U.S. Government Agencies Launch Assessment of the Civil Space Industrial Base

While certainly not the first industrial base assessment the U.S. government has conducted, this inquiry comes at a time of escalating tensions between the United States and its primary competitors in space, increased use of economic sanctions and dual-use export controls as a means of achieving policy objectives, and heightened scrutiny of and enforcement against potential violations of U.S. sanctions and export controls. Indeed, the Department of Justice (DOJ) is increasingly focused on the intersection of corporate compliance and national security; in recent weeks the Deputy Attorney General stated that “companies are on the front lines of today’s geopolitical and national security challenges” and announced the addition of more than 25 prosecutors to investigate and prosecute sanctions evasion, export control violations, and other related economic crimes. In February this year, the DOJ National Security Division and BIS launched the Disruptive Technology Strike Force with the aim of protecting U.S. advanced technologies from illegal acquisition and use by foreign actors.

Moreover, although the Agencies are supposed to assess non-military/defense space-related work, many CSIB entities may be involved in the research, development, and production of military- and defense-related technologies and commodities, which could implicate the International Traffic in Arms Regulations in addition to the Export Administration Regulations. Further, many of the technologies CSIB entities may develop and produce — such as position, navigation, and timing technology, advanced computing technology, data analytics technology, logistics technology, advanced surveillance technologies, etc. — are “foundational and emerging technologies.” The U.S. government has time and again emphasized the importance and sensitivity of these technologies to U.S. national security.

With the Biden administration’s whole-of-government approach emphasizing information sharing and collaboration on enforcement priorities, CSIB entities should not assume the information disclosed will be used only for the assessment. Therefore, prior to responding, CSIB entities should confer with counsel and assess their risk profile by considering, for example:

1. Which commodities, technology, and software does the entity research, develop, produce, and export?
2. In what countries does the entity maintain clients, partners, affiliates, subsidiaries, and joint ventures?
3. When was the last time the entity assessed its trade controls compliance program?

In addition, because there is no guarantee the information provided as part of the Agencies’ inquiry will be used only for this assessment, CSIB entities should evaluate their trade controls compliance program to ensure it is sufficiently robust to detect indicators of potential sanctions and export controls evasion. For example, the U.S. government is particularly focused on the use of third-party intermediaries to facilitate such evasion. On March 2, 2023, the DOJ, BIS, and U.S. Treasury Department issued a Tri-Seal Compliance Note (Note) titled “Cracking Down on Third Party-Intermediaries Used to Evade Russia-Related Sanctions and Export Controls.” The Note highlights business practices and behaviors that are considered indicators of potential Russia-related sanctions and export controls evasion. CSIB entities should consider whether they have systems in place to detect these indicators, such as:

1. third-party intermediaries located in, or routing purchases through, certain transshipment points commonly used to illegally redirect restricted items to Russia or Belarus; such locations may include China (including Hong Kong and Macau) and jurisdictions close to Russia including Armenia, Turkey, and Uzbekistan
2. customers’ reluctance to share information about the end use of a product, including reluctance to complete an end-user form
3. use of shell companies to conduct international wire transfers, often involving financial institutions in jurisdictions distinct from company registration
4. attempts to conceal the actual end destination and user using false or misleading invoicing, labels, or information and shipping via a third party

Carefully considering these and other issues with the assistance of counsel will help CSIB entities prepare a thorough and compliant response to the Agencies’ inquiries while avoiding out-of-scope disclosures. Moreover, taking advice from counsel will enable CSIB entities to better understand the implications of disclosures, especially where there may be indicators of potential sanctions or export controls violations.