Insights

The Bureau of Industry and Security (“BIS”) has opened 2026 with several significant administrative enforcement actions that underscore how aggressively the agency is policing export controls involving China, Entity List parties, semiconductor-related trade, and even highly technical compliance issues such as de minimis calculations and recordkeeping. Among the most notable matters announced so far this year are the Exyte Management GmbH, Applied Materials, and Teledyne FLIR settlements. Taken together, these cases show that BIS continues to focus not only on obvious diversion or evasion risks, but also on flawed legal interpretations, compliance-process failures, and gaps in post-license controls.

Exyte: Entity List exposure can extend to in-country transfers of EAR99 items

On January 7, 2026, BIS announced a settlement with Exyte Management GmbH, a Germany-based engineering company, under which Exyte agreed to pay a $1.5 million civil penalty. BIS alleged 13 violations tied to Exyte Shanghai’s role in causing the in-country transfer in China of over 800 items subject to the EAR to Semiconductor Manufacturing International (Beijing) Corporation (“SMIC Beijing”), an Entity-listed party, without the required BIS authorization. The charging documents indicate that the items included voltage sag protectors, a programmable logic controller, flowmeters, exhaust stack flowmeters, and pressure transmitters, collectively valued at approximately $2.85 million. BIS also noted that the items were used in constructing a semiconductor fabrication facility.

The Exyte matter is especially noteworthy because it is a reminder that Entity List restrictions are not limited to exports from the United States. BIS emphasized that a license is required for the export, reexport, or transfer (in-country) of any item subject to the EAR to an Entity-listed party such as SMIC Beijing. The matter also demonstrates that even items designated EAR99 can create major enforcement exposure when an Entity-listed party is involved. In other words, companies cannot treat “EAR99” as the equivalent of “low risk” where end-user restrictions apply.

Another important feature of the Exyte settlement is that the company submitted a voluntary self-disclosure (“VSD”) to BIS, which helped mitigate the outcome. Although BIS still imposed a monetary penalty, the VSD appears to have positioned Exyte more favorably and resulted in a reduced penalty of $1.5 million (as opposed to a statutory maximum of over $5 million). The case therefore serves as a useful reminder that, even in high-priority enforcement areas such as semiconductors and China-related Entity List restrictions, a timely VSD can still provide meaningful credit and help reduce overall enforcement exposure.

Applied Materials: BIS rejects customs-style “substantial transformation” reasoning under the EAR

The most consequential BIS settlement so far this year was announced on February 11, 2026, when BIS disclosed that Applied Materials, Inc. (“Applied Materials”) and Applied Materials Korea, Ltd. (“AMK”) agreed to pay approximately $252 million for unlawful exports of U.S. semiconductor manufacturing equipment to China. BIS described the penalty as the second-highest it has ever imposed and stated that it is reflective of the statutory maximum of twice the value of the underlying transactions.

According to BIS, after SMIC was added to the Entity List in 2020, Applied Materials continued shipping ion implanter equipment by routing the equipment first to AMK in South Korea for further assembly and testing and then onward to SMIC in China without first obtaining the required license. The BIS charging documents allege 54 reexport violations between March 23, 2021 and June 3, 2022. BIS stated that the ion implanting equipment reexported from South Korea to SMIC was valued at approximately $118.45 million.

What makes Applied Materials particularly important from a compliance perspective is BIS’s direct rejection of Applied Materials reported reliance on a “substantial transformation” analysis. The settlement documents state that the company’s global trade group concluded that if an item was “substantially transformed” in a foreign country, that would be enough to render it foreign-made for EAR purposes, assuming the de minimis and foreign direct product rules did not otherwise apply. BIS flatly rejected this reasoning, stating that “substantial transformation” is a customs concept that “does not appear anywhere in the EAR” and is not the correct test for determining whether an item remains subject to the EAR as a U.S.-origin item. That is a particularly important lesson for multinational manufacturers whose compliance teams operate at the intersection of customs and export control – a rule or doctrine familiar in one regulatory regime may not translate into another.

The settlement also reflects BIS’s growing willingness to impose remedial compliance obligations in addition to a monetary penalty. Applied Materials agreed to two annual audits covering 2026 and 2027, continued training obligations, and certifications regarding its training efforts. BIS’s press release further noted that the compliance employees and senior executives responsible for the illegal shipments were no longer employed by the company.

Teledyne FLIR: de minimis valuation, recordkeeping, and new address-only Entity List entries all matter

On February 26, 2026, BIS announced a settlement with Teledyne FLIR LLC (“Teledyne”) and affiliates under which the company agreed to pay a $1 million civil penalty. Unlike the Exyte and Applied Materials matters, the Teledyne matter is not bundled together several different compliance failures that make the case especially instructive.

First, BIS alleged that historical de minimis calculations dating back at least to 2013 undervalued U.S.-origin controlled content incorporated into foreign-made products. The BIS charging documents indicate that Teledyne incorrectly used values that did not reflect the fair market value of the entire discrete product exported from the United States, leading the company to conclude incorrectly that certain camera kits and camera cores were not subject to the EAR when reexported from Sweden to China.

Second, BIS charged a Teledyne affiliate with failing to comply with recordkeeping conditions attached to a BIS license. The order explains that the license required records concerning product demonstrations in China, including dates, the authorizing license identifier, the customer, the customer’s general location, and the model or serial number of the items demonstrated. BIS alleged those records were not retained. This aspect of the case is a useful reminder that post-license compliance does not end once a license is issued and license conditions and recordkeeping obligations remain enforcement priorities in their own right.

Third, BIS alleged that on eight occasions in 2024, another Teledyne affiliate exported ECCN 6A993.a thermal cameras to an address identified on the Entity List without obtaining an export license from BIS. The order notes that these exports occurred after BIS began adding address-only entries to the Entity List in June 2024 as part of its effort to disrupt diversion through shell companies and transshipment networks. The enforcement message is clear that screening programs must account not only for named entities, but also for address-based restrictions and evolving list formats.

Lessons Learned

These early 2026 cases suggest several themes that companies should take seriously. BIS remains sharply focused on China-related semiconductor and advanced-technology risk. In addition, Entity List controls continue to apply broadly, including to in-country transfers and EAR99 items and companies must be careful to not conflate compliance terms utilized in import or customs-related context with EAR compliance elements. Just as importantly, BIS is demonstrating that technical compliance errors, whether involving de minimis methodology, screening logic, or conditional license-related recordkeeping, can produce meaningful penalties and burdensome remediation.

For companies operating in semiconductor, electronics, imaging, and other high-risk sectors, the practical compliance lesson is straightforward – revisit end-user and address screening protocols, test de minimis and jurisdiction methodologies, confirm that export and customs analyses are not being conflated, and ensure that license conditions are being operationalized and documented across business units and foreign affiliates. BIS’s first enforcement actions of 2026 suggest that the agency will continue rewarding disciplined compliance architecture and punishing companies that rely on informal workarounds, outdated assumptions, or incomplete controls.

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If you have questions about the EAR and other compliance topics, please feel free to contact the attorneys at Torres Trade Law for assistance.