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COMMERCIAL SALES OF MILITARY TECHNOLOGIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JUNE 4, 2009 

Serial No. 111–43 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 


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COMMITTEE ON ENERGY AND COMMERCE 

HENRY A. WAXMAN, California, Chairman 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

DORIS O. MATSUI, California 

DONNA CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

CHRISTOPHER S. MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

JERRY MCNERNEY, California 

BETTY SUTTON, Ohio 

BRUCE BRALEY, Iowa 

PETER WELCH, Vermont 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOHN B. SHADEGG, Arizona 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

PARKER GRIFFITH, Alabama 

ROBERT E. LATTA, Ohio 

(II)


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(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

BART STUPAK, Michigan, Chairman 

BRUCE L. BRALEY, Iowa 

Vice Chairman 

EDWARD J. MARKEY, Massachusetts 

DIANA DEGETTE, Colorado 

MIKE DOYLE, Pennsylvania 

JAN SCHAKOWSKY, Illinois 

MIKE ROSS, Arkansas 

DONNA M. CHRISTENSEN, Virgin Islands 

PETER WELCH, Vermont 

GENE GREEN, Texas 

BETTY SUTTON, Ohio 

JOHN D. DINGELL, Michigan (ex officio) 

GREG WALDEN, Oregon 

Ranking Member 

ED WHITFIELD, Kentucky 

MIKE FERGUSON, New Jersey 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 


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(V) 

C O N T E N T S 

Page 

Hon. Bart Stupak, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 1 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 3 

Hon. Edward J. Markey, a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 5 

Hon. Diana DeGette, a Representative in Congress from the State of Colorado, opening statement ...................................................................................... 6 

Hon. Bruce L. Braley, a Representative in Congress from the State of Iowa, 

opening statement ................................................................................................ 6 

Hon. Phil Gingrey, a Representative in Congress from the State of Georgia, 

opening statement ................................................................................................ 7 

Hon. Betty Sutton, a Representative in Congress from the State of Ohio, 

opening statement ................................................................................................ 8 

Hon. Marsha Blackburn, a Representative in Congress from the State of 

Tennessee, opening statement ............................................................................ 9 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 10 

WITNESSES

Gregory Kutz, Managing Director, Forensic Audits and Special Investigations, 

Government Accountability Office ...................................................................... 12 

Prepared statement .......................................................................................... 15 

Anne-Marie Lasowski, Director, Acquisition and Sourcing Management, Government Accountability Office ............................................................................. 40 

Prepared statement .......................................................................................... 42 

Matthew Borman, Deputy Assistant Secretary, Bureau of Industry and Security, Department of Commerce ........................................................................... 54 

Prepared statement .......................................................................................... 56 

Thomas Madigan, Director of the Office of Export Enforcement, Bureau of 

Industry and Security, Department of Commerce ............................................ 61 

Prepared statement .......................................................................................... 56 

Michael Alvis, Vice President for Business Development, ITT Industries ......... 62 

Prepared statement .......................................................................................... 64 

Answers to submitted questions ...................................................................... 114 

John Roush, Senior Vice President and President, Environmental Health, 

Perkin Elmer ........................................................................................................ 69 

Prepared statement .......................................................................................... 71 

Nicholas Fitton, Chief Executive Officer, Section 8 .............................................. 74 

Prepared statement .......................................................................................... 77 


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(1) 

COMMERCIAL SALES OF MILITARY 

TECHNOLOGIES 

THURSDAY, JUNE 4, 2009 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2322 of the Rayburn House Office Building, Hon. Bart Stupak 

(chairman) presiding. 

Members present: Representatives Stupak, Braley, Markey, 

DeGette, Doyle, Welch, Green, Sutton, Walden, Burgess, Blackburn, and Gingrey. 

Staff present: David Rapallo, General Counsel; Theodore 

Chuang, Chief Oversight Counsel; Dave Leviss, Deputy Chief Investigative Counsel; Scott Schloegel, Investigator, Oversight & Investigations; Stacia Cardille, Counsel; Jennifer Owens, Special Assistant; Earley Green, Chief Clerk; Caren Auchman, Communicates 

Associate; Kenneth Marty, Detailee HHS–IG; Alan Slobodin, Minority Chief Counsel; Karen Christian, Minority Counsel; Peter 

Keethy, Minority Legal Analyst; and Scott Sherrill, Minority 

Detailee. 

OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. STUPAK. This meeting will come to order. Today we have a 

hearing titled, ‘‘Commercial Sales of Military Technologies.’’ The 

Chairman, Ranking Member, and Chairman emeritus will be recognized for 5 minutes opening statement. Other members of the subcommittee will be recognized for 3 minute opening statements. I 

will begin. 

Less than 2 weeks ago North Korea detonated a nuclear weapon 

during an underground test. North Korea is now threatening to 

test fire an intercontinental ballistic missile capable of striking 

Alaska. 

At the same time our Nation remains at war in Iraq and Afghanistan, and here at home we are faced with the threat of attack from 

Al Qaeda and other terrorist groups. In 2009, the world is a very 

dangerous place. 

Today we will examine two specific ways we may be allowing our 

national security to be compromised; domestic sales and illegal export of military and scientific technology overseas. 

In 2008, our committee began investigating controls on the export of military and dual-use technology, technology that has both 


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military and commercial uses. As part of our investigation we 

asked the Government Accountability Office to conduct undercover 

testing to determine how vulnerable we are to covert acquisition 

and export of our sensitive technology. The results are troubling. 

We will hear today how GAO established a fictitious company led 

by a fictitious individual who acquired 12 different military or 

dual-use items that are subject to export control laws. The GAO 

was able to obtain several devices used in the nuclear weapons program, including a triggered spark gap, which is a high-voltage 

switch that can be used as a nuclear weapon detonator, an accelerator meter, an instrument used to measure motions generated by 

nuclear and chemical explosives, and a GyroChip, a device that can 

be used to stabilize and steer guided missiles. 

The GAO also successfully acquired several pieces of military 

equipment that give our troops technological superiority in battle, 

including night-vision scope used by our troops to see and track 

enemy in the dark, body armor, the type used by U.S. military in 

battle, and an F-16 engine-monitoring system computer. 

The GAO will explain how 12 out of the 12 of the companies approached 100 percent agreed to sell these sensitive items to the fictitious company. None of these companies discovered that the company was fake. None of the companies determined that the buyer 

was a fake person. In fact, none of the companies ever met the 

buyer, and most conducted the transactions entirely by e-mail. 

The company that manufactures the night-vision scope even 

signed up GAO’s fake company as an authorized distributor of its 

product. The only thing more surprising than the ease at which 

GAO acquired the sensitive equipment is the fact that it was apparently entirely legal. When questioned afterwards, the companies 

involved explained that they were not required by current law to 

apply for an export license when selling specific military or dualuse products directly to domestic purchasers. There is no requirement for them to conduct any background check or due diligence 

on the buyers, much less submit the proposed sale to the government for a license to purchase. 

The Commerce Department, which testify today, agrees that no 

violations occurred. This is obviously not a satisfactory result. GAO 

illustrated the weaknesses of this legal regime when it turned 

around and successfully exported some of these items simply by 

sending them to the Fed Ex and sending them overseas. GAO sent 

them to a country known as a trans-shipment point for military 

and nuclear technology. So there is an enormous loophole in our 

law. 

We will hear today from GAO, the Department of Commerce, and 

three of the companies that sold these products to GAO, either as 

a manufacturer or a seller. We will ask them the following questions: Are some military items so sensitive that they should be 

banned from commercial sales to the public entirely? Are some 

military or dual-use items sensitive enough to require licenses for 

domestic sales? Can additional controls be put in place to make it 

more difficult for our enemies to gain access to our sensitive military and dual-use technologies? 

The stakes cannot be higher. A 2008, report by the Strategic 

Studies Institute reveals that in the past North Korea has sought 


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to procure from foreign sources at least one of the products GAO 

acquired, the accelerator meter to enhance its guided missile program. 

I look forward to the testimony today and hope we can discuss 

ways in which the government and business can work together to 

ensure our technological advantage is not used to jeopardize the 

safety of our troops, our allies, and our communities here at home. 

I next turn to Mr. Walden for his opening statement. 

I should just mention, members are going to be coming in and 

out. We have another hearing down on the first floor. In fact, I may 

have Diana DeGette or someone take the chair for me as I am 

going to have to go down to that hearing also. But Mr. Walden, 

your opening statement, please, sir. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. Thank you very much, Chairman Stupak, for convening this hearing. 

Since this country was attacked almost 8 years ago on September 

11, we have become all too aware of the fact that terrorist groups 

that are constantly seeking to exploit any weakness in our national 

security and to gain any access to America’s advanced technology. 

Any information they might gain about United States intelligence 

or military operations could potentially be used to attack our men 

and women in uniform abroad and here at home. This threatens 

our national security. 

In Iraq we have heard on the news too many times the cases 

where terrorists posed as Iraqi soldiers or police in order to get 

close to military checkpoints or barracks, only to detonate improvised explosive devices and suicide bombs, sometimes killing U.S. 

soldiers as well as civilians in the process. We cannot ignore the 

link between illegal exports and military items and such attacks. 

For example, in 2008, various individuals and companies were 

indicted for purchasing items capable of being used to make IEDs 

with Iran being the final destination. For fiscal year 2008, the Department of Justice reported that 145 defendants were charged for 

criminal violations of export control laws. About 43 percent of the 

defendants charges were attempting to illegally transport or transfer items to Iran and China. 

Since 2007, GAO has included ensuring effective protection of 

technologies critical to the U.S. national security interests as highrisk areas. As troubling as those weaknesses may be, what is more 

disturbing is there appears to be a gigantic loophole in our laws 

that make it easier for our enemies to get ahold of our sensitive 

military technology and one day use it against us. 

The loophole the GAO uncovered in this investigation reveals 

that the military and sensitive dual-use technology can be easily 

and legally bought within the United States. Then those items can 

be illegally exported with almost zero chance of detection. Here is 

how easy it is to make these buys. 

GAO bought a number of sensitive dual-use items from United 

States companies, including night-vision goggles, body armor, and 

F–16 engine computer and technology used in nuclear weapons and 

IEDs. Dual use means these items have both military and commerVerDate Mar 15 2010 11:50 Jun 15, 2012 Jkt 073750 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 E:\HR\OC\A750.XXX A750

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cial use. You can see some of these items displayed right up here 

on this table in the front of the room. 

The GAO did so by setting up a bogus company, a company Web 

site, a mail drop box. They also used fake military ID to facilitate 

the purchase, and the fake military ID from what I am told was 

even not very well constructed. 

When GAO purchased these items, in many cases they weren’t 

asked a single question by the seller about what they were doing 

with the items. There was no face-to-face contact and sometimes 

not even contact over the phone. The companies in most cases did 

not make an attempt to verify the minimal information that GAO 

provided. 

But here is the rub. The companies did absolutely nothing illegal. 

They did not violate the law because no law or regulation places 

any meaningful restriction on the domestic sale of these military 

items. That is right. You, Joe Q. Public, can buy a body armor, 

night-vision goggles, and F–16 engine computer, and our laws do 

not require any kind of verification for your identity or background. 

However, if you then tried to export the items, you would need 

to go get a license to do so. Now, how many of you really thing that 

an Al Qaeda operative or some other terrorist is going to be the 

first in line at the Department of Commerce or State to get a license to ship these items to say, oh, China, Syria, or Iran. I don’t 

think so either. 

This may be one of those rare oversight hearings where we show 

not how the law has been broken or evaded by a bad actor but how 

the law is simply inadequate. In other words, the scandal here may 

be what is legal, not what is illegal. 

Now that we have identified this gap in our laws, it is our responsibility to figure out how to close it. Now, to do it in a way that 

does not place an undue burden on Commerce. As I mentioned before, these are dual-use, sensitive items. These items have legitimate, critical uses sometimes in medical and aircraft equipment. 

My understanding is the companies here today and the other companies who sold dual-use items to the GAO are very concerned 

these items might fall into enemy hands and want to help solve 

this problem. 

I look forward to hearing their thoughts about what we can do 

about it. 

Mr. Chairman, our men and women in uniform deserve the best 

technology that our country’s industry has to offer. They deserve to 

know that when they are on the battlefield, they have every advantage over the enemy, and that includes the best technology our industry can produce. 

So I look forward to working with you to figure out how we can 

make sure that these dual-use items don’t fall into the wrong 

hands and put our men and women and civilians in peril. 

I yield back the balance of my time. 

Mr. STUPAK. Thank you, Mr. Walden. 

Mr. Markey for an opening statement, please. 


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OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF MASSACHUSETTS 

Mr. MARKEY. Thank you, Mr. Chairman, and thank you so much 

for having this important hearing. 

Every day the United States superiority in high technology is on 

display in our military, our universities, our computer and software 

manufacturers, and our healthcare industry, and every day the 

United States is under assault by foreign countries and groups that 

seek to acquire U.S. technologies and products that threaten U.S. 

national security. 

Our Export Control System is woefully inadequate to ensure that 

high technology U.S. goods are not misused either for conventional 

military or WMD purposes. As we will hear today undercover GAO 

investigators used fake information to purchase dangerous dual-use 

technologies, including some which could be useful for a nuclear 

weapons program. Clearly, our export control program must be 

strengthened. 

The particular loophole which GAO exploited in their investigation is frighteningly simple. While exports of dual-use technologies 

require a government license, domestic sales of the exact same sensitive items are not regulated in any way whatever. GAO was able 

to provide false information, mask its identity, and pretend to be 

a qualified domestic purchaser. Clearly foreign countries or terrorist groups could do the same thing. And as GAO proved, a cardboard box and the U.S. Postal Service is all it takes to move dualuse items out of the country. 

We must strengthen our Export Control System, but private industry must also play a cooperative and constructive role. Private 

companies can and must assist the government by identifying questionable orders and reporting them to law enforcement for action. 

In this context I would like to say a word about Perkin Elmer, 

one of the companies which will testify today and is headquartered 

in my district. GAO was able to purchase a sensitive item, potentially abused to a nuclear weapons program from Perkin Elmer, 

but given the domestic sales loophole the GAO exploited, Perkin 

Elmer seems to have followed the law. 

An event in 2003 demonstrates how Perkin Elmer has helped 

prevent dangerous export control violations. When the company received an order for 200 triggered spark gaps, alarm bells sounded 

at the large quantity requested. Perkin Elmer reported the order 

to law enforcement, and at the request of federal authorities the 

company played along with the order, eventually shipping sabotaged products which were then traced. At the end of the day a plot 

to acquire a key technology for the Pakistani nuclear weapons program was thwarted in large part because of Perkin Elmer. 

That is the kind of cooperation that we need to be successful. To 

keep the American people safe, we now have to make sure that we 

close this domestic loophole so that we ensure that we have a uniform policy to protect against this kind of proliferation of dangerous technology. 

Thank you, Mr. Chairman, for having this hearing. 

Mr. STUPAK. Thank you, Mr. Markey. 


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Next we will hear from Ms. DeGette for an opening statement. 

Three minutes, please. 

OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO 

Ms. DEGETTE. Thank you very much, Mr. Chairman. 

To say what we are going to hear today from the GAO is troubling is an understatement. We live in a world where pirates are 

seizing U.S. flagged cargo ships off the Somali coast, a world where 

North Korea is desperate to get its hands on any components or 

weapons that allow its regime to maintain its position as a longterm, legitimate threat to international security. Additionally, the 

United States and its allies have serious concerns about Iran’s nuclear program. 

Yet here we are after decades of problems being identified related to America’s export control process, once again learning about 

the gaps in our system. It is difficult enough to make sure our military men and women are equipped and able to defend themselves 

against the IEDs made by our adversaries with the materials they 

have obtained. The President’s budget demonstrates the magnitude 

of the issues being raised by this hearing and includes increased 

funding, and I quote, ‘‘to expand operations targeting the illicit procurement in the U.S. of U.S. origin items for the use in improvised 

explosive devices, IEDs being employed against U.S. troops.’’ 

OK. So a system that allows material which can be used to build 

an IED or detonate a nuclear device to be available on the open 

market and over the internet is just simply not a functioning system at all. Voluntary industry compliance and government-issued 

guidance for businesses is great when it works. It hasn’t worked 

entirely in the area of food safety, and in this case it doesn’t seem 

to be working at all. 

I have no doubt that our witnesses from the Department of Commerce share our concerns and that the Bureau of Industry and Security is making efforts to improve its system, and I want to emphasize that I am sympathetic to workforce challenges that might 

be discussed during this debate. However, this committee is interested in seeing the Bureau of Industry and Security address all of 

the concerns identified by the GAO and Congress in a systemic and 

coordinated fashion and fast. 

Unfortunately, I am afraid that anything less than 100 percent 

compliance in this area represents too serious a threat at a time 

when we are using vast resources to confront terrorists and other 

adversaries overseas. 

