico to 
fuel cartels' deadly fentanyl trade--America needs to have strong 
leadership.
    Today, we'll be hearing from Biden administration witnesses from 
Treasury and Commerce, to better understand their thinking and frankly, 
learn why the White House is choosing to follow instead of leading.
    Advancing U.S. national security, economic security, and foreign 
policy are all vital to our domestic security here at home. As I've 
said before, you can't secure your house with the doors wide open.
    In our ever-connected and ever-evolving world, the United States 
and our vibrant economy are continuously impacted by other countries. 
We spend a great deal of our time on this Committee discussing our 
Government's response to our own economic issues, but it is vital to 
consider the decisions being made oceans away by Governments and 
countries with very different ideals and values than those we hold near 
and dear here at home in America.
    China is at the top of that list. For years, China has grown in 
force and strength, persistently engaging in coercive economic policies 
to further its interests and undermine those of the United States and 
our allies.
    To try and gain a leg up on America and our allies, China has 
resorted to intellectual property theft, unfair trade practices, and 
other harmful actions that ultimately challenge free markets and U.S. 
innovation. And innovation is the crown jewel of America's success. 
It's about the birth of ideas and the fertile ground for them to grow 
and to prosper.
    As the internet creates a web of connectivity worldwide, protecting 
American data from would-be bad actors--like China--becomes even more 
important. That's why I recently introduced the Know Your App Act to 
increase transparency and protect Americans by requiring app stores to 
label apps controlled by foreign adversaries. It's about empowering our 
parents with information to make informed decisions.
    Further, China exploited America's openness to do business on the 
global stage. But we cut our own selves off, with rules and 
regulations, dictating everything from climate requirements to 
burdensome building regulations taken to an extreme--making it more and 
more difficult to build here at home and perversely encouraging 
companies to search for more open environments around the globe.
    There should never be a world--there should never be a world--where 
a company finds China easier to do business with, a better business 
environment. Our country was built on freedom, hard work, and 
innovation. We should encourage policies that foster these ideals in 
the marketplace--and that means lessening burdensome regulations.
    Furthermore, American companies should not be on an uneven playing 
field simply because they must abide by progressive regulations far 
stricter than the ones in China. We must work simultaneously to provide 
businesses with room for growth and opportunity here at home while also 
robustly responding to China's unfair practices globally.
    The United States possesses tools to curb China's economic 
aggression, including sanctions, export controls, and investment 
screening, but we must use these tools strategically and effectively. 
Policymakers must think beyond the Washington bubble and ensure that 
when the Government uses its economic security tools, it evaluates the 
economic impact on communities and small businesses across our country.
    From securing our farmland to protecting our U.S. technological 
innovators--this is the lifeblood of our economy and our communities. I 
know that firsthand from my home State of South Carolina, where 
advanced manufacturing is our engine, we have some of the largest 
global brands making their home in South Carolina, the foreign direct 
investment in my State is tremendous, from BMW to Volvo, an important 
component of the success that we offer the Nation from South Carolina. 
After all, efforts to advance national security will never succeed if 
the Government undermines the economic security, and economic 
opportunities, of everyday Americans.
    Regrettably, under President Biden, America's economic strength has 
waned, and the Administration has led this country down a path of 
reckless spending that has led to a 40-year high of inflation--which 
every single American knows all too well.
    The more this Administration spends on progressive policies, the 
more their attention is diverted from issues that our communities 
actually need the Federal Government to focus on--like preventing the 
deadly fentanyl deaths that Chairman Brown alluded to.
    The Chinese Communist Party is facilitating the flow of the deadly 
fentanyl into our Nation through the Mexican cartels, leading to 70,000 
American deaths. Fentanyl is the leading cause of death for young 
Americans--the leading cause of death. Americans who will never marry, 
have children, grow old, or make an investment into our economy simply 
because they took fentanyl. That's why I, along with Chairman Brown, 
introduced the FEND Off Fentanyl Act, which will target the illicit 
fentanyl supply chain, using sanctions to choke off the income of 
cartels and the Chinese laboratories that make precursors of this 
deadly drug. We must hit them, of course, where it hurts the most, 
which means in their wallets.
    We must boost economic growth and competitiveness through a renewed 
commitment to free enterprise, free trade, rule of law, and 
international U.S. leadership. And we must maintain our technological 
edge, promote capital formation, and ensure supply chain resilience.
    Let me close with this. Concerns about China's rising strength and 
aggression are certainly understandable. However, America can always 
outcompete China. Our economic system and our values have lifted 
countless people out of poverty by providing economic freedom for 
everyday people to work hard, apply their talents, and pursue their 
dreams. There's no better system in the world today.
    It's time we renew our commitment to the principles that made us 
the greatest Nation on God's green earth.
                                 ______
                                 
               PREPARED STATEMENT OF ELIZABETH ROSENBERG
                       Department of the Treasury
                              May 31, 2023
    Chairman Brown, Ranking Member Scott, and distinguished Members of 
the Committee:
    Thank you for the opportunity to testify today on ``Countering 
China: Advancing U.S. National Security, Economic Security, and Foreign 
Policy''. I also want to thank the Committee for its work on addressing 
our relationship with the People's Republic of China (PRC). Your 
partnership is critical to clearly convey to the leaders of the PRC 
that the United States speaks with one voice in advocating for our 
national interests and protecting our national security.
    The United States and the PRC are the two largest economies in the 
world. For decades, the PRC's economy grew as it implemented market 
reforms and opened itself up to the global economy. And despite the 
current tension in our relationship, cooperation between our two 
countries is absolutely critical in addressing important global 
challenges like the climate and managing international debt distress. 
As Secretary Yellen has recently noted, the United States does not seek 
conflict, but rather a constructive and fair economic relationship with 
China, one where we can work together, when possible, for the benefit 
of our countries and the world.
    That is why we seek expanded engagement with the PRC to work 
through the difficult issues that we face. While no two countries' 
interests will ever perfectly align, responsible Nations must ensure 
that those differences do not threaten each other's safety and 
security.
    Our economic approach to China is guided by three objectives: 
securing the national security interests of the United States and our 
allies and partners and promoting respect for human rights; seeking an 
economic relationship with China that fosters growth and innovation in 
both countries through healthy competition; and cooperating on the 
urgent global challenges of our day.
    As a steward of the U.S. economic and financial system, the 
Department of the Treasury plays a vital role in protecting U.S. 
national security. For most of the post-9/11 era, Treasury's targeted 
national security work involved cutting terrorists and WMD 
proliferators off from the U.S. and international financial system. But 
now, in addition to addressing these threats, Treasury plays a key role 
in conducting broader economic statecraft to advance a host of our 
national interests.
    As I have responsibility for coordinating Treasury policies to 
address, expose, and target national security threats, I will address 
security challenges related to the PRC, and the tools at Treasury's 
disposal to address them.
Security Challenges Related to the PRC
    As an overarching principle, we deploy economic tools in line with 
the principles that Secretary Yellen has laid out: narrowly scoped and 
targeted to clear objectives; easily understood and enforceable, and 
readily adaptable when circumstances change; and whenever possible, 
coordinated with our allies and partners.
    The first of our national security concerns related to the PRC is 
its challenge to global norms, norms that have maintained peace and had 
a part in enabling the PRC's economic growth.
    Just recently at the G7 Hiroshima Summit, leaders discussed 
economic coercion. As the G7 leaders recognized, economic coercion 
``not only undermines the functioning of and trust in the multilateral 
trading system, but also infringes upon the international order 
centered on respect for sovereignty and the rule of law, and ultimately 
undermines global security and stability.'' Specifically, we have seen 
instances when the PRC has not only targeted U.S. persons, but also 
those located in our allies and partners like Australia, Canada, South 
Korea, the Philippines, and Lithuania. Another way we have observed 
China exploit economic vulnerabilities and dependencies is through 
enabling corruption. Take, for example, Wan Kuok Koi, a PRC national 
and former member of the Communist Party of China's Chinese People's 
Political Consultative Conference. Wan, also known as Broken Tooth, and 
his organization, the World Hongmen History and Culture Association, 
were designated by Treasury in December 2020 for corrupt practices, 
specifically the use of economic and business influence to co-opt elite 
figures in Malaysia and Cambodia. It should come as no surprise to 
Beijing that the economic, finance, and trade teams among the G7 are 
actively thinking through ways to build resiliency and support one 
another as well as other Nations.
    We also see efforts by PRC-related actors to conduct economic 
espionage against sensitive sectors of the economy. A recent example is 
the 2022 criminal prosecution by the Department of Justice and 
sentencing of Yanjun Xu, a PRC intelligence officer ultimately 
convicted of attempting to steal technology and proprietary information 
from aerospace companies based in the United States and abroad. This 
opacity in the PRC military-industrial complex and its military-civil 
fusion strategy is a national security concern of the United States and 
one of the reasons why many PRC aerospace companies are currently 
subject to economic restrictions, including from the U.S. Treasury.
    We are also concerned about PRC-based transnational crime, 
including professional money laundering, cybercriminal networks, and 
drug trafficking. Last year, Treasury submitted to Congress our 
assessment on money laundering threats emanating from the PRC, which 
highlighted many of these criminal activities. We continue to pay close 
attention to this type of criminal activity, and on April 23, Treasury 
identified and sanctioned Wuhan Shuokang Biological Technology Company 
and its leadership for the sale of fentanyl precursor chemicals. This 
action complemented indictments from the Department of Justice last 
month that connected these PRC companies to drug cartels in Mexico. 
These actions not only are against the letter of U.S. law and contrary 
to our national security interests--they also have had a devastating 
effect on our communities.
    Nor can we overlook PRC's human rights abuses. Treasury has acted 
to promote accountability for the ongoing abuses in Xinjiang, Tibet, 
and Hong Kong. In addition, we have acted to promote accountability for 
PRC-based entities connected to serious human rights abuses, such as 
the Treasury designations of Dalian Ocean Fishing, Pingtan Marine 
Enterprise, and their affiliates. Over the years, vessels affiliated 
with Pingtan violated multiple countries' laws across the Pacific 
Ocean, including in Ecuador and Indonesia. Dalian Ocean withheld food 
and pay from their crew, refusing to let some of them disembark for 
over a year. On one vessel where crew were abused, five crewmembers 
died.
    Another growing concern we have is the PRC's role in geopolitical 
conflict around the world. While the PRC seemed initially apprehensive 
about its economic relationship with Russia after Russia's full-scale 
invasion of Ukraine, we have seen bilateral China-Russia trade tick up, 
including certain transactions that the United States has now 
identified as circumventing U.S. sanctions and export control laws. 
Take King-Pai Technology Hong Kong, for example. This PRC-based 
supplier, now subject to blocking sanctions as well as export 
restrictions on the Commerce Department's Entity List, supplied the 
Russian military-industrial complex with components used in cruise 
missile guidance systems. Another example is designated PRC-based firm 
Spacety (Changsha Tianyi Space Science and Technology Research 
Institute Co. LTD), which sold radar satellite imagery that enabled the 
transnational criminal organization Wagner Group to enhance its combat 
operations in Ukraine on behalf of Russia. In coordination with our 
interagency partners, we will continue to expose and disrupt PRC 
entities that provide support for the Russian war effort.
    The PRC has also been troublingly consistent in its support for 
North Korea, which allows Pyongyang to conduct numerous weapons tests 
contrary to international law. In the meantime, North Korea has 
relentlessly worked to maintain and improve its weapons systems, 
including an ICBM capable of striking the continental United States, 
and multiple missiles it has flown over inhabited Japanese territory. 
These increasing capabilities, combined with the hostile rhetoric 
coming from North Korea, are direct threats to the national security of 
the United States and its partners and require a U.S. response; and we 
believe the PRC can and should play a more constructive role in 
stabilizing the region.
    Finally, we are closely watching the PRC's own rapid militarization 
of international spaces. This militarization takes many forms. Earlier 
this year in the South China Sea, for example, the PRC Coast Guard 
directed a military-grade laser at Philippine Coast Guard personnel and 
just last month, the PRC Coast Guard also aggressively maneuvered near 
Philippine patrol boat lawfully operating within the Philippines' 
Exclusive Economic Zone (EEZ), nearly causing a collision. As 
Department of Defense officials at multiple levels have attested, the 
PRC has also increased activity along its border with India, and 
routinely engages in risky operational behavior in international 
airspace over the East and South China Seas. Each time the PRC conducts 
risky military activities, there is a chance for a mistake or 
miscalculation, which again goes directly against our national security 
interests in preserving freedoms of navigation and overflight and 
keeping our allies and partners secure. This is why the People's 
Liberation Army is already subject to many financial and economic 
restrictions--we do not want funds and goods to go to the PLA to enable 
this type of destabilizing behavior.
Treasury's National Security Tools
    I want to turn now to our tools at Treasury, and how we deploy them 
in service of our national security concerns.
    First, Treasury publicly exposes threatening activity. This can, 
for example, take the form of targeted financial sanctions, when we 
designate individuals and entities undermining U.S. national security. 
By publicly outing these individuals and entities through a 
designation, financial institutions and other organizations are able to 
build a fuller picture of the illicit activity and take action to 
distance themselves from the threats.
    The second way we act to protect U.S. national security interests 
is through targeted disruption and interdiction efforts. Treasury 
regularly engages the private sector directly, providing information to 
help financial institutions, money service businesses, and other actors 
in the economic and finance space to identify and disrupt violations of 
our sanctions laws and regulations. Treasury also engages partners and 
allies who share similar concerns and are willing to take joint actions 
and enforcement.
    A third way we protect our national security interest is by raising 
international financial standards and building partner consensus. 
Leadership in the Financial Action Task Force, the international 
standard-setting body for anti-money laundering and countering the 
financing of terrorism, is a major way we accomplish this. For example, 
my team helps lead the international virtual assets contact group, 
working to define the rules of the road for international financial 
systems in regulation of digital assets and countering their use in 
money laundering. By leveraging this international forum and building 
consensus around model laws and best practices, we increase the costs 
for actors to reject these norms.
    To conclude, the United States can effectively manage our 
relationship with China by clearly conveying our interests and 
intentions, and by talking to each other about real examples, as I have 
done today. Indeed, the health of the global economy rests on how we, 
both the United States and the People's Republic of China, can manage 
our relationship and address pressing shared challenges. And while it 
is my job to address our national security interests through financial 
measures, I share Secretary Yellen's view: the world is big enough for 
the both of us. Our path is not preordained nor are we destined for 
open conflict, so long as we both choose to communicate clearly and act 
responsibly.
                                 ______
                                 
                  PREPARED STATEMENT OF PAUL M. ROSEN
                       Department of the Treasury
                              May 31, 2023
    Good morning, Chairman Brown, Ranking Member Scott, and Members of 
the Committee. Thank you for the opportunity to speak with you today 
about this important national security issue.
    At the Department of the Treasury, we understand the significant 
challenge China poses to the economic and national security interest of 
the United States. I manage the Government's review of foreign 
investment into the United States for national security risks through 
the Committee on Foreign Investment in the United States (CFIUS). In 
this work we are focused on stopping the access and exploitation of 
sensitive technologies, infrastructure, data and other assets by those 
who have the intent and capability to harm our national security.
    Recently, Secretary Yellen addressed the U.S.-China economic 
relationship. In her remarks, she conveyed that China and the United 
States can and need to find a way to live together and share in global 
prosperity. She also stressed the importance of our countries working 
together, when possible, for the benefit of us and the world.
    At the same time, Secretary Yellen was crystal clear when it comes 
to national security: The United States will secure our national 
security interests and those of our allies and partners. We remain firm 
in our conviction to defend our values. We will not hesitate to defend 
our vital interests. And we will not compromise on national security 
concerns--even when they force trade-offs with our economic interests. 
She also made clear: we do not use our national security tools to gain 
competitive economic advantage or to stop China from growing. But we 
will fully and zealously exercise our economic tools to protect the 
national security of the United States, full stop.
    CFIUS is one important tool to address national security that 
pursues these objectives. The Committee-comprised of the heads of 
several Executive branch agencies and which I help lead in support of 
the Secretary of the Treasury's role as Chair--carefully reviews 
foreign investments in the United States for national security risks. 
When necessary, the Committee takes action to address any such risks 
while seeking to maintain an open investment environment and the status 
of the United States as one of the world's top destinations for foreign 
direct investment.
    CFIUS protects national security in the context of foreign direct 
investment from any country. By law, the Committee analyzes the facts 
and circumstances of each transaction on a case-by-case basis following 
a rigorous review process that leverages subject-matter expertise 
across the Executive branch. Our risk analysis is focused on three 
factors: the threat emanating from the foreign investor, the national 
security vulnerabilities presented by the U.S. business, and the 
consequence of a transaction to national security. When we identify a 
risk, our mandate is to resolve it, whether by mitigating the risk 
through enforceable restrictions on the parties or, as a last resort, 
by recommending the President block or unwind a transaction.
    Over the years, as national security threat environment has 
evolved, so has CFIUS. First established by Executive order in 1975, 
the committee has benefited from congressional action to codify and 
enhance its authorities. Most recently, Congress did so with the 
bipartisan Foreign Investment Risk Review Modernization Act of 2018, or 
FIRRMA. Among other things, FIRRMA provided the Committee with 
important authorities over certain investment structures that had 
previously fallen outside its jurisdiction and modernized our processes 
to better enable timely and effective reviews of covered transactions. 
It also provided the Committee with much needed jurisdiction over 
certain transactions involving real estate in close proximity to 
sensitive facilities.
    Treasury has dedicated significant time and resources to the 
successful implementation of FIRRMA and the efficient processing of 
what is now an all-time high caseload. Prior to enactment, the 
Committee processed 237 filings in 2017. Four years later, our case 
load nearly doubled to 436 filings in 2021. We expect the number of 
cases to continue at this heightened level.
    Since I was confirmed to my role as Assistant Secretary for 
Investment Security, I have been focused on making sure CFIUS operates 
effectively and efficiently, bringing to bear all available resources 
and tools to support our important national security mission. This 
effort includes the issuance of the first Executive order since the 
Committee was established to provide formal Presidential direction on 
additional risks that we are to consider when reviewing a covered 
transaction. It also includes the issuance of our first ever 
enforcement and penalty guidelines to ensure that transaction parties 
are held accountable for failing to comply with our laws or for not 
upholding their obligations to mitigate national security risk. While 
Congress rightly put in place strict confidentiality for information 
filed with CFIUS, we have and will continue to take enforcement actions 
on specific matters to protect national security. We are also enhancing 
our tactics and techniques to ensure we are gathering more detailed 
information about foreign acquirers and deal structures to thoroughly 
assess the national security risks arising in any given transaction.
    When CFIUS reviews a transaction that raises national security 
concerns, the Committee can mitigate the risk by requiring that certain 
measures be undertaken, and these measures are formalized in what we 
call a National Security Agreement, or mitigation agreement. When we 
negotiate a mitigation agreement, our work does not stop after the 
agreement is signed.
    We routinely conduct site visits, collect documents and 
information, and engage with third party monitors and auditors to 
ensure that the terms of these agreements are upheld and parties live 
up to their compliance obligations. While preventing violations from 
occurring is our primary focus, the availability of robust remediation 
and enforcement tools in the event of noncompliance is necessary 
because a breach could harm national security. Under the Defense 
Production Act, the Committee has its own enforcement authority--
including subpoena authority--and can impose monetary penalties and 
seek other remedies for violations of its statute, regulations, 
mitigation orders, conditions, or agreements. We will not hesitate to 
take enforcement action when necessary to protect national security.
    We also continue to enhance our ability to identify non-notified 
transactions and engage with international partners and allies. Indeed, 
the Committee actively monitors investment activity and follows up on 
tips from the public and other sources to identify these types of 
transactions that may pose national security risk. Should we identify a 
potentially covered transaction that may raise national security 
concerns, we request the parties file a notice, and initiate our formal 
review process. We have also established a process to assist partners 
and allies with foreign investment review--including the sharing of 
threat information--while contributing to the establishment and 
modernization of over 20 international foreign direct investment 
screening mechanisms.
    Finally, as we protect national security in the context of inbound 
investments, we continue to contribute to interagency discussions 
regarding policies to restrict certain U.S. outbound investments in 
specific sensitive technologies with significant national security 
implications. Our desire is to avoid situations in which U.S. 
investments support and advance technologies that enhance military or 
intelligence capabilities in countries of concern that could undermine 
our national security and put Americans at risk.
    While we are proud of the Committee's efforts, our work remains 
unfinished, and there are always ways to improve. We remain focused on 
being as effective as we can be in our national security mission. You 
have my commitment that we will use all authorities available to us to 
protect the national security of the United States.
    In the end, as we work to counter the national security risks that 
emanate from China, as Secretary Yellen has said, where possible we 
need to find a way to work together for the benefit of the world, but 
in doing so we never compromise our national security. Thank you again 
for the opportunity to appear before you today, I look forward to 
answering any questions you may have.
                                 ______
                                 
              PREPARED STATEMENT OF THEA D. ROZMAN KENDLER
                         Department of Commerce
                              May 31, 2023
    Chairman Brown, Ranking Member Scott, distinguished Members of the 
Committee, thank you for inviting me to testify on behalf of the 
Commerce Department's, Bureau of Industry and Security (BIS) Export 
Administration's ongoing efforts to administer U.S. export controls and 
counter the People's Republic of China's (PRC's) military 
modernization, human rights abuses, and other activities contrary to 
our national security and foreign policy interests.
    BIS is responsible for protecting U.S national security and foreign 
policy interests by ensuring that U.S. technology is not used by 
adversaries to harm the United States and by working to promote 
American technological leadership. This responsibility stems from our 
authorizing statute--the Export Control Reform Act of 2018 (ECRA)--
which describes the policy goals for BIS's administration and 
enforcement of the export control system. While I am responsible for 
the regulatory side of the Bureau, my colleague, Assistant Secretary 
for Export Enforcement Matthew Axelrod, is charged with the enforcement 
side.
    Through the Export Administration arm of BIS, we identify sensitive 
U.S. technologies that would give our adversaries an advantage, develop 
policies and strategies for protecting these technologies, and review 
license applications submitted by exporters to determine whether 
specific transactions are consistent with U.S. national security and 
foreign policy interests. We also analyze data, industry information 
and classified reporting to assess the effectiveness of our controls, 
the availability of foreign technology (including identifying sensitive 
technologies developed by ally and partner countries), and the foreign 
end users that require extra scrutiny before receiving U.S. technology.
    Ensuring that U.S. and allied technology is not used against us is 
central to our approach with the PRC. In administering our export 
controls, we endeavor to take a multilateral approach. There are 
certainly times where unilateral export controls are necessary, 
however, as ECRA notes, ``[e]xport controls that are multilateral are 
most effective [ . . . ]'' Accordingly, foreign cooperation on our 
controls is a BIS priority. Moreover, as evidenced by our approach to 
Russia's further brutal invasion of Ukraine, multilateralism has 
reinvigorated our close and continuing international partnerships, 
particularly with countries in Europe and the Indo-Pacific.
    As the G7 leaders reaffirmed on May 20, 2023, in the G7 Hiroshima 
Leaders' Communique,

        [E]xport controls are a fundamental policy tool to address the 
        challenges posed by the diversion of technology critical to 
        military applications as well as for other activities that 
        threaten global, regional, and national security. We affirm the 
        importance of cooperation on export controls on critical and 
        emerging technologies such as microelectronics and cyber 
        surveillance systems to address the misuse of such technologies 
        by malicious actors and inappropriate transfers of such 
        technologies through research activities.

