The tech woes of America's tech cops

Politico

2 days ago

With help from Alfred Ng and Aaron Mak
Frustration is brewing around the government office whose job is to track the most exquisite, cutting-edge American technology as it moves around the world.
Though a wonky agency known mostly to trade and tech insiders, the Bureau of Industry and Security at the Commerce Department operates at the cutting edge of the $600 billion global semiconductor industry. It polices American export controls by approving or rejecting export licenses and pursuing enforcement actions.
You might think the BIS would have sophisticated tools to deploy — but in fact, America's global tech cop is hobbled by software that in some cases hasn't been updated in two decades.
In a series of hearings and interviews, insiders have described an agency struggling to cope with creaking software even as its workload has ballooned in recent years. Last year, then-undersecretary of Commerce Alan Estevez, who led BIS, told Congress licensing applications had doubled to 40,000 since 2012 while some of its 'antiquated' software dated back to 2006.
The state of affairs has shocked tech policy experts.
'The IT infrastructure at the Bureau of Industry and Security is a legitimate national security threat to the U.S.,' said a senior Republican aide on the House Foreign Affairs Committee, which oversees BIS. (The aide requested anonymity to speak about ongoing discussions in Congress.)
A Democratic House staffer said BIS under the Biden administration responded at a glacial pace to requests for information, including important questions on applications for export licenses to Chinese tech companies. 'It took them over a year to get back to Congress with licensing data about SMIC and Huawei,' said the aide, who was not authorized to speak to the press.
The BIS did not respond to DFD's questions on its software. Its current leader, Commerce Department undersecretary Jeffrey Kessler, told lawmakers in June that the president's budget requested $303 million for the agency, 'the single largest investment in BIS history, and one that will significantly bolster our ability to protect national security.'
The House and Senate are also making efforts to shore up the agency. The House has suggested appropriating $303 million for BIS, while the Senate has suggested $211 million. Either would be an increase from the current $191 million. But it's not clear if that would cover the full software overhaul insiders say is needed — and Congress might not manage to pass appropriations bills before an Oct. 1 shutdown, which could mean flat funding for the near term.
The BIS has become increasingly important in American policy over its four decades of existence, as the U.S. has expanded its use of export controls for foreign policy.
During President Donald Trump's first term, he placed Huawei and SMIC on the 'Entity List' of blacklisted companies. His administration used the Foreign Direct Product Rule to extend U.S. export controls to goods made with U.S. components, even if the products were manufactured outside the U.S. Both of those are policed by the BIS.
Biden built on those controls, both by enacting new restrictions on the export of advanced AI chips, and by adding Russian companies to the 'Entity List' over Moscow's invasion of Ukraine.
As BIS was handling a bigger slice of the global tech trade, its systems struggled to keep up. Speaking to HFAC last year, Estevez said his agency was using 'manual pulls' of data for Congress.
The Democratic House aide said BIS brought staffers in for a demonstration. 'It was very distressing,' the aide said. 'Mostly I felt really really bad for the people who work at Commerce.'
The staffer pointed to frustrations at all levels, from disconnected systems handling major BIS responsibilities to character limits that made it hard to search accurately for company names. 'The search functions are alarmingly inadequate,' the staffer said.
In an effort to modernize, the agency awarded Palantir $3.5 million in 2024 for data center services. However, that was far from the scale of overhaul a database would require.
Even if lawmakers increase BIS's budget, the ancient tech is only one part of its problem. The agency staff has been in turmoil since Trump took office, with top leaders on chip export controls departing. David Feith, who handled technology at the National Security Council, was dismissed in April.
A bipartisan bill HFAC lawmakers introduced last week would require the bureau to nearly double the ranks of BIS export control officers around the world to 20, from 11 today.
Kessler told lawmakers last month that extra BIS money would enable the agency to hire nearly 200 special agents across the U.S. as well as 30 officers overseas. Michael Sobolik, a senior fellow at the Hudson Institute who previously worked as an aide to Sen. Ted Cruz (R-Texas), said ramping up BIS staff could come at the expense of a tech reboot.
'If that money is going to have to go to cover new hires, and if the tech is really as old as it seems like it is, that may not be enough,' said Sobolik.
Jessie Blaeser contributed to this report.
AI pricing argument hits the airlines
Some lawmakers want to know how Delta Airlines is using artificial intelligence to set 'individualized fares' for customers — an emerging industry practice that critics fear abuses people's privacy and creates higher costs.
The letter, sent by Sen. Ruben Gallego (D-Ariz.) and joined by Sen. Richard Blumenthal (D-Conn.) and Mark Warner (D-Va.) on Monday and exclusively provided to POLITICO, asks Delta CEO Ed Bastian to disclose what data the company uses to train its algorithm for setting prices, how many customers are paying for prices determined by AI and what steps the company is taking to evaluate the potential impact of AI on its pricing.
Unlike discounts for broad groups such as teachers, veterans and senior citizens, individualized pricing sets specific prices for different people, with critics saying the goal is to set the highest price that people are willing to pay.
It also uses more personal information, such as a person's web browsing behavior, social media activity, financial status and location, the Federal Trade Commission said in a January report.
Delta did not immediately respond to requests for comment.
Delta told investors on a July 10 earnings call that it plans to use AI to set pricing for 20 percent of its domestic flights by the end of 2025. The company expects to eventually personalize all flight prices.
The practice of using people's data to set individualized prices, which the FTC calls 'surveillance pricing,' has been a concern among state lawmakers who worry it will lead to higher prices. Business lobbyists have pushed back against regulations, arguing that individual pricing can bring discounts to consumers.
Delta has until Aug. 4 to respond to the senators' letter.
Incoming: Trump's AI Action Plan
Trump is set to release his long-awaited AI Action Plan on Wednesday — and POLITICO's Mohar Chatterjee reports that it will center on cutting regulation, competing with China and suppressing 'woke AI.'
The president called on his AI and crypto czar, David Sacks, and other White House tech advisers to develop the action plan in a January executive order. The order rolled back AI safety guardrails that President Joe Biden put into place through his own EO.
Mohar obtained an overview of the action plan on Friday, and reports that it will include provisions for streamlining permitting for data center construction, ensuring that federal AI systems are not ideologically biased, promoting AI exports and withholding funds from states with restrictive AI laws.
Many of these aims align with the administration's light-touch approach to AI — for example, it backed a state AI law moratorium in the spending bill. That provision was cut, and members of Congress are now trying to get bipartisan support for AI regulations in statehouses. Yet, as POLITICO's Morning Tech team points out, using this action plan to push for state AI deregulation could be a potential workaround to Congress' rejection of the moratorium.
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Stay in touch with the whole team: Aaron Mak ([e-mail]); Mohar Chatterjee ([e-mail]); Steve Heuser ([e-mail]); Nate Robson ([e-mail]); and Daniella Cheslow ([e-mail]).