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

Mr. STUPAK. Thank you, Ms. DeGette. 

Mr. Braley for an opening statement, please, sir. Three minutes. 

OPENING STATEMENT OF HON. BRUCE L. BRALEY, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA 

Mr. BRALEY. Thank you, Mr. Chairman and Ranking Member 

Walden, for holding this hearing today to examine commercial 

sales of technology with military applications and U.S. export control programs. 


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I have serious concerns about the GAO’s findings through their 

undercover investigation that sensitive dual-use and military technology can easily and legally be purchased from dealers and manufacturers in the United States and exported without detection. I believe that these disturbing findings have serious implications for 

our national security and for American troops working to keep us 

safe overseas. 

I think most Americans would be alarmed to learn that by using 

a fake company and fictitious identities GAO investigators were 

able to purchase items that could potentially be used for the development of nuclear and chemical weapons, guided missiles, and improvised explosive devices which have been frequently used to attack our troops in Iraq and Afghanistan. 

They were also able to purchase military-grade radios, night-vision goggles, and infrared flags, which could potentially be used 

against U.S. troops in combat. GAO investigators were also able to 

export dummy versions of some of these items without detection to 

a country which is a known transshipment point to terrorist organizations and foreign governments attempting to acquire sensitive 

military technology. 

These findings are even more disturbing when you consider the 

frequency with which terrorists and criminal organizations and foreign governments attempt to obtain these types of sensitive technologies from manufacturers and distributors in the United States. 

The Department of Justice recently reported that foreign states 

and criminal and terrorist organizations seek arms, technology, 

and other materials to advance their technological capacity on a 

daily basis. 

Given this information and the ease with which the GAO was 

able to purchase and export sensitive items, you can’t help but 

worry about how many times these attempts have been successful 

and about what that could mean for our national security. GAO’s 

findings demonstrate a clear lack of regulation over the domestic 

sales of military and dual-use technologies and serious loopholes in 

our Export Control System. That is why I look forward to hearing 

the testimony of our witnesses today and hearing the witnesses’ 

recommendations on how we in Congress can improve safeguards 

for domestic sales and improve our export control programs to 

make sure that these potentially dangerous items don’t end up in 

the wrong hands. 

As the GAO’s investigation clearly demonstrates, improving 

these safeguards is essential to protecting our troops serving overseas and to protecting every American. 

And with that I yield back. 

Mr. STUPAK. Thank you, Mr. Braley. 

Mr. Gingrey, opening statement, please. Three minutes. 

OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA 

Mr. GINGREY. Mr. Chairman, thank you. 

Today the subcommittee will have an opportunity to shine a 

spotlight on a very, very critical but less visible aspect of our national defense; preventing the export of sensitive military technology, particularly to individuals in countries that wish us harm. 


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Mr. Chairman, we expend a lot of time, effort, and resources trying to stop dangerous materials from being brought into this country, however, the failure to properly oversee what is being taken 

out of this country may pose an equal, if not greater, threat to our 

national security. 

Mr. Chairman, American manufacturing components and products should never be allowed to be used against this Nation or its 

citizens. Yet it seems that this could be a very real possibility and 

a threat that must be addressed. As we move forward I hope that 

we can reach a consensus on the best course of action needed to 

ensure this threat never becomes a reality. 

While national defense should remain our first and foremost concern, we must also approach this question with a keen eye and 

some commonsense. While we need to ensure sufficient safeguards, 

we should also provide for a streamline and a safe process to expedite legitimate sales for commercial and strategic purposes, particularly when trading with our allies. 

American businesses and manufacturers are hurting, and the 

simple and stark reality is that over 95 percent of the world’s consumers live as we know outside of the United States. Accordingly, 

Mr. Chairman, we must commit ourselves to adopting a sound security policy that also strengthens the ability of American manufacturers to be successful in the global marketplace. 

Mr. Chairman, I look forward to carefully listening to the testimony from the witnesses today, and with that I will yield back my 

time. 

Mr. STUPAK. Thank you, Mr. Gingrey. 

Ms. Sutton from Ohio, opening statement, please. 

OPENING STATEMENT OF HON. BETTY SUTTON, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO 

Ms. SUTTON. Thank you, Mr. Chairman, and thank you for holding this important hearing on the commercial sale of military technology. 

Comprehensive oversight and complete control of the sale of sensitive defense and dual-use military technologies is absolutely essential to our national security. It is imperative that the responsible federal agencies exert every available resource to prevent our 

sensitive technologies from ending up in the hands of terrorists. 

And it is more than disturbing to learn what investigators have 

brought to light. The dangerous implications are extraordinarily serious. 

The Department of State and Department of Commerce have primary jurisdiction over export controls. It is apparent that the two 

agencies do not, however, have clear lines drawn when it comes 

down to jurisdiction on an individual product. 

For instance, a development company in Ohio tested an undersea 

robot in U.S. and international waters with no immediate intention 

of foreign sales. To cover all bases, they reached out to the agencies 

to see whose jurisdiction their product would fall into in the event 

that they decided to apply for an export license. Depending on who 

answered the phone, the company received a different answer. In 

the end they were disappointed that they were not able to secure 


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a concrete answer regarding which agency had jurisdiction over 

their product. 

Now, I am left to believe that this problem exists with countless 

products, and I support Ms. Lasowski’s call for a fundamental reexamination of the current programs and processes within the agencies that have jurisdiction over export controls. And once that examination is completed, I look forward to working with my colleagues to ensure agency procedures are fluent, effective, and that 

the safety of our Nation is guaranteed. 

Today I look forward to hearing from our panel, and I am especially interested in hearing from GAO on their investigative report 

on domestic sales. We will hear that there are no rules or authorities in place to regulate the domestic sale of sensitive military technologies. Companies are able to make domestic sales of sensitive 

items with little or no restrictions unless self-imposed, and that is 

disturbing. The idea that a U.S. citizen can legally purchase and 

then rather easily mail a sensitive item that would otherwise have 

to be granted a license for export is shocking. 

Mr. Chairman, while our men and women in uniform are bravely 

serving overseas, the Federal Government has no tool in place to 

regulate domestic purchases of sensitive military technologies that 

could be used by terrorists and others against our service members. 

I look forward to working with my colleagues to ensure that the 

proper oversight and regulations are in place for all commercial 

sales of sensitive military technologies. 

Thank you, again, Mr. Chairman, and I yield back. 

Mr. STUPAK. Thank you. 

Ms. Blackburn, opening statement. 

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE 

Ms. BLACKBURN. Thank you, Mr. Chairman, and I will be brief. 

I want to welcome our witnesses. Some of you are returning, and 

we welcome you back. I am certain you all have already heard. We 

have a TELCOM hearing that is taking place downstairs, so some 

of us are going to be up and down and back and forth. So we ask 

that you please be patient with us. 

And I do thank you, Mr. Chairman, for the hearing today, and 

I think it is appropriate that our committee today examine the 

process that we go through for selling our military’s sensitive technologies to U.S. residents. These buyers could potentially export 

them to a country that is adverse to U.S. national security, and we 

are aware of that, and of course we are concerned about that. 

The apparent gap is the tracking of the item by the seller and 

the security background of the buyer. Proper collection of information on these sales should be placed as a high priority for this Administration, but it must not violate privacy rights of U.S. citizens. 

Even though domestic sales pose a problem, the regulations of 

foreign sales should also be reexamined, and I think that is an imperative for us. Over the past 2 decades we do know that some 

military technologies and equipment were exported to China. That 

could pose national security risks. That is on our radar as we go 

through this hearing today. A few examples are anti-jamming and 


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encryption for military satellite systems and advanced U.S. computers. 

The U.S. military, we know, is the strongest in the world, and 

a significant part of that strength is due to innovation into superior 

military technology. So we must not allow gaps in our system that 

will allow this technology to fall into the wrong hands. 

We appreciate the information that you are bringing to us today. 

Mr. Chairman, I thank you for the time, and I yield back. 

Mr. STUPAK. Thank you. 

Mr. Doyle is going to be up here shortly. He is down in the 

Health Committee, but he wanted to make an opening statement 

for a particular issue that affects his district directly and what 

has—with the sales of some items, and when he comes up without 

objection we will allow him to make that opening statement. 

Hearing no objection we will allow him to do so. 

We will move forward with our hearing. So of the members 

present that concludes our opening statements. Our first panel of 

witnesses, we are going to have one panel today. They are all before us. Let me introduce them before we swear them in. 

Mr. Gregory Kutz, who is the Managing Director of the Forensic 

Audits and Special Investigations at the Government Accountability Office. Ms. Anne-Marie Lasowski, who is the Director of Acquisition and Sourcing Management of the Government Accountability Office. Mr. Matthew Borman, who is the Acting Assistant 

Secretary for Export Administration in the Bureau of Industry and 

Security at the U.S. Department of Commerce. Mr. Thomas Madigan, who is the Acting Deputy Assistant Secretary for Export Enforcement in the Bureau of Industry and Security of the U.S. Department of Commerce. Mr. Michael Alvis, who is the Vice President of Business Development at ITT Industries. Mr. John Roush, 

who is the Senior Vice President and President for Environmental 

Health at Perkin Elmer. And Mr. Nicholas Fitton, who is the Chief 

Executive Officer of the Section 8 Corporation. 

Gentlemen, Ladies, it is the policy of the subcommittee to take 

all testimony under oath. Please be advised that you have the right 

under the rules of the House to be advised by counsel during your 

testimony. 

Before I go much further, Mr. Burgess, did you want to do an 

opening? We were holding open for Mr. Doyle, and I knew you had 

mentioned you wanted—did you want to do an opening or—— 

Mr. BURGESS. If it is not out of order. 

Mr. STUPAK. It is not out of order. I will swear the witnesses in 

in a minute. I just introduced the panel. I will swear them in after 

your opening, and then maybe Mr. Doyle will be here. 

So if you want to go ahead. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Well, thank you, Mr. Chairman. 

The advancements this country has made with regards to military technology surpasses those of any other nation. Investment in 

military ingenuity has led to cutting edge commercial advancements in avionics and healthcare. 


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Contrary to popular belief, the United States military actually 

created the technology that led to the advent of the internet as opposed to that other guy who said he invented it. Most importantly, 

these technological advancements have contributed to the safety of 

our citizens, but it has also placed a high burden on our various 

federal agencies to ensure the safe production and sale of these 

sensitive technologies. 

While there are laws that expressly prohibit the direct sales of 

our most sensitive military technologies to foreign countries or entities, the laws which govern the domestic sales of these items are 

far weaker than they could be. In fact, some component parts to 

manufacture weapons of mass destruction may be sold domestically 

and then potentially resold internationally with little or no accountability under the law. 

Currently most of these companies undergo voluntary due diligence to ensure the sales of items on the Commerce Control List 

are then not resold to foreigners, but in this global world in which 

we live today controls must be in place throughout the transaction 

process to ensure that the counterparty corporations are legitimate. 

We cannot ignore the fact that there are groups trying to reverse 

engineer our technology and use them directly against our men and 

women in uniform. 

For instance, the Navy’s Grumman F–14 Tomcat immortalized in 

the movie, ‘‘Top Gun,’’ this technology was considered to be of such 

strategic importance that only one foreign purchaser was ever allowed to procure the F–14; the Imperial Iranian Air Force that existed during the reign of the Shah. We all know that in 1979, the 

monarchy fell. Since then the United States has essentially severed 

all relations with Iran, including imposing an embargo on the sale 

of any spare parts for the F–14s. Yet shadow companies have ordered parts for the Iranian Tomcats, and no one seems to have 

been paying attention to what parts were being sold and to whom. 

We must make certain our standards for export are as rigorous 

as our standards for import. We must make certain that the Department of Commerce, Bureau of Industry and Security, implements true post-market verifications of sales. We must make certain that the Department of State, working in conjunction with the 

Department of Homeland Security, ensures that no exports are 

being made of our sensitive military technology. 

We must also work with the Federal Trade Commission to ensure that Commerce is unimpeded, and for those who would violate 

our existing laws, those who would compromise the security of our 

Nation, but more importantly compromise the courageous lives of 

our men and women in uniform, they should be prosecuted by the 

Department of Justice to the fullest extent under the law. 

Thank you, Mr. Chairman. I will yield back my time. 

Mr. STUPAK. Thanks, Mr. Burgess. 

As I was saying to our panel, under the rules of the House you 

have the right to be represented by counsel. Do any of you wish 

to be represented by counsel? Anyone? 

OK. You are all shaking your head no, so we will take it as a 

no. 

So, therefore, I am going to ask you to please rise, raise your 

right hand, and take the oath. 


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[Witnesses sworn.] 

Mr. STUPAK. Let the record reflect the witnesses replied in the 

affirmative. Each of you are now under oath. 

We will now hear a 5-minute opening statement from you, and 

thank you for being here. We are going to try to do this one panel, 

and we will start with you, Mr. Kutz. You are a veteran. If you 

want to hit your mike and start with your opening statement, and 

we would appreciate it. 

TESTIMONY OF GREGORY KUTZ, MANAGING DIRECTOR, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, GOVERNMENT ACCOUNTABILITY OFFICE; ANNE–MARIE LASOWSKI, 

DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, 

GOVERNMENT ACCOUNTABILITY OFFICE; MATTHEW 

BORMAN, DEPUTY ASSISTANT SECRETARY, BUREAU OF INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE; 

THOMAS MADIGAN, DIRECTOR OF THE OFFICE OF EXPORT 

ENFORCEMENT, BUREAU OF INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE; MICHAEL ALVIS, VICE PRESIDENT FOR BUSINESS DEVELOPMENT, ITT INDUSTRIES; 

JOHN ROUSH, SENIOR VICE PRESIDENT AND PRESIDENT, 

ENVIRONMENTAL HEALTH, PERKIN ELMER; AND NICHOLAS 

FITTON, CHIEF EXECUTIVE OFFICER, SECTION 8 

TESTIMONY OF GREGORY KUTZ 

Mr. KUTZ. Mr. Chairman and members of the subcommittee, 

thank you for the opportunity to discuss the sale of military and 

dual-use technology. 

There are widespread reports of the illegal transfer of U.S. technology to Iran, China, and terrorist organizations. Today’s testimony highlights the results of our investigation into the credibility 

of this security threat. 

My testimony has two parts. First, I will briefly discuss what we 

did and provide some background, and second, I will discuss the results of our investigation. 

First, Justice has reported numerous cases of foreign governments and terrorist organizations seeking to acquire U.S. technology. Items identified in criminal cases are suitable for military, 

nuclear, guided missile, and improvised explosive device applications. As you have all mentioned, these items can legally be sold 

within the United States. 

The objective of our investigation was to make undercover purchases of technology here in the U.S. If successful, we plan to ship 

several of these items overseas. To set up this operation we established a bogus front company called Monacasey Tech Consultants. 

We also used bogus identities and undercover credit card and a 

mailbox as our business address. Most of the items that we targeted for purchase are identical to items cited in recent criminal 

cases. 

Although we had a limited budget and relatively simply backstops, our operation could have easily been financed by foreign governments or terrorists organizations seeking to acquire U.S. technology. 


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Moving onto the results of our investigation. We were able to 

purchase a number of sensitive U.S. military and dual-use items. 

We then successfully shipped several of these items by mail undetected to southeastern Asia. 

The items that we purchased are displayed on the table before 

you, and I have a few with me I am going to show you by hand. 

It is important to note that for many of these items our bogus individuals signed a certificate promising not to export them. 

Let me discuss several of the more troubling dual-use items that 

we purchased, and they will also be shown on the monitors. 

First, in my hand I have a triggered spark gap. We purchased this item for $700 from the manufacturer. We also received a price 

quote for an additional 100 of these items. In addition to medical 

applications, these items can be used to detonate nuclear weapons. 

In 2005, this item was cited as part of a criminal case involving 

illegal export to Pakistan. 

Second, I have in my hand an accelerometer. We purchased this item for $2,800 from the manufacturer. In addition to having commercial applications, this item can be used in smart bombs and nuclear and chemical explosive applications. In 2007, this item was 

cited as part of a criminal case involving illegal export to China. 

And third, I have in my hand this GyroChip. We purchased this item for $3,100 from the manufacturer. We also obtained a price 

quote for an additional ten of these items. In addition to commercial use, these items can be used to help steer guided missiles. A 

large corporation was recently found to have illegally exported 85 

of these items to China. 

Examples of the sensitive military items purchased include, first, 

the modular tactical vest body armor you see on my right in front 

of me and also shown on the monitors. We purchased this item for 

$2,400 from a distributor. We also received a price quote for an additional 20 of these vests. 

Also displayed in front of me are ESAPI plates that we purchased on eBay as part of a prior investigation and could have also 

purchased from this same distributor. These vests are currently 

used by the U.S. Marines in Iraq and Afghanistan. 

And second, the night-vision monocular I have in my hand. We 

purchased this item for $3,600 from a distributor. As was mentioned, we also became an authorized distributor of this item. 