    National Security Advisor Jake Sullivan, channeling recent comments 
by European Commission President Ursula von der Leyen, observed in 
April that we are ``de-risking and diversifying'' with respect to the 
PRC on a narrow slice of technologies. We are not interested in 
decoupling. There are many areas in which the United States and the PRC 
can and should continue to cooperate. As we continue to stand up for 
our core national security and foreign policy interests, the world's 
two biggest economies should continue to engage in commercial trade 
that does not impact U.S. national security or foreign policy 
interests.
BIS's Perspective on the PRC National Security and Foreign Policy 
        Threat
    As Secretary Raimondo has stated: ``China today poses a set of 
growing challenges to our national security. It is deploying its 
military in ways that undermine the security of our allies and partners 
and the free flow of global trade. . . .'' The Chinese Communist Party 
(CCP) under President Xi Jinping has set a goal to develop the People's 
Liberation Army (PLA) into a ``world class military'' and overtake the 
United States and its allies by dominating certain advanced technology 
sectors such as artificial intelligence (AI), autonomous systems, 
advanced computing, semiconductors and microelectronics, quantum 
information sciences, biotechnology, and advanced materials and 
manufacturing.
    To fulfill this vision, the PRC is going to great lengths to obtain 
key advanced technologies with military potential. It uses a military 
civil-fusion (MCF) strategy to deliberately blur lines between 
commercial sectors and military programs. This strategy is even more 
concerning where the PRC's Government structure gives leadership the 
power to demand information and assistance from companies that have 
little choice but to agree. Accordingly, MCF, combined with the PRC's 
Government system, has necessitated stronger export controls targeting 
predominantly commercial items that can be used in military 
applications.
    In the face of this transformative challenge that is decidedly 
exacerbating threats to global peace and security, it is imperative 
that the United States and our allies safeguard our core technologies 
by continuously and proactively reviewing and updating our export 
control policies.
    BIS has long restricted the PRC's access to advanced dual-use 
items, including technologies. Together with our interagency partners 
in the Defense Department's Defense Technology Security Administration, 
the Energy Department's National Nuclear Security Administration, and 
the State Department's Bureau of International Security and 
Nonproliferation, we appropriately leverage the tools in our toolbox to 
address this threat. This includes technology controls, identification 
of entities of concern, outreach and education initiatives, and 
international engagement.
    We partner closely with the Departments of Defense, Energy, and 
State in a range of functions, including proposals to the multilateral 
export control regimes, amendments to the Export Administration 
Regulations (EAR), review of export license applications, and 
identifying specific end users of concern, because each of these 
agencies brings different, valuable considerations and understanding to 
the review of such applications.
    To succeed in using our tools to contend with the strategic 
challenge posed by the PRC, our interagency and international 
partnerships are more valuable than ever before. In today's testimony, 
I will discuss the long-standing controls we have in place for the PRC, 
technology controls adopted under the Biden-Harris administration, the 
targeting of PRC entities of concern, and the measures we are taking to 
educate the public, as well as foreign partners, on the nature of and 
rationale for our controls.
PRC Dual-Use Export Controls and Licensing
    BIS maintains comprehensive controls on the exports of 
sophisticated technologies to the PRC. BIS also controls low level 
technologies to preclude exports to untrusted end users, PRC military 
activities, and weapons of mass destruction (WMD) programs. This 
includes the imposition of license requirements for:

    All military and spacecraft items under BIS jurisdiction 
        (which are subject to a statutory policy of denial);

    All multilaterally controlled dual-use items;

    A large number of dual-use items with extensive commercial 
        applications if the item is intended, entirely or in part, for 
        a military end use or military end user in the PRC;

    All items under our jurisdiction if the item is exported 
        knowing it will be used in certain WMD programs;

    All items under our jurisdiction if the item is exported 
        knowing it is intended, entirely or in part, for military-
        intelligence end uses or end users in the PRC; and

    All items under our jurisdiction if the item is destined 
        for a party on BIS's Entity List.

    In addition, BIS prohibits certain U.S. person activities that 
would support WMD-related activities or military-intelligence end use 
or end users in the PRC, even if no items subject to our jurisdiction 
are involved, absent authorization. We are grateful to the Committee 
and others in Congress for enhancing our authorities in this regard as 
part of the Fiscal Year (FY) 2023 National Defense Authorization Act. 
We are actively working to implement these expanded authorities.
    With our interagency partners, we review all of the license 
applications for the PRC to determine a risk of diversion to military 
end uses or end users, WMD end uses, or abuses of human rights. We 
evaluate license applications--taking into account open source and 
intelligence information--based on the technology at issue, the country 
at issue, the entity using the item, other parties involved in the 
transaction, and how the item will be used. One of the primary factors 
we consider is the risk of diversion of the technology from the 
transaction details articulated in the license application instead to a 
country, end user, or end use of concern. We deny license applications 
where there is evidence of a substantial risk of diversion.
    License applications submitted by exporters and reexporters to send 
items to the PRC receive close scrutiny by BIS and our interagency 
partners. In calendar year (CY) 2022, license applications for the PRC 
had an average processing time (APT) of approximately 90 days. This APT 
is significantly longer than the CY 2022 APT for non-PRC cases of 43 
days. It is also longer than the CY 2021 APT for PRC cases of 76 days. 
As evidenced by this data, BIS with its interagency colleagues is 
taking the time to ensure that PRC licenses are carefully reviewed. We 
prioritize comprehensive review of relevant open source and 
intelligence information over speed.
    In CY 2022, licenses reviewed for the PRC comprised approximately 
13 percent of all applications reviewed by BIS. For items, including 
commodities, software, and technology (including domestic technology 
transfers, known as deemed exports), BIS and our interagency partners 
reviewed 5,064 export and reexport license applications. Of these, 
approximately 26 percent were denied or returned without action.
    In general, statistics regarding the interagency licensing process 
must be considered in light of the inherent restraint exercised by U.S. 
companies that generally do not waste time or resources applying for 
licenses they know will be denied or subject to lengthy interagency 
review. U.S. exporters should, before filing license applications know 
the parties in their transactions, including intermediaries and the end 
user, as well as the end user's intended use of the item. Exporters who 
do not do this risk either a return of rejection or return without 
action of their license application. After reviewing BIS's extensive 
know-your-customer and red flags guidance, many U.S. exporters do not 
submit license applications for transactions they contemplate are 
likely to be rejected. In fact, applications for exports to the PRC 
dropped by 26.2 percent between CY 2021 and CY 2022 (although volumes 
are still higher than during the height of the pandemic).
Dual-Use Export Controls To Counter PRC Military Modernization
    BIS's approach to the PRC is calibrated and targeted. Using a 
scalpel approach, we seek to restrict the PRC's military modernization 
efforts by restricting key, sensitive technologies without undercutting 
U.S. technology leadership and unduly interfering with commercial trade 
that doesn't undermine our national security and foreign policy.
    We remain focused on aggressively and appropriately using our tools 
to contend with the long-term strategic competition with the PRC. Under 
Secretary Alan Estevez previously testified before this Committee, ``We 
are closely reviewing our approach to China, seeking to maximize the 
effectiveness of our controls.'' To that end, we have prioritized a 
review of export controls related to quantum, the bioeconomy, and 
artificial intelligence.
    An example of our approach is the October 2022 advanced computing 
and semiconductor manufacturing equipment rule, which restricted the 
PRC's access to critical artificial intelligence integrated circuits, 
supercomputing capability, and semiconductor manufacturing technology. 
The October 2021 controls on software for nucleic acid synthesizers, 
followed by this April's proposed rule on potential peptide synthesizer 
controls, further demonstrate this focus.
Proactively Restricting PRC Plans To Use U.S. Technologies Related to 
        Artificial Intelligence and Advanced Semiconductors for 
        Military or WMD Applications
    The PRC's efforts to develop and employ advanced artificial 
intelligence (AI) in its military modernization, hoping to surpass the 
United States and its allies and our military capabilities, demanded a 
clear, strategic export controls response.
    Artificial intelligence was described as ``the quintessential 
`dual-use' technology'' in the 2021 Final Report of the National 
Security Commission on AI. The Commission noted that, ``The ability of 
a machine to perceive, evaluate, and act more quickly and accurately 
than a human represents a competitive advantage in any field-civilian 
or military.'' AI capabilities-facilitated by supercomputing, built on 
advanced semiconductors-present U.S. national security concerns because 
they allow AI to be used to improve the speed and accuracy of military 
decision making, planning, and logistics. They can also be used for 
cognitive electronic warfare, radar, signals intelligence, and jamming. 
These capabilities can also create concerns when they are used to 
support facial recognition surveillance systems for human rights 
abuses. Advanced semiconductors are key to developing advanced weapon 
systems, exascale supercomputing capabilities, and AI capabilities.
    Although the PRC has tried to characterize U.S. export control 
actions on advanced semiconductors, supercomputing, and AI as an 
economic measure aimed at restraining its economic growth, BIS focused 
solely on these clear national security and foreign policy 
considerations when issuing our rules.
    We made several changes to U.S. dual-use export controls policy to 
the PRC to address our AI concerns:

    First, BIS implemented targeted restrictions on specific 
        chips, and items containing such chips, that can be used in 
        advanced computing and artificial intelligence applications. 
        Through a new Foreign Direct Product (FDP) Rule, BIS further 
        applied these controls to foreign-made chips that are produced 
        with certain U.S. technology or tooling and PRC chip designs 
        meeting the relevant parameters identified by our technical 
        experts.

    Second, BIS implemented controls for chips and other items 
        that will be used in or for supercomputers in the PRC or 
        supercomputers destined for the PRC. Through another new FDP 
        Rule, this control also applies to certain foreign-made items 
        when destined for PRC supercomputers, including foreign-made 
        semiconductors.

    Third, BIS expanded the scope of controls on 28 PRC 
        entities previously on the Entity List that are involved in 
        supercomputer-related activities or advanced integrated 
        circuit-related activities. These parties are now subject to 
        the Entity List FDP Rule that restricts the entities' ability 
        to obtain foreign-produced chips and other items. BIS added 
        additional PRC entities to the Entity List in December 2022, 
        which are also subject to the Entity List FDP Rule.

    Fourth, BIS implemented new PRC-wide controls on exports of 
        certain manufacturing tools essential for high-end chip 
        production.

    Fifth, BIS imposed controls on the export of any item to a 
        PRC semiconductor fabrication facility that is engaged in the 
        development or production of advanced logic or memory chip 
        production. For these advanced fabrication facilities, we also 
        imposed a license requirement on U.S. persons providing support 
        to those entities.

    Finally, we imposed controls on items that will be used to 
        develop or produce indigenous semiconductor manufacturing 
        equipment in the PRC.

    BIS's actions already are having an impact in the PRC. Since 
implementation of our controls, public reporting shows that the PRC is 
surging resources into its semiconductor sector. However, the PRC knows 
that money alone cannot solve its problem. Our cut-off threshold for 
advanced logic semiconductor manufacturing in the PRC is at 14 
nanometers (nm). The PRC's sole semiconductor lithography equipment 
manufacturer, Shanghai Micro Electronics Equipment Group (SMEE), has 
not made any major advancements since achieving the generations-earlier 
90nm equipment, in part due to the difficulties of obtaining components 
and servicing from abroad-difficulties increased by the December 2022 
placement of SMEE on the Entity List by BIS. The PRC's largest 
semiconductor foundry, Semiconductor Manufacturing International Corp. 
(SMIC) has removed 14nm fabrication technology from the list of 
services on its website.
    Although our measures have restricted the PRC's ability to 
indigenously produce advanced semiconductors, we know that the PRC is 
looking for ways to continue accessing these high-end chips. In this 
evolving technological landscape, we continue to review open source and 
classified information to address circumvention attempts, to track the 
impact of our controls, and to be proactive and nimble.
Countering PRC Use of Automated Peptides Synthesis To Develop Toxins
    The Office of the Director of National Intelligence has assessed 
that advancements in dual-use technology, including synthetic biology 
and genomic editing, could enable the development of novel biological 
weapons that evade detection, attribution, and treatment. In 
particular, software for nucleic acid assembly and synthesis can be 
used to design and build functional genetic elements from digital 
sequence data. This data can then be manipulated to create novel 
pathogens or enhance existing ones.
    For these reasons, in October 2021, based on a BIS proposal, we, 
along with our Australia Group partners--a multilateral regime 
consisting of 43 participating countries that focuses on the spread of 
chemical and biological weapons--imposed multilateral controls on 
software for nucleic acid assembly and synthesis. Additionally, in 
April of this year we sought public comment on the potential control of 
peptide synthesizers. These technologies make it quicker and easier to 
produce toxins and pathogens that can be exploited for biological 
weapons purposes. By adopting these controls, requiring a license to 
the PRC will help ensure that our biotechnology exports are not used 
for malign purposes.
Controlling PRC End Users of National Security and Foreign Policy 
        Concern
    In addition to its technology-based controls, BIS increasingly has 
used entity-specific restrictions, primarily through the Entity List, 
to restrict trade to actors of concern in the PRC. Through the 
interagency End User Review Committee (ERC), BIS and our interagency 
partners review PRC companies, both State-owned and commercial, to 
determine if they are reliable recipients of U.S. technology.
    Through the Entity List, we impose entity-specific license 
requirements on PRC parties based on specific and articulable facts 
that indicate that they have been, are, or are at significant risk of 
becoming involved in activities contrary to U.S. national security or 
foreign policy interests. We continually assess available open-source, 
proprietary, and classified information, in coordination with 
interagency partners, for imposing controls on additional PRC entities.
    Generally, when a PRC party is added to the Entity List, anyone 
seeking to export, reexport, or transfer items under BIS jurisdiction 
to such a party must first obtain a license. BIS and our interagency 
partners in the Departments of Defense, Energy, and State review 
license applications for such PRC entities under the entity-specific 
license review policy published in the EAR, which is frequently a 
presumption of denial.
    For entities not subject to a comprehensive presumption of denial, 
the Entity List provides clear policies on the types of items and 
transactions that may be approved on a case-by-case basis. Thus, 
companies are likely to only submit license applications for proposed 
export transactions qualifying for case-by-case review rather than 
those subject to a presumption of denial.
    Currently, we have nearly 700 PRC parties on our Entity List--over 
200 of those were added during the Biden-Harris administration. They 
have been added for reasons including supporting PRC's military 
modernization and WMD programs, supporting Iran's WMD and military 
programs, facilitating human rights abuses in Xinjiang, and providing 
restricted items to Russia. These parties include those involved in AI, 
surveillance, biotechnology, microelectronics, and quantum computing.
    For example, in December 2021, we added the PRC Academy of Military 
Medical Sciences and its eleven research institutes under the PLA's 
Academy of Military Sciences to the Entity List for using biotechnology 
processes to support PRC military end uses, including purported brain-
control weaponry. In December 2022, we added Cambricon Technologies, 
one of the PRC's most valuable AI chip start-ups, and its subsidiaries 
for supporting PRC military modernization efforts. These entities are, 
or have close ties to, Government organizations that support the PRC 
military and defense industry. Most recently, in March 2023, BGI 
subsidiaries BGI Research and BGI Tech Solutions were added for their 
collection and analysis of genetic data which contributes to the 
monitoring and surveillance of ethnic minorities in the PRC. In 
addition, in the Russia context, we have added companies in the PRC 
that attempted to circumvent regulations by aiding Russia's 
unconscionable invasion of Ukraine. Sinno Electronics, added June 2022, 
and others, were added to the Entity List for supporting 
Radioavtomatika, a Russian procurement firm for the Russian defense 
industry.
Engaging International Partners
    Export controls can only be effective when other technology 
producers implement comparable controls. Consistent with ECRA, we know 
that export controls applied to items widely available from foreign 
sources generally are less effective. This is particularly true when we 
consider whether to apply export controls to an item that is 
manufactured both in the United States and the PRC. We also consider 
this factor when applying controls to technologies that are available 
in third countries. In such situations-to use a phrase that originates 
with former BIS Under Secretary Eric Hirschhorn-unilateral export 
controls are like damming half the river. BIS embraces the significant 
responsibility to work with international partners to explain the 
rationale for our export control policies and, where possible, to 
include them in our efforts.
    In light of these realities, we have reinvigorated our 
international partnerships over the last 2 years. In response to 
Russia's war on Ukraine, our dual-use export controls relationships 
with the 39 other Governments that make up the Global Export Control 
Coalition are closer than ever.
    Relatedly, working with the State Department and other partners, 
from FY 2021 to FY 2022, BIS more than doubled our capacity-building 
international engagement portfolio, from 23 to 61 engagements. We 
expanded our Export Control and Related Border Security (EXBS) 
activities from two and three countries in 2019 and 2020, respectively, 
to more than 21 countries in FY 2023.
    Many of the controls we have imposed on the PRC involve a Foreign 
Direct Product rule. In these instances, we work closely with 
manufacturing countries to ensure that Government and industry 
understand our controls and their application outside the United 
States. To maximize effectiveness of our controls, we have conducted 
Government and industry outreach in Asia, Africa, Europe, and the 
Western Hemisphere. In each engagement, we endeavor to explain the 
clear national security rationale underpinning our controls.
Conclusion
    Dual-use export controls work has never been more relevant, or more 
effective. We are focused on aggressively and appropriate contending 
with the strategic technology threat posed by the PRC and will continue 
to appropriately and aggressively use the tools at our disposal to 
counter PRC efforts to outpace the United States and our allies to the 
benefit of the PLA.
    Thank you. I welcome your questions.
                                 ______
                                 