These items are currently used by the military in nighttime operations. Recent criminal cases show that these items are in demand, 

not only by China and Iran, but by the terrorist organization, 

Hezbollah, in Lebanon. 

In conclusion, our work clearly shows that anybody with a credit 

card, computer, and a mailbox that is willing to lie can acquire 

U.S. military and dual-use technology. For the dual-use items they 

are more difficult to address but additional controls at the point of 

sale for high-risk items should be considered. For military items we 

continue to believe that the technology used by our soldiers today 

should not be available to anybody with a credit card. Our soldiers 

deserve better than to have our own technology used against them 

on the battlefield. 

Mr. Chairman, this ends my statement. I look forward to your 

questions. 


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[The prepared statement of Mr. Kutz follows:] 


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Mr. STUPAK. Thank you, Mr. Kutz, and your investigation is 

found in a GAO report which is now released publicly based on 

your testimony? OK. Very good. So it is available. 

Ms. Lasowski, did you have an opening statement, please? 

TESTIMONY OF ANNE-MARIE LASOWSKI 

Ms. LASOWSKI. Yes. Mr. Chairman and—— 

Mr. STUPAK. Could you just hold that up a little bit and make 

sure that green light is on. Thank you. 

Ms. LASOWSKI. Mr. Chairman and members of the subcommittee, 

I am pleased to be here today to speak about our work on the U.S. 

Export Control System, one part of a complex web of programs intended to protect technologies critical to U.S. national security, 

both military and economic. 

In the decade since these programs were established, the world 

has changed significantly. As you are aware, new security threats, 

increased globalization, and evolving technology creates significant 

challenges in maintaining a balance between our military and economic interests. Yet our work has shown that for the most part 

these programs have been neglected or may not be well equipped 

to deal with these challenges, prompting GAO to add this area onto 

our high-risk report in 2007, and calling for a strategic reexamination of existing programs. 

My statement today focuses on three key areas that should be 

part of this reexamination. First, interagency coordination and jurisdictional control, second, export licensing efficiency, and third, 

system assessments. 

With regard to the first area, we found that poor interagency coordination and jurisdictional debates between State and Commerce 

have weakened export controls over certain sensitive items. For example, Commerce claimed jurisdiction over specialized explosive 

detection equipment when jurisdiction for this item belonged to 

State. Consequently, the items were subject to Commerce’s less-restrictive export control requirements. 

Until such disputes are resolved, it is ultimately the exporter, 

not the government, who determines the level of government review and control that will follow. This weakness also creates considerable challenges for other players, namely the enforcement 

community. Without information as fundamental as what items are 

controlled by which agency and which need a license, enforcement 

officials are limited in their ability to carry out inspection, investigation, and prosecution responsibilities. 

The second area concerns the need for efficiency in the export licensing process. At State medium processing times doubled in 4 

years, and license applications reached an all-time high of over 

10,000 open cases. Clearly reviews of export license applications require careful deliberation. However, licensing decisions should not 

be delayed due to process inefficiencies. 

Recently State took steps to restructure its workforce and establish standards to reduce processing times and cases in the pipeline. 

We are encouraged by this action and hope that it will yield needed 

improvements. 

The overall efficiency of Commerce’s licensing process is unknown in part due to its limited assessments. While most ComVerDate Mar 15 2010 11:50 Jun 15, 2012 Jkt 073750 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 E:\HR\OC\A750.XXX A750

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merce-controlled exports can occur without a license, it is no less 

important for Commerce to seek efficiencies where needed. Most recently Commerce has established new performance measures in its 

fiscal year 2010, budget, which we have not evaluated. 

The third and final area of concern is a more fundamental issue; 

management’s due diligence in performance assessments. State and 

Commerce have argued that no fundamental changes are needed 

due to their Export Control Systems. We have been somewhat perplexed by this stance, since neither department has conducted a 

thorough assessment to support this conclusion, and our work has 

repeatedly demonstrated that the U.S. Export Control System is in 

need of repair. 

Redefined security threats, evolving technology, and increasing 

globalization, coupled with the numerous weaknesses we have 

identified demand that the U.S. government step back, assess, and 

rethink the current system’s ability to protect multiple U.S. interest. 

Mr. Chairman, this concludes my prepared statement. I would be 

pleased to respond to any questions that you or members of the 

subcommittee may have. 

[The prepared statement of Ms. Lasowski follows:] 


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Mr. STUPAK. Thanks, Ms. Lasowski. 

Mr. Borman, your opening statement, please. 

TESTIMONY OF MATTHEW BORMAN 

Mr. BORMAN. Thank you, Mr. Chairman. 

Mr. STUPAK. We are going to need you to turn on a mike and pull 

it up there a little bit. 

Mr. BORMAN. Thank you, Mr. Chairman—— 

Mr. STUPAK. Thank you. 

Mr. BORMAN [continuing]. And members of the committee. We do 

appreciate, Tom Madigan and myself, the opportunity to come up 

here and talk to you about this. This is a very important topic, and 

we really appreciate your interest, the work of GAO, and industry 

interest. From our perspective this is an issue that really needs significant coordination between the Legislative Branch, the Executive 

Branch, and the U.S. private sector. 

Just to give you a quick overview of our role in the system, of 

course, the U.S. Export Control System there is several different 

components. The dual-use system governs the export of items that 

have civilian and military applications and we administer at BIS 

the dual-use system in conjunction with a number of other agencies 

including the Departments of Defense, Energy, Homeland Security, 

Justice, State, and Treasury, as well as the intelligence community. 

In administering the Dual-Use Export Control System BIS and 

other agencies develop control policies based on technologies, countries, end usages, and end users. While most items in the U.S. 

economy are subject to controls, that is, they are subject to the regulations, only a small percentage of U.S. exports by dollar value actually need a specific license from Commerce that goes through an 

interagency process. 

And in administering the system we are very aware of the challenges of the 21st century, and the way we look at them is you 

have diffuse challenges; diffuse security threats ranging—there are 

a range of Nation States all the way down to non-State actors to 

individuals, but you also have a real diffusion of markets. When 

the Export Control System was first crafted, many of the major 

markets were not markets then, China and India being two obvious 

examples, and you have a much greater diffusion of technology. 

The U.S. is no longer the world leader in a range of technologies 

as it was say 20 years ago. 

And our authorizing statute, which is the Export Administration 

Act of 1979, is a Cold War statute, and if anyone looks at it, you 

will see it replete with references to the Coordinating Committee 

for Multi-Lateral Export Controls. That was the trade equivalent 

to NATO that has ceased to exist in 1994. Not only is it the EAA 

1979, it is in lapse. It is not permanent legislation, and in the years 

I have been in Commerce, I have been both in this position and our 

legal office for more than 15 years, it has only been in effect for 

about a year and a half total. So clearly there is a statute on the 

dual-use side that seriously needs revisions. 

Pursuant to an executive order, we continue to apply the provisions of the act to the extent permitted by law and implement our 

regulations under another statute called the International Emergency Economic Powers Act or IEEPA. This authority provides for 


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a limited control over domestic transfers of items subject to the 

EAR that are deemed to be exports. That is in the technology area, 

technology to foreign nationals in the United States. 

Consistent with our existing authority, we have outreach compliance and enforcement actions that address exports, re-exports, and 

foreign transfers, and these include certain domestic and thirdcountry transfers of technology deemed to be exports or re-exports 

based on the involvement of foreign nationals. 

Given the volume of trade from the United States, for example, it was about $1.3 trillion dollars worth of exports for the United 

States last year, informing U.S. and foreign businesses of the requirements of our regulations is a critical component to our Export 

Control System. We have a robust outreach program which includes seminars, web information, training, phone counseling, and 

direct preventative enforcement visits to companies. In addition to 

this outreach program we also have a broad compliance and enforcement program to help ensure that exports are in accord with 

the regulatory requirements. 

Regarding compliance, we do things like following up with license reporting requirements, carefully reviewing data from the 

automated export system, which is the system exporters put their 

data in before trade leaves the country, and inform U.S. manufacturers, exporters, and shippers how to avoid becoming involved in 

potential export violations with various publications, including redflag indicators, one of which specifically speaks to domestic transfers. 

With that I will turn it over to my colleague who will address 

the enforcement aspects of our program. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Borman follows:] 


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Mr. STUPAK. Thank you, Mr. Borman. 

Mr. Madigan. 

TESTIMONY OF THOMAS MADIGAN 

Mr. MADIGAN. Thank you, Mr. Chairman. 

Mr. STUPAK. Do you want to share that mike there? There we go. 

Mr. MADIGAN. Excuse me. Thank you, Mr. Chairman, Ranking 

Member Walden, and distinguished members of the subcommittee. 

As a follow up to Mr. Borman’s comments on BIS outreach efforts, 

I would only add that BIS’s export enforcement arm conducts additional targeted specialized outreach visits. These preventive enforcement efforts involve direct outreach to members of the exporting committee, community to educate them on export control requirements, to encourage voluntary compliance, and to detect potential violations. Over the past year we have conducted over 3,400 

such targeted outreach visits. 

BIS’s mission of keeping U.S. dual-use goods and technology from 

being diverted to prescribed end users and end uses is an important one. Our enforcement priorities include weapons of mass destruction, proliferation, terrorism, and State sponsors of terror, and 

unauthorized military end use of such items. To further this mission we have special agents assigned to eight regional field offices 

across the U.S. and in five foreign locations supported by administrative staff of analysts and other employees. 

With respect to AES, which Matt mentioned, BIS special agents 

use the automated targeting system of AES to identify violators in 

the United States and overseas. ATS queries can be conducted to 

identify unwitting suppliers to foreign diverters. Violations can 

then be prevented by advising these exporters through this targeted outreach that their products may ultimately be diverted in 

violation of the EAR. 

In addressing the threat of dual-use diversion by foreign procurement networks, BIS sometimes encounters circumstances in which 

foreign parties have attempted to secure what appears to be a domestic order but which is, in fact, intended for export. During its 

targeted outreach BIS has identified such attempts in the past and 

has investigated and prosecuted the suspects with its partner agencies. 

A recent example of this included the disruption of the network 

attempting to control—to acquire controlled thermal imaging cameras for export to the PRC. After receiving an industry tip and conducting a thorough investigation, the suspects were arrested while 

boarding a flight to Beijing with ten of the controlled cameras concealed in their luggage. Due to the successful outreach in this case, 

agents were able to interdict the goods, disrupt the domestic procurement attempt, and prosecute the individuals involved. 

We greatly appreciate the opportunity to testify in front of the 

committee today, subcommittee today, regarding BIS’s important 

national security mission. Our dedicated staff, with support from 

many other agencies, is committed to protecting our national security, foreign policy, and economic interests by ensuring secure trade 

in high-technology items, so we welcome this discussion. 

We would be pleased to answer any questions you may have. 

Mr. STUPAK. Thank you, Mr. Madigan. 


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Mr. Alvis, your opening statement, please, sir, and pull that mike 

up and you got to hit the button there. It should turn on a green 

light, and you’ll be all set there. Pull that up there a little bit. 

Thanks. 

TESTIMONY OF MICHAEL ALVIS 

Mr. ALVIS. Good morning. Chairman Stupak, Ranking Member 

Walden, members of the committee. My name is Mike Alvis, and 

I am a Vice President at ITT Night Vision, a $500 million business 

within the ITT Corporation, Fortune 500 corporation with over 

40,000 employees worldwide. Our products serve a broad range of 

applications in both military and commercial markets. They include products like pumps for residential and commercial water, 

imagers on weather satellites, and the ground station network for 

the next generation U.S. air traffic control system. 

I am joined at the hearing today by Mr. Gregg Nivala, ITT’s general counsel and the head of our trade compliance organization. His 

organization monitors all—the sale of all products, military and 

commercial. Also in attendance today is Mrs.—Ms. Ann Davidson, 

Corporate Vice President at our world headquarters, and she 

serves as ITT’s Vice President for Corporate Responsibility. Also in 

attendance is Mr. Doc Syres, our Vice President for Congressional 

Relations. 

ITT has been in the night-vision business for 50 years. We are 

pleased to make ourselves available to this committee as it investigates the sale of sensitive military technology into the commercial 

marketplace. In the interest of full disclosure, in early 2007, ITT 

settled a criminal matter with the U.S. Department of Justice by 

pleading guilty to violations of the International Traffic and Arms 

Control Regulations or ITAR. The individuals joining me here 

today hold key positions created as a result of that settlement, and 

they serve at the corporate and business unit level that is designed 

to ensure that all ITT employees know and understand the law and 

operate their business activities legally and ethically. 

Ms. Davidson is the first ever Vice President for Corporate Responsibility and presides over a worldwide network of compliance 

officials that monitor the business units to ensure that ITT moves 

forward with a premiere ethics and compliance program. 

ITT Night Vision where I work is the world’s largest developer 

and manufacturer of night-vision goggles and image-intense fire 

tubes for other systems. We are only one of two manufacturers of 

the Generation 3 image tubes. Both companies happen to be U.S. 

This is the technology of the goggle. 

We began making these tubes in 1982, and have manufactured 

over a million Gen 3 tubes, and we have ceased manufacturing the 

Generation 2 tubes, which many of you see in the commercial marketplace and in catalogs. Our key domestic business areas are 

night-vision goggles and spare tube sales to U.S. and Federal Government agencies and State and local first responders. ITT also 

sells its Generation 3 aviation goggles to the civil helicopter community, primarily emergency medical services. 

Although not a governmental entity, private medical evacuation 

helicopters perform a key first responder role, and the use of nightvision goggles in their operations is recommended by the Federal 


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Aviation Administration. ITT is currently in the process of doubling 

the number of goggles available to the civil aviation community for 

Medi-Vac. 

Less than 1.5 percent of our sales are to commercial end users, 

and 85 percent of those sales are to the civil helicopter community 

I just referred to. The other .04 percent of our business, the remaining 15 percent, go to the—into the commercial market, but it 

should be noted that ITT does not provide military specification 

tubes for those sales. They go to people like ranchers, nature 

lovers, and other recreational users. We call these fall-out tubes. 

These are the scrap that come out of our process and as—and they 

have some value commercially. 

ITT is also the developer and sole provider of the enhanced 

night-vision goggle, the most versatile and multi-faceted night-vision device ever fielded. The ENVG and its special 16 millimeter 

tube is only sold to the United States Army, and this views also 

in special operations. It will continue to ensure that U.S. forces always have the critical technological edge or overmatch over potential adversaries. 

In closing, ITT is pleased to answer your questions today concerning our technology and our experience in developing a firstclass trade compliance organization, consistent with the requirements set forth in the ITAR. We will limit our responses to questions concerning night-vision technology that are in the public domain. We look forward to your questions. 

[The prepared statement of Mr. Alvis follows:] 


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Mr. STUPAK. Thank you. 

Mr. Roush, your opening statement, please. 

TESTIMONY OF JOHN ROUSH 

Mr. ROUSH. Good morning, Chairman Stupak—— 

Mr. STUPAK. You might—you got that mike on? 

Mr. ROUSH [continuing]. Other members of the committee. Thank 

you for the opportunity to participate in today’s hearing. My name 

is John Roush, and I am a Senior Vice President at Perkin Elmer 

and President of the company’s environmental health business segment. 

Perkin Elmer has a 60-year history of innovation in life sciences, 

analytical instrumentation, and optoelectronics products. We are a 

global leader focused on improving the health and safety of people 

and the environment. We are headquartered in Massachusetts and 

have about 8,500 employees serving customers in more than 150 

countries. We have significant U.S. operations in six different 

States. In 2008, we reported revenue of approximately $2 billion, 

and we are proud to be a component of the S & P 500 index. 

As discussed, today’s hearing will review the U.S. Government’s 

safeguards in place to prevent the unauthorized diversion of sensitive products by a domestic purchase. Let me say that Perkin 

Elmer is committed to help solve this problem in various ways as 

discussed by Representatives Walden, Markey, and other members 

of the committee. 

As you know, the Department of Commerce and the Department 

of State are responsible to export control regulations within their 

respective jurisdiction. Let me tell you that Perkin Elmer takes 

these requirements very seriously. As part of our commitment, we 

have implemented an export management system to ensure that 

we are complying with all applicable U.S. export control laws. Our 

system establishes a robust internal compliance capability to prevent the transfer of sensitive or controlled products for improper 

end uses or to unauthorized destinations or purchasers. 

Additionally, our compliance processes incorporate the know your 

customer and red-flag indicators’ guidelines issued by the U.S. Government. We have a staff of dedicated export control compliance 

personnel who are regularly trained on U.S. export control requirements and who play an integral role in the sale of these controlled 

products. 

Let me tell you that Perkin Elmer’s export compliance program 

is very effective. In fact, we have been viewed a model within our 

industry by various compliance agencies that we have dealt with 

in the past. As mentioned by Representative Markey, of particular 

interest to this committee Perkin Elmer has also shown a track 

record of cooperating with government agencies in export compliance matters. 