                 PREPARED STATEMENT OF MATTHEW AXELROD
                         Department of Commerce
                              May 31, 2023
    Chairman Brown, Ranking Member Scott, distinguished Members of the 
Committee, thank you for inviting me to testify on the Commerce 
Department's ongoing efforts to enforce U.S. export controls and to 
help deny the People's Republic of China (PRC) unauthorized access to 
U.S. technologies.
    I currently serve within the Commerce Department's Bureau of 
Industry and Security as the Assistant Secretary for Export 
Enforcement. By passing the Export Control Reform Act of 2018 (ECRA), 
Congress provided Export Enforcement, the side of Bureau of Industry 
and Security that I oversee, with robust administrative and criminal 
enforcement authorities. My team of law enforcement agents and analysts 
use those authorities to conduct a mission essential to America's 
national security: keeping our country's most sensitive technologies 
out of the world's most dangerous hands.
    At no point in history has this mission been more important, and at 
no point have export controls been more central to our national 
security, than right now. Our current geopolitical challenges, the 
increasingly rapid development of technology with the potential to 
provide asymmetric military advantage, and the countless ways in which 
the world is now interconnected, have raised the prominence and impact 
of export controls in unprecedented ways.
    Each year, the Office of the Director of National Intelligence 
publishes the Intelligence Community's Annual Threat Assessment, which 
details the Intelligence Community's (IC's) view of the gravest 
national security threats faced by the United States. The differences 
between the first such assessment, issued in 2006, and this year's 
assessment are striking. In 2006, the DNI stated on the assessment's 
very first page that ``terrorism is the preeminent threat to our 
citizens, Homeland, interests, and friends.'' The 2006 assessment's 
first section is on the ``Global Jihadist Threat'', followed by a 
section on ``Extremism and Challenges to Effective Governance and 
Legitimacy in Iraq and Afghanistan''. Analysis of the threat posed by 
China does not appear until page 20.
    Compare that to this year's assessment and you will see how 
significantly our national security landscape has changed since 2006. 
The first four sections of this year's assessment each focus on a 
different Nation-State actor, with China first, followed by Russia, 
Iran, and North Korea. As the assessment notes on its first page, 
``[w]hile Russia is challenging the United States and some norms in the 
international order in its war of territorial aggression, China has the 
capability to directly attempt to alter the rules-based global order in 
every realm and across multiple regions, as a near-peer competitor that 
is increasingly pushing to change global norms and potentially 
threatening its neighbors.''
    The assessment later goes on to point out that ``China will 
continue pursuing its goal of building a world-class military that will 
enable it to try to secure what it views as its sovereign territory, 
attempt to establish its preeminence in regional affairs, and project 
power globally while offsetting perceived U.S. military superiority,'' 
``is reorienting its nuclear posture for strategic rivalry with the 
United States because its leaders have concluded that their current 
capabilities are insufficient,'' and that China's ``space activities 
are designed to advance its global standing and strengthen its attempts 
to erode U.S. influence across military, technological, economic, and 
diplomatic spheres.''
    Given this threat environment, the job of our Export Enforcement 
agents and analysts--preventing sensitive U.S. technologies and goods 
from being used for malign purposes by the Chinese Government and other 
Nation-State actors--is more critical than at any other time in the 
organization's history. It's among the reasons why I'm so honored to 
lead such an expert and dedicated law enforcement team at this 
particular point in time. The team and I work every day to meet this 
unprecedented moment. More specifically, under my leadership, we have: 
(1) enhanced our enforcement policies; (2) expanded our partnerships at 
home and abroad; and (3) aggressively enforced our controls in a way 
that imposes real costs on those who seek to violate and undermine U.S. 
national security--both in China and elsewhere.
Enforcement Policy Enhancements
    First, we have updated a number of our enforcement policies to 
ensure that our finite resources are best positioned to have maximum 
national security impact. A few highlights:

    On June 2, 2022, we published a regulatory change making 
        our administrative charging letters public when filed (as 
        opposed to the prior practice of making them public only after 
        resolution), in order to provide the exporting community more 
        timely insight into actions that we believe violate our rules. 
        Just one month later, we published a charging letter against 
        Far East Cable Co. Ltd., China's largest wire and cable 
        manufacturer, based on allegations that it served as an illicit 
        export channel for Zhongxing Telecommunications Equipment 
        Corporation (ZTE) and delivered U.S.-origin equipment to Iran 
        as part of an effort to conceal and obfuscate ZTE's Iranian 
        business from U.S. investigators.

    On June 30, 2022, I announced policy changes to strengthen 
        our administrative enforcement program. The changes included 
        raising penalties when appropriate for more serious violations, 
        prioritizing enforcement focus on the most serious violations 
        while using non-monetary resolutions for less serious 
        violations, eliminating ``No Admit, No Deny'' settlements, and 
        dual-track processing of voluntary self-disclosures. As a 
        result of these policy changes, our recent $300 million 
        resolution with Seagate Technology, LLC (Seagate) included an 
        admission by Seagate to the factual conduct alleged in our 
        Charging Letter--that Seagate continued selling millions of 
        hard disk drives to entitylisted Huawei even after its only two 
        competitors had stopped sales because of our Foreign Direct 
        Product Rule (the Huawei FDPR). The Huawei FDPR imposes export 
        controls on foreign items produced overseas from certain U.S. 
        software and technology, including equipment, when destined for 
        Huawei.

    On October 7, 2022, in conjunction with the promulgation of 
        rules imposing new controls on China's procurement of advanced 
        semiconductor manufacturing tools, advanced chips and related 
        items, we issued a rule clarifying that when a foreign 
        Government fails to schedule end-use checks (i.e., physical 
        inspections of exports to ensure they are in compliance with 
        our regulations) in a timely way, that failure can provide a 
        basis for the addition of unchecked parties to the Entity List. 
        I also issued a memorandum outlining a two-step policy to 
        address persistent scheduling delays of our end-use checks. 
        Under the policy, if BIS requests an end-use check from a 
        foreign Government, that Government then has 60 days to enable 
        BIS to conduct the check--otherwise we may place the unchecked 
        party on the Unverified List. After that, if 60 more days pass 
        without the check being successfully completed, we may place 
        the unchecked company on the Entity List. Prior to this policy 
        change, the Chinese Government had not allowed us to conduct a 
        check in over 2 years. The policy led directly to improved 
        cooperation with our pending checks. In the 7 months since the 
        policy was announced, we have completed over 90 end-use checks 
        in China.

    On April 18, 2023, I issued a memorandum clarifying our 
        policy regarding voluntary self-disclosures (VSDs) and 
        disclosures of potential misconduct by others. It's long been 
        understood that when a company finds out about a significant 
        potential violation, and selfreports it, they get concrete VSD 
        credit in the form of a reduced penalty. The memorandum makes 
        clear that the converse is also true: if a company knows of a 
        significant potential violation and affirmatively decides not 
        to divulge it, we will consider that lack of disclosure as an 
        aggravating factor in penalty calculations if we later uncover 
        the violation. Separately, the memo clarifies that when a party 
        informs us about another party's violation and that information 
        allows us to take enforcement action, we will consider it 
        ``extraordinary cooperation'' and treat it as a mitigating 
        factor if the notifying party engages in prohibited conduct in 
        the future. This policy clarification is designed to lead to an 
        increase in disclosures, which in turn should lead to 
        additional enforcement actions involving Chinese (and other) 
        violators.
Technology Protection Partnerships
    Second, given the scope of the threat that we face in protecting 
U.S. technology from misappropriation by the Chinese Government and 
other actors, we acutely understand the need to amplify our efforts 
through robust partnerships. Domestically, we have developed such 
partnerships with industry, academia (through our Academic Outreach 
Initiative), the IC, Treasury components like the Office of Foreign 
Assets Control and Financial Crimes Enforcement Network, and sister 
Federal law enforcement agencies like the Federal Bureau of 
Investigation and Homeland Security Investigations. In the past year, 
we have put out multiple joint alerts and advisories with these 
partners designed to educate industry and financial institutions on how 
best to comply with our rules and detect violations of them. These 
partnerships allow us in many instances to prevent diversions before 
they occur, and in others to impose costs on violators.
    We also work closely with international counterparts, bilaterally, 
multilaterally, and through our end-use check program. Last year, our 
Export Control Officers (ECOs), augmented by our domestic-based 
Sentinel teams that deploy to global locations not covered by ECOs, 
conducted over 1,100 end-use checks in over 50 countries to prevent the 
transshipment and diversion of U.S. items in violation of our 
regulations.
    And, thanks in part to additional funds from Congress in the first 
Ukraine supplemental appropriations law last year, we have worked to 
expand our footprint and partnerships abroad, including stationing an 
analyst in Canada and ECOs in Finland and Taiwan this summer, 
implementing a data sharing arrangement with the European Anti-Fraud 
Office (OLAF), and establishing export enforcement coordination 
mechanisms with our Five Eyes (U.S., Australia, Canada, New Zealand, 
and the United Kingdom) and G7 counterparts to prevent illicit 
reexports to China, as well as to Russia, Iran, and elsewhere.
    We have also entered partnerships designed to deliver concrete 
enforcement actions. On February 16, 2023, we announced the formation 
of the Disruptive Technology Strike Force in partnership with the 
National Security Division of the Department of Justice. The Strike 
Force works to protect U.S. advanced technologies from being illicitly 
acquired and used by Nation-State actors such as China, Russia, and 
Iran to support: (1) their military modernization efforts; and (2) 
their mass surveillance programs that enable human rights abuses. We 
have established operational Strike Force cells in fourteen locations 
across the country, supported by an interagency intelligence effort in 
Washington, DC. Each operational cell consists of agents from our 
Office of Export Enforcement (OEE), FBI, and HSI, as well as an 
Assistant U.S. Attorney. The Strike Force cells use all-source 
information (open source, proprietary, and classified) to pursue 
investigations and take criminal and/or administrative enforcement 
action as appropriate.
    Just 2 weeks ago, Assistant Attorney General Matt Olsen and I 
announced the first wave of Strike Force enforcement actions, including 
arrests, indictments, and a temporary denial order in five different 
cases across the country. Two cases--one out of Los Angeles and the 
other out of San Francisco--involve defendants who allegedly stole 
sensitive American technology and shipped it to restricted Chinese 
entities. In a third case, from Manhattan, the defendant allegedly used 
a sanctioned Chinese company as a front company to aid Iranian 
ballistic missile procurement. According to the indictment, the 
defendant conducted transactions with an Iranian company to obtain 
isostatic graphite, a material used in the production of weapons of 
mass destruction. These actions illustrate how the Strike Force cells 
are prioritizing investigative and prosecutorial resources to target 
illicit actors, impose costs on violators, and harden supply chains to 
protect our most advanced technologies from being acquired or used by 
Nation-State actors such as China.
Enforcement Actions
    Third, I want to highlight some of the recent enforcement actions 
we have taken related to China this calendar year, beyond the work of 
the Disruptive Technology Strike Force described above.
    On April 20, we announced the largest standalone administrative 
penalty in BIS history--a $300 million penalty against Seagate 
Technology LLC of Fremont, California, and Seagate Singapore 
International Headquarters Pte. Ltd. of Singapore for continuing to 
ship millions of hard disk drives to Huawei after BIS's imposition of 
the Huawei FDPR. It is also the first enforcement case and penalty 
brought under the Huawei FDPR since that rule was issued in August 
2020. In addition to the monetary penalty, Seagate is subject to a 
suspended 5-year denial order that allows BIS to cut off their export 
privileges if they violate key terms in the agreement.
    As part of the resolution, Seagate admitted to having engaged in 
the conduct alleged in our Proposed Charging Letter. Back in 2019, BIS 
placed Huawei and certain of its non-U.S. affiliates were put on the 
Entity List for posing a risk to U.S. national security. In August 
2020, due to continued national security and foreign policy concerns, 
BIS imposed the Huawei FDPR to better address the continuing threat to 
U.S. national security and U.S. foreign policy interests posed by 
Huawei and its non-U.S. affiliates. At that time, there were only three 
major companies producing hard disk drives including Seagate. When the 
Huawei FDPR went into effect, two out of the three companies promptly, 
and publicly, stated that they had ceased sales to Huawei and that they 
would not resume such sales unless or until they received authorization 
from BIS. Despite this public declaration from its competitors, the 
third company, Seagate, continued to sell and became Huawei's sole 
source provider for hard disk drives. Seagate continued selling hard 
disk drives to Huawei until September 2021, more than a year after 
their competitors pulled out, and more than a year after the Huawei 
FDPR was published. The $300 million penalty is more than double the 
amount of profits they made from these sales.
    On February 27, 2023, we imposed a $2.77 million penalty on 3D 
Systems Corp. for exporting controlled aerospace technology (including 
technical specifications for military electronics as well as those used 
in the development, production, operation, or repair of spacecraft) and 
metal alloy powder to China without the required license and for 
exporting controlled technology to Germany without the required 
license. In addition to our penalty, 3D Systems entered into 
coordinated settlement agreements with the Department of State and the 
Department of Justice.
    On January 17, 2023, Jonathan Yet Wing Soong pleaded guilty to 
violating export control laws in connection with a scheme to secretly 
funnel sensitive aeronautics software to Beihang University, a 
university in Beijing on the Entity List due to the University's 
involvement in PRC military rocket systems and unmanned air vehicle 
systems. Soong, an employee of a NASA contractor, admitted that he 
willingly exported and facilitated the sale and transfer of restricted 
software knowing that Beihang University was on the Entity List. On 
April 28, 2023, Soong was sentenced to 20 months in prison.
    Also on January 17, 2023, we issued a 10-year denial order cutting 
off the export privileges of Ge Song Tao following his conviction for 
conspiracy to attempt to illegally export maritime combat rubber 
raiding craft and engines to China. The joint case with FBI, ATF, NCIS, 
and DOJ uncovered that Ge used his company, Shanghai Breeze, and 
contacts with a U.S. Naval Anti-Submarine Warfare Officer to attempt to 
illegally export the items to the People's Liberation Army (PLA) Navy. 
The combat rubber raiding craft, which the Chinese military planned to 
reverse engineer and mass produce, was equipped with engines used by 
U.S. special forces and can be launched from a submarine or dropped by 
an aircraft. The items did not get to China.
    On January 11, 2023, Broad Tech Systems, Inc., a California-based 
electronics distribution company, and Tao Jiang, its president and 
owner pleaded guilty to charges of conspiracy and ECRA violations. 
Jiang participated in a conspiracy to conceal information from BIS 
agents and U.S. Customs and Border Protection officers as part of a 
scheme to illegally export chemicals used in semiconductor 
manufacturing to an Entity Listed company in China. The Chinese company 
develops electronics for early warning systems, air defense systems, 
airborne fire control systems, manned space systems, and other national 
large-scale projects for the PLA.
    We also use the Entity List to restrict the ability of parties 
involved in activities contrary to U.S. national security or foreign 
policy interests to obtain U.S. exports. While the Entity List is a 
licensing tool, not an enforcement one, the overwhelming majority of 
Entity List nominations come from the BIS intelligence analysts I 
oversee and frequently have ties to investigations conducted by our law 
enforcement agents. Currently, there are nearly 700 Chinese parties on 
the Entity List, of which over 200 have been added since the beginning 
of this Administration.
    As these cases and entity listings demonstrate, we leverage our 
administrative and criminal enforcement, as well as our regulatory 
authority, to address the diversion of advanced technologies--like 
semiconductors, marine engines, and satellite and rocket prototypes--
that support China's military modernization efforts.
Conclusion
    Thank you again for the opportunity to testify today on national 
security risks posed by the People's Republic of China (PRC) and what 
we on the Export Enforcement side of the Department of Commerce's 
Bureau of Industry Security are doing to combat them. As CIA Director 
William Burns has noted, China is the most important geopolitical 
threat that we face this century. And Export Enforcement's mission--
keeping our country's most sensitive technologies out of the world's 
most dangerous hands--is a critical part of how the U.S. Government 
addresses the threat posed by the PRC.
    As Beijing seeks to spread its technology-driven authoritarianism 
the world over, Export Enforcement remains hyperfocused on preventing 
the PRC from illegally obtaining sensitive U.S. items. By enhancing our 
administrative enforcement capabilities, multiplying our impact through 
work with partners, and aggressively pursuing both administrative and 
criminal enforcement actions to punish violators, we are committed to 
doing everything we can to meet this unprecedented challenge.
    I thank the Committee for its support and look forward to your 
questions.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                    FROM ELIZABETH ROSENBERG

Q.1. On May 21, the Cyberspace Administration of China (CAC) 
announced that products from a U.S. company, Micron, would be 
banned from key infrastructure projects due to an unjustified 
national security risk. America must send a clear message to 
the international community that this level of economic 
coercion is unacceptable and will be met with a swift and stern 
response.
    What actions is the Treasury Department taking to respond 
to China's ban on Micron's products?
    Does the Treasury Department consider China's Micron ban to 
be retaliation against export controls on the outflow of 
advanced computing and semiconductor manufacturing items to 
China imposed by the Department of Commerce on October 7, 2022?

A.1. As the Department of Commerce has stated, we would firmly 
oppose any actions that unfairly target U.S. companies, 
including Micron. This would be inconsistent with the PRC's 
assertions that it is committed to a transparent regulatory 
framework. In contrast, the United States takes action to 
defend our national security and protect human rights. This is 
consistent with our targeted policies and practices to prevent 
the transfer of sensitive technologies that could be diverted 
to military end-uses, without undercutting U.S. technology 
leadership or unduly interfering with commercial trade. 
Treasury calls on the PRC to provide a transparent process in 
relation to its cybersecurity reviews and decisions process 
grounded in facts.

Q.2. Sanctions can inflict further economic pain on everyday 
Americans if they are not carefully crafted. The more these 
tools are implemented, the more likely the U.S. is to face 
significant retaliation from China, which could hurt ordinary 
Americans who are most exposed to price shocks.
    How do you factor in and account for retaliation before 
imposing sanctions?
    What tools does the U.S. have to preempt or address 
retaliation?

A.2. As Secretary Yellen noted in public remarks on the U.S.-
China economic relationship, Treasury deploys its sanctions 
authorities in order to secure our national security and 
protect human rights. Further, our actions are always intended 
to be narrowly scoped and targeted, with clear objectives, and 
are calibrated to mitigate spillovers into other areas, 
including harm to Americans. We conduct this analysis on 
potential spillovers not only with our own economists and 
sanctions experts, but also other departments and agencies, 
including the intelligence community, to conduct a robust 
assessment before we take actions, which includes potential 
retaliation. We believe that evaluating the financial and 
economic impacts of our sanctions program is important, which 
is one of the reasons why Treasury has created a Sanctions 
Economic Analysis Division that began its operations in April 
2023.
    Treasury has always been open to meeting with the victims 
of economic retaliation to discuss their specific circumstances 
and how best to address these important issues.

Q.3. Current U.S. sanctions on Russia serve as an opportunity 
to evaluate the effectiveness of U.S. sanctions overall. 
Concerningly, the IMF forecasts that the Russian economy will 
grow in 2023, with projected real GDP growth of 0.7 percent.
    How does Russia's trade surplus influence its ability to 
remain resilient to U.S. sanctions?

A.3. A country's trade surplus is not necessarily a good 
indicator of assessing the impact of sanctions. An initial 
trade surplus was not surprising, as it partly reflected higher 
fossil-fuel export revenues and materially subdued imports, 
driven by war related uncertainty, sanctions, and private 
sector de-risking.
    Since the third quarter of last year, however, the total 
value of Russian goods exports has steadily declined, while the 
general trend for goods imports has been rising. This has 
compressed the trade surplus, with Russia's current account 
surplus shrinking to $22.8 billion in January-May 2023, an 81.6 
percent decrease compared with the same period last year. This 
has put pressure on the Russian ruble, which is making imports 
more expensive. We expect the trade surplus and Russian GDP to 
continue to fluctuate. The purpose of the sanctions program is 
to disrupt Russia's ability to fund and supply its war, and 
measured against this goal, the sanctions are successful.

Q.4. If the U.S. imposed sanctions of similar scale and 
severity on China, how does China's significant role in global 
trade affect its ability to remain resilient to such sanctions?

A.4. A full separation of our economies would be disastrous for 
both countries and destabilizing for the rest of the world. We 
have been explicit that our national security actions in the 
economic sphere are intended to be narrowly scoped and targeted 
to clear objectives. Across these actions, we are engaging and 
coordinating with our allies and partners in the design and 
execution of our policies--we are more effective when we work 
in concert with one another.

Q.5. How does the U.S. trade deficit with China affect the 
development of sanctions?

A.5. The U.S. economic relationship with China, including 
imports and exports, is one of many factors we look at when 
considering how best to use our sanctions authorities. This is 
a robust process, with input from other Departments and 
Agencies, and one that seeks to achieve a specific objective 
without undermining our own interests.

Q.6. Please explain the Treasury Department's process for 
deciding when to impose, escalate, or ease sanctions on a 
country like China.

A.6. Sanctions are part of a broad suite of tools that the 
United States uses to accomplish its foreign policy goals and 
protect its financial system, consistent with action to defend 
our national security and human rights. Based on the 
authorities delegated to the U.S. Treasury, the Office of 
Foreign Assets Control works daily to research and evaluate 
potential sanctions targets in line with both our laws and 
guidance from our policymakers. Likewise, there is a deliberate 
process for lifting of sanctions, consistent with our laws.

Q.7. What do you consider to be the most effective examples of 
how sanctions have successfully altered Nation-State behavior? 
What metrics or indicators does the Treasury Department use to 
measure the effectiveness of sanctions?

A.7. There are several instances in which sanctions, when 
combined with other tools, have positively impacted a foreign 
Government's strategic thinking or policies. Some of our drug 
trafficking organization designations, for example, have had a 
role in fostering greater cooperation with the Mexican 
Government on drug trafficking and money laundering issues. 
Decision makers in other countries, particularly as it relates 
to counternarcotics and Global Magnitsky authorities, are often 
persuaded to change policies or cooperate with international 
efforts to counter drug trafficking, corruption, and human 
rights abuse. Over the last year sanctions have successfully 
undermined Russia's ability to rearm.
    The objectives of our sanctions programs vary. The 
objective of our Russia sanctions program is different, for 
example, from the objectives of our corruption and human rights 
programs. However, we agree that evaluating the efficacy of our 
sanctions programs is important and is one of the reasons why 
Treasury has created a Sanctions Economic Analysis Division 
that began its operations in April 2023.

Q.8. Please describe procedures and practices for how Treasury 
Department and Commerce Department coordinate and exchange 
information between the Treasury Specially Designated Nationals 
list, the Treasury Chinese Military Industrial Complex List, 
and Commerce's Entity List. Please provide the nomination 
process for the Treasury lists, and explain why Chinese 
military firms appear on certain lists but not others.

A.8. Treasury's decision to identify an individual or company 
on a list is independent of decisions to identify entities on 
other lists by other U.S. Government agencies, and the legal 
standards and authorizing authorities supporting different 
lists are separate and independent. However, Treasury maintains 
awareness of and provides input to other agencies' additions or 
removals to their restricted party lists. In some cases, other 
agencies are required by law to consult with Treasury. For 
example, the Commerce Department's Entity List is a tool to 
identify foreign parties on which Commerce has imposed license 
requirements based on specific and articulable facts that 
indicate that they have been, are, or are at significant risk 
of becoming involved in activities contrary to U.S. national 
security or foreign policy interests. Entity List decisions are 
made by the interagency End-User Review Committee (ERC), 
comprised of the Departments of Commerce (Chair), Defense, 
State, Energy, and where appropriate, the Treasury. The ERC 
makes decisions regarding additions to, removals from, or other 
modifications to the Entity List, and continually assesses 
available open-source, proprietary, and classified information, 
for adding new parties to that list. Treasury considers whether 
information made available by other agencies may support a 
designation under Treasury's own authorities. Treasury is 
continually working to identify entities that meet the criteria 
for identification or designation pursuant to existing 
sanctions authorities.

Q.9. The People's Bank of China is developing the digital yuan, 
a central bank digital currency.
    Has the Treasury Department assessed the risk that the 
digital yuan will be used as a tool to bypass the U.S. 
sanctions regime for cross-border transactions? If so, please 
provide the findings from these assessments.
    How will the widespread availability of a fully implemented 
digital yuan influence U.S. national security interests 
relating to illicit finance and financial crimes?

A.9. Treasury is aware of the digital yuan (RMB) and continues 
to watch its development closely. Treasury continues to assess 
that the United States' strong economic performance, sound 
macroeconomic policies and institutions, open, deep, and liquid 
financial markets, institutional transparency, commitment to a 
free-floating currency, and strong and predictable legal system 
will continue to support the dollar in its role as the global 
reserve currency.
    In contrast, China's capital controls, the relatively 
limited depth and liquidity of markets for RMB-denominated 
financial assets, as well as China's weak rule of law and 
institutions will continue to present challenges for widespread 
internationalization of the RMB. They will also hamper a 
digital yuan from supplanting the U.S. dollar. Nonetheless, 
shifts away from the U.S. dollar and exposure to the U.S. 
financial system more broadly in cross-border transactions 
could erode the effectiveness of our sanctions and our ability 
to protect the international financial system from abuse.

Q.10. When developing and imposing financial sanctions, how 
does the Treasury Department account for the long-term risk 
that its actions may erode the U.S. dollar's status as the 
global reserve currency?

A.10. We recognize that in the pursuit of strategic autonomy, 
other Nations have expressed interest in reducing their 
reliance on the dollar.
    This is why it is important for us to not only take very 
specific and targeted actions, but to also work closely with 
our partners to take coordinated or complementary actions, and 
create common understandings and standards, such as those at 
the Financial Action Task Force, to safeguard the international 
financial system and keep it highly useful for global financial 
transactions and commerce.

Q.11. Reports indicate that China is flouting U.S. sanctions on 
Russia and Iran by purchasing sanctioned oil from both Nations 
at a steep discount. In the Iran context, an outside NGO 
estimates that since President Biden took office, Iran has 
exported over 665 million barrels of oil to China, which is 73 
percent of Iran's total exports, worth some $60 billion. To 
help address this problem the bipartisan Solidify Iran 
Sanctions Act has been introduced to eliminate the sunset on 
the Iran Sanctions Act of 1996.
    What actions are being taken and considered to address 
China's purchases of sanctioned oil?

A.11. We are very concerned by Chinese purchases of Iranian oil 
and petrochemicals. A few specific examples of actions we've 
taken to expose and disrupt such Chinese purchases include:

    In March 2023, OFAC sanctioned 39 entities 
        constituting a significant ``shadow banking'' network, 
        one of several multi-jurisdictional illicit finance 
        systems which grant sanctioned Iranian entities, such 
        as Persian Gulf Petrochemical Industry Commercial Co. 
        (PGPICC) and Triliance Petrochemical Co. Ltd. 
        (Triliance), access to the international financial 
        system and obfuscate their trade with foreign 
        customers. These designations included several Hong 
        Kong-based front companies.

    In February 2023, we designated Iranian 
        petrochemical producer Amir Kabir Petrochemical Company 
        (AKPC), a major polyethylene producer whose products 
        were being shipped to buyers in China.

    In December 2022, we designated dozens of actors in 
        multiple jurisdictions that facilitated the sale of 
        hundreds of millions of dollars' worth of oil on behalf 
        of Iran's Islamic Revolutionary Guard Corps-Qods Force 
        (IRGC-QF), much of which was sold to buyers in China. 
        This action supplemented May 2022 designations 
        targeting elements of the same network, which included 
        three Chinese firms that had purchased millions of 
        barrels of Iranian oil.

Q.12. Do you support legislation that would eliminate of the 
sunset provision in the Iran Sanctions Act of 1996?

A.12. The value of a sunset in legislation is that it allows 
Congress to review and renew the intent behind legislation on a 
periodic basis and to send a signal to the regime about its 
conduct. A sunset also necessitates the review of authorities 
to ensure that legislation is attuned to the current 
methodologies and typologies of a threat actor and to ensure 
that authorities are kept current based on the latest 
threatening activity of sanctions targets in countries such as 
Iran.

Q.13. The Office of Foreign Assets Control recently reissued 
its longstanding General License, which permits virtually any 
energy-related transaction with Russia.
    How long does the Administration intend to allow such 
transactions with sanctioned entities and persons to proceed?
    Why is the Administration allowing Russia to access these 
significant U.S. dollar flows?

A.13. On May 15, OFAC issued Russia-related General License 
(GL) 8G, which extends the authorization for energy-related 
payments involving certain sanctioned Russian financial 
institutions, for 3 months. This GL helps preserve stability in 
energy markets by mitigating any shocks that would occur in an 
abrupt transition away from Russian energy. It remains 
consistent with our overarching objectives as we work alongside 
Coalition partners to reduce Russian Government revenues 
derived from crude oil and refined products under the price cap 
while keeping the cost of energy manageable for people all over 
the world.
    This GL has also helped our partners and allies facilitate 
an orderly reduction of their dependence on Russian energy. We 
are strongly encouraged by their progress and are taking care 
to preserve their support on key lines of efforts, such as the 
price cap. Of note, GL 8G does not affect the prohibition on 
importing crude oil, petroleum, liquefied natural gas, coal, 
and similar products of Russian Federation origin into the 
United States under Executive Order 14066. Those imports remain 
prohibited, and GL 8G only authorizes certain energy-related 
transactions if they involve specific sanctioned banks or their 
subsidiaries but have no other sanctions nexus.

Q.14. What steps is Treasury taking to curb global reliance on 
the Russian Civil Nuclear Industry?

A.14. Treasury is committed to working with interagency 
partners and with like-minded countries to reduce our 
collective reliance on Russian enriched uranium and fabricated 
nuclear fuel, including by developing alternative supply 
options and pursuing a broad-based renewable energy agenda. Our 
efforts in this space are closely aligned with the two overall 
goals of our broader Russia sanctions policy: degrading 
Russia's capacity to prosecute its war in Ukraine, including by 
restricting and reducing Russian State revenue, while 
simultaneously avoiding damaging disruptions to global markets 
and the world economy. Treasury understands the importance of 
working towards an eventual reduction of U.S. and partner 
country reliance on Russia for nuclear fuel and is likewise 
mindful of the ongoing vulnerability of key European partners 
to a supply disruption.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
           SENATOR FETTERMAN FROM ELIZABETH ROSENBERG

Q.1. I've heard directly from my constituents in Pennsylvania 
about ongoing anti-Asian racism and violence. We must be very 
clear: today's concerns are about the Chinese Communist Party 
Government--not people of Chinese descent and not Asian-
Americans. The bottom line is that we must not enable racism as 
we consider our national security.
    What is your agency doing to combat anti-Asian racism and 
make sure our response is focused on the Chinese Government?

A.1. Treasury's economic actions with respect to the PRC 
Government are designed to strengthen U.S. national security 
and protect human rights; any differences in approach to 
national security between our respective Governments are 
differences with the PRC Government, not with the Chinese 
people.
    During the upsurge across the Nation in anti-Asian rhetoric 
and violence related to the pandemic, Treasury hosted a 
training event open to the entire workforce in collaboration 
with seven Federal financial regulatory and supervisory 
agencies (the Federal Reserve Board, Federal Deposit Insurance 
Corporation, Consumer Financial Protection Bureau, National 
Credit Union Administration, Federal Housing Finance Agency, 
Securities and Exchange Commission, and Office of the 
Comptroller of the Currency). The title of the program was 
``Unmasking Anti-Asian Violence, Xenophobia, and Bias'', which 
aligned with the White House Executive Memorandum issued in 
January 2021 condemning such acts. This session was conducted 
by a Vietnamese American neuroscientist and diversity and 
inclusion subject matter expert, Dr. Steve Robbins. This 
training remains available on-demand to all Treasury employees.
    Additionally, Treasury has had a long-standing robust 
infrastructure as well as programs, resources, training, and 
regular assessments dedicated to workforce diversity and equity 
and workplace inclusion. The following are a few examples:

    A Counselor for Racial Equity position was 
        established within the Office of the Deputy Secretary 
        in 2021. The Counselor is charged with coordinating 
        Treasury's efforts to advance racial equity including 
        engaging with diverse communities throughout the 
        country and to identify and mitigate barriers to 
        accessing benefits and opportunities with the 
        Department.

    In 2022, Treasury established the Office of 
        Diversity, Equity, Inclusion, and Accessibility (DEIA) 
        that serves as a center of excellence to modernize the 
        Department's overall DEIA strategy and drive cohesive 
        implementation and accountability across the 
        departmental offices and bureaus. The new structure 
        allows for greater, more concentrated, and dedicated 
        focus on civil rights compliance and mitigation, as 
        well as DEIA accountability, competencies, and 
        transparency.

    Treasury developed and deployed a data mapping tool 
        that measures workforce diversity, equity, and 
        inclusion compared to relevant benchmarks.

    The Office of DEIA developed a three-tiered online 
        training program consisting of DEIA 101 fundamentals, 
        Conscious Inclusion Competencies aimed at shaping 
        workplace inclusion, and DEIA for Managers that guides 
        the management of a diverse workforce.

    Regular messages are sent from the Treasury 
        Secretary to the entire workforce to reinforce 
        leadership commitment to DEIA in conjunction with 
        Federal commemorative months. Ad hoc messages have been 
        sent to the workforce from the Treasury Chief Diversity 
        & Inclusion Officer following tragic events that impact 
        particular people of color, such as the Asian 
        community, to express sentiments of concern and provide 
        resources for employee support.

    Treasury has an Asian Pacific American Employee 
        Resource Group, abbreviated as ``TAPA''. The objective 
        of TAPA is to provide a safe environment where Asian 
        Pacific Americans and ally employees can actively 
        engage in discussions of shared issues or concerns to 
        help promote a diverse and engaged Federal workplace 
        and uncover issues that are specific to the needs of 
        the Treasury Asian Pacific American community.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
                       FROM PAUL M. ROSEN

Q.1. According to your last annual report, CFIUS reviewed 
around 450 transactions--roughly triple the number that CFIUS 
reviewed in 2014. The number and complexity of CFIUS's covered 
transactions will continue to increase--because technologies 
are getting more complex and our adversaries are seeking new 
ways to get ahead.
    How scalable is the CFIUS model for the future, and how 
much more volume and complexity can CFIUS handle while still 
functioning with the level of efficiency it has now?

A.1. CFIUS remains focused on having sufficient resources to 
process cases in an effective and efficient manner consistent 
with its national security mission. Consistent with 
Congressional appropriations and bipartisan support, Treasury's 
Office of Investment Security continues to add resources to 
address its mission and actively hire new staff to meet the 
increased volume and complexity of transactions. Although the 
case docket is anticipated to grow marginally in the future, 
the Treasury is currently positioned to handle this increase 
while continuing to meet statutory deadlines based upon the 
Committee's current jurisdiction.
    However, CFIUS's case-by-case screening mandate is very 
resource-intensive. The CFIUS model has been able to scale 
after FIRRMA to handle the increased caseload and complexity; 
however, if the cases, complexity, or jurisdiction grow, 
without more resources--both at Treasury and within the 
interagency--CFIUS will not be as effective or efficient in 
reviewing and resolving transactions that fall within its 
jurisdiction. In the end, we must ensure that CFIUS can 
continue to conduct timely and in-depth analysis of the effect 
of transactions involving foreign investment on the national 
security of the United States, so any change to the Committee's 
jurisdiction, caseload, or other requirements must be reviewed 
with this shared goal in mind.

Q.2. Specifically, what are the key limiting factors that 
Treasury and the other CFIUS agencies would need to address in 
order to take on a larger number of covered transactions every 
year?

A.2. The key limiting factor in the ability to substantially 
scale the scope of the Committee's work beyond its current 
workload is the requirement of a thorough case-by-case analysis 
conducted by the interagency. Each case requires substantial 
staff hours to review, potentially investigate, and 
subsequently obtain, depending on the case, a certification by 
an Assistant Secretary, or Deputy Secretary or Cabinet head at 
each CFIUS member agency that a reviewed transaction has no 
unresolved national security issues. As the CFIUS process 
currently requires the approval of at least nine senior-level 
officials to resolve each case, in addition to requiring 
increased resources at Treasury and across the Committee, CFIUS 
might need to change its internal processes and procedures in 
order to take on a materially larger number of covered 
transactions every year.

Q.3. Can you describe what Congress should consider when 
evaluating proposals to expand CFIUS jurisdiction to cover 
greenfield investments or transactions that would result in a 
foreign company or Government being able to moderate content 
distributed to U.S. citizens?

A.3. Any expansion to CFIUS's jurisdiction must consider 
resources, the most appropriate and effective use of CFIUS, and 
whether such changes are consistent with the fact and time-
intensive case-by-case review process that Congress enacted. 
Historically, the Committee's jurisdiction has been 
characterized as a ``tool of last resort'' in part to balance 
the need to protect national security with the importance of 
maintaining an open investment environment. This is embodied in 
the Defense Production Act's requirements that, to act, the 
President must find, among other things, that other provisions 
of law do not provide adequate and appropriate authority for 
the President to protect the national security. Thus, any 
proposals to expand CFIUS's jurisdiction should first consider 
whether an authority separate from CFIUS can or should be 
modified or created that could more precisely or efficiently 
address the discrete national security concerns identified. 
Doing so will not only lead to a more efficient use of limited 
resources but also avoid subjecting a potentially substantial 
number of transactions to a complex and resource-intensive 
regulatory process such as CFIUS without a material impact to 
national security. In the end, CFIUS stands ready to continue 
to execute the national security function that Congress 
prescribed.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                       FROM PAUL M. ROSEN

Q.1. During your testimony before the Banking Committee on May 
31, you stated that a forthcoming Executive order would impact 
outbound investment from the U.S. that ``comes with know-how 
and expertise to certain specific sectors and subsectors such 
as advanced semiconductors, artificial intelligence, and 
quantum computing.''
    Does the Administration intend to apply its outbound 
investment screening to sectors beyond ``advanced 
semiconductors, artificial intelligence, and quantum 
computing?'' If so, what sectors?

A.1. The Administration is currently in the process of 
developing a narrowly tailored program to address national 
security risks presented by certain outbound investments from 
the United States. The specific sectors and subsectors under 
consideration include advanced technologies--such as 
semiconductors and microelectronics, quantum information 
technologies, and certain artificial intelligence systems--that 
enable next-generation military, surveillance, and intelligence 
capabilities. The final decision and contours of any potential 
program is up to the President, but Treasury will continue to 
work constructively with Congress to protect national security 
in the context of this program and beyond.

Q.2. If the U.S. restricts outbound investment in certain 
sectors to China, what is the risk that other Nations backfill 
U.S. capital and develop closer ties to China?

A.2. It is critical that the United States work with allies and 
partners on this issue. Through concerted efforts by this 
Administration, Treasury, working with the Departments of 
Commerce, State, and others, have engaged with our allies and 
partners concerning the identified national security concerns. 
As a result, these issues have received increased attention and 
interest from allies and partners, including through public 
statements by the United Kingdom, European Commission, and 
others on this subject. The United States will continue to work 
closely with key countries to encourage policy developments 
that address our collective national security concerns.

Q.3. What areas of focus for technology and investment are most 
important to address with respect to geopolitical competition 
with China? How can the public and private sectors cooperate to 
ensure that U.S. and allied critical technology and data does 
not give asymmetrical power advantages to Beijing?

A.3. Consistent with its authorizing statute, CFIUS's 
consideration of national security risk is not country specific 
and is based on a holistic assessment of the specific facts of 
each transaction. The Committee often considers risks related 
to emerging technologies, Americans' sensitive data, and supply 
chains important to national security. In the President's 
recent Executive order, ``Ensuring Robust Consideration of 
Evolving National Security Risks by the Committee on Foreign 
Investment in the United States'' (E.O. 14083), several 
examples of industries fundamental to national security were 
identified, including microelectronics, artificial 
intelligence, biotechnology and biomanufacturing, quantum 
computing, advanced clean energy, climate adaptation 
technologies, critical materials, and elements of the 
agriculture industrial base that have implications for food 
security. CFIUS carefully considers risks to these and other 
key industries arising from transactions before the Committee.
    The Office of Investment Security engages in extensive 
outreach with public and private stakeholders to educate about 
the CFIUS process and the national security risk factors that 
the Committee considers. As one example, just as financial 
institutions are subject to ``know your customer'' 
requirements, we frequently encourage U.S. businesses to ``know 
your investor.'' Before accepting investment, it is crucial 
that businesses understand the identity and role of even 
limited partners who may gain access to their business' data or 
technology. CFIUS regularly requests this information from 
transaction parties, and it is beneficial for U.S. businesses 
to perform this diligence early in the fundraising process.

Q.4. Recently, there has been considerable attention on 
People's Republic of China (PRC)-connected purchases of 
agricultural land, and the potential impact on the security of 
the U.S. food supply chain.
    What is Treasury doing to prevent the weaponization of 
farmland against Americans?

A.4. CFIUS recognizes the real risk that some foreign purchases 
of agricultural land can pose to national security. Indeed, any 
foreign control of or influence over a critical supply chain 
such as agriculture is something that the Committee considers 
carefully. Under its authority, the Committee has jurisdiction 
and does review certain transactions involving agricultural 
land. To that end, the Department of Agriculture (USDA) plays a 
key role in the Committee's discussions involving farmland and 
food security and serves as a co-lead agency on any CFIUS cases 
involving significant agricultural equities. While we are 
committed to continued engagement with USDA, most cases do not 
involve food and agriculture. Our current system gives us the 
flexibility to bring in USDA as a full-fledged member for just 
those cases where the Committee benefits from their insight.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR FETTERMAN FROM PAUL M. ROSEN

Q.1. I've heard directly from my constituents in Pennsylvania 
about ongoing anti-Asian racism and violence. We must be very 
clear: today's concerns are about the Chinese Communist Party 
Government--not people of Chinese descent and not Asian-
Americans. The bottom line is that we must not enable racism as 
we consider our national security.
    What is your agency doing to combat anti-Asian racism and 
make sure our response is focused on the Chinese Government?

A.1. I strongly agree that CFIUS's mandate to address national 
security is and must be focused on an objective assessment of 
the threat, vulnerability, and consequence to national security 
that may arise in each transaction CFIUS considers. That is one 
of the many reasons why CFIUS takes such care to limit its 
reviews to the specific facts of each transaction and to keep a 
laser focus on our national security mandate. CFIUS's role is 
to facilitate foreign investment consistent with the protection 
of national security. There is absolutely no place for racial 
or ethnic discrimination in the Committee's work.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                       FROM PAUL M. ROSEN

Q.1. Two of the leading drone manufacturers are the Chinese 
companies Da Jiang Innovations (DJI) and Autel, both of which 
present a host of cyber and national security threats to the 
United States and our allies. They have used their monopoly 
power to prevent U.S. or allied drone companies from 
establishing themselves. Further, these Chinese companies are 
deploying drone platforms that would permit the Chinese 
Communist Party to see and/or collect data associated with 
Americans' use of their drones (e.g., images, location data, 
etc.). This prompted a broad warning from DHS's Cybersecurity 
and Infrastructure Security Agency on the threat posed to 
public agencies and private entities from the use of Chinese 
drones. DJI was even added to the U.S. Department of Commerce's 
list in 2020 due to their support of human rights abuses. While 
there is certainly merit in considering whether and how to 
restrict the import of Chinese drones--especially for use by 
Federal, State, and local law enforcement agencies--please 
explain to me your thoughts on the U.S. developing an outbound 
investment restriction regime to reduce U.S. investment in 
these firms. Specifically, should limits or outright foreclose 
of U.S. capital to Chinese companies that, according to 
reports, pose serious national security risks to the U.S. be 
considered?

A.1. The Administration is currently in the process of 
developing a narrowly tailored program to address national 
security risks presented by certain outbound investments from 
the United States. The specific sectors and subsectors under 
consideration include advanced technologies--such as 
semiconductors and microelectronics, quantum information 
technologies, and certain artificial intelligence systems--that 
enable next-generation military, surveillance, and intelligence 
capabilities. While I cannot comment on whether the investments 
into a particular company may or may not be covered under any 
such program, the Administration has been clear on the overall 
purpose of restricting outbound investments that advance the 
technological capabilities of adversaries in certain sectors to 
the detriment of U.S. national security. If an Executive order 
is issued, the Administration would look forward to continuing 
to work with Congress to fully address identified national 
security risks under the program.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
                  FROM THEA D. ROZMAN KENDLER

Q.1. The number of parties on the Entity List increased 
significantly in recent years to address threats posed by end 
users seeking to access U.S. items and technology contrary to 
the national security and foreign policy interests of the 
United States.
    Please provide the number of parties that have been added 
to the Entity List each year for the past 7 years. Please also 
provide for each year the number of parties added to the Entity 
List that are based in the People's Republic of China (PRC) or 
that BIS added for PRC-related activity.

A.1. Entities located in the People's Republic of China (PRC), 
(including Hong Kong) account for the second largest number of 
entries on the Entity List, second only to Russia following its 
further invasion of Ukraine in February 2022. The following 
table lists the number of entities added to the Entity List 
under the destinations of Russia, the PRC and Hong Kong, as 
well as the worldwide total outside of those countries, from 
the creation of the Entity List in 1997 through August 2023.


    BIS has also added entities located outside of the PRC to 
the Entity List based on PRC-related activity. For example, on 
June 12, 2023, BIS added 15 entities located in Kenya, Laos, 
United Arab Emirates, South Africa, Malaysia, Singapore, 
Thailand, and the United Kingdom to the Entity List for 
providing training to People's Liberation Army (PLA) pilots 
using Western and NATO sources. See 88 FR 38739 (June 14, 
2023). BIS does not systematically track all entities located 
outside the PRC that are added to the Entity List for PRC-
related activity, and as such, is unable to provide a complete 
list of such entities at this time.

Q.2. What trends and factors are relevant for Congress to be 
aware of regarding the number of entities added to end user 
lists, particularly with regard to the countries in which those 
entities are based?

A.2. BIS adds entities to the Entity List upon a determination 
that that there is reasonable cause to believe, based on 
specific and articulable facts, that an entity has been 
involved, or poses a significant risk of being or becoming 
involved in, activities that are contrary to the national 
security or foreign policy interests of the United States. In 
consultation with our interagency partners at the Departments 
of State, Defense, and Energy, we ensure entities added to the 
Entity List meet that standard.
    The Entity List, as well as other prohibited parties' lists 
(i.e., the Denied Persons List and the Military End User List) 
currently encompass more than 2,000 entities through 
approximately 2,500 entries (i.e., affiliates, subsidiaries, 
etc., sometimes located in multiple countries), in 
approximately 80 countries.
    Under the Biden administration, the Entity List has been an 
important tool for protecting U.S. national security and 
foreign policy interests, as evidenced by the fact that more 
entries were added in 2022 than in any other year of the Entity 
List's existence. While a high number of total listings is not 
necessarily an objective of BIS, the Entity List is a potent 
tool that is both flexible and targeted and can be employed 
quickly based on circumstances on the ground, as evidenced by 
numerous Russia-related actions. Expanded use of the Entity 
List also has the benefit of being well understood by industry 
and foreign partners, and the clear processes and standards 
demonstrate U.S. commitment to the rule of law.
    BIS has undertaken significant Entity List actions against 
the PRC or PRC-related entities for their support of the PRC's 
military actors and military modernization efforts, support of 
the PRC's weapons of mass destruction programs, and for 
enabling or engaging in human rights abuses. The nearly 250 
entities added during this Administration make up over 30 
percent of all PRC entities added since the creation of the 
list and demonstrate the serious and sustained focus by the 
Administration on entities within the PRC engaged in activities 
contrary to U.S. national security and foreign policy 
interests. It is also worth noting that the approach taken by 
this Administration is deliberate, targeted, and focused on 
particular entities of concern and builds on the work done in 
prior Administrations that identified significant large PRC 
firms of concern, such as Huawei, and added over 150 Huawei 
affiliates and subsidiaries. This illustrates further that 
focusing solely on the number of entities or entries added to 
the Entity List is not necessarily the most effective metric 
for determining the national security impact of Entity List 
actions.
    In addition to addressing the national security and foreign 
policy threats related to the PRC, BIS has been simultaneously 
imposing a series of actions against the Russian Federation for 
its brutal further invasion of Ukraine. To date, more than 600 
entities have been added to the Entity List for acquiring or 
attempting to acquire items subject to the EAR in support of 
Russia's military. This number includes entities located in 
third countries, such as the PRC.
    BIS continues to add entities for other acts that are 
contrary to U.S. national security and foreign policy 
interests, such as engaging in cyber exploits that threaten the 
privacy and security of individuals and organizations 
worldwide, enhancing the military capabilities of adversaries, 
or preventing BIS from performing end-use checks.

Q.3. What efforts, if any, is BIS undertaking to prevent Entity 
List evasion through corporate restructuring or other evasion 
tactics? Have such efforts included listing derivative or 
native language business affiliates as AKAs on the Entity List?

A.3. BIS vigorously uses the Entity List to target parties for 
which there is reasonable cause to believe, based on specific 
and articulable facts, that the entity has been involved, is 
involved, or poses a significant risk of being or becoming 
involved in activities that are contrary to U.S. national 
security and foreign policy interests.
    With our interagency partners, we have added over 2,000 
entities to the Entity List under 2,500 entries in over 80 
countries. Where appropriate, BIS includes entries for 
affiliates and subsidiaries, including those based in other 
countries. For example, there are over 150 entries related to 
Huawei on the Entity List, which encompass Huawei subsidiaries 
and affiliates in multiple countries across the globe. 
Moreover, where there is evidence of evasion by a derivative 
entity or affiliate of an entity on the Entity List, with our 
interagency partners, BIS will modify the listing to include 
aliases/front company names.
    In addition, whenever an entity on the Entity List is a 
party to a transaction (not just the recipient of items), BIS 
imposes a license requirement for the export, reexport, or 
transfer (in-country) of any items included in the License 
Requirement column of an entity's entry on the Entity List. 
This requirement is aimed at reducing risk of diversion.
    Furthermore, through the EAR and published guidance on our 
website, BIS recommends exporters do their own due diligence to 
look for ``red flags'' when engaging in a transaction. As a 
first step, exporters must screen parties in their transactions 
against the Entity List. If, for example, a company has the 
same address as (e.g., is co-located with) a listed entity, 
this is a ``red flag.'' Here, BIS recommends an exporter 
undertake sufficient due diligence to verify that the company 
co-located with the listed entity is not, in fact the listed 
entity and does not intend to transfer (in-country) the 
requested items to the listed entity. Moreover, if the name or 
address of a company involved in a transaction is a near match 
to a name on the entity list, this is also a ``red flag.'' In 
this circumstance, BIS recommends that detailed due diligence 
be undertaken and the exporter examine other factors to 
determine if the company involved in the transaction is the 
same as the listed entity. Such factors may include, but are 
not limited to, the company's name, address, corporate 
officers, business activities, and contact information. In 
addition to following BIS's guidance, exporters can also 
contact BIS if there are questions related to a potential 
transaction.
    As relevant and appropriate, BIS will also exercise its 
enforcement powers to address violations of export controls. 
Our intelligence analysts and special agents are the foremost 
experts on export controls and are dedicated solely to BIS's 
enforcement mission and are closely monitoring for evasion 
including through corporate restructuring and other evasion 
tactics. In addition to our extensive administrative 
authorities, BIS is working closely with our sister agencies 
like the Department of the Treasury's Financial Crimes 
Enforcement Network and Office of Foreign Assets Control, as 
well as the Department of Justice to hold bad actors 
accountable, wherever they may be located. Where appropriate, 
BIS is working to coordinate listings based on the unique 
authorities and criteria that each agency oversees.

Q.4. In recent years, BIS has issued a number of foreign direct 
product rules. What analysis has BIS conducted to determine the 
effectiveness of these rules in achieving their intended effect 
and evaluate the impact of these rules on U.S. exporters?

A.4. BIS consults with industry, analyzes commercial and 
Government trade data and classified information, and engages 
with foreign Governments to determine the effectiveness of our 
controls. This analysis includes monitoring changes in global 
exports for items subject to Foreign Direct Product (FDP) rules 
to restricted countries. For example, through this process BIS 
identified decreased global exports of items in Supplement No. 
7 to Part 746 of the EAR following the publication of the 
Russia/Belarus/Temporarily occupied Crimea region of Ukraine 
FDP rule in February 2023.

Q.5. In a speech last year, you noted that exporters are not 
using the Strategic Trade Authorization license exception as 
intended, resulting in additional but unnecessary compliance 
work for exporters that also requires additional license 
reviews for BIS. Since then, have you seen a change in 
exporters' use of STA, and if so, can you quantify the time and 
resources BIS must commit to license application reviews for 
exports to U.S. allies and partners?

A.5. Between FY 2019 and FY 2022, there was a general upward 
trend of exporters using Strategic Trade Authorization license 
exception (STA). We have not seen a notable change in the use 
of STA since I delivered my speech. To increase STA-utilization 
rates, BIS continues to educate companies in the United States 
and abroad on the benefits of STA.
    BIS commits considerable resources to license application 
reviews for exports to U.S. allies and partners. If we define 
U.S. allies and partners as members of the Global Export 
Control Coalition (Supp. No. 3 Part 746) and countries in 
Country Groups A:5 and A:6 (Supp. No. 1 Part 740), these 
license applications amount to approximately 54 percent (FY 
2022) of our overall license application workload. The average 
processing time (APT) for these license applications has 
increased from approximately 22 days (FY 2019) to approximately 
25 days (FY 2022). Although this is considerably shorter than 
the overall APT for all license applications of approximately 
44 days (FY 2022), the processing of these licenses takes 
considerable time and resources.

Q.6. At the Committee's February 28 hearing, former Assistant 
Secretary Kevin Wolf emphasized the need for the U.S. 
Government to work with allies and partners to establish their 
own domestic export control mandates, authorities, and 
resources. International engagement and action are critical 
elements of an effective export control system, and this 
Administration is doing impressive work in this area.
    Do U.S. allies and partners have similar export control 
authorities and resources as those in the Unites States?

A.6. U.S. allies and partners have differing legal authorities 
under which export controls are applied and enforced and commit 
varying resources to export control implementation and 
enforcement. In general, allied and partner authorities are 
more limited than the authorities of the United States. Allied 
export control systems are generally limited to controlling the 
export of (I) items on one of the four multilateral regime 
lists; and (II) activities of their citizens involving unlisted 
items only if they are specifically for the development or 
production of weapons of mass destruction. Thus, unlike the 
U.S. export control system, the allied export controls systems 
generally do not have the authority to impose controls on (I) 
commodities, software, and technologies that are not on a 
multilateral regime list; and (II) exports of unlisted items to 
specific end users of concern.
    Notably, however, in response to Russia's further invasion 
of Ukraine, some allies and partners enacted new authorities 
that allowed them to align their controls with those of the 
United States. Thus, for example, the European Commission 
adopted authorities which allowed it to align its list-based 
controls against Russia with that of the United States, 
allowing the EU members to control items that are outside of 
the four multilateral regime lists. Notwithstanding this 
alignment, the European Union's system is not fully aligned 
with the United States. In the EU, if an item is listed in its 
``Annex I,'' an export authorization or license is required. If 
the item is not on the list, it is generally not controlled. In 
the U.S. system, BIS lists items on the Commerce Control List 
(CCL). However, if an item is not on the CCL, it does not mean 
that it is not controlled. It could be classified as EAR99 and 
may require a license based on to whom or for what purpose the 
item is being shipped.
    The EU and U.S. authorities also differ in how they are 
administered. In the United States, BIS establishes the 
regulations, administers the licenses, and implements the 
regulations. In contrast, the EU's export control authority is 
more diffuse. The European Union establishes dual-use export 
control regulations for its member countries and the member 
States are responsible for issuing export licenses and 
implementation. Given the decentralized nature of the EU's 
system, the resources each member State commits to 
administering licenses and implementation also differ.

Q.7. If not, please describe what steps BIS is taking to 
encourage and provide technical assistance to allies and 
partners in establishing such authorities and resources?

A.7. Since my confirmation, we have worked vigorously to 
rebuild, expand, and strengthen our relationships with partners 
and allies across the world, and export controls is one key 
area in which we have been building robust lines of 
communication. I engage in regular communication with our 
allies to share insight and provide such assistance. BIS 
actively participates in fora such as the U.S.-EU Trade and 
Technology Council (TTC); the Indo-Pacific Economic Framework 
(IPEF); and the nearly 40 Government Global Export Controls 
Coalition built to respond to Russia's brutal war against 
Ukraine, where we provide technical assistance on our 
authorities and establishing such authorities.
    BIS works with partner Governments to identify regulatory 
and institutional gaps and to develop resource requirements. 
Through financial support from the State Department's Export 
Control and Related Border Security Program (EXBS), BIS 
provides a wide range of technical assistance, from Executive 
exchanges to training workshops to the provision of detection 
equipment and specialized training for border control and 
enforcement agencies in four core areas: laws and regulations, 
licensing, Government-industry cooperation, and interagency and 
international cooperation and coordination.
    From FY 2021 to FY 2022, BIS more than doubled our 
capacity-building international engagement portfolio, from 
approximately 23 to over 60 engagements. We expanded our EXBS 
activities from about two and three countries in 2019 and 2020, 
respectively, to more than 21 countries in FY 2023. The focus 
of these engagements were the strengthening of countries' 
domestic strategic trade control implementation and enforcement 
as well as fostering compliance with the Export Administration 
Regulations.

Q.8. Would it strengthen our export control system if Congress, 
by statute, established a new office within BIS to coordinate 
international export control policy work and provided dedicated 
resources to carrying out this mandate?

A.8. Coordination among allies is among the most critical 
elements to any successful export control administration and 
implementation, and as Under Secretary Estevez has noted 
numerous times, BIS and our interagency partners are constantly 
working together to review and refine our export controls in 
response to the evolving national security context.
    For BIS, this includes evaluating and refining our overall 
approach, and how our resources are allocated. In order to 
address our substantially growing responsibilities, BIS plans 
to implement a realignment of staff under Export Administration 
(EA), consistent with the Export Control
    Reform Act of 2018 (ECRA) and in accordance with the 
Commerce, Justice, Science and Related Agencies Appropriations 
Act, 2023 (P.L. 117-328), and which has received partial 
approval from Congress.
    This reorganization plan updated EA's leadership structure 
and offices to better align existing resources with the 
important mission that Congress has given us. As part of this 
reorganization, we will establish a Principal Deputy Assistant 
Secretary (PDAS) for Strategic Trade and Technology Security, 
and two Deputy Assistant Secretary (DAS) positions: Strategic 
Trade and Technology Security. All of these positions would be 
filled by career Senior Executive Service (SES) personnel.
    A new International Policy Office is being established 
under the PDAS, which will formalize current international 
policy engagement activities into a consolidated unit. This 
office will operate in a cross-functional manner along with the 
other program offices as well. This office will also work 
closely with its interagency counterparts, including the 
Department of State's Bureau of International Security and 
Nonproliferation, which has responsibility for export control 
diplomacy with foreign Governments and for multilateral export 
control regimes.
    BIS has briefed Committee staff on our full reorganization 
proposal in detail and stands ready to review and consult on 
any additional proposals you may wish to consider to further 
formalize or institutionalize this important update to our 
approach.

Q.9. In a speech at the Brookings Institution, National 
Security Advisor Jake Sullivan described the approach of 
protecting foundational technologies ``with a small yard and a 
high fence.'' He previously spoke of ``families of technologies 
that will be of particular importance of the coming decade''--
including microelectronics, quantum information systems, 
artificial intelligence, biotechnologies, and clean energy 
technologies--that are ``new sources of economic growth [and . 
. . ] are driving advanced military modernization efforts.'' 
What additional authorities, resources, technical expertise and 
funding, if any, would assist the Office of Export 
Administration in evaluating these technologies and determining 
whether and when export controls may be appropriate?

A.9. I agree that it is imperative that the United States and 
our allies safeguard our core technologies by continuously and 
proactively reviewing and updating our export control policies 
in order to protect foundational technologies.
    The President's FY 2024 budget provides Export 
Administration with the resources necessary to sustain our 
effective work across our areas of responsibility, including 
the evaluation of the families of technologies outlined by the 
National Security Advisor, as well as others.
    BIS is working to implement a reorganization of Export 
Administration (EA) that will help to address our substantially 
growing responsibilities and ensure that the national security 
and economic policy priorities identified under Export Control 
Reform Act of 2018 (ECRA) are met effectively and 
expeditiously. This reorganization plan has received partial 
approval from Congress.
    BIS plans to implement this realignment of staff under EA 
consistent with the ECRA and in accordance with the Commerce, 
Justice, Science and Related Agencies Appropriations Act, 2023 
(P.L. 117-328).
    In order to meet BIS's growing responsibilities and enhance 
our ability to advance the national security and foreign policy 
objectives of the United States, EA is working to implement a 
reorganization and realignment of staff. BIS has briefed the 
Committee on this reorganization in detail, but to briefly 
summarize, we have proposed a new leadership structure composed 
of a Principal Deputy Assistant Secretary (PDAS), and two 
career Senior Executive Service Deputy Assistant Secretaries 
for Strategic Trade and Technology Security, respectively. 
Additional notable changes include:

  1.  Consolidating EA's core international coordination work 
        into a new International Policy Office reporting to the 
        PDAS. Currently these efforts are spread across EA's 
        program offices.

  2.  Moving the Munitions Control Division (MCD), which 
        reviews license applications for 600 series items, that 
        is currently housed within the Office of Strategic 
        Industries and Economic Security to the renamed Office 
        of National Security Controls (ONS). Many of the items 
        reviewed by MCD's engineers are generally designed for 
        military systems, but are related to items reviewed by 
        ONS engineers (e.g., aircraft, aircraft engines, 
        electronics, ground vehicles, and telecommunications 
        equipment), and the same engineering or technical 
        expertise applies regardless of an item's design or 
        use. This move will allow engineers to more readily 
        collaborate.

  3.  Restructuring the Office of Technology Evaluation (OTE) 
        so that it consists of two new divisions: the Emerging 
        Technology Division and the Foreign Technology Analysis 
        Division. The first, the Emerging Technology Division, 
        is proposed to consolidate the engineers and policy 
        analysts from various licensing divisions under OTE in 
        order to enable increased focus on the critical and 
        high-profile work of addressing ECRA Section 1758 
        technologies. The second division, Foreign Technology 
        Analysis Division, would similarly consolidate efforts 
        currently spread across EA to increase focus 
        specifically on determining foreign availability of 
        technologies, as well as the impact of export control 
        measures and the approval/denial of licenses.

  4.  Transferring the Defense Industrial Base Division (DIB) 
        from the Office of Technology Evaluation to the Office 
        of Strategic Industries and Economic Security. DIB 
        would also absorb the Section 232 Team and focus 
        specifically on defense industrial base assessments and 
        Section 232 work.

    The realignment of leadership and other changes will allow 
EA to gain efficiencies, increase performance, and right size 
divisions according to need and focus and to better integrate 
BIS's new Information and Communications Technology and 
Services (ICTS) supply chain security program.
    The Ukraine supplemental funding illustrates the ways in 
which additional authorities can help BIS accomplish its 
missions. Specifically, providing BIS with the flexibility in 
direct-hiring authority would clear administrative hurdles in 
filling important positions. The Ukrainian supplemental funding 
allowed BIS to hire additional export analysts with key skills 
and experience that are supporting our mission. Applying a 
similar model--to include flexible hiring authorities--to 
expand our capabilities, particularly on a permanent basis as 
the Ukraine supplemental funding is time-limited, would be 
beneficial.
    BIS has briefed Committee staff on our full reorganization 
proposal in detail, and stands ready to review and consult on 
any additional proposals you may wish to consider to further 
formalize or institutionalize this important update to our 
approach.

Q.10. The Export Control Reform Act, in 50 U.S.C. 4813(a)(6), 
requires that BIS ``establish a process for an assessment to 
determine whether a foreign item is comparable in quality to an 
item controlled under this subchapter, and is available in 
sufficient quantities to render the United States export 
control of that item or the denial of a license ineffective, 
including a mechanism to address that disparity.'' Please 
describe the process that BIS has established for this purpose.

A.10. BIS utilizes available open-source, proprietary, and 
classified information in coordination with the Intelligence 
Community as well as the U.S. and international law enforcement 
community to assess the foreign availability of an item. The 
issue of foreign availability is one example of an important 
consideration in the process for identifying and implementing 
appropriate controls on foundational technologies. Because such 
technologies are already in production, there are often 
developers and producers of such technologies in foreign 
countries, thereby making new unilateral controls less 
effective. Additionally, foundational technology can include 
former multilaterally controlled items that have been 
decontrolled, many times because of widespread foreign 
availability outside of regime members. As a result, foreign 
availability and the impact of controls on the development of 
such technologies in the United States should be carefully 
considered in accordance with ECRA.
    As part of Export Administration's reorganization plan, we 
will be realigning our staff and resources to consolidate and 
invigorate our analytical work in emerging and foundational 
technologies as well as foreign technology analysis by creating 
two formal divisions within the Office of Technology 
Evaluation: the Emerging Technology Division and the Foreign 
Technology Analysis Division.

Q.11. The Export Control Reform Act, in 50 U.S.C. 
4812(a)(2)(F), provided authority for BIS to control exports to 
``foreign military intelligence services.'' Last year, as part 
of the National Defense Authorization Act, Congress expanded 
that authority to control exports to ``foreign militaries, 
security, or intelligence services.'' What is the timeline for 
implementing this statutory change?

A.11. BIS appreciates the Committee's support for enacting this 
key enhancement to our existing authorities and we are working 
closely with interagency partners to implement this expanded 
authority in a manner that does not conflict with activities 
and authorities under the jurisdiction of other agencies. We 
are working with our interagency partners to develop 
regulations implementing this authority.

Q.12. During the last Congress, Senators Wyden and Lummis 
introduced the Protecting Americans' Data from Foreign 
Surveillance Act of 2022.
    Can you describe any concerns or potential unintended 
consequences of using export controls to address the policy 
concerns related to the foreign adversaries obtaining sensitive 
personal data? Can you estimate, if the bill were to use a 
definition of ``personal data'' similar to that of ``sensitive 
personal data'' in 31 CFR 800.241, the number of license 
applications that such a bill would generate? Please also 
describe any additional resources, expertise, and staff BIS 
would need to implement this legislation.

A.12. I share the concerns of the bill's sponsors regarding the 
transmission of American's personal data to foreign 
adversaries. BIS does not have existing expertise in data 
privacy and is unable to describe potential unintended 
consequences of using export controls to address the policy 
concerns related to foreign adversaries obtaining sensitive 
personal data. Currently, BIS's controls generally apply to a 
physical good, software, or technology and, in certain limited 
cases, activities of U.S. persons. Our goal in controlling 
these categories of items is to prevent dual-use items--items 
that have a military and civilian application--as well as 
certain less sensitive military items, from being exported to 
countries of national security or foreign policy concern. 
Sensitive personal data does not fall within these existing 
statutory categories.
    As far as estimating the number of license applications 
based on the definition in 31 CFR 800.241, BIS would need to do 
further analysis to determine what data would be controlled 
under the legislation. For example, it is not clear that the 
definition of ``sensitive personal data'' in 31 CFR 800.241 
meets the standards set forth in the legislation. The 
legislation requires the Secretary to identify categories of 
data of covered individuals that could be exploited by a 
foreign adversary and harm the national security of the United 
States if exported, reexported, or transferred (in-country) in 
a quantity that exceeds certain thresholds. The definition in 
31 CFR 800.241(b)(1) states that ``[d]ata maintained or 
collected by a U.S. business concerning the employees of that 
U.S. business, unless the data pertains to employees of U.S. 
Government contractors who hold U.S. Government personnel 
security clearances'' are not included. However, it is likely 
that such data would present national security concerns as 
outlined in the bill and would likely need to be covered under 
the new licensing regime. Accordingly, further information and 
expert analysis is needed to respond to this question.

Q.13. Which agencies, outside of those that participate in the 
existing interagency licensing process, would be appropriate to 
include in an interagency process for controls and licenses 
regarding personal data?

A.13. Commerce bureaus, programs, and offices, including the 
ICTS office, the International Trade Administration, the United 
States Patent and Trademark Office, and our Chief Data Officer, 
are actively engaged in ensuring responsible governance of data 
at home and globally. That said, we believe that imposing 
controls on transactions that raise national security concerns 
due to the cross-border transfer of Americans' sensitive 
personal data would also need to involve other departments and 
agencies that play a role in assessing and mitigating national 
security risks that arise in similar contexts. These would 
likely include relevant members of the Committee on Foreign 
Investment in the United States (CFIUS) and the Committee for 
the Assessment of Foreign Participation in the United States 
Telecommunications Services Sector (colloquially referred to as 
``Team Telecom''), such as the Departments of Justice, Defense, 
Homeland Security, Treasury, State, Commerce, Energy, and the 
Office of the Director of National Intelligence.

Q.14. A March 8 article in Financial Times described efforts 
that Chinese artificial intelligence groups undertake to evade 
U.S. export controls by using cloud providers and rental 
arrangements with third parties to obtain restricted 
technology.
    Does BIS need any additional authority to impose controls 
on such arrangements?

A.14. On October 7, 2022, BIS, pursuant to an interagency 
decision, implemented significant new export controls on 
certain advanced computing and semiconductor manufacturing 
items destined to the PRC, as well as restrictions on certain 
supercomputer and semiconductor end uses (87 FR 62186, October 
13, 2022). As BIS noted in the October 7 rule, the types of 
advanced computing items subject to the new controls can be 
used to enhance data processing and analysis capabilities, 
including through artificial intelligence. Among other things, 
these items are being used by the PRC to improve calculations 
in weapons design and testing including for weapons of mass 
destruction, such as nuclear weapons, hypersonics, and other 
advanced missile systems.
    BIS is aware of press reporting indicating that PRC-based 
entities, including those on the Entity List, are seeking to 
evade these controls by using cloud providers and rental 
arrangements to obtain access to advanced computing capacity 
enabled by restricted items. On October 17, 2023, BIS issued 
new controls to address this concern. Specifically, to address 
PRC operations inside and outside of China and Macau seeking to 
acquire advanced integrated circuits or access data centers 
with advanced integrated circuits, the October 17th rule 
expanded controls to more than 40 additional countries. The 
rule also added new end use controls to address circumvention 
of the controls. See 88 FR 73458 (Oct. 25, 2023). BIS welcomes 
the opportunity to work with Congress to advance legislative 
proposals to ensure BIS has the statutory tools the agency 
needs to regulate the ability of foreign persons to remotely 
access and utilize the functions and capabilities of items 
subject to the EAR.

Q.15. What considerations should Congress be aware of regarding 
these arrangements and potential controls or legislation 
related to cloud computing services?

A.15. In addition to the controls put in place in October 2022 
and October 2023, BIS also maintains controls on other key 
enabling technologies and certain end users that present U.S. 
national security or foreign policy concerns. In addition to 
semiconductors and related items, BIS maintains controls on 
encryption technology found in Category 5, Part 2, as well as 
ubiquitous hardware components that include: Graphics 
processing units (GPUs), Neural Network accelerators, central 
processing units (CPU), application specific integrated 
circuits (ASIC) units, or cloud computing technology. 
Restrictions also apply to certain inputs--software and IP-
libraries, certain types of data--that are necessary for the 
production of such items. In other words, AI applications 
incorporated into software, technology, or equipment subject to 
the EAR may be subject to license requirements if the software 
incorporates encryption, or if it is necessary for the 
development, production, use, operation, installation, 
maintenance, or repair of a licensable item.
    Restrictions on items for export to the PRC or specified 
end users in the PRC include items necessary for the 
development of cloud computing systems within the PRC. As a 
result, PRC entities are subject to restrictions when it comes 
to obtaining certain items necessary for developing their own 
cloud computing capacity. In addition, BIS maintains a series 
of tools and restrictions that can be employed when particular 
entities are found to be engaging in activities contrary to 
U.S. national security or foreign policy interests.
    BIS stands ready to work closely with the Committee to 
address the challenges posed by cloud computing services.

Q.16. In response to my question about BIS funding and 
resources, you mentioned that, ``we can always do more with 
more, and the Ukrainian supplemental funding model would 
certainly be an example for how we could do more with respect 
to the China military modernization and human rights threat.'' 
If Congress were to provide additional funding, what specific 
investments would best help BIS do more with more?

A.16. The President's FY 2024 budget provides Export 
Administration with the resources necessary to sustain our 
effective work across our areas of responsibility.
    In order to further address BIS's substantially growing 
responsibilities, increase our effectiveness in protecting 
national security consistent with ECRA and in accordance with 
applicable appropriations acts, EA is working to implement a 
reorganization and realignment of staff, which has received 
partial approval from Congress. BIS has briefed the Committee 
on this reorganization in detail, but to briefly summarize, we 
have proposed a new leadership structure composed of a 
Principal Deputy Assistant Secretary (PDAS), and two career 
Senior Executive Service Deputy Assistant Secretaries for 
Strategic Trade and Technology Security, respectively. 
Additional notable changes include:

  1.  Consolidating EA's core international coordination work 
        into a new International Policy Office reporting to the 
        PDAS. Currently these efforts are spread across EA's 
        program offices.

  2.  Moving the Munitions Control Division, which reviews 
        license applications for 600 series items, that is 
        currently housed within the Office of Strategic 
        Industries and Economic Security to the renamed Office 
        of National Security Controls. Many of the items 
        reviewed by MCD's engineers are generally designed for 
        military systems, but are related to items reviewed by 
        ONS engineers (e.g., aircraft, aircraft engines, 
        electronics, ground vehicles, and telecommunications 
        equipment), and the same engineering or technical 
        expertise applies regardless of an item's design or 
        use. This move will allow engineers to more readily 
        collaborate.

  3.  The current Office of Technology Evaluation will consist 
        of two new divisions: the Emerging Technology Division 
        and the Foreign Technology Analysis Division. The 
        first, the Emerging Technology Division, is proposed to 
        consolidate the engineers and policy analysts from 
        various licensing divisions under OTE in order to 
        enable increased focus on the critical and high-profile 
        work of addressing ECRA Section 1758 technologies. The 
        second division, Foreign Technology Analysis Division, 
        would similarly consolidate efforts currently spread 
        across EA to increase focus specifically on determining 
        foreign availability of technologies, as well as the 
        impact of export control measures and the approval/
        denial of licenses.

  4.  Transfer the Defense Industrial Base Division from the 
        Office of Technology Evaluation to the Office of 
        Strategic Industries and Economic Security. DIB would 
        also absorb the Section 232 Team and focus specifically 
        on defense industrial base assessments and Section 232 
        work.

    The realignment of leadership and other changes will allow 
EA to gain efficiencies, increase performance, and right size 
divisions according to need and focus and to better integrate 
BIS's new Information and Communications Technology and 
Services (ICTS) supply chain security program.
    The Ukraine supplemental funding is an excellent model in 
illustrating the ways in which additional authorities can help 
BIS accomplish its missions. Specifically, providing BIS with 
the flexibility in direct-hiring authority would clear 
administrative hurdles in filling important positions. The 
Ukrainian supplemental funding allowed BIS to hire additional 
export analysts with key skills and experience that are 
supporting our mission.
    With respect to the PRC, BIS is focused on holistically 
considering the strategic environment in which our controls are 
applied to ensure we tailor those controls as narrowly as 
possible to meet our national security objectives. Our strategy 
relies on several factors, including: identifying the national 
security or foreign policy concern; tailoring a proposed 
control to achieve a specific defined purpose; understanding 
how a proposed control will affect U.S. technological 
leadership; the impact of any collateral consequences including 
potential retaliation; the willingness of allies and partners 
to implement similar controls; the consequences of inaction; 
and other factors. Our ability to more quickly, effectively, 
and deeply conduct this analysis and act on it will be enhanced 
by the reorganization outlined above, and could be further 
supported through additional funding. Applying a similar model 
as was provided via the Ukraine supplemental--additional 
funding and flexible hiring authorities--to expand our 
capabilities, particularly on a permanent basis as the Ukraine 
supplemental funding is time-limited, would be beneficial in 
expanding our international engagement, our capabilities for 
identifying and controlling new technologies, establishing more 
formal and lasting initiatives directly related to the PRC, 
Russia, and other key adversaries or sectors of concern. I look 
forward to working to review and refine any proposals the 
Committee put forward.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                  FROM THEA D. ROZMAN KENDLER

Q.1. On May 21, the Cyberspace Administration of China (CAC) 
announced that products from a U.S. company, Micron, would be 
banned from key infrastructure projects due to an unjustified 
national security risk. America must send a clear message to 
the international community that this level of economic 
coercion is unacceptable and will be met with a swift and stern 
response.
    What actions is the Department of Commerce taking to 
respond to China's ban on Micron's products?

A.1. The Department has engaged directly with the PRC to detail 
the U.S. position and seek further clarity regarding their 
action. The Department is working closely with our allies and 
partners to deal with distortions of the memory chip market 
caused by the PRC's actions and to counter the use of coercive 
economic practices broadly.
    BIS also will continue working to prevent malign actors 
from obtaining or diverting technologies that can be used 
against the United States or its allies in order to protect our 
national security and advance our foreign policy objectives. 
Should national security concerns exist, we will not hesitate 
to vigorously use our tools to address the threat as 
appropriate.

Q.2. Do you consider China's Micron ban to be retaliation 
against export controls on the outflow of advanced computing 
and semiconductor manufacturing items to China imposed by the 
Department of Commerce on October 7, 2022?

A.2. The decision to ban operators of key infrastructure from 
purchasing Micron Technology's products due to ``serious 
network security risks'' has no basis in fact. The PRC's action 
is an attempt to undermine the strong stance taken by the G7 
against economic coercion. In fact, the PRC's decision was 
delivered just one day after leaders from the G7 issued their 
first-ever statement on economic resilience and security, which 
expressed serious concern over the use of coercive economic 
practices, and committed to countering such efforts.

Q.3. What are the escalation considerations that the Commerce 
Department is taking into consideration when considering a 
response?

A.3. See response to Question 1.

Q.4. On October 7, 2022, the Bureau of Industry and Security 
(BIS) implemented new export controls on the outflow of 
advanced computing and semiconductor manufacturing items to 
China. In response, People's Republic of China (PRC) leader Xi 
is calling for an end to China's reliance on U.S. companies, 
and curbing the role that prominent U.S. firms play in China.
    Will U.S. export controls encourage China to stand up their 
own domestic supply chains without exposure to the U.S.? What 
will be the effect of this?

A.4. So-called ``design out'' is a constant concern for export 
control policy and is one of the reasons why the United States 
must design and implement export controls with a scalpel 
approach, and wherever possible we must work to align our 
controls with those of international allies and partners. BIS 
takes into consideration a number of factors in developing 
controls that are as targeted as possible, while also achieving 
their intended national security and foreign policy objectives. 
In addition to undergoing robust rulemaking processes in 
promulgating final rules and engaging closely with 
international partners in coordinating approaches to export 
controls, BIS and our interagency partners regularly utilize 
available open-source, proprietary, and classified information 
in coordination with the Intelligence Community. Once rules are 
put in place, BIS coordinates with U.S. and international law 
enforcement community, to ascertain the effectiveness of these 
rules in achieving their intended effect and evaluating the 
impact of these rules on foreign supply chains of items and on 
U.S. exporters.
    These concerns also underscore the importance of engaging 
on a multilateral basis with partners and allies to de-risk and 
diversify supply chains, as well as the importance of critical 
investments in U.S. competitiveness like the CHIPs and Science 
Act, Inflation Reduction Act, and Bipartisan Infrastructure 
Law.

Q.5. The mission statement of the Department of Commerce 
includes creating ``economic growth and opportunity for all 
communities.'' How does the Department factor in this objective 
when developing and implementing export controls?

A.5. The Department of Commerce is an organization made up of 
13 primary bureaus with distinct missions, authorities, and 
capabilities across a broad range of areas.
    BIS's absolute, foremost responsibility is protecting U.S 
national security and foreign policy interests by ensuring that 
U.S. technology is not used by adversaries to harm the United 
States and by working to promote American technological 
leadership. This responsibility stems from our authorizing 
statute, ECRA, which describes the policy goals for BIS's 
administration and enforcement of the export control system. 
BIS, in close consultation with national security agencies, 
particularly the Departments of State, Defense, and Energy is 
focused intently on securing sensitive U.S. technologies that 
would give our adversaries an advantage, developing policies 
and strategies to protect these technologies, and reviewing 
license applications submitted by exporters to determine 
whether specific transactions are consistent with U.S. national 
security and foreign policy interests.

Q.6. How will reduced access to the PRC market influence the 
ability of U.S. companies to compete globally? How does (BIS) 
account for U.S. business competitiveness when developing and 
implementing export controls?

A.6. The PRC and the United States engage in substantial trade 
across myriad sectors. This trade is made up of tens of 
thousands of specific items, each of which has different 
characteristics, and most of which do not on their own present 
U.S. national security or foreign policy concerns. For example, 
over 20 percent of U.S. exports to the PRC involve agricultural 
products, which are not generally subject to export licensing 
requirements. For the items that do present national security 
or foreign policy concerns, either based on their technical 
parameters or their intended end use or end user, BIS in close 
consultation with national security agencies, particularly the 
Departments of State, Defense, and Energy is appropriately 
using export controls to limit the PRC's ability to obtain such 
items in order to confront the PRC's military modernization, 
WMD development, human rights abuses, and destabilization 
efforts in the Indo-Pacific. Addressing these concerns protects 
U.S. national security and advances our values and interests, 
as well as those of our allies and partners. This is a dynamic 
threat environment, and BIS is constantly evaluating existing 
authorities and thinking about how we can employ our tools to 
maximum effect.
    Under ECRA, BIS is required to evaluate United States 
technological leadership when imposing controls. In order to 
fulfill our statutory mandate, we base our decisions on data 
and facts from open, proprietary, and classified sources. BIS 
works with exporters across the United States to give it a deep 
understanding of products and the economy, including the work 
it takes to bring products to market, the R&D that goes into 
new technology, foreign availability, and more. BIS applies a 
national security lens where it matters to the underlying 
strength and health of our Nation informed by the commercial 
relationships of the private sector, and the innovation 
environment advanced by U.S. businesses. We work to avoid 
restrictions that hurt the international competitiveness of 
U.S. industry unless there are real national security benefits.

Q.7. What steps has BIS taken and to ensure that U.S. partners 
such as Japan, Germany, the Netherlands, or South Korea do not 
backfill U.S. export controls?
    How does BIS plan to prevent backfilling of U.S. export 
controls in the future?

A.7. BIS is in constant communication with international allies 
and partners that share our democratic values, security, and 
other interests to help them understand our views on the 
current threat environment, explain our approach to export 
controls, and to enlist their assistance in aligning controls.
    With respect to controls on semiconductor manufacturing 
equipment and related items that BIS implemented tough controls 
on for the PRC in October 2022 and updated those controls in 
October 2023. In the interim, both Japan and the Netherlands 
subsequently imposed similar restrictions under their own laws.
    BIS will continue to guard against noncompliance with our 
export control rules by any company, in the PRC or elsewhere. 
BIS utilizes available open-source, proprietary, and classified 
information in coordination with the Intelligence Community, as 
well as the U.S. and international law enforcement community, 
to detect violations of export controls and, where appropriate, 
pursue criminal and administrative penalties and utilize 
regulatory tools such as the Unverified List (UVL) or the 
Entity List to impose license requirements on parties of 
national security or foreign policy concern. BIS, in close 
consultation with national security agencies, particularly the 
Departments of State, Defense, and Energy continually assesses 
PRC entities' compliance with our export controls and 
appropriate responses.
    These are matters that we make clear to our allies and 
partners as well so that they and their domestic companies 
understand the importance of compliance with U.S. export 
controls and the potential costs of noncompliance.

Q.8. What is the possibility of greater multilateral 
coordination of dual use technologies?

A.8. The Department of State leads the coordination of 
international export controls with foreign Governments and 
multilateral regimes. BIS works in close coordination with 
State and other national security agencies and regularly 
consults with foreign Governments on various export control 
matters, including within the four multilateral export control 
regimes and on a bilateral basis. As Congress noted in the 
Export Control Reform Act of 2018 (ECRA), ``[e]xport controls 
that are multilateral are most effective [ . . . ]'' If other 
countries supply the same types of items that the United States 
restricts, the U.S. controls will be less effective for two 
reasons. First, the countries or parties of concern may still 
acquire the items at issue. Second, U.S. technology leadership 
will be threatened if foreign competitors can undercut U.S. 
companies and earn revenue to invest in research and 
development. Thus, coordinating with allies and partners also 
helps keep a level playing field for U.S. companies and helps 
maintain U.S. technology leadership and competitiveness, all of 
which contribute to national security, as described in ECRA. In 
addition to U.S. ongoing collaboration via the four primary 
existing multilateral export control regimes, the Biden 
administration has worked tirelessly to revitalize and build 
stronger ties to our international allies and partners. The 
clearest example of this is the Global Export Control Coalition 
of the United States and 38 partners that have imposed 
substantially similar controls to the United States in response 
to Russia's unprovoked and illegal war on Ukraine.
    Other examples include the Department's establishment of 
the Quad Critical and Emerging Technologies working group with 
Japan, Australia, and India as well as Department's 
collaboration with State and USTR on the the U.S.-EU Trade and 
Technology Council, or TTC, which are working to align our 
approaches to secure supply chains, export controls, data 
governance, and investment screening.

Q.9. In the last 12 months, how many times has the Foreign 
Direct Product Rule been exercised by BIS to regulate the 
reexport and transfer of foreign-made items?

A.9. BIS has a number of Foreign Direct Product Rules (FDPR) in 
Part 734.9 of the EAR. In the last 12 months we have published 
rule adding the Iran FDPR to the existing FDPR regulations (88 
FR 12150, February 27, 2023) and have expanded the scope of the 
FDPR in the advanced-computing rule See 88 FR 73458 (Oct. 25, 
2023).
    The FDP Rules are identified Part 734.9 of the EAR, each of 
which identifies the product scope and destination scope for 
which the restrictions would apply, including to certain 
parties on the Entity List or designated as ``Russian/
Belarusian Military End Users,'' under sections 734.9 (e) and 
(g).

Q.10. How does BIS prevent the Foreign Direct Product Rule from 
creating a compliance regime that is overly burdensome or 
extremely difficult to abide by?

A.10. Export Administration and our Export Enforcement 
colleagues work hard to ensure that U.S. exporters and broader 
industry understand the rules and their compliance obligations 
under them through seminars, public events, direct engagement 
with exporters who have questions through our Office of 
Exporter Services, formal Advisory Opinions, and other 
engagements. We understand that effective compliance by 
industry is the frontline of export controls, and we stand 
ready and willing to assist with compliance efforts.

Q.11. How does BIS evaluate the risk of export controls pushing 
companies to incorporate other jurisdictions where they will 
not be subject to our export controls?

A.11. As a general matter, with respect to export controls, the 
law follows the item and so regardless of where a firm is 
legally incorporated, if they are engaging in trade with items 
subject to the EAR (particularly if a Foreign Direct Product 
Rule applies), then they must comply with U.S. law.
    Relatedly, BIS takes seriously the risk that companies will 
``design-out'' content subject to the EAR, and this is one 
reason why BIS endeavors whenever possible to impose export 
controls on a multilateral basis with other key supplier 
Governments. It is also why we spend substantial time working 
to ensure our international partners and allies understand our 
controls, the national security reasoning behind them, and the 
compliance obligations that their companies must abide by.

Q.12. Please describe procedures and practices for how Treasury 
and the Commerce Department coordinate and exchange information 
between the Treasury Specially Designated Nationals list, the 
Treasury Chinese Military Industrial Complex List, and 
Commerce's Entity List. Please provide the nomination process 
for the Treasury lists, and explain why Chinese military firms 
appear on certain lists but not others.

A.12. Different agencies have different authorities subject to 
different regulatory standards that can be applied in a variety 
of circumstances to address particular conduct. BIS engages 
with other agencies as appropriate to coordinate on measures to 
protect U.S. national security and foreign policy interests. As 
a consequence, different lists may have different firms, 
individuals, or other entities. However, when an entity meets 
the regulatory standard for addition to two or more lists 
administered by different agencies, we strive to harmonize 
listings to the extent possible. For example, in the Russia 
sanctions context, many entities have been designated by 
Treasury pursuant to Executive Order 14024, Blocking Property 
With Respect To Specified Harmful Foreign Activities of the 
Government of the Russian Federation, and were also added to 
the BIS Entity List.
    Under the Export Administration Regulations (EAR), all 
additions to the Entity List require a majority vote of the 
End-User Review Committee (ERC), which is chaired by Commerce, 
with representation from the Departments of State, Defense, 
Energy, and where appropriate, the Treasury. The ERC determines 
whether the entity has been involved in, is involved in, or 
poses a significant risk of being or becoming involved in 
activities that are contrary to the national security or 
foreign policy interests of the United States, along with those 
acting on behalf of such persons.
    While Treasury is not formally part of the export control 
``interagency'' as outlined in Executive Order 12981, which 
governs the administration of export controls, under BIS's 
current leadership we have engaged regularly with our 
colleagues at Treasury to include discussions on Specially 
Designated Nationals list and Entity List actions, and to 
coordinate and discuss other matters of shared interest and 
those conversations will continue.
    In addition, in certain instances, the Export 
Administration Regulations (EAR) apply restrictions on exports 
and reexports to persons designated pursuant to Executive 
orders administered by the Department of the Treasury as well 
as pursuant to select sanctions statutes. In these instances, 
when a person is identified and sanctioned pursuant to a 
particular authority, BIS imposes license requirements.

Q.13. Could you please describe the steps that BIS is taking to 
implement machine learning and data analytics into its 
examination of export control licenses and enforcement cases?

A.13. The President's FY 2024 budget includes $6 million which 
will allow BIS to comply with several legislative and Executive 
mandates to successfully fulfill its current export control 
obligations and work with partners.
    In light of global conflict in the past year, BIS has been 
called upon to coordinate more closely with our partners 
regarding export control implementation, and information 
sharing such as data exchange on license applications, and 
potential export violators. BIS is in the process of planning 
for and developing new data management strategies to better 
coordinate with its partners to enforce export law and 
regulations more effectively. BIS envisions building upon its 
ability to understand the impact of its work on the American 
and global economy; on its ability to properly secure the 
highly sensitive data in its possession from foreign 
adversaries; on its reputation as the steward of the Federal 
Government's export control capabilities; and, most 
importantly, on its capacity to deliver basic services to 
industry customers. With this funding, BIS will be able to 
establish an Enterprise Data Management and Integration 
capability, develop a modern Data Science & Impact Analysis 
capability, publish more data approved for public consumption, 
and implement Data Loss Prevention and Data Tagging policies. 
These capabilities serve as the foundation for virtually all 
other modernization efforts currently being pursued by BIS 
(e.g., Zero Trust and Customer Experience) and will help propel 
BIS from Y2K-era standards and technologies to 21st century 
systems that will help us to more fully realize our mission and 
deliver quality services.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
         SENATOR FETTERMAN FROM THEA D. ROZMAN KENDLER

Q.1. The CCP has poured billions into the acquisition of 
foreign technology to bolster their domestic supply over the 
past 10 years. I'm concerned about the CCP's access to U.S.-
made dual use and general-purpose technology--technology used 
in both commercial and defense sectors. CCP coercively acquires 
this tech both through overt means and through covert cyber 
operations to obtain critical intellectual property.
    Ms. Kendler and Mr. Axelrod: how many USD worth of critical 
IP and technology has been obtained by the PRC in 2023 thus 
far?

A.1. According to a 2013 study by the Commission on Theft of 
American Intellectual Property (https://www.nbr.org/
publication/the-ip-commission-report/IP) Commission, the annual 
cost to the U.S. economy of counterfeit goods, pirated 
software, and theft of trade secrets is $225 to $600 billion. 
The People's Republic of China's (PRC) theft of American IP 
stifles innovation, harms research, threatens jobs, and creates 
unfair economic and competitive disadvantages for U.S. 
industries.
    BIS operates at the nexus of technology, economics, and 
national security. We implement appropriate controls on the 
export of U.S. technologies and constantly engage with our 
interagency partners to use tools like the Entity List to 
target any individual or entity engaging in activities that are 
contrary to U.S. national security and foreign policy interests 
including where appropriate IP theft. IP theft by the PRC often 
results in a violation of the EAR and as such is a major 
concern for BIS and we leave no tool off the table in 
addressing it.

Q.2. How confident are you that our current strategy against 
foreign access and theft of American technology is effective? 
What gaps remain?

A.2. The Commerce Department is committed to appropriately 
using its tools to protect our companies and counter unfair 
economic practices by the PRC, because no one can outcompete 
the United States if we are playing by the same rules.
    BIS, with its interagency partners, reviews all of the 
license applications for the PRC to determine a risk of 
diversion to military end uses or end users, WMD end uses, or 
violation of human rights. We evaluate license applications-
taking into account open source and intelligence information-
based on the technology at issue, the country at issue, the 
entity using the item, other parties involved in the 
transaction, and how the item will be used. One of the primary 
factors we consider is the risk of diversion of the technology 
from the transaction details laid out in the license 
application instead to a country, end user, or end use of 
concern.
    BIS continues to evaluate the threat environment, 
technological advancements in a variety of industries and 
sectors, and other factors and will update controls as 
appropriate to protect U.S. national security. This is 
evidenced by the controls announced on October 7, 2022 and 
updated October 17, 2023, that seek to address concerns posed 
by the PRC's efforts to develop high performance computing 
capacity to train A.I. and related data and communications 
technologies that can be employed for military modernization 
and human rights abuses. BIS restrictions related to advanced 
semiconductor manufacturing equipment, high performance chips 
and related items, and other measures outlined in those rules 
restrict the PRC's ability to obtain the tools and capabilities 
they desire for these activities and represent an expansion of 
our controls based on the present threat environment.

Q.3. I've heard directly from my constituents in Pennsylvania 
about ongoing anti-Asian racism and violence. We must be very 
clear: today's concerns are about the Chinese Communist Party 
Government--not people of Chinese descent and not Asian-
Americans. The bottom line is that we must not enable racism as 
we consider our national security.
    What is your agency doing to combat anti-Asian racism and 
make sure our response is focused on the Chinese Government?

A.3. I agree wholeheartedly. It must be made clear that anti-
Asian racism is abhorrent and must be condemned in the 
strongest terms possible. Our actions are directed against the 
PRC Government and not people of Chinese descent and not Asian-
Americans. We continue to include this in our messaging and 
emphasize the national security or foreign policy concerns tied 
to our actions.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
                      FROM MATTHEW AXELROD

Q.1. Just under one year ago, in a memo to Export Enforcement 
staff, you launched a new Academic Outreach Initiative to help 
academic institutions protect controlled information from 
unauthorized foreign acquisition.
    What have you learned in the past year through this 
initiative?

A.1. The response to the initiative has been quite positive. 
Our academic partners are eager to engage in this exchange with 
us and we have had many fruitful interactions through the 
initiative. These partners are engaging both quarterly with 
their Office of Export Enforcement (OEE) designated point of 
contact as well as with other Export Enforcement officials at 
headquarters. Among other things, they have requested, and we 
have provided, briefings and information on topics such as red 
flags specific to academia and how to best conduct open-source 
research and due diligence on research partners.

Q.2. What are your future plans for this initiative?

A.2. We are currently expanding the number of partner 
universities beyond the initial list of 20--including 9 
additional universities we recently invited to join the 
Initiative--and developing new webinars on requested subjects, 
like fundamental research. Our team also continues to reach out 
to partners engaged in similar work across the U.S. Government, 
like the National Science Foundation under National Security 
Presidential Memorandum-33 (National Security Strategy for U.S. 
Government-Supported Research and Development), to ensure 
universities receive a consistent and coordinated message from 
their Government contacts.

Q.3. In recent years, BIS has issued a number of foreign direct 
product rules. How have the issuance of these rules changed the 
demands on Export Enforcement?

A.3. Any imposition of additional licensing requirements under 
the Export Administration Regulations (EAR) increases demands 
on enforcement. For example, OEE investigated Seagate for 
violations of the Huawei Foreign Direct Product Rule (FDPR) 
requiring the EAR expertise of Export Enforcement agents, 
analysts, and supervisors as well as attorneys from the Office 
of Chief Counsel for Industry and Security. The resulting $300 
million penalty was significant and only came about due to the 
dedication of personnel and resources to the investigation. We 
continue to leverage our relationships with industry and 
interagency partners to ensure all controls are effectively 
enforced, including the foreign direct product rules.

Q.4. The Export Control Reform Act includes a statement of 
policy that, ``export controls that are multilateral are most 
effective.''
    What mechanisms does BIS have in place to coordinate with 
U.S. allies and partners on export control enforcement matters?

A.4. Export Enforcement engages U.S. allies and partners on 
export control enforcement matters through bilateral and 
multilateral engagement with foreign officials from trade, 
customs, national police, prosecutorial, and intelligence 
agencies as well as with industry associations.
    In addition, BIS Export Control Officers (ECOs) are located 
overseas, in Germany, Turkey, India, United Arab Emirates, 
Singapore, Hong Kong, and mainland China, and have regional 
responsibility for 56 countries. ECOs are responsible for 
engaging host country Government officials, as well as 
industries, on export controls and enforcement. In 2023, the 
program is expanding to include Finland and Taiwan, as well as 
a new analytical position embedded with the Canada Border 
Services Agency in Ottawa, Canada.
    With the establishment of the 39-member Global Export 
Control Coalition (GECC), BIS Export Enforcement has increased 
engagement with international partners within the coalition to 
share best practices on targeting for diversion risk to Russia. 
For example, under the G7, BIS participates in a newly 
established Enforcement Coordination Mechanism co-led by 
Commerce and Treasury. Export Enforcement has worked with the 
European Commission and has entered into a data-share 
administrative agreement with the European Anti-Fraud Office 
(OLAF). And Export Enforcement also collaborates with Five Eye 
partners--Canada, the United Kingdom, Australia, New Zealand--
to develop trend analysis and strategies to address diversion 
risk and increase coordination on export control enforcement. 
On June 28, 2023, the United States, Canada, New Zealand, 
Australia, and the U.K. agreed to formalize their coordination 
on export controls.
    BIS also engages countries outside of the 39-member GECC to 
provide overviews of enforcement concerns and elicit 
cooperation on ensuring U.S. and GECC origin items are not 
illegally re-exported from their borders to Russia. In addition 
to long-standing formal bilateral discussions with export 
control authorities in Singapore, BIS has made a concentrated 
effort to expand enforcement discussions within Association of 
Southeast Asian Nations (ASEAN) members.

Q.5. What authorities or resources, if any, would enable BIS to 
expand its current relationships with U.S. allies and partners 
to further supporting building their export control enforcement 
capacity?

A.5. The Export Control Reform Act of 2018 currently provides 
BIS with adequate authority to share information to help build 
global enforcement capacity. Additional personnel would allow 
BIS to expand capacity building with international partners. 
Within the Russia diversion context, BIS has utilized emergency 
Ukraine supplemental funding to allow Export Enforcement 
analysts and agents, and myself, to travel to foreign countries 
and coordinate, such as my recent trip to Kazakhstan and 
Kyrgyzstan. In addition, BIS has used this funding to embed 
analysts, on temporary deployments, with the Canada Border 
Services Agency and the European Anti-Fraud Office to identify 
evasion targets and coordinate enforcement actions (e.g., 
detentions, investigations). BIS also is stationing Export 
Control Officers (ECOs) in Finland and Taiwan under this 
supplemental funding, which is in addition to ECOs stationed in 
seven other countries and an analyst in Canada. These ECOs 
directly support building export enforcement capacity with 
allies and partners. BIS will be examining whether existing 
resources can be used to maintain the Finland and Taiwan ECO 
positions after expiration of this supplemental funding. We are 
proud of what we continue to accomplish with our existing 
resources, including enforcement actions, end-use checks, and 
international partnerships with allies and partners to ensure 
that U.S. and multinational companies that invest in an export 
compliance program are not placed at a competitive disadvantage 
in relation to those that do not.

Q.6. Over the past year, you have announced a series of 
enforcement policy changes. Among others, at BIS's Update 
Conference last June, you announced changes to Voluntary Self 
Disclosures, ``no admit, no deny'' settlements, and monetary 
penalties. In September, you announced four changes to enhance 
compliance, increase transparency, incentivize deterrence, and 
compel accountability for those who violate our antiboycott 
rules. You also changed policy on how BIS responds to a host 
Government that is preventing our ability to conduct end-use 
checks overseas.
    While some of the effects of those changes require 
additional time to understand the full impact, what are the 
initial effects of those changes?

A.6. Two specific effects have been an increase in efficiency 
of processing voluntary self-disclosures (VSDs) and the 
elimination of the backlog of end-use checks in China, for the 
first time in recent memory. For example, companies have 
responded favorably to being able to get fast-track responses 
to VSD submissions for minor violations. Moreover, since the 
implementation of the new end-use check policy in October 2022, 
BIS has conducted over 100 end-use checks at approximately 91 
parties in mainland China, and no pending end-use checks have 
been pending for more than 60 days.
    In addition, BIS charging letters are now public when filed 
rather than upon resolution. This change has allowed the 
exporting community to know in closer to real time what type of 
conduct constitutes a violation. It also has provided an 
incentive for companies to resolve matters with BIS sooner 
rather than later.
    As part of those changes, we ended the use of ``no admit, 
no deny'' settlements. Prior to the policy change, it was 
possible to reach resolution by paying a penalty without 
admitting to the alleged conduct. Now BIS resolutions require 
admission. That is why, for example, when we agreed to a $300 
million resolution with Seagate Technology LLC and Seagate 
Singapore International Headquarters Pte. Ltd.--the largest 
standalone penalty ever imposed by BIS--the company admitted 
that it continued to sell hard disk drives to Huawei after we 
imposed the Foreign Direct Product Rule and after its 
competitors had stopped selling because of it.
    With regard to our antiboycott enforcement changes, in the 
first major administrative action since the announcement of the 
new policy to enhance antiboycott enforcement, BIS imposed a 
significant civil penalty of $283,500 against Regal Beloit FZE 
(Dubai) to resolve allegations of 84 violations of the 
antiboycott provisions of the EAR. This settlement reflects 
several of the objectives of the enhanced enforcement policy 
including not only the renewed focus on foreign subsidiaries of 
U.S. companies, but the elimination of the ``no admit/no deny'' 
settlements and the imposition of monetary penalties 
commensurate with the seriousness of the violations.

Q.7. Have you noticed any changes in the frequency with which 
parties voluntarily self-disclose export control violations in 
light of this change?

A.7. No, we have not noticed a significant change in the 
frequency VSDs. In fact, we have received, on average, the same 
number of disclosures after the policy change that we received 
for the same time period in the preceding 2 years. Based on our 
continuous, robust industry engagement, companies generally 
recognize that it is better to voluntarily disclose potential 
violations of the Export Administration Regulations (EAR) 
rather than to be caught engaging in, or having been engaged 
in, in potentially illegal conduct.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                      FROM MATTHEW AXELROD

Q.1. Please describe the process of investigating and 
implementing an export control enforcement decision.

A.1. Office of Export Enforcement (OEE) Special Agents are 
sworn Federal law enforcement officers with authority to bear 
firearms, make arrests, execute search warrants, serve 
subpoenas, search, inspect, detain, seize, and administratively 
forfeit items about to be illegally exported, reexported, or 
transferred (in-country), as well as conveyances involved in 
such exports, reexports, and transfers (in-country), and order 
the redelivery to the United States of items exported in 
violation of U.S. law. OEE is the only Federal law enforcement 
agency exclusively dedicated to the enforcement of export 
control laws, and that singular focus allows for the 
development of the requisite subject matter expertise to be 
able to effectively enforce a complex regulatory regime. Some 
cases may require years of thorough investigation to bring a 
matter to a successful completion.
    OEE investigations are initiated on information and 
intelligence obtained from a variety of sources, including 
routine review of export documentation, overseas end-use 
monitoring, and industry information. OEE investigates both 
export violations by U.S. persons and the unauthorized reexport 
or transfer (in-country) by foreign persons of items subject to 
the EAR to prohibited end uses, end users, or destinations. OEE 
also has the authority to enforce restrictions on specific 
activities of U.S. persons, including those unrelated to 
shipments of items subject to the Export Administration 
Regulations (EAR), such as servicing, financing, or freight 
forwarding in connection with certain foreign weapons of mass 
destruction and military-intelligence end uses and end users. 
OEE works closely with other Federal law enforcement agencies 
to identify and act on export violations and with industry to 
raise awareness of compliance best practices and ``red flag'' 
indicators of potential illicit activities.
    For example, OEE works with U.S. Customs and Border 
Protection to train outbound officers on EAR requirements to 
identify suspicious cargoes for detention. Based on information 
gathered during the course of an investigation, OEE works 
closely with attorneys from the Department of Justice to 
prosecute violators criminally, as well as with the Office of 
the Chief Counsel for Industry and Security to bring 
administrative charges. Administrative penalties are 
implemented in final orders signed by the Assistant Secretary 
for Export Enforcement or the Under Secretary for Commerce for 
Industry and Security, depending on the procedural posture of 
the underlying proceeding. Export Enforcement also acts where 
appropriate to identify parties for addition to BIS's Entity 
List, Unverified List, Denied Persons List, and Military End-
User List. Export Enforcement is co-located in the same 
Department of Commerce bureau as Export Administration, 
allowing for close cooperation in the administration and 
enforcement of export controls. Export Enforcement provides 
advice and comments on the enforceability of new policies and 
regulations, and it works closely with Export Administration to 
routinely review export transactions to ensure compliance with 
the EAR.

Q.2. Is the overall competitiveness of U.S. companies factored 
into the export control enforcement process? If so, how?

A.2. Partnering with industry and academia is a critical aspect 
of export enforcement. No one knows their line of business, and 
the export control risks inherent in it, like a company or 
university itself does. U.S. companies and universities are at 
the forefront of so many technological breakthroughs. Given the 
increase in security risk that advanced technologies such as 
quantum computing, hypersonic weapons, and unmanned aerial 
vehicles now pose, we need industry to invest in their export 
enforcement capacity. We are focused, along with our colleagues 
in Export Administration, on educating companies and 
universities on our regulations. For example, OEE has conducted 
over 800 outreaches at companies with previous export ties to 
Russia and partnered with universities as part of our Academic 
Outreach Initiative to support their compliance efforts. For 
our part, our aggressive enforcement posture is meant to ensure 
that companies and universities that invest in an export 
compliance program are not placed at a disadvantage by those 
that do not.

Q.3. What steps is Commerce taking to ensure that novel 
industries are fully aware of the due diligence requirements on 
export controls?

A.3. BIS Export Enforcement conducts substantial industry 
outreach. We have agents located in numerous cities across the 
country that work with exporters to ensure that they understand 
our rules and the importance of compliance, and to provide 
resources as appropriate. We also launched an Academic Outreach 
Initiative to provide selected research universities with 
dedicated liaisons and resources to ensure that they understand 
their compliance responsibilities. In addition, our colleagues 
at Export Administration's Office of Exporter Services also 
lead robust outreach efforts including seminars, webinars, and 
other outreaches to industry across the country.

Q.4. How do these factors influence the magnitude of 
enforcement fines?

A.4. We take many factors into account when calculating the 
magnitude of potential civil liability. Our penalty guidance, 
found in Supplement No. 1 to Part 766 of the EAR, describes how 
OEE makes penalty determinations in the settlement of civil 
administrative enforcement cases under part 764 of the EAR. We 
consider whether there was a voluntary disclosure, the 
egregiousness of the case, and other factors from aggravating 
(e.g., willful or reckless violation of the law) to general 
(e.g., the existence, nature and adequacy of an export 
compliance program) to mitigating (e.g., level of cooperation 
with our investigators).

Q.5. In the last 12 months, how many times has the Foreign 
Direct Product Rule been exercised by BIS to regulate the 
reexport and transfer of foreign-made items?

A.5. In terms of enforcing the Foreign Direct Product Rule, in 
April 2023, we announced a historic, $300 million settlement 
with Seagate Technology LLC and Seagate Singapore International 
Headquarters Pte. Ltd. related to alleged violations of the 
Foreign Direct Product Rule (FDPR) that applies to Huawei.
    As a general matter, compliance is the first layer of 
effective enforcement and Export Enforcement works to ensure 
that exporters understand their compliance obligations with our 
FDPRs, as well as other new or updated restrictions, to help 
ensure compliance on the front end.

Q.6. How does BIS prevent the Foreign Direct Product Rule from 
creating a compliance regime that is overly burdensome or 
extremely difficult to abide by?

A.6. Export Enforcement, along with our colleagues in Export 
Administration, work to ensure that U.S. exporters and broader 
industry understand the rules and their compliance obligations 
under them through seminars, public events, direct engagement 
with exporters who have questions through our Office of 
Exporter Services, formal Advisory Opinions, and other 
engagements. We understand that effective compliance by 
industry is the frontline of export controls, and we stand 
ready and willing to assist with compliance efforts.

Q.7. How does BIS evaluate the risk of export controls pushing 
companies to incorporate in other jurisdictions where they will 
not be subject to our export controls?

A.7. As a general matter, BIS's jurisdiction follows the item. 
Regardless of where a firm is legally incorporated, if the firm 
is engaging in a transaction with items subject to the EAR, 
then the firm must comply with the regulations.
    That said, the risk that companies may ``design-out'' U.S. 
content is a constant concern for export control policy and one 
reason why my Export Administration colleagues endeavor 
whenever possible to impose export controls on a multilateral 
basis with other key supplier Governments as well as spending 
substantial time working to ensure our international partners 
and allies understand our controls, the national security 
reasoning behind them, and the compliance obligations that 
their companies must abide by.

Q.8. Does the People's Republic of China (PRC) cooperate with 
export product end-user checks in the country?

A.8. After a period of non-cooperation, the PRC Government has 
become more cooperative with our end-use check requests. This 
cooperation has improved after I issued a policy memorandum in 
October 2022. First, the policy notes that end-use checks must 
be scheduled and completed promptly. If 60 days pass without a 
requested check being conducted, we will initiate the 
regulatory process to add the foreign company to the Unverified 
List (UVL). Placement on the UVL triggers additional regulatory 
requirements on exports to the listed company. Until a 
successful end-use check is completed, we stop processing 
licenses for the company and impose pre-license checks on all 
subsequent license applications received for exports to it.
    Second, once the foreign party is added to the UVL, if we 
are not able to successfully complete an end-use check within 
the second 60-day window, we will initiate the regulatory 
process to have the foreign party added to the Entity List. 
This policy has spurred cooperation by the PRC's Ministry of 
Commerce and led to the completion of over 100 end-use checks 
in the PRC in a 9 month period.

Q.9. Do BIS agents in the PRC face any restrictions that they 
would not face in other countries?

A.9. BIS works with foreign Governments to establish end-use 
check processes in their respective countries. In China, the 
PRC Government must schedule and accompany BIS Export Control 
Officers during all end-use checks. Should any Government, 
including the PRC, prevent an end-use check from being 
completed, BIS has a policy to add the foreign party in 
question to the Unverified List, and then the Entity List if 
the end-use check continues to be prevented.

Q.10. What steps is the Department taking to curb the 
transshipment of export controlled dual-use technologies?

A.10. BIS leverages all-source information (e.g., open-source, 
classified, Government) to monitor diversion, conducts end-use 
checks overseas, and investigates potential violations, 
including when items are transshipped without BIS 
authorization. On February 16, 2023, BIS jointly announced with 
the Department of Justice (DOJ) the formation of a Disruptive 
Technology Strike Force. The Strike Force works to protect U.S. 
advanced technologies from being illicitly acquired and used by 
Nation-State adversaries to support: (1) their military 
modernization efforts designed to overcome our military 
superiority; or (2) their mass surveillance programs that 
enable human rights abuses. As part of this effort, we 
established 14 strike force cells across the country, supported 
by an interagency intelligence cell in Washington, DC. Each 
operational cell consists of agents from the OEE, the Federal 
Bureau of Investigation, Homeland Security Investigations, and 
an Assistant U.S. Attorney, and uses all-source information 
(open source, proprietary, and classified) to pursue 
investigations and impose criminal and/or administrative 
penalties as appropriate. We have worked with DOJ to indict 
multiple Russian procurement networks that are facilitating the 
transshipment of sensitive items and, as part of the Strike 
Force, we have announced two cases against networks conspiring 
to divert controlled items to Russia.
    BIS has taken numerous other steps to curb the 
transshipment of export controlled dual-use items. For example, 
we are using the Entity List. Through the interagency process, 
we have listed 64 companies, including 24 in the PRC, for their 
evasion activities related to export controls on Russia, 
imposing licensing requirements and preventing them from 
diverting commodities. We are also working with our 
international partners to prevent transshipment of controlled 
commodities. For example, we announced on June 28, 2023, that 
the United States, Australia, Canada, New Zealand, and the 
United Kingdom have committed to formally coordinate on export 
control enforcement by sharing information and best practices.

Q.11. Could you please describe the steps that BIS is taking to 
implement machine learning and data analytics into its 
examination of export control licenses and enforcement cases?

A.11. BIS has entered into an interagency agreement with the 
National Security Agency to develop the Commerce Screening 
System (CSS). Using machine learning and data analytics, the 
CSS will automate the review of foreign entities appearing on 
export control licenses, better informing the export control 
license review process. The system is designed to inform 
licensing officers from across the interagency and our 
enforcement analysts and agents on foreign entities and 
procurement efforts. This will help prevent the issuance of 
licenses to parties of diversion risk and support the 
development of export enforcement leads and cases.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                      FROM MATTHEW AXELROD

Q.1. Thank you for discussing the Department of Commerce's 
Disruptive Technology Strike Force and potential parallels to 
the Department of Justice's China Initiative, which ended in 
2021. In response to my question about what steps the 
Department of Commerce has taken to address civil rights 
concerns regarding any actual or perceived targeting of 
scientists of Chinese descent, you shared that the Commerce 
Department has established an Academic Outreach Initiative to 
work with 20 universities to protect their research from 
foreign actors. \1\
---------------------------------------------------------------------------
     \1\ See https://www.banking.senate.gov/hearings/countering-china-
advancing-us-national-security-economic-security-and-foreign-policy at 
02:24:54.
---------------------------------------------------------------------------
    What steps has the Commerce Department taken through the 
Academic Outreach Initiative, or through other work, to address 
civil rights concerns regarding any actual or perceived 
targeting of scientists of Chinese descent on the basis of 
their race, ethnicity, or national origin? Please be specific 
in any steps described.

A.1. We strongly disavow anti-Asian racism, and racism of any 
kind. As Secretary of Commerce Gina Raimondo has stated, 
``there is no room in our path to competitiveness for racism or 
xenophobia. Chinese Americans have been--and will continue to 
be--an essential part of this American story of renewal.'' Our 
enforcement efforts are focused on stopping sensitive 
technologies from being used by foreign Governments for malign 
purposes, like human rights abuses.
    Academic research institutions are an essential component 
of the scientific and technological success that powers the 
American economy. It is essential that we both safeguard 
sensitive research, while also maintaining an open, 
collaborative environment. The Academic Outreach Initiative is 
country agnostic. Instead, we are focused on partnering with 
universities that present a higher risk profile, which might 
include, for example, those that have ties to foreign 
universities on the Entity List, are involved in research and 
development for the Department of Defense, and/or conduct 
research in sensitive technologies subject to the Export 
Administration Regulations.

Q.2. What safeguards and oversight mechanisms has the Commerce 
Department built into the policies and procedures of the Strike 
Force or other enforcement entities to ensure that Federal 
personnel tasked with carrying out its mandate do not target or 
are perceived to target Chinese Americans on the basis of their 
race, ethnicity, or national origin?

A.2. Racism has no place in law enforcement. Last year, the 
Department of Commerce updated our mission statement to reflect 
our explicit commitment to ensuring all Americans benefits from 
economic growth and opportunity. This mission guides our work 
across programs every day to ensure racial equality is at the 
center of our work, including in law enforcement. The 
Disruptive Technology Strike Force builds on that commitment, 
as it is focused on critical technologies and their acquisition 
and use by Nation-State actors. The Strike Force's mandate is 
to prevent critical technology from being acquired by 
authoritarian regimes and hostile Nation-States without BIS 
authorization. Each participating agency within the Strike 
Force works in accordance with their agency's respective 
privacy and civil liberties policies and procedures.

Q.3. Did the Federal Government consult with civil rights 
groups in developing this Strike Force? If so, what was the 
feedback that the Strike Force received, and did the Strike 
Force implement it? If not, would that have been a reasonable 
step to take, especially considering the China Initiative?

A.3. The Department of Justice heard concerns from the civil 
rights community that the ``China Initiative'' fueled a 
narrative of intolerance and bias. Those discussions helped 
inform their perspective in developing the Strike Force with 
us. The Strike Force is focused on the actions of the PRC 
Government, the Chinese Communist Party, and their agents--not 
the Chinese people or those of Chinese descent. The purpose of 
the Strike Force is to focus and prioritize enforcement efforts 
to prevent Nation-State actors, like the PRC Government, from 
advancing their development of these disruptive technologies--
like quantum, hypersonics, and artificial intelligence. The 
Strike Force uses an all-tools approach, including everything 
from criminal indictments to administrative actions to industry 
outreach.

Q.4. What are the Strike Force's reporting requirements to both 
Congress and the public?

A.4. Criminal actions and administrative resolutions are 
reported through regular channels pursuant to agency policy to 
Congress and to the public, including through press releases 
and the BIS Annual Report.

Q.5. In your testimony, you stated that the Academic Outreach 
Initiative is currently working with 20 universities. \2\ Does 
the Commerce Department have plans to expand the list of 
universities? If universities are not currently part of this 
list, what resources are available to them to seek compliance 
with relevant export controls?
---------------------------------------------------------------------------
     \2\ Id.

A.5. Earlier in July, I reached out to nine additional 
universities whose work gives them an elevated risk profile to 
offer them the opportunity to join the Initiative. We are 
currently working on several new webinars for our partner 
universities on subjects they have expressed interest in, like 
fundamental research. We are also partnering with university 
organizations like the Association of American Universities and 
the Association of University Export Control Officers to 
broaden the reach of our messaging, outreach, and partnership 
with the academic community. In addition, our team continues to 
reach out to groups engaged in similar work across the U.S. 
Government to ensure universities receive a consistent and 
---------------------------------------------------------------------------
fulsome message from their Government contacts.

Q.6. For faculty members beginning new research projects in 
emerging technology areas where the end user and use case may 
be uncertain, what resources does the Commerce Department 
provide to ensure compliance with U.S. export regulations? Are 
these resources sufficient, and with what frequency does the 
Commerce Department evaluate the sufficiency of these 
resources?

A.6. BIS publishes regular guidance, frequently asked 
questions, and other resource materials on the BIS website. 
Additionally, each partner academic institution participating 
in the Academic Outreach Initiative has an assigned Outreach 
Agent. The Outreach Agent is responsible for establishing, or 
strengthening, long-term partnerships with the university. 
Universities that are not currently on the list should contact 
Export Enforcement or the Office of Exporter Services directly 
and we can assist in facilitating access to additional 
resources.

Q.7. Does the Commerce Department maintain a list of lawful 
interactions that U.S. persons and universities may have with 
researchers, universities, or companies based in China? If so, 
where is this stored, and does the Commerce Department have a 
mechanism to share this with universities? If not, has the 
Commerce Department considered the utility of such a resource?

A.7. BIS does not maintain a list of lawful interactions that 
U.S. persons and universities may have with researchers, 
universities, or companies based in China. BIS publishes 
regular guidance, frequently asked questions, and other 
resource materials on the BIS website. Additionally, each 
partner academic institution participating in the Academic 
Outreach Initiative has an assigned Outreach Agent. The 
Outreach Agent is responsible for establishing, or 
strengthening, long-term partnerships with the university. 
Universities that are not currently on the list should contact 
Export Enforcement or the Office of Exporter Services directly 
and we can assist in facilitating access to additional 
resources.

Q.8. For researchers and institutions who seek to comply with 
U.S. export regulations concerning interactions with entities 
who have ties to the Chinese military, what resources should 
they use to search for possible links beyond Restricted Party 
Screening and open-source searches? What steps does the 
Commerce Department take to evaluate the sufficiency of these 
resources, and are there areas where additional Congressional 
support could improve these resources?

A.8. Researchers and institutions who seek to comply with U.S. 
export regulations concerning interactions with entities that 
are subject to U.S. restrictions should start with the 
Consolidated Screening List tool that is maintained by our 
Department of Commerce colleagues at the International Trade 
Administration. This resource is available online and allows 
the public to search for names of individuals, companies, or 
academic institutions that are subject to a range of U.S. 
restrictions or are on specific lists. BIS does not provide 
proscriptive guidance to industry on other sources to check to 
vet parties to an export transaction, but does provide guidance 
to industry, such as through its Know Your Customer guidance in 
the EAR, outreach publications identifying potential red flags 
such as in a March 2023 tri-seal compliance note for industry 
with the Department of Justice and the Department of the 
Treasury focused on Russian evasion tactics, and frequently 
asked questions which are available on the BIS website.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR FETTERMAN FROM MATTHEW AXELROD

Q.1. The CCP has poured billions into the acquisition of 
foreign technology to bolster their domestic supply over the 
past 10 years. I'm concerned about the CCP's access to U.S.-
made dual use and general-purpose technology--technology used 
in both commercial and defense sectors. CCP coercively acquires 
this tech both through overt means and through covert cyber 
operations to obtain critical intellectual property. Ms. 
Kendler and Mr. Axelrod: how many USD worth of critical IP and 
technology has been obtained by the PRC in 2023 thus far? How 
confident are you that our current strategy against foreign 
access and theft of American technology is effective? What gaps 
remain?

A.1. According to a 2013 study by the Commission on Theft of 
American Intellectual Property (https://www.nbr.org/
publication/the-ip-commission-report/IPCommission), the annual 
cost to the U.S. economy of counterfeit goods, pirated 
software, and theft of trade secrets is $225 to $600 billion. 
The PRC's theft of American IP stifles innovation, harms 
research, threatens jobs, and creates unfair economic and 
competitive disadvantages for U.S. industries.
    BIS works with its interagency partners to enforce U.S. 
export control laws, including violations related to the 
transfer of specific technologies to the PRC without 
authorization. The formation of the Disruptive Technology 
Strike Force, announced on February 16, 2023, promises to 
further enhance our ability to target illicit actors and 
protect critical technology assets from theft by PRC entities.

Q.2. I've heard directly from my constituents in Pennsylvania 
about ongoing anti-Asian racism and violence. We must be very 
clear: today's concerns are about the Chinese Communist Party 
Government--not people of Chinese descent and not Asian-
Americans. The bottom line is that we must not enable racism as 
we consider our national security.

A.2. From an Export Enforcement perspective, while most Federal 
law enforcement agencies have multiple areas of responsibility, 
our focus is singular. As the Export Enforcement arm of the 
Bureau of Industry and Security (BIS) our sole mission is to 
protect sensitive American goods and technology from falling 
into the wrong hands.
    Export Enforcement vigorously applies our administrative, 
civil, and along with the Department of Justice, criminal, 
enforcement authorities to address violations of U.S. export 
controls. Credible allegations of violations of our rules by 
PRC-based entities are investigated promptly, thoroughly, and 
effectively and if appropriate, penalties are imposed by BIS. 
While investigations can be complex and take time to reach 
resolution, we have taken or contributed to a number of 
administrative and criminal enforcement actions related to the 
PRC. Our enforcement efforts are focused on Nation-State 
actors, like the Government of the People's Republic of China, 
and stopping sensitive technologies from being used by foreign 
Governments for malign purposes, like human rights abuses, and 
not on any person's ethnic background.
    One primary way we are working to prevent foreign 
adversaries from obtaining critical advanced technologies is 
through the Disruptive Technology Strike Force, which I co-lead 
with Assistant Attorney General for National Security Matt 
Olsen at the Department of Justice. The purpose of the Strike 
Force is to focus and prioritize enforcement efforts to prevent 
our adversaries from advancing their development of these 
disruptive technologies--like quantum, hypersonics, and 
artificial intelligence. Consistent with our overall 
enforcement efforts, the Strike Force is focused on the actions 
of our adversaries, like the Chinese Communist Party, and their 
agents--not the Chinese people or those of Chinese descent. We 
established 14 local cells, which include a Federal prosecutor 
plus agents from the Bureau of Industry and Security, Homeland 
Security Investigations, and the Federal Bureau of 
Investigation, across the country to investigate and prosecute 
violations of U.S. laws. The cells are also supported by an 
interagency analytic cell in Washington, DC.

Q.3. What is your agency doing to combat anti-Asian racism and 
make sure our response is focused on the Chinese Government?

A.3. We strongly disavow anti-Asian racism, and racism of any 
kind. As Secretary of Commerce Gina Raimondo has stated, 
``there is no room in our path to competitiveness for racism or 
xenophobia. Chinese Americans have been--and will continue to 
be--an essential part of this American story of renewal.'' Our 
enforcement efforts are focused on Nation-State actors, like 
the PRC Government, and stopping sensitive technologies from 
being used by foreign Governments for malign purposes, like 
human rights abuses. The Office of the Director of National 
Intelligence's 2023 Annual Threat Assessment is focused on the 
activities of Nation-State actors: China, Russia, Iran, and 
North Korea. Our enforcement investigations are predicated on 
violations of the EAR, with a priority on these Nation-State 
actors, and not any other factors.
              Additional Material Supplied for the Record
          LETTER SUBMITTED BY AMERICAN SECURITIES ASSOCIATION
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                LETTER SUBMITTED BY SENATOR BILL HAGERTY
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