In 2003, Perkin Elmer alerted representatives of BIS’s Office of 

Export Enforcement of a request we had received to purchase 200 

triggered spark gaps for shipment abroad. Perkin Elmer followed 

its established internal screening procedures and identified several 

red flags. In this transaction the number of items in the order 

quantity was inconsistent with the stated medical purpose in that 


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region of the world, and the proposed sale lacked appropriate export documentation. 

In this case Perkin Elmer worked closely with OEE and other 

federal agencies in a sting operation involving a New Jersey customer to track the ultimate destination for those goods, which was 

Pakistan. The individual who attempted to arrange this transaction was convicted of violating U.S. export control laws and received a 3-year prison sentence. We are proud that the U.S. authorities publicly acknowledged Perkin Elmer for its role in this investigation. 

I want to say that Perkin Elmer is fully committed to compliance 

with all applicable U.S. laws. We commend this committee and 

other interested stakeholders for your interest in considering possible ways to enhance U.S. Government safeguards for domestic 

sales of certain sensitive products. We stand ready to support the 

committee’s efforts. 

We do hope that such reforms will not disrupt the ability of domestic buyers to purchase these products for critical and legitimate 

medical needs. We look forward to working with you to ensure that 

any such proposals are effective and can be implemented in a reasonable manner. We thank you for the opportunity to make this 

statement, and I will be happy to take your questions at the appropriate time. 

[The prepared statement of Mr. Roush follows:] 


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Mr. STUPAK. Thank you. 

Mr. Fitton, your opening statement, please, sir. 

TESTIMONY OF NICHOLAS FITTON 

Mr. FITTON. Honorable Chairman and members of the committee, I am Nicholas Fitton, sole owner and operator of a small 

store located in Georgia Section 8. I am here today because of the 

sale of an F110–GE–129 engine computer. This is an item which 

is restricted from export. Other than that there are no restrictions 

placed on the sale of this item. 

When I purchased it in 2006, from Government Liquidations, the 

institute which controls the sale of auction surplus, government 

military items, I filed paperwork stating it was for resale. The customer was unknown at that time, and that it would not be exported 

or altered in any way. 

In December of 2008, I was contacted by a person identifying 

himself as Joseph Fitzpatrick, wished to have more information on 

the item. After several contacts the individual placed an order on 

January 20, 2009. You have in your possession copies of all correspondence between the purchaser and myself, along with my 

inter-office file on the transaction. 

After the order was placed, I had the individual fill out an enduse certificate and send a copy of identification along with the application to my office. Unfortunately as a seller I do not actually 

have access to background checks and certificates that I could submit to a government agency such as Government Liquidations does. 

The end-use certificate I had the customer fill out is one that I copied and edited from their Web site. After I received the customer’s 

information I obtained satellite imagery of the street address the 

buyer’s home address was listed as and did the same for his place 

of business. The imagery verified they were residential and business districts. I also pulled public information on the company the 

buyer had listed, all information include IP addresses of the computer the transactions were placed from is maintained both in digital and hard-copy formats. 

I also called in a favor from a local law enforcement officer who 

just simply ran the buyer’s name through a computer to see if 

there were any wants or warrants. Pretty much this is all that I 

can do as a seller. 

During the process I had the buyer believe a more complex investigation was taking place than there actually really was. I also 

drew the process out over a long period of time. My experience in 

law enforcement military operations has shown that the longer 

transactions take and more security measures that are presented 

to an individual, if they are committing nefarious or criminal activities, they tend to become nervous and back out of the transactions or tend to give tells as to something is going wrong. The 

entire process from initial contact until the package was shipped 

on April 23 was over 4 months. A short time after the package was 

delivered, I was contracted by your investigators in regards to the 

matter, and here we are today. 

What we are really looking at here has several issues which need 

to be addressed. One, formal guidelines need to be set for as to 

what is expected from resellers and end users, and this needs to 


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be something other than no exports as we have already talked 

about here. 

Two, resources need to be opened up to resellers to which they 

can validate an end user. There are currently no such services 

available to vendors who sell materials deemed sensitive. Other industries such as firearms dealers have services available to them 

such as those offered by the Bureau of Alcohol, Tobacco, and Firearms, which will allow sellers to perform checks and investigations 

into those wishing to purchase these items. Government Liquidations has such services available and any vendor or person wishing 

to purchase these items has to be checked prior to them being able 

to pick up these items. Once it falls into the hands of the vendor 

or end user, the only requirement is not to export the item unless 

prior approval is granted. 

The demilitarization codes is my third issue which needs to be 

addressed. Right now the demilitarization codes are fairly broad. 

For example, a piece of cloth is considered a restricted item because it is used as covering for a piece of armor or a helmet and 

thus classified in the same manner as body armor. A shirt or jacket 

which is 40 years old and hasn’t been issued in years is classified 

the same way current issue items are. 

And on that note we need to look at why certain items are classified as sensitive and no longer offered for sale. Many of these items 

while being available directly from manufacturers without restrictions are sold new across the country. Why is that same item being 

used by the military and in many cases, no longer serviceable, classified as sensitive? 

Also, many items which do have restrictions such as armor, more 

specifically helmets, are now no longer available for sale. These 

items were once available with approval by an end-use certificate. 

While many people don’t understand why someone would want or 

need one of these, they fail to realize that the primary consumer 

for such items tend to be law enforcement agencies. Many departments only have the budget to purchase tactical equipment including ballistic shields and helmets for their swat or quick reaction 

teams. They cannot afford four or $500 for a helmet for every patrol officer, even realizing the first responder to a hostile situation 

such as an active shooter is not a tactical unit but actually patrol 

officers. These surplus military helmets can be normally sold for 

under $50. 

By restricting items for sale and commercial trade, not only are 

you taking away items from average citizen, but in many cases you 

are also affecting law enforcement as well. Even with policies such 

ammunition and weapons restrictions to civilians, law enforcement 

and even our military are adversely affected. This could be seen in 

the 1994, assault weapons ban and its subsequent sunset. After the 

ban was lifted more companies were able to afford research and development and quickly improve long-standing, stagnant technologies and simultaneously improve quality and lower the price of 

items used by military and law enforcement agencies. 

With continued heavy taxation and uncoming restrictions, I am 

afraid it will not take much to make us rely on foreign powers for 

our military and law enforcement needs. 


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In conclusion, what we are dealing here with is not an inability 

to enforce security measures, but a lack of policy and procedures 

to enforce and lack of using commonsense to understand what the 

actual items are that are being sold. I currently have a bag with 

several types of simple cloth items which are current regulations 

considered more sensitive than many of the items up there on display. I have no restrictions as to what I can do with those items, 

however, a piece of cloth is required for me to be returned to the 

government for destruction. 

At this time I open myself up for any questions in regards to 

these matters. Thank you. 

[The prepared statement of Mr. Fitton follows:] 


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Mr. STUPAK. Well, thank you and thank you to all of our witnesses for your testimony, and I think it is fair to emphasize again 

that the industries are here, the companies are here and a representative for Mr. Fitton by himself, basically a one-man operation 

through ITT which a $500 million operation, did not violate any 

laws. Probably—and they did cooperate with GAO after we made 

the purchases, but we are going to try to expose some of the problems with the laws or the policies that we have and see if we can’t 

correct them as the purpose of this hearing as we do in oversight 

investigation. 

Let us start with questions. I will begin. 

Mr. Fitton, just out of curiosity, so you bought this—the F–16 engine monitoring system computer from the government. Right? And 

you are cleared by the government to buy this stuff as surplus military? 

Mr. FITTON. That is correct, and might I add that many of the 

items which I purchased over the last several years, they have recalled, such as clothing. 

Mr. STUPAK. Sure. 

Mr. FITTON. Such as helmet covers and things of that nature. 

However, sensitive items such as the F–16 engine computer, they 

have never asked me to return those items. 

Mr. STUPAK. OK. So you buy it, and you are licensed by the government, you are checked out, you are OK. But once you sell it in 

the United States, as long as you sell it in the United States, there 

is no restriction on that. Right? 

Mr. FITTON. That is correct. 

Mr. STUPAK. What on God’s green earth would anyone want with 

an F–16 engine monitoring system computer? Why would that have 

a resale value? 

Mr. FITTON. Well, typically a lot of items which a lot of people 

wouldn’t understand what someone would want actually go to museums, collectors, I have sold a great deal of items to movie production companies and things of that nature—— 

Mr. STUPAK. OK. 

Mr. FITTON [continuing]. Out in Hollywood. And things such as 

the infra-red flags there which—— 

Mr. STUPAK. Right. 

Mr. FITTON [continuing]. Are a restricted item—— 

Mr. STUPAK. Right. 

Mr. FITTON [continuing]. Honestly a lot of these things I purchase from overseas countries such as China. So export restrictions 

are kind of curious to me simply because a lot of the things we are 

restricting from export we actually import into this country from 

the countries we are trying not to export to. 

Mr. STUPAK. Right. 

Mr. Kutz, let me ask you a couple questions. Your undercover investigation showed how easy it is to obtain military and dual-use 

items on the State Department’s Munitions List and the Commerce 

Department’s Commerce Control List. Your investigation also illustrated that our laws impose few, if any, controls on domestic sales 

of these items. In the post 9/11 world, I don’t think it makes any 

sense to assume that all attacks against the United States will 

occur or will occur from overseas. 


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So in your undercover operation, your investigators bought seven 

items or several items that could be used to make IEDs, improvised 

explosive devices. Is that right? 

Mr. KUTZ. Yes. Several of these have IED applications. 

Mr. STUPAK. Which are those? Which items are they? I know you 

have some of them up here. 

Mr. KUTZ. For example, the quadruple differential line receiver, 

you can put that on the monitor, too. It is—— 

Mr. STUPAK. Is your mike on? 

Mr. KUTZ. Yes, it is. 

Mr. STUPAK. OK. 

Mr. KUTZ. It is a little chip, and I think they can—— 

Mr. STUPAK. OK. 

Mr. KUTZ [continuing]. Put it on the monitor for you. That is one 

of them. The inclinometer, which I believe those are both of my 

left—— 

Mr. STUPAK. Right. 

Mr. KUTZ [continuing]. There. Those are two, and I believe some 

of the other ones have other applications. We actually look for ones 

that appeared to have been going to Iran as part of prior criminal 

cases that were being built into IEDs and used in Iraq. That is the 

type of things we are talking about. 

Mr. STUPAK. OK. 

Mr. KUTZ. And this is low-end technology unlike some of these 

others. This is very low end. It is potentially available other places. 

Why they come to the United States looking for it I don’t know exactly. 

Mr. STUPAK. Well, we have many reports that these IEDs when 

they go off, they find U.S.-made parts in them. 

Mr. KUTZ. Correct. 

Mr. STUPAK. So it is a serious problem that we are facing in Iraq, 

Afghanistan, and elsewhere right now. 

Mr. KUTZ. Yes. 

Mr. STUPAK. All right. Let us take a look at some of the items 

you purchased. Body armor, night-vision scopes, and secure radios. 

Are you concerned these could be used by not just terrorists but 

criminals and terrorist organizations operating within the United 

States? 

Mr. KUTZ. Yes. I do think there is—especially like the body 

armor seems to be more of a domestic. We didn’t see any criminal 

cases of export of the body armor, but there is many criminal cases 

of—the Binghamton case recently, the shooter there was—— 

Mr. STUPAK. That’s the one up in Pittsburgh? 

Mr. KUTZ. No. Binghamton, New York. 

Mr. STUPAK. OK. 

Mr. KUTZ. The one where about 12 or 13 people were murdered 

by someone. They had body armor. We don’t know what type of 

body armor, but body armor was used in some of the bank robberies from the 1990s you are probably familiar. 

Mr. STUPAK. Oh, yes. There was legislation introduced some 

timeframe to restrict those sales, and we never could get anywhere 

with it. 

Mr. KUTZ. Yes and—— 


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Mr. STUPAK. And I know Mr. Doyle wanted to come and testify 

because of the recent shooting of three police officers in Pittsburgh, 

that individual was in the body armor that we see here today. 

Mr. KUTZ. Right, and we actually have—I have a quote of actually a Craig’s List ad that we had as a prior investigation, and it 

actually said, and I quote, ‘‘a must have for any gangster.’’ So that 

is another use of the body armor that we understand. 

Mr. STUPAK. OK. Ms. Lasowski, let me ask you this. You testified 

that GAO placed the lack of control over sensitive military targets 

on your high-risk list. Correct? 

Ms. LASOWSKI. Yes. That is correct. 

Mr. STUPAK. OK. Let me ask you about this. The Arms Export 

Control Act and the Export Administration Act date back several 

decades. Were any of these laws amended or updated at any point 

since 9/11? 

Ms. LASOWSKI. There has not been a fundamental change in the 

laws. As Mr. Borman has mentioned the Export Administration Act 

has lapsed—— 

Mr. STUPAK. Right. 

Ms. LASOWSKI [continuing]. And has been kept alive through executive order and—— 

Mr. STUPAK. Through an emergency executive order. 

Ms. LASOWSKI. Exactly, and so there has not been a major overhaul of either law. 

Mr. STUPAK. OK. For committee members, remember we had our 

hearing there in April about the chemical plant in West Virginia 

that blew up, and we mentioned a lot about what if a terrorist 

would view this as a target. Everything they wanted to do to hit 

that chemical plant that we had the hearing on, the night vision, 

body armor, IEDs, it is all there. So it goes farther than that. 

We are going to try to keep the 5 minutes. We will keep going 

back and forth. We have votes soon, so let me go to Mr. Walden 

for his set of questions. 

Mr. WALDEN. Thank you very much, Mr. Chairman. 

Mr. Kutz, what kind of checks did some of the companies run on 

your GAO undercover company called Monacasey Tech Consultants? What kind of background checks, and what did the companies think those checks would show? 

Mr. KUTZ. There were a variety of controls we were using. I want 

to start with the end-use certificate that was mentioned here. If we 

could put that up on the monitor, too. I actually would like to read 

to you. It is essentially a self-certification that you won’t export, et 

cetera, so it says, ‘‘I confirm that the products listed above,’’ and 

this was the Ka-bank amplifier, ‘‘will be so used for the end use 

stated above and will not be used in or for nuclear, biological, 

chemical weapons, or missiles capable of delivering these weapons. 

I further confirm that the products will not be exported.’’ 

So that was considered part of the control system to get a selfcertification from us in several of these key products. 

Mr. WALDEN. So if I wanted to do something bad with what I got, 

I would just sign this and say I promise not to use this to create 

a nuclear, biological, or chemical weapon. Honest. 

Mr. KUTZ. That is what—— 


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Mr. WALDEN. Signed Osama bin Laden. It would be believable 

and enforceable. 

Mr. KUTZ. Well, we signed it in all cases, and I don’t believe 

there are any other checks done. Some of the other things just real 

quickly, they had copies of our identifications, they checked to see 

if our credit card worked. Some of them actually checked to see 

that we had a Web site, and so there were some things—one actually claimed they did a background check, but I don’t know how 

they do a background check of a person that doesn’t exist. I am not 

sure what kind of record you would get on that. So that is the type 

of things we understood were happening. 

Mr. WALDEN. Is there any information that companies could do 

or require of buyers when making a domestic purchase of dual-use 

items that would identify a possible export situation or deter a bad 

actor who wanted to buy the item in order to ship it abroad? I 

mean, is there—how can you stop that? 

Mr. KUTZ. I think it is very difficult. I think some of the points 

that were made by the witnesses to my left here are valid points. 

Mr. Fitton, I guess, mentioned some of the things that he had said 

he did, and he maybe exhausted all options, and it still wasn’t good 

enough to get us. And he appears to have a lot more training than 

a lot of the other people we were probably dealing with here in recognizing a kind of a situation like we were. 

Mr. WALDEN. You have met with all the manufacturers and distributors who were the subject of your investigation. Correct? 

Mr. KUTZ. We either met with or talked by phone after this. 

There were no contacts with them before the transactions. 

Mr. WALDEN. While any restrictions they place on domestic sales 

are voluntary, do you think they were sufficient to prevent foreign 

nationals or terrorists from obtaining these sensitive items? 

Mr. KUTZ. No, and as I think we had found based on discussions 

with law enforcement, the kind of front company we used and the 

kind of scheme we used is one that is being used by real foreign 

governments and terrorist organizations today. This is not a hypothetical. This is a real. 

Mr. WALDEN. That is pretty disturbing. 

Mr. KUTZ. Yes, it is, and again, we, again, these items we were 

successful with, and I think it raises questions. I mean, I think 

that the military and the dual-use items are different. The military, some of the discussions here about what should be done, what 

possible use does anybody have for whatever the U.S.—according 

to the U.S. military this is being used today by our soldiers. Why 

would anyone else need exactly what our soldiers need? That is 

something that has a more easy solution than the dual use. 

Mr. WALDEN. Do you have your domestic buyers sign—well, I 

want to go to the companies. 

Do you have your domestic buyers sign end-use agreements? 

Could you answer verbally into the microphone each of you? 

Mr. ALVIS. Yes, sir. We have instituted as much out of our own 

experience as we learned and instituted a compliance, a rigorous 

compliance system. We have required our distributors, dealers, the 

people that we sell to, which is a very, very small part of our business, to sign end-use agreements. 

Mr. WALDEN. Mr. Roush. 


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Mr. ROUSH. No, we don’t ask for—on domestic sales of these 

items we don’t ask for an end-use statement. 

Mr. WALDEN. Really? OK. Mr. Fitton. 

Mr. FITTON. Yes, I do, and contrary to something that was said 

earlier in the proceedings, I do require the customer to actually say 

what the end use is going to be. Granted, it is just what they are 

stating it is going to be. 

Mr. WALDEN. Right. 

Mr. FITTON. In this case it was for display, but that is essentially 

all I as a buyer from the government am required to give as well. 

Mr. WALDEN. So do any of you that are selling this equipment, 

I realize you are following the absence of the law, it doesn’t exist, 

do you get comfort from these end-use agreements? Do you see— 

do you share our concern that just because somebody signs it and 

says I promise I won’t use this for nuclear, biological, or chemical 

weapons or missiles, signed Kim Jong II, what do we do here? It 

doesn’t—— 

Mr. FITTON. Personally, if—this is what I am required to give to 

the government. If it is good enough for the government to use, 

shouldn’t it be good enough for me to use as a reseller? And on that 

note a lot of the things that are considered dual-use technology and 

no longer authorized for the government to release, these are common, off-the-shelf items that you could be—purchase at Radio 

Shack, including a oscilloscope, which the government—— 

Mr. WALDEN. Right. 

Mr. FITTON [continuing]. No longer releases, but I as a buyer 

sometimes get confused as to what I should be—— 

Mr. WALDEN. Yes. 

Mr. FITTON [continuing]. Concerned with and what I shouldn’t be 

concerned with considering some of the items up here the government doesn’t seem to be very worried about where a lot of items 

they should be worried about they don’t care. 

Mr. WALDEN. I appreciate that. That is the struggle I think we 

are all having here because we are all under risk, at risk here. 

Thank you, Mr. Chairman. My time has expired. 

Mr. STUPAK. Is this agreement there is no penalty if you lie on 

it or anything like that? I mean, it is just something to give you 

some comfort. Right? 

Mr. ALVIS. In our case, sir, what we would do is we would probably sever our relationship with—— 

Mr. STUPAK. With that buyer. 

Mr. ALVIS [continuing]. That distributor or dealer. 

Mr. STUPAK. But there is no criminal penalty or anything like 

that? 

Mr. ALVIS. Not that I know of. 

Mr. KUTZ. Could I comment on that real quickly? I mean—— 

Mr. STUPAK. Yes. 

Mr. KUTZ [continuing]. The one value we have seen of the end 

use, it doesn’t really prevent anything. 

Mr. STUPAK. Right. 

Mr. KUTZ. Law enforcement has used it in making criminal cases 

to show knowledge and intent. 

Mr. STUPAK. Sure. 

Mr. KUTZ. So it does have value after the fact. 


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Mr. STUPAK. But if I don’t do it, there is no penalty involved in 

it? 

Mr. KUTZ. No. 

Mr. STUPAK. I just wanted to clear that. Go ahead. 

Mr. WALDEN. Mr. Alvis, you said you would sever your relationship with the distributor, do you go back, do any of your companies 

go back and do random checks to see if the person who signed the 

agreement is actually following the agreement? 

Mr. ALVIS. Our dealer agreements do require, have a proviso that 

allows us to come and audit and—— 

Mr. WALDEN. So you do audit? 

Mr. ALVIS [continuing]. Check to see if they do that. 

Mr. WALDEN. And you do audits then? 

Mr. ALVIS. We have resource constraints as any other organization does, and we have not because—we have not done that to date. 

Mr. WALDEN. Do any of you do audits back on this? I realize you 

are not required to but—— 

Mr. FITTON. Unfortunately, there is not a whole lot I as a seller 

can do. I am at a little bit of a different situation than Mr. Alvis 

in that I would actually purchase—I would be the type of customer 

he would sell to. Sell—— 

Mr. WALDEN. Right. 

Mr. FITTON [continuing]. To military and law enforcement agencies—— 

Mr. WALDEN. Right. 

Mr. FITTON [continuing]. Who are my primary buyer. But while 

he would essentially come to me and see who I sold it to—— 

Mr. WALDEN. Right. 

Mr. FITTON [continuing]. I really don’t have somebody I can report to such as the ATS to get information on my buyers from, and 

this one thing that I would like to have access to. As a firearms 

dealer I have got it, so why wouldn’t I have it as a sensitive materials dealer? 

Mr. WALDEN. Thank you, Mr. Chairman. 

Mr. STUPAK. Ms. Sutton, thanks for letting us step on your time. 

We will give you your 5 minutes back, Ms. Sutton, for questions. 

Ms. SUTTON. Thank you very much. 

Mr. Kutz, I am sitting here in a bit of astonishment at what your 

undercover investigation was able to buy right here in the United 

States, and if you just look at these tables, a detonator for a nuclear bomb, an accelerometer used in a nuclear weapons program, 

a steering instrument for a guided missile, components for an IED, 

bulletproof vests, secure radios, and night-vision equipment. It is 

as if our own country has become a terrorist bazaar. 

Mr. Kutz, I know you do this for a living, but you were surprised 

at your success—were you surprised at your success in obtaining 

these items? 

Mr. KUTZ. In some cases probably, other cases, no. We have done 

work on eBay and Craig’s List. We have bought these same types 

of items there. We have actually bought from the Surplus Property 

System from the Department of Defense before when they were 

selling F–14 parts, and that was one of the reasons I believe Congress passed a law—— 

Ms. SUTTON. Right. 


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Mr. KUTZ [continuing]. Prohibiting the Department of Defense 

from selling F–14 parts, which had only one customer, Iran. And 

so not really would be my answer. 

Ms. SUTTON. Well, your investigation is just so important because it shows the whole picture, you know. You found that all of 

these items can be easily and legally purchased inside the United 

States, and I want to thank the companies who are represented 

here today for your cooperation with the committee and for your 

willingness to look at making changes to the law. 

But you, too, are looking at this issue through your more narrow 

viewpoints and with respect to your products, and I think the lesson here is that we need to look at this issue holistically, and I 

think Ms. Lasowski, you would agree. We need to see the bigger 

picture. Each year billions of dollars in military and dual-use items 

are exported from the U.S. as has been made clear here today, and 

for too long we have viewed the problem through isolated stovepipes. 

And Ms. Lasowski, you are also from GAO, you have analyzed 

this problem from the perspective of a federal agency coordination, 

and I think you are finding support that Mr. Kutz’s undercover investigators, all that they found, you know. Every 2 years GAO 

issues what is called its high-risk report. It has been referenced, 

and in this report you list some of the biggest problems in government. You have placed the security of our sensitive military technologies on this list. 

And I want to just read very quickly a portion of your testimony 

that explains why. You say this, ‘‘Poor interagency coordination, inefficiencies in processing licensing applications, and a lack of systematic assessments have created significant vulnerabilities in the 

Export Control System. Now, Ms. Lasowski, the Departments of 

Defense, State, Commerce, Homeland Security, Treasury, Energy, 

and Justice all have a role in regulating exports of defense-related 

technology, yet their coordination is poor. Can you tell us why? 

Ms. LASOWSKI. Thank you for the opportunity to respond to that. 

What we have found over the years is that for various aspects of 

the Export Control System there has not been a good coordination 

for agreeing upon, for example, the jurisdiction of certain items or 

for enforcement actions. Some of the individual agencies have 

taken some actions towards making some improvements, and we 

certainly applaud any individual agencies’ attempts to improve inefficiencies or an ineffective part of the system. 

However, for something as important as this, it really is important to get all the stakeholders to look together at this particular 

topic, and what we are calling for is a reexamination of the system, 

and this would entail bringing each of those agencies together to 

represent their particular viewpoints and bring their knowledge 

and expertise to the topic. But then in addition what we have done 

here, too, is we have addressed this issue with the Office of Management and Budget. They, in turn, have informed us that given 

that there—this is a cross-cutting type of issue, the National Security Council may have an important role to play in this reexamination, and we welcome that opportunity for bringing all the players 

together to come up with solutions to the vulnerabilities and weaknesses that we have identified over the years. 


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Ms. SUTTON. OK, and you mentioned that there have been failures to conduct systematic assessments, and that that failure has 

caused significant vulnerabilities, and if you could just expand 

upon your answer a little bit, could you tell us what assessments 

they should be doing? 

Ms. LASOWSKI. What we are calling for in terms of those assessments is to determine how effective their system is. The system 

has a particular mission and goals and objectives, and it would be 

important to identify the appropriate measures for figuring out are 

they meeting their mission and their objectives, and so what we 

would be asking for is to take a look at the current environment, 

to develop measures that would determine whether they are being 

efficient and effective in the current environment, and then periodically measure those to see if they are making improvements. 

Ms. SUTTON. I thank you. My time is up. 

Mr. STUPAK. Thank you, Ms. Sutton. 

Mr. Gingrey, for questions, please. Five minutes. 

Mr. GINGREY. Mr. Chairman, thank you. 

Mr. Borman, do you have any sense about the number of legitimate transactions that these products go through for legitimate 

purposes as part of their normal production or the supply chain? 

I would just like to get a sense of how often these products may 

need to change hands before they reach their end use. 

Mr. BORMAN. In general terms, of course, we have just received 

a copy of the report and heard the report today, so we will have 

to look at this in detail, and, again, I am talking about on the dualuse side really, the items on this table, not the items on this table. 

But a lot of these are components, so it is very likely that they will 

go through several iterations either from the manufacturer to a distributor or to a sub-vendor who then puts it into a sub-system and 

so on. 

But one of the things we did look at in thinking about the scale 

of domestic commerce, just to give you two examples, last year it 

was estimated that the domestic market for semiconductor goods 

was almost $40 billion. That is just the domestic market. The domestic market for aerospace goods, about $35 billion. So, you know, 

when you are talking about dealing with domestic, potential domestic controls on at least the dual-use items like this, that is a 

significant challenge. 

Now, others of these are more specialized, and maybe some of 

the products like the triggered spark gap are more specialized, and 

they really just go from the manufacturer to an original manufacture equipment in OEM, and that—there is only one transaction 

there. So it really varies, but these kinds of things I think, the 

accelerometers, certainly the QRS–11 chip, which goes into a component that then goes into civil aircraft, you are talking about several stages usually. 

Mr. GINGREY. Let me do a follow up on this same question, particularly for these items that we are talking about that have the 

domestic commercial use. 

Is there any kind of a protocol or oversight of their ultimate disposal process? Because at some point the technology is going to either malfunction or exhaust its primary purpose, and it would likeVerDate Mar 15 2010 11:50 Jun 15, 2012 Jkt 073750 PO 00000 Frm 00093 Fmt 6633 Sfmt 6633 E:\HR\OC\A750.XXX A750

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ly need to be discarded. Should this—is this an area that we should 

be concerned about? 

Mr. BORMAN. Well, again, I think there is a distinction to be 

made at least currently between those things that are exported and 

those that are used commercially. So, for example, the QRS–11 

chip, that is probably in thousands of commercial airliners around 

the world; Boeings, air buses, Embraers, also Commadiers. To the 

extent they are operating domestically and the companies need to 

replace them, again, that is one set of circumstances. 

If they are going to be replaced abroad, then, again, they are subject to the Export Control System, and so there are certainly requirements that if companies want to export them to replace them 

in China or some other country, they have to go through that process. 

Mr. GINGREY. I was referring to those who were primarily for domestic use. 

Let me go to—and thank you, Mr. Borman. Mr. Fitton, thank 

you for being here today. As the sole employee of your business, I 

know it certainly had to make a sacrifice to get up here, and we 

know that this committee appreciates your presence and your testimony. 

In light of what you said, it seems to me that you took most 

every possible precaution that you could to evaluate your buyer, 

the end user. Take a moment and further expand on the current 

limitations that a reseller faces in validating the information and 

the background of a potential buyer. You touched on that just a little bit a minute ago. Could you elaborate in the remaining time 

that I have got? 

Mr. FITTON. Correct. Say if you are dealing with a firearms 

transaction, an individual has to fill out what is essentially an end 

use certificate stating that there is nothing preventing them from 

purchasing the weapon or any of this type of business. They have 

got their Social Security number, their names, their addresses, everything is listed on that application. That application is then submitted to the ATF for approval. This may be instantaneous approval, and in many cases take a week or 2 weeks for that approval 

process to take place. 

This is no reason that we can’t go through a similar process to 

at least validate the person purchasing that item. Now, what happens beyond that point, let us face it. If somebody wants to do some 

nefarious activities to the U.S., they can do it. There is no way to 

prevent this in its entirety. All we can do is try and do as many 

measures as possible, and one of the things that we have to look 

at is the fact that there are terrorists that are trying to destroy 

America, there are individuals throughout the world who want to 

see our downfall, but our current political correctness and the fact 

that we do have so many privacy rights protecting American citizens, these privacy rights are also protecting the terrorists, and we 

are not able to actually hunt down the real cause of what is causing damage to the countries. It is not the items. It is the end user, 

simply because I could do more damage with a truck full of fertilizer and gasoline than I can with any of the items that have been 

brought up on display today. 


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Mr. GINGREY. Thank you, Mr. Fitton, and I yield back, Mr. 

Chairman. 

Mr. STUPAK. Thanks, Mr. Gingrey. 

Mr. Braley for questions, please. 

Mr. BRALEY. Thank you, Mr. Chairman. Mr. Alvis, I appreciated 

your comments about some of the changes that have been made at 

ITT, but you may want to count me as someone who is still skeptical about the progress that is being made, and I want to talk to 

you about that. 

In 2007, your company was convicted of one of the biggest criminal violations in the history of the Arms Export Control Act for illegally exporting to China and other countries technology relating to 

your highly-sought-after night-vision goggles, and the company was 

fined $100 million. And I want to show you what Daniel Wilkins 

at the Defense Criminal Investigative Services said about your 

company. He said this, ‘‘The illegal export of U.S. military technology and equipment threatens our national security in the most 

direct way. Americans’ security and its critical military technology 

are simply not up for sale.’’ 

And Julie Myers, who was the assistant secretary for U.S. Immigration and Customs Enforcement at the Department of Homeland 

Security said that your company placed profits ahead of the security of our Nation. 

So my question for you is are you here today to vouch on behalf 

of ITT that those concerns are no longer valid about your company? 

Mr. ALVIS. Yes, we are. The people that were involved are no 

longer with the company. I talked earlier in my opening statement 

about the structure we put in place. I was not there. I’ve only been 

there 21⁄2 years. I was redeployed there along with—our entire senior staff has come on board within the last 3 years to include our 

president. 

Mr. BRALEY. OK. Well—— 

Mr. ALVIS. We are totally—yes, sir. That—— 

Mr. BRALEY. Let us talk about that. Here is another quote from 

Kenneth Wanstein, who is the assistant attorney general at the 

Department of Justice, and he said, ‘‘ITT’s exportation of this sensitive technology to China and other nations jeopardized our national security and the safety of our military men and women on 

the battlefield,’’ which is an extremely strong statement coming 

from the Department of Justice. 

And what I don’t understand and what the committee doesn’t understand is your company is still doing business with the Federal 

Government. Correct? 

Mr. ALVIS. That is correct. 

Mr. BRALEY. And the Justice Department allowed your company 

to defer $50 million of that $100 million criminal fine by allowing 

you to invest it towards a new, more-advanced line of night-vision 

goggles. Isn’t that true? 

Mr. ALVIS. That is true. 

Mr. BRALEY. Now, normally when a company is convicted of illegal activities of this magnitude, they are automatically debarred 

from future government contracts. Why hasn’t ITT been debarred, 

according to your understanding? 


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Mr. ALVIS. As I mentioned in my opening statement and my 

written statement, we are the world leader, and we have made 

drastic changes. One of the things that I think the government believes, and this is my opinion, is that the heart of the night-vision 

technology was not compromised. The goggle is nothing but a wrapper for the tube. The tube is the essence of the goggle. The tube 

cannot be reverse engineered. The tube is—and the government is 

convinced of this. I have talked to the former customer general officer level, that the security of the United States was not compromised via any of the activity. 

Mr. BRALEY. Well, that would seem to de-lie $100 million fine, 

which apparently was levied in connection with the activity. 

Wouldn’t you agree with that? That if there is no compromise of 

the national security, why in the world would $100 million fine be 

imposed? 

Anyway, let me move on. This isn’t the only time that ITT has 

been engaged in illegal export activities. The committee requested 

from the Department of Commerce copies of documents relating to 

other ITT export violations, and one of the documents shows that 

in 2007, which would have been within the timeframe you are talking about after this changeover in management at the company, 

one of your subsidiaries, Engineered Values Group, was fined for 

illegally shipping valves used in chemical and biological weapons to 

China, Israel, Saudi Arabia, and Taiwan. Isn’t that right? 

Mr. ALVIS. As I mentioned earlier, I am in the night-vision business area. I have no knowledge of that. 

Mr. BRALEY. But that certainly would have been within the period of time that you have indicated the company has had a change 

in management if it happened in 2007. 

Mr. ALVIS. We can respond to that question and get back to you 

for the record. I really don’t feel comfortable, particularly under 

oath, responding to something I have no knowledge about. 

Mr. BRALEY. All right. Then, Mr. Chairman, I would specifically 

request that we get an official response from the company in regard to that question. Mr. Kutz, let me close with you. After ITT’s conviction and $100 

million fine, the company officials issued a statement saying they 

had conducted a comprehensive review of their policies and procedures and were initiating new monitoring to prevent illegal exports. But in November, 2008, which is even later than this 2007, 

incident, you were able to purchase their night-vision technology 

from one of its distributors using fake company and fake individuals’ identification. Isn’t that true? 

Mr. KUTZ. Yes, and in fact, we became a distributor. 

Mr. BRALEY. So, Mr. Chairman, that illustrates why I continue 

to have serious concerns about ITT’s actions. The company’s history 

of illegal exports is troubling and raises serious questions about 

whether it continues to put profits over the security of our Nation. 

And in closing, Mr. Chairman, I would just like to point out that 

while this hearing has been going on in response to the memo we 

received from the committee, I drafted a very simply certification 

that I think could address many of the issues that have been raised 

here at the hearing today. It would require the name, address, 

phone number, e-mail, business address, employer identification 


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number of anyone purchasing these items, and it simply states in 

a very short form, ‘‘I understand that the item I am purchasing is, 

A, a defense items under the Arms Export Control Act, or B, a 

dual-use item under the Export Administration Act. I also understand that this item is subject to export control laws that may prevent or restrict the sale or delivery of this item to anyone outside 

the United States. I am aware that I may face criminal prosecution 

and or civil fines and penalties if I attempt to sell or distribute this 

item in violation of these export control laws, and I certify that neither I nor anyone on my behalf will attempt to export this item at 

any time.’’ 

Now, there is a paper trail that would certainly add some teeth 

to prosecution and enforcement of anyone attempting to violate our 

laws. 

And with that I yield back the balance of my time. 

Mr. STUPAK. Thank you, Mr. Braley. 

Mr. Burgess for questions. Five minutes, please. 

Mr. BURGESS. Thank you. 

Mr. Alvis, we heard I think it was Ms. Lasowski testify that the 

exporter determines the level of government review. Is that—do 

you generally agree with that? 

Mr. ALVIS. That the company—— 

Mr. BURGESS. Yes. That the exporter, the person who is doing 

the export of—exporting the item in question is—because of the 

ambiguity of our laws and the problems with jurisdiction, that 

many, much of that is left up to your discretion. Is that a fair statement? 

Mr. ALVIS. On the exports it is pretty specific. On our international business we sell to the U.S. Government which sells to 

other governments as a government-to-government sale through 

the Foreign Military Sales Program, but we also do direct sales to 

other militaries. ITT is in the business of selling to militaries overseas. We can sell to them directly, but the ITAR that I mentioned 

earlier does have provisos. Every time you ship an item, every time 

you get an order from an international customer, you apply to the 

State Department to receive an export license. Each export license 

is handled on a case-by-case basis and can have specific provisos 

in it that regulate the technology. So we just respond to whatever 

our government determines. 

Mr. BURGESS. And do you think that is an adequate safeguard 

the way that is set up, or would you structure something different 

having come through the experience that you have endured? 

Mr. ALVIS. From my personal experience having used these goggles as a military officer and also—and having been down in the 

night-vision business for the past 21⁄2 years, my personal opinion 

is that the ITAR is rigorous enough with its figure of merit calculations. A lot of people don’t know that the stuff we export, even to 

our closest allies, is not the same night vision that the U.S. military gets. The goggle may look the same, but the tube inside—we 

made 200 different types of tubes of varying degrees, all the way 

down to the ones which I would not consider to be cutting edge that 

we sell commercially, to the best tube that the U.S. military gets. 

So my personal opinion is that the ITAR is rigorous enough to 

control the export of night vision. 


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Mr. BURGESS. OK. Let me ask a question. I guess, Ms. Lasowski, 

I need to direct this to you. You talked about the turf battles that 

go on between Commerce and State. I guess, Mr. Chairman, I don’t 

really understand why we don’t have the State Department here 

today. Perhaps that would be helpful, but is this a frequent occurrence that these turf battles occur between Commerce and State? 

Ms. LASOWSKI. We have noted various instances where there 

have been jurisdictional disputes that have occurred. Sometimes it 

has occurred due to some confusion about where space technology, 

for example, is controlled. But the instances that I was referring 

to had to do with actually an exporter who became aware that his 

competitor of the very same item was going through the Department of Commerce and utilizing that system to export his item, 

while this other company was going through the State Department. 

Mr. BURGESS. So they were at a competitive disadvantage. 

Ms. LASOWSKI. They were at a competitive disadvantage, and 

therefore—— 

Mr. BURGESS. Do you get—— 

Ms. LASOWSKI [continuing]. In that kind of situation you have an 

unlevel playing field—— 

Mr. BURGESS. Sure. 

Ms. LASOWSKI [continuing]. And that is why I referred to the exporter as being really the first step in terms of deciding which process to use. 

Mr. BURGESS. Because they can venue shop or, I am sorry, agency shop as to the most expeditious way to get their product out. 

Ms. LASOWSKI. It is a complex system, and it is up to them to 

be—to understand the export control laws and regulations. 

Mr. BURGESS. Why is it like that? Why is there a dual jurisdiction? 

Ms. LASOWSKI. That has been—— 

Mr. BURGESS. I am just a simple country doctor, and so tell me, 

why did we set it up like that? When did it happen, why did it happen, was there something we were trying to accomplish by setting 

up this dual jurisdiction? 

Ms. LASOWSKI. The system is bifurcated because they are to accomplish different activities. The State Department is to control 

the most sensitive defense items, while the Commerce Department 

is to control those items that are commercial and military applications. 

Mr. BURGESS. But has it always been that way? 

Ms. LASOWSKI. The system has been established, yes, as that 

long ago. 

Mr. BORMAN. Sir, if I could just add a little bit to that. 

Mr. BURGESS. Yes. 

Mr. BORMAN. The Export Administration Act originally was 

passed in 1949, but it is a Cold War statute as I mentioned. The 

Arms Export Control Act actually predates World War II, and as 

Ms. Lasowski said, they originally had different purposes. One of 

the challenges now is, of course, you have so much commercial, offthe-shelf technology going into military systems and conversely, 

you have some military systems moving back into the commercial 

area, and that is a big difference over the last 20 years. 


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Mr. BURGESS. Now, when I was just a regular person and not in 

Congress, I mean, I seem to recall a lot of controversy back in the 

’90s about selling satellite technology to China. Did we not get into 

some of this same difficulty between Commerce and State with selling the satellite technology to BRC back in the ’90s? 

Ms. LASOWSKI. That is correct. The late ’90s there were export 

violations that occurred and then the Congress passed legislation 

to change the jurisdiction of satellites and related components from 

the Commerce Department to the State Department. 

Mr. BURGESS. Well, was that fix then just inadequate, that it 

should have been a broader fix that has led us now to these additional problems that we are discussing today? 

Ms. LASOWSKI. I think the best thing—response that I would 

have for that is that we are calling for a reexamination of the system and the whole safety net of programs, and as part of that one 

of the first key steps is determining what is it we want to control 

and how do we want to control it, particularly given the challenges 

of the 21st century. 

So it would be a good set of questions for the agencies that are 

responsible to come together and discuss to see if they are—if the 

current structure best supports the current challenges. 

Mr. BURGESS. That is an excellent piece of advice. 

Mr. Chairman, I am just concerned that 10 years ago Congress 

took it upon itself to fix this problem, and here we are 10 years 

later, and the problem is not fixed, and people are put at risk, and 

fines are being levied. It seems like an inconsistent way for us to 

be doing business. So I hope we take this problem seriously, and 

I just thank the witnesses for being here today. I think it is a terribly important issue that we need to get resolved. 

I yield back. 

Mr. STUPAK. That is why we are having the hearings, and we 

hope to have some resolutions. 

Mr. Markey, for questions, and Mr. Welch, I want to try to get 

you in, too, before votes. 

Mr. MARKEY. Thank you, Mr. Chairman. 

Mr. Borman, as you know, I have been a long-time critic of your 

bureau’s validated end-user program which allows certain foreign 

companies to import certain controlled U.S. goods without individual export licenses. Of the five Chinese companies originally certified as validated end users, two were found to be closely affiliated 

with China’s military industrial complex, and two companies that 

had been under U.S. Government sanctions for proliferating WMDrelated technologies. 

Apparently, these bad background checks by your bureau are 

continuing. On April 24 you signed an order which added a new 

Chinese company, Avesa Technology, to the program, that is this 

validated end-user program, which basically says we trust you. We 

are not going to put you through the full process. 

The order named five import destinations that Avesa was authorized to receive certain sensitive U.S. goods without export licenses. 

Here we are talking about a pressure transducer, which is used in 

uranium enrichment. 

Are you aware that one of the import locations that you authorized to receive a pressure transducer is also listed as the address 


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of a company that the United States sanctioned by the State Department in December of 2006? 

Mr. BORMAN. Mr. Markey, the validated end users go through an 

extensive review with many agencies including the intelligence 

community and—— 

Mr. MARKEY. Are you aware that one of them was sanctioned in 

December of 2006? 

Mr. BORMAN. I don’t believe that is correct, sir, that any of those 

validated end users, the ones that we approved, were sanctioned by 

the U.S. Government, because if they were, they wouldn’t have 

been approved. 

Mr. MARKEY. OK. Then I have here pages and pages of documents that show this Chinese company called CEIEC International 

Electronics, which has been sanctioned by the State Department, 

is headquartered at the exact address that you have now authorized to receive certain sensitive, dual-use, high-technology U.S. 

products. The location that you have authorized to import sensitive 

U.S. goods, including pressure transducers, which are extremely 

important to uranium enrichment, is Building A–23, Buxing Road, 

Beijing. And these documents show the exact same address is the 

headquarters of a company that has been sanctioned by our government for WMD-related proliferation, Building A–23, Buxing 

Road, Beijing. 

These documents were provided to me by the Wisconsin Project 

on Nuclear Arms Control, which was the organization that originally blew the whistle on your VEU Program. 

How is it that this small NGO can consistently do a better background check on these Chinese companies than you can do? 

Mr. BORMAN. Well, I have to say respectfully I disagree that they 

can do a better job. We would be happy to take a look at what information they provided you, they have not provided to us, but 

what I can tell you is all of those validated agencies go through a 

thorough interagency review, including the intelligence community. 

So right now today I can’t discuss this with you. We would be 

happy to look at it, but I can tell you that, again, it goes through 

a thorough review, and as you recall from the response our bureau 

gave to you earlier on the original five, there is a significant distinction between the specific entities that are approved and other 

entities that the Wisconsin Project is—— 

Mr. MARKEY. Well, you have just certified a sixth Chinese company to ignore our Export Control System, and that is essentially 

what this program does, ignores the Export Control System, sets 

up a special fast lane that doesn’t have the same level of scrutiny, 

and it is the third one where you did not know it was associated 

with a company that had been sanctioned by the United States 

Government. 

Mr. BORMAN. Well—— 

Mr. MARKEY. And I think that when three out of the six are, in 

fact, not properly scrutinized, then the program is essentially unacceptable. It is not something that should be in place, and we will 

share these documents with you, but it just seems to me that it 

shouldn’t be an NGO that identifies that this new transfer is going 

to the exact same address as a company which was sanctioned just 


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2 years ago for violations of the very same type that we are talking 

about here today. 

Mr. BORMAN. Well, again, all I can tell you is there is a thorough 

interagency review, including the intelligence community. We 

would be happy to look at that information, but I would be very 

surprised if this is information that really correlates as the Wisconsin Project apparently is alleging. 

The other point I would like to make with the validated end-user 

program is very extensive review. All of these companies have extensive individual licensing history. Many of them have been visited by U.S. Government officials in an official capacity, and there 

is a check once things are shipped there on the back end. So the 

requirement is that it eliminates individual rights and requirements. They don’t get a free ride. 

Mr. MARKEY. Well, I just think that this whole concept of validated end user that allows for a circumvention of a full inspection 

is a very questionable process. It would be like being at the airport 

and them being able to say, well, you don’t have to go around, you 

don’t have to go through the full screening, you don’t have to go 

through the full screening, but all the rest of you do. Well, if you 

are going to have a program like that, then you cannot have mistakes. You cannot have—there ought to be a trusting relationship 

which is developed where the same address 2 years later is receiving materials that could be used in uranium enrichment in a country about which we still have questions in terms of their nuclear 

non-proliferation record. 

So I thank you, Mr. Chairman, very much. I just have very serious questions about this validated end-user program. I think it ultimately turns into a validated end-abuser program if, in fact, you 

can have violations like this, and I will share the material with 

you, and I look forward to getting a response. 

Thanks, Mr. Chairman. 

Mr. STUPAK. Yes. 

Mr. BURGESS. Mr. Chairman, can I ask unanimous consent that 

Mr. Markey’s documents be shared with members of the minority 

as well as the witnesses? 

Mr. MARKEY. It will be done so. Yes. 

Mr. STUPAK. For the record, shared with both. 

Mr. Welch, for questions, please. We got votes on the floor, but 

let us get your 5 minutes in. 

Mr. WELCH. I will try to be quick. 

Mr. STUPAK. No. Take your time. 

Mr. WELCH. I want to ask Mr. Kutz a few questions if I could, 

and it is about the nuclear weapons issues. 

Two weeks ago if you note North Korea detonated a nuclear 

weapon during an underground test and is threatening to test fire 

an intercontinental ballistic missile. And what concerns me is this. 

Last year the Strategic Studies Institute, a component of the Army 

War College, issued a report about the North Korean ballistic missile program, and I don’t know if you want to make this part of the 

record, but that report is here. 

And it concluded, and this is what is relevant to us, that North 

Korea almost certainly depends upon outside sources for advanced 

electronic components and other sophisticated hardware for missile 


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guidance systems, and incidentally, North Korea then sells what it 

makes, including possibly to Iran. And the report warned that as 

early as 1999, North Korea was trying to procure gyros and 

accelerometers and other components for its ballistic inertial guidance. 

And what I want to ask you is about those two items, the 

accelerometers and the GyroChips, those are two of the categories 

of items that you were able to purchase using the fake company 

and a fake buyer. That is right. Correct? 

Mr. KUTZ. Yes. 

Mr. WELCH. And I don’t know if you want to put the photos of 

those two items—I guess you have done that. 

Mr. KUTZ. I have got these over here, too. 

Mr. WELCH. All right. How easy was it for you to purchase those? 

Mr. KUTZ. The accelerometer there was an end-user certificate, 

and it was done by credit card, fictitious name, bogus company, 

and mailbox. So that was—— 

Mr. WELCH. Easy. 

Mr. KUTZ [continuing]. Relatively simple I would say, and then 

the GyroChip, the same thing, and we got a quote for additional 

ones of those. So I would say that they were similar in how difficult 

they were to obtain. 

Mr. WELCH. And is it correct that those items can be sold within 

the U.S. without any license? 

Mr. KUTZ. Legally, yes. 

Mr. WELCH. OK, and let me ask you, after you bought these 

items, you were then able to send them to Federal Express to a 

country in southeast Asia? 

Mr. KUTZ. Correct. 

Mr. WELCH. And I won’t ask you what country it is. I know that 

is sensitive information, but can you tell us why you chose that 

specific country? 

Mr. KUTZ. Because it is a known transshipment point to terrorist 

organizations. 

Mr. WELCH. All right. So we send it there or someone sends it 

there, and that is a location from which it goes to people who are 

trying to do Americans warm. 

Mr. KUTZ. Correct. 

Mr. WELCH. These items are very small and lightweight. Just out 

of curiosity, how much did it cost to mail these halfway around the 

globe? 

Mr. KUTZ. Fifty dollars and what we labeled them as was documents. That was the word we used on them. 

Mr. WELCH. To me your undercover investigation, thank you for 

doing that, even though it is quite alarming, it shows that our current system does not adequately prevent the export of items that 

are actually used in nuclear weapons programs. Do you agree with 

that conclusion? 

Mr. KUTZ. Yes. I mean, that is why we chose these items. We 

took the exact same part number out of indictments and criminal 

cases, and that—these two items you just mentioned are the exact 

same part that was cited in cases going to China, Iran, terrorist organizations, et cetera. So that was why we chose them so this was 

real examples of what is going on. 


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Mr. WELCH. Well, I really thank you. It is incredibly alarming. 

Mr. Chairman, it is troubling because North Korea manufactures 

nuclear things and then exports their technology. So I do hope and 

I appreciate your efforts to have a thorough review of export controls. 

And I yield back my—the balance of my time. 

Mr. STUPAK. Thanks, Mr. Welch. Mr. Doyle still plans on coming. 

I am sure there will be questions after. 

We got votes here. Why don’t we just recess until—about 25 minutes here. How about 12:20, give you a chance to stretch your legs. 

We will come right back, and I am sure we can finish up in probably within an hour after that. So I ask you all be back about 

12:20. 

Thank you. We are in recess. 

[Recess.] 

Mr. STUPAK. The hearing will come back to order. Thanks for 

your patience. I know Mr. Doyle has come in and I think one or 

two other members. 

I have a couple questions. Mr. Kutz, let me ask you this if I— 

because one that sort of caught my eye was GAO’s purchase of the 

infrared American flag patches. I think you have one up here. Can 

you pull in those on screen, what they look what? 

These infrared flags can appear as a United States flag or just 

a black material when you look at it. Right? A black—— 

Mr. KUTZ. Right. They can appear as black or if you use the infrared and you turn on the—— 

Mr. STUPAK. Right. 

Mr. KUTZ [continuing]. Specialized item that is made—— 

Mr. STUPAK. So show that. So it is black up there and then when 

you look with the infrared it comes out the American flag. 

Mr. KUTZ. It looks like a U.S. flag with the goggles. Yes. 

Mr. STUPAK. That is with the night-vision technology. And these 

flag patches are currently worn by our troops during combat to 

help identify friendly forces at night. What is the danger to our 

troops if these flags are available to our adversaries? 

Mr. KUTZ. Well, certainly on the battlefield and I guess there are 

public statements made by Defense Criminal Investigative Service 

and the Department of Defense that the enemy does have these in 

Iraq and Afghanistan, so there is a concern that these are the 

kinds of things that could—they are supposed to be able to identify 

friendly versus foe, and if the foe has them, then they are going 

to look like a friend, and that is the risk. 

Mr. STUPAK. OK. Now, you purchased these flags. Did you buy 

them in person or over the internet? 

Mr. KUTZ. Internet. 

Mr. STUPAK. How many did you purchase? 

Mr. KUTZ. We purchased several, but we got a quote for 400. 

They were going to ship us 400 if we wanted them. 

Mr. STUPAK. OK. So you got 400 and then you put an offer for— 

I mean, you had four—— 

Mr. KUTZ. Like four, eight, but we—— 

Mr. STUPAK. OK, and then you offered to buy 400, and that—— 

Mr. KUTZ. Yes. 

Mr. STUPAK [continuing]. Was approved? 


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Mr. KUTZ. Yes. They would have shipped us 400. 

Mr. STUPAK. It seems that there aren’t really any legitimate reasons for anyone other than our service men and women to have 

these flags, is there? 

Mr. KUTZ. No, although I think this is probably considered lowerend technology now. It is apparently exactly what is being used by 

our soldiers according to the Department of Defense officials we 

spoke to. 

Mr. STUPAK. Were you required to show that you were a member 

of the Armed Forces in order to buy them? 

Mr. KUTZ. The agreement that this distributor had with the 

manufacturer was that they required a military ID, but this distributor did not request a military ID from us, and so we were 

not—we did do a counterfeit military ID in another case, but in 

this one they were supposed to, and they didn’t. According to the 

manufacturer, this will no longer be a distributor of theirs. 

Mr. STUPAK. Like I said, this one sort of caught my eye because 

no one really needs this except maybe your military people. So I 

asked our staff to do some research on this, and this—here is what 

they tell me. 

First, anyone can buy these legally in the United States. Correct? 

Mr. KUTZ. Correct. 

Mr. STUPAK. And you cannot export these items to certain countries like North Korea, China, or Afghanistan. Correct? 

Mr. KUTZ. These are on the Commerce Control List, I believe. 

Mr. STUPAK. OK, but you can export these flags to countries like 

Saudi Arabia, Yemen, and Cambodia. Is that correct? 

Mr. KUTZ. I don’t know the difference in who you can ship it 

to—— 

Mr. STUPAK. OK. 

Mr. KUTZ [continuing]. And who you can’t. 

Mr. STUPAK. Well, let me ask you this then. Does it make any 

sense that you can—you can’t export to North Korea, China, or Afghanistan, but you can to Saudi Arabia, Yemen, Cambodia. They 

are readily available here in the United States even though there 

really is no use for it, I guess, as far as military and for identification. If we believe our adversaries shouldn’t have these, I think it 

is a pretty bizarre way to implement that goal, and I really think 

it highlights why we think we should reexamine the entire system 

for controlling items that only have military uses. 

Mr. KUTZ. Yes. I concur with that. I think that many in the military and especially the soldiers concur. I don’t think that they are 

excited about the items that they use on the battlefield today being 

so readily available. That is something that is a concern. 

Mr. STUPAK. Mr. Fitton, would your customer base be interested 

in these? 

Mr. FITTON. Actually, the largest percentage of my customer base 

is military and law enforcement, and in the past I have had difficulty getting these from U.S. suppliers. I have purchased them directly from China. So—— 

Mr. STUPAK. So they export back you are saying. 

Mr. FITTON [continuing]. No matter what exports you restrict 

here in the U.S., it doesn’t make a difference if a Chinese person 


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can buy it directly from their own country. So our export regulations won’t affect this market whatsoever. 

Mr. STUPAK. Buy from their own country. Do you know if they 

are manufactured in China? 

Mr. FITTON. Yes. They are manufactured in China. 

Mr. STUPAK. So you just export them back here, and you can—— 

Mr. FITTON. Right. This is not high-tech technology that only the 

U.S. has access to. Countries around the world produce IFF flags 

and patches for—— 

Mr. STUPAK. But then in order to view it or to see it, you have 

got to have night vision, don’t you? 

Mr. FITTON. Correct. 

Mr. STUPAK. And I take it not very high-tech night-vision goggles, just probably any night vision. 

Mr. FITTON. Correct. Gen 1, Gen 2, or both will reflect it. 

Mr. BORMAN. Mr. Stupak, if I could just add an observation. 

Mr. STUPAK. Sure. 

Mr. BORMAN. Based on what I have just seen and heard, I think 

it would be more likely that those items would be on the U.S. Munitions List and not on the Commerce List. Because the definition 

for a military item is specifically designed for military application, 

and off the top of my head it would seem to me that is exactly what 

those things are. Just a little correct there or observation. 

Mr. STUPAK. But either way they are on a list, they are restricted 

but readily available, or we can bring them in from China if we 

wanted to. So there is plenty of opportunities for our adversaries 

or terrorist groups or whatever, domestic or foreign, to get them, 

to use them to harm Americans. 

Mr. Doyle has arrived. I know the Penguins aren’t going to show 

up for the game tonight, but I am glad to see you did, so if you 

would like to ask some questions, now would be a good time. 

Mr. DOYLE. Later, my friend, have your fun now because tonight 

you are going to be crying in your beer. 

Mr. STUPAK. Are those Penguin colors you are wearing? 

Mr. DOYLE. Black and gold. Yes. 

Thank you, Mr. Chairman. Mr. Chairman, on April 4 in my district three Pittsburgh police officers were killed and two others 

were injured by a heavily-armed man who fired on them as they 

responded to a domestic disturbance call. The three officers who 

were murdered in the line of duty left five children without their 

fathers. The standoff between the armed man and the police units 

lasted for hours that morning. SWAT officers were pinned down by 

a hail of bullets, and the wounded policemen lay where they fell. 

It was complete chaos. 

But the gunman, armed with an AK–47 and a number of handguns, was protected. Although the gunman had been shot in the 

chest and the leg, he wore a bulletproof vest to shield them. The 

gunman was able to continue to fire on the police as a result of this 

protection he was wearing. 

Now, Mr. Kutz, you were able to purchase a bulletproof vest over 

the internet, and you could have acquired the protective inserts 

from the same company, enabling it to withstand even heavy ammunition. 

Could you tell me how did you purchase these bulletproof vests? 


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Mr. KUTZ. We actually in this case represented that we were part 

of an active reserve unit and provided counterfeit military documentation, and we were shipped this item along with the commitment to ship 20 more. 

Mr. DOYLE. Had—did they do any background check on you? 

Mr. KUTZ. I don’t know. Well, the military ID seemed to be what 

they were looking for. 

Mr. DOYLE. What threats do you think these bulletproof vests 

pose to our emergency first responders and military? 

Mr. KUTZ. I think this really is a domestic threat. Again, I mentioned earlier when you weren’t here that there—we didn’t seen 

any export cases for these items. We see these more as a domestic 

threat, something that, you know, the military’s best body armor 

here, the ESAPIs are the newer plates that have additional protection from the regular SAPIs, and this is what the Marine Corps 

uses today. It is hard to understand why anybody but military and 

potentially law enforcement would have a use for those. 

Mr. DOYLE. Thank you. Three officers from my district were 

killed and two were wounded by a man who was able to continue 

this onslaught because he had the same product you were able to 

buy off the internet. I see no reason, Mr. Chairman, why criminals 

should be able to buy bulletproof vests for use on our streets, just 

as terrorists overseas should not be able to acquire them for use 

on the battlefield. 

Mr. Chairman, for the sake of brave Americans who make our 

country and community safe, including the three brave officers 

from Pittsburgh who died in the line of duty, we have to do more 

to keep this equipment out of the hands of criminals and terrorists. 

And I yield back. 

Mr. STUPAK. Thank you, thank you, Mr. Doyle, and Mr. Kutz 

mentioned earlier the gunman up in Brighton where he killed 

about 12, 13 people, same thing, body armor. I mentioned James 

Gelf legislation, the San Francisco police officers on a bank robbery 

where there was almost like a robo-cop, just head to toe, and they 

got them through the mail. And we tried to restrict that with the 

James Gelf legislation I had a few years ago. We could never really 

put any severe or—curtail it, and I agree with you, and that is one 

of the purposes of looking at it, and I know a number of members 

have mentioned both—not just terrorists but also criminal activities with being able to purchase these items. 

So we will continue working on it, and thanks for your input. 

Mr. FITTON. Mr. Chairman. 

Mr. STUPAK. Yes. 

Mr. FITTON. Might I? As a dealer for these items, I do have serious reservations when you start restricting strictly to law enforcement and military. The reason for this, one of the primary consumers I have interested in body armor right now is not civilian, 

it is not military and law enforcement because they are typically 

supplied with these items. It is first responders such as EMT and 

firemen. 

Typically in active-shooter situations and things of this nature 

they are some of the first people that are on site. Gunmen will typically fire at anyone in uniform or of a government capacity. Once 

you restrict them to military and law enforcement, all the sudden 


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these individuals are no longer authorized to use, as well as contractors serving overseas in security details, as well as VIP protection details here in the United States. 

So we have to really address a fine line when we start doing restrictions to make sure individuals who do have a need for these 

items can still obtain these items, and that is something we tend 

to forget about when we think just tactical situations involving 

military and law enforcement. 

Mr. STUPAK. No. I—we are cognizant of that fact, and but there 

is no reason why this stuff should be purchased without some kind 

of identification, verification of who they are. Just going on the 

internet I think what we have seen is if you have a credit card that 

is valid, they will accept the purchase. We don’t care who you are, 

and this committee has shown time and time again everything 

from cat, Viagra for our cat, as long as have—that cat has a credit 

card, he got his Viagra. And that is the problem we see. It is not 

just in this area. We see it in drugs, we see it in pornography, we 

see it in gaming, we see it in e-commerce, and there is some legislation we are working on to really put some kind of restrictions on 

this credit card or verify the individual using that credit card before he can even use it. 

So there is other areas we are looking at, so while we have this 

hearing, the purpose of this hearing was military and dual-use 

technology, we still go back—it filters in many of the areas of jurisdiction this committee has. And so we are trying to look at the 

whole thing. 

But you are right. You are right. 

Mr. Roush. 

Mr. ROUSH. Yes. If it is possible, I would like to just clarify one 

point. I think a lot of excellent points have been raised by the committee today, but there is one factual point I did want to clarify. 

The triggered spark gaps were mentioned in the GAO’s report. We 

didn’t get the chance to see the report ahead of time. There is a 

few things we want to clarify. 

Triggered spark gaps are not used as detonators for nuclear 

weapons. In fact, Perkin Elmer has an entirely separate product 

line that is completely ITAR controlled and not available for commercial sale that is used in conjunction with nuclear weapons. 

Triggered spark gaps are primarily used in medical equipment, 

lithotripters, which are treatment devices for kidney stones, and 

there is a second use of the product on conventional munitions 

which accounts for the minority of its sales. 

I just wanted to make that clarification. 

Mr. STUPAK. Well—— 

Mr. KUTZ. Sir, could I just comment briefly? 

Mr. STUPAK. Sure, and I want to get into that a little bit because 

there’s the Central Contractor Registration Database which sort of 

looks like it is like government-approved site, and we are buying 

the stuff. 

Go ahead. 

Mr. KUTZ. I don’t know if the manufacturer knows why these 

purchased, but the source of information we used was the Department of Commerce and Justice saying that these items could be 

used, and I will just for the record, if you want me to submit it for 


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the record, I would, too, but according to the indictment the triggered spark gap and the exact model number we bought could be 

used as a detonating device for nuclear weapons as well as other 

applications. And the testimony of Christopher Podea in 2007, asserted the same thing for the Department of Commerce. 

So, again, whether it was designed for that and could be used, 

again, I am not an expert at that, and I would certainly defer to 

the manufacturer to what it was designed for. 

Mr. STUPAK. Well, whether it was the triggered spark gap or a 

couple of these other items we purchased which are sort of technical, a lot of them fall on this Federal Central Contractor Registration Database, which is an approved government supplier via 

the General Services Administration Schedule. It seems to me like 

if you are on this Central Contractor Registration that somehow 

you have—it is government approval, but yet you are able to purchase it like there is no—it is like the government is approving 

what you are doing but yet you can purchase anything you want 

off this CCR Registration. 

Shouldn’t there be some safeguards in there that if a company 

is on a CCR, this database that is government approved, that there 

is some restrictions on how they do the sales or something? Or 

even licensing? 

Mr. KUTZ. The Central Contract Registry is something—actually 

a lot of our undercover companies are in the Central Contract Registry. I mean, no one validates anything in there. There is approved 

GSA vendors that go through a little bit more stringent process. So 

there is a distinction between the CCR and an approved government vendor, I believe, but to do business with the government you 

have to be registered in the Central Contract Registry. 

Mr. STUPAK. So if you are registered, doesn’t it give it some form 

of legitimacy to the outsider? 

Mr. KUTZ. It does, and we use that all the time. We say we are 

registered in the Central Contract Registry, and it is similar to 

your IRB hearing several months ago where we were registered 

with HHS and assured. 

Mr. STUPAK. Right. 

Mr. KUTZ. It did mean something to people who look at it. 

Mr. STUPAK. Well, let me ask you a little bit about this, a little 

bit about know your customer, Mr. Borman, and I think it is tab 

number five. Do we have a book up here? On the far end. Mr. Fitton, could you pass that book down? 

Look at tab number five because it is some helpful hints that you 

get from Commerce and all that on—to know your customer, and 

we just have parts of your form there. It is about a 40-page form. 

We have certain parts of it in there, and I think it was page 38. 

I want to highlight a few portions of this guide. 

First it says, ‘‘Absent red flags, there is no affirmative duty upon 

exporters to inquire, verify, or otherwise go behind the customer’s 

representations.’’ It also says, ‘‘You can rely upon representations 

from your customers and repeat them in the documents you file unless red flags oblige you to take verification steps.’’ 

So, Mr. Borman, do you think this guidance is adequate given 

the GAO was able to, you know, basically subvert that, know your 

customer? 


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Mr. BORMAN. Well, I think it goes back, Mr. Chairman, to what 

I mentioned earlier. I think the first issue would be for us does existing legal authority, that is the statutory authority we have, give 

us the authority to do anything differently? In this case extend regulations in a significant way to domestic transfers. And that is 

something that we would have to look at very carefully to see 

whether the existing authority goes that far. 

Mr. STUPAK. OK. Well, GAO is able to convince these companies 

to sell sensitive military technologies every time it tried in all 12 

cases. The Commerce Department guidance also lists—also includes a list of red flags for companies that—for companies to look 

for, and I think it is page 40 there, maybe the last one there. 

For examples, custom—companies should be on the lookout if, 

and ‘‘the customer is willing to pay cash,’’ or ‘‘the customer is reluctant to offer information about the end use of the item.’’ By posting 

this guidance on the internet, aren’t you really informing terrorists 

and criminals how to beat the system? 

Mr. BORMAN. Well, I think the issue is, though, we do want legitimate companies to have some specific guidance from the government, and it is very difficult, I think, for us to identify the thousands, if not hundreds of thousands of U.S. companies that do business and sort of repeat individually to them, and it seems to me 

the Perkin Elmer example we talked about earlier exactly shows 

the benefit of these kind of—because it is that kind of information 

that they have incorporated with their product and to their corporate compliance program that said there are some red flags on 

that particular transaction, they contacted our field office in Boston, and that is exactly what we want to have happen. 

So, I mean, I suppose you could take the position that, sure, bad 

guys can read this and figure out, oh, I know how to get around 

this, but—— 

Mr. STUPAK. Right. 

Mr. BORMAN [continuing]. You know, I think it is more important 

to have all—the vast majority of companies in the United States 

that want to do legitimate business to have this information available to them so that they do come to us, and that is a lot of our 

cases as Mr. Madigan can tell you—— 

Mr. STUPAK. Sure, but—— 

Mr. BORMAN [continuing]. Come from tips from U.S. companies. 

Mr. STUPAK [continuing]. It just shows you how much the internet has changed. I mean, if you take the way we do business, all— 

most of these purchases were on the internet or over the internet. 

Right, Mr. Kutz? 

Mr. KUTZ. Yes. For all the purchases we made—— 

Mr. STUPAK. Yes. 

Mr. KUTZ [continuing]. We never spoke on the phone or met face 

to face with anyone. It was all fax and e-mail transactions. 

Mr. STUPAK. So it almost made the red flag almost—you can get 

around it so easy. 

Let me ask this. Mr. Roush, if I will, you represent Perkin 

Elmer, the company that sold the trigger spark plug gap to GAO, 

a fake company. Your company adopted the Department of Commerce guides right there on tab five and created your own customer screening procedure. 


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Mr. ROUSH. Yes. 

Mr. STUPAK. Right. 

Mr. ROUSH. That is correct. 

Mr. STUPAK. OK. Do you agree that both your guidance and the 

Commerce Department guidance was inadequate? Would you agree 

with that? 

Mr. ROUSH. Well, I would say it doesn’t protect against the kinds 

of examples that you are talking about; if somebody were to try to 

buy a product under a legal transaction and then subsequently illegally, you know, use it for a unintended use or export it—— 

Mr. STUPAK. Sure, but—— 

Mr. ROUSH [continuing]. The screening might not uncover that. 

Mr. STUPAK [continuing]. Is your screening and even this guide 

here just for honest people? Keeping honest people honest? 

Mr. ROUSH. I believe—— 

Mr. STUPAK. I mean, people who want to do us harm or terrorists, they don’t care what—they aren’t going to give you an honest 

answer. Right? 

Mr. ROUSH. I think it is a valid question. What I would say is 

if you make the red flags in those processes robust enough, they 

start to triangulate in a way that unless somebody is extremely informed and diligent, they are going to become fearful as Mr. Fitton 

said, and back away from the transaction, or you will start to detect that in their behavior. 

Mr. STUPAK. Well, you know, here GAO made up a fictitious company, it had fictitious reason for wanting these trigger spark gap, 

and its promise was not to export, and then your company sort of 

relied upon those statements or misstatements, but we didn’t go 

any further to try to verify that. Right? Your company? 

Mr. ROUSH. That is correct. 

Mr. STUPAK. OK. Mr. Kutz, did Perkin Elmer conduct any 

verification on the representations you made? Do you know? Did 

you know if anyone tried to verify what you had said or put down? 

In your own—anything come back to you? 

Mr. KUTZ. I don’t know exactly what they did. I—there was no 

end-use certificate on that one as I understand, but we did meet 

with their folks, and they do have a compliance group, and so, 

again, there was no violation of the law, and their processes 

seemed to be consistent with some other companies we dealt with, 

the bigger companies. 

Mr. STUPAK. OK. Mr. Roush, if I could go back to you there on 

this spark plug and—I am sorry. Spark—yes. You submitted with 

your testimony an article from the Boston Globe describing a real 

case which your company cooperated with law enforcement officials 

to thwart an illegal shipment of trigger spark gaps to Pakistan in 

2003. 

Mr. ROUSH. Correct. 

Mr. STUPAK. According to this article it was—the size of the 

order was 200 spark gaps, which is enough to detonate three to ten 

nuclear bombs, that caused your company to alert law enforcement, 

and one of your spokesmen said, ‘‘It was such a huge quantity, a 

hospital buys one or two.’’ Is that correct? 

Mr. ROUSH. Those statements are correct, and I would say that 

particularly the geographic region of the world affects whether you 


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would view a quantity as valid or not for medical purposes, because 

in the United States the healthcare infrastructure is much larger. 

So it is normal that customers in the United States might order, 

you know, as many as a few hundred of these, particularly if they 

were a distributor serving multiple hospitals. 

Mr. STUPAK. But you would know those customers, wouldn’t you? 

Pretty much? 

Mr. ROUSH. Typically that is correct. Yes. 

Mr. STUPAK. So then Mr. Kutz, before you made your purchase 

from Mr. Roush’s company, Perkin Elmer, you asked him for a 

quote on a larger order of trigger spark gaps. Right? 

Mr. KUTZ. One hundred. Yes. 

Mr. STUPAK. OK, and so you had a totally new customer then 

asking for 100, Mr. Roush, that you never dealt with before, and 

they were seeking 100 spark gaps, why didn’t that alert you, or 

why didn’t you have law enforcement check these guys out? 

Mr. ROUSH. This is actually a completely normal practice for our 

new customers in all of our product lines, including trigger spark 

gaps, that normally a customer will buy one sample of something 

and test that under an R&D or development process. And if it does 

then meet their specifications, they are going to want to purchase 

production quantities of that, so we will typically provide the pricing for the sample and the pricing for the production quantity upfront. That is the normal, competitive practice, and it was followed 

in this case, and in fact, this, you know, fictitious company indicated they wanted one piece for development purposes, and if that 

worked in the application, then further quantities would be ordered 

at that time, and you know, there would be a separate transaction 

that would be screened in its own right at that time. 

So this was a normal commercial practice. 

Mr. STUPAK. Any comments? 

Mr. KUTZ. That could very well be true. I mean, we didn’t want 

to spend $70,000 instead of $700. 

Mr. STUPAK. Right. 

Mr. KUTZ. That was really the reason we did it that way. 

Mr. STUPAK. OK. What would you use—what would a company 

buy 100—what would you use 100 for? I guess I am still trying to 

figure this one out. 

Mr. ROUSH. Well, because this part is used in the lithotripter 

treatment devices in hospitals around the United States, there is 

an awful lot of hospitals—it is—there are spare parts demands as 

well as new system demands that we sell 2,000 of these devices in 

a year, in excess of 2,000, and 70 percent of those are for medical 

uses. So the quantity of, you know, one now and potentially 100 

later is not at all unusual. 

Mr. STUPAK. I see. So it wasn’t the fact that 100, it was that they 

had wanted one for research and then might possibly want 100 

more? 

Mr. ROUSH. Correct, and so we provided standard quantity pricing for various quantities that would be ordered. That is the normal practice. Nobody will design your component into a system if 

they have no idea what they are going to be paying once they go 

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wards some kind of cost for that system, and they want to know 

for planning purposes what your price would be. 

Typically there is a volume discount—— 

Mr. STUPAK. Right. 

Mr. ROUSH [continuing]. You know. 

Mr. STUPAK. But wouldn’t you then sort of ask like, OK, I got my 

one for research and—or for testing purposes but then when I 

asked for 100, wouldn’t you usually ask what the product is? In 

this case you never even asked what they were going to use the 

100 for, did you? 

Mr. ROUSH. Well, in this case we did not, but I will tell you that, 

you know, triggered spark gaps are not one thing. It is a product 

group. OK. We offer a lot of different models. Most of them are specifically designed for a range of performance of a medical device. 

So some of them operate at 20 kilobolts, some at 10 kilobolts, 12. 

The military versions we sell typically operate at 2 kilobolts. There 

is no overlap in the operating range, so there was nothing about 

this that would have indicated that it was for use in some sort of, 

you know, munitions application. It was entirely consistent with 

our medical versions. 

Mr. STUPAK. Sure, and there is no requirement under law since 

it was domestic to make sure they were licensed, and there is no 

requirement to follow up to end user or anything like that. Right? 

Mr. ROUSH. Correct. 

Mr. STUPAK. Mr. Gingrey, questions? 

Mr. GINGREY. Mr. Chairman, thank you. 

Let me go to Mr. Borman. Mr. Borman, some items can be exported to some countries without a license but require a license if 

going to certain other countries. Some items can be exported to 

some countries as long as they are intended for commercial purposes but not for military purposes. Some items can’t be exported 

to some countries for any reason. 

I think you are getting my drift here. With all of the variables 

and exceptions, is it not—and I think it is but I want your answer, 

is it not confusing for government agencies and businesses involved 

in export and export controls to make sure everyone is doing the 

right thing? Do you know? 

Mr. BORMAN. Well, that is a very good question, sir, and it is a 

complex system, and I think it has evolved that way because of 

what I mentioned earlier. Last year, for example, there were $1.3 

trillion worth of exports from the United States. Probably the vast 

majority of those are subject to our regulations but have gradated 

requirements, depending on what the item is and where and who 

it is going to. 

And so off the top of my head certainly the system could be made 

simpler but to make it simpler I think it has to go one of two ways. 

Either you drastically reduce requirements for items and places or 

you drastically increase the level of control. And when you are talking about a, you know, $1.3 trillion worth of exports, that would 

have a significant impact. 

And so that is why the system has evolved to try to give exporters more and more information about the types of transactions and 

the technologies that they need to be most concerned about. 


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Mr. GINGREY. Well, you earlier before we went to vote, there was, 

I think Mr. Burgess from Texas was questioning why the dual system or responsibility when you, of course, have the Department of 

State and Department of Commerce, the Department of Commerce 

controlling these products that are dual use, and Department of 

State controlling those that are just for military purposes and military sales, and you got into some discussion, actually, any one of 

the three of you, Mr. Kutz, Ms. Lasowski, Mr. Borman, let us 

elaborate that a little bit more, if you will. Because I think what 

Burgess was getting at was to simply, to make it so that the right 

hand will know what the left hand is doing, the left hand will know 

what the right hand is doing, it would be a more efficient way and 

less chances for sales that would be inappropriate. 

Let us talk about that a little bit in my remaining time and 

throw it open to the GAO. 

Ms. LASOWSKI. I think you have raised some excellent questions 

because the system that was created decades ago was—— 

Mr. GINGREY. How long ago would you say the system was created? 

Ms. LASOWSKI. Well, the current laws were established in their 

most recent form in the 1970s, but they do date back earlier in different forms. 

Mr. GINGREY. I think you said back into the 1940s earlier, didn’t 

you? 

Ms. LASOWSKI. There—that is where there was an origination, 

yes, but the current laws that are in existence really were in the 

1970s, and there hasn’t been a major overhaul of these particular 

laws, and has previously mentioned, the Export Administration Act 

is currently lapsed. 

So it is fair that in terms of a reexamination, which is what we 

have been calling for, that it would be appropriate to take a look 

at the current challenges that have been evolving for the 21st century and reexamine the system to look at the very basic questions; 

what is it that needs to be controlled and how do we want to control it. And then establish clear lines of responsibility and accountability for how best to do that. 

And so those would be I think the fundamental aspects of such 

a reexamination. 

Mr. GINGREY. Mr. Kutz, any comment? Mr. Borman? 

Mr. BORMAN. I think that—I generally agree with that. To add 

a little bit of, I guess, fuel to the fire to your concern about the 

complexity, we are talking about dual use in munitions items, but 

there are actually several other agencies that have direct authority 

to regulate the control of other exports. For example, the Nuclear 

Regulatory Commission on their Atomic Energy Act controls the 

export of nuclear materials and equipment. Department of Energy 

has specific authority. 

So it seems more complicated, although these are the two main 

systems. But clearly the current threat challenges, technologies 

and markets, are really challenging the system as it currently exists. 

Mr. GINGREY. Yes, you know, and just continue along that same 

line and all these variables and exceptions, is it not confusing for 

government agencies and businesses involved in exports and export 


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controls to make sure everyone is doing the right thing? I mean, 

that is my main point. 

Mr. BORMAN. It is certainly a challenge. That is why we do so 

much on outreach, for example. We do 30, 40, 50 outreach events 

every year throughout the country just BIS, and there is a whole 

cottage industry of private entities that do export control compliance seminars, I think in part as a reaction, a market reaction to 

that. 

Mr. GINGREY. Are some dual-use items more sensitive than others? 

Mr. BORMAN. Oh, certainly. Certainly. I mean, there is a whole 

strata of—most of what we control on our controllers are based on 

multi-lateral agreements by most of the supplier countries. There 

is one specific, the Nuclear Missile Technology Cambio and sort of 

conventional arms, and then there is another strata that are controlled really just to the terrorist countries or to specific bad end 

users in different countries. 

So there is certainly a large gradation. 

Mr. GINGREY. You touched on the fact that a number of different 

laws and regulations, agencies, multi-lateral agreements play a 

role in how we control our exports. Can you describe some of the 

challenges that this presents? 

Mr. BORMAN. Well, absolutely. I mean, on the multi-lateral side 

there is agreement, again, among most but not all suppliers as to 

items to be listed but then certainly each country has individual 

discretion as to how they actually implement those controls. And 

what we hear a lot from U.S. industry is that our system is much 

more rigorous than other countries, and therefore, they are at a 

competitive disadvantage when they are selling into markets like 

China and India, for example. 

So that is a real challenge. Another real challenge, of course, is 

what we call foreign availability. It was alluded to earlier. There 

are—many of the things we control are available from many countries including the countries that are the target of those controls. 

So—— 

Mr. GINGREY. Mr. Borman, thank you, and Mr. Chairman, I yield 

back to you at this point. 

Mr. STUPAK. Thanks. Just a couple of questions if I may. 

Mr. Kutz, if I could ask you, have you got the book there, the 

document binder there? I want to look at tab number three, because one of the things that caught my attention, you mentioned 

in your testimony that one seller actually signed up your fake company as a reseller or dealer. That was on the night vision. Is that 

right? 

Mr. KUTZ. It was a distributor. It wasn’t the manufacturer. 

Mr. STUPAK. OK. No, no. It was the distributor. Right. Not the 

manufacturer. So if you look at tab three, which is the reseller 

dealer agreement between GAO’s fictitious company and a company called KERIF Night Vision. 

Mr. KUTZ. Correct. 

Mr. STUPAK. Whose idea was it to make your company, your false 

company a dealer of night-vision equipment? 


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Mr. KUTZ. It was the only way we could get the item. They 

wouldn’t sell it to us otherwise, so we agreed to fill out this agreement, and that was the way we got the items. 

Mr. STUPAK. OK. So in order to obtain the item you had to fill 

out this dealer, reseller, dealer—— 

Mr. KUTZ. Reseller, dealer agreement was necessary to get our 

target item. Yes. 

Mr. STUPAK. What information were you required to provide to 

become a dealer? 

Mr. KUTZ. Well, it was interesting. We didn’t have to provide a 

Social Security number or an EIN, and that would be something, 

you know, employer identification number. It was other information, you know, name, address, and I believe other information, but 

it wasn’t any personably identifiable information. 

Mr. STUPAK. Well, did you have a face-to-face meeting with this 

company? 

Mr. KUTZ. Yes, we did. No, we did not. Not until afterwards. No. 

Mr. STUPAK. OK. 

Mr. KUTZ. Afterwards. We actually met with this individual 

afterwards. 

Mr. STUPAK. After. So before you became a dealer you never even 

had a face-to-face meeting with this company that was going to 

make you a dealer of their night vision? 

Mr. KUTZ. That is correct. 

Mr. STUPAK. OK. What is your understanding of what access to 

night-vision equipment would you have as a dealer? 

Mr. KUTZ. Well, I guess ITT could probably better answer that 

because it was ultimately their product, but we were at several levels below the distributor level so—— 

Mr. STUPAK. OK. 

Mr. KUTZ [continuing]. Our understanding was we could have actually purchased more of these from this individual. That was one 

of the discussions, I believe, we had. We don’t know how many or 

under what circumstances. 

Mr. STUPAK. OK, and Mr. Alvis, I realize that your company, you 

are the manufacturer and there is probably multiple layers between you and this KERIF Night Vision. Do you know how many 

layers that would be between you and probably KERIF? Two or 

three? 

Mr. ALVIS. My guess is the company that sold to them—— 

Mr. STUPAK. Right. 

Mr. ALVIS [continuing]. Is probably one of our three dealers because—— 

Mr. STUPAK. OK. 

Mr. ALVIS [continuing]. They do have 25 distributors, now 26. 

Mr. STUPAK. But before you ever would deal with them, would 

there be a couple layers? 

Mr. ALVIS. We wouldn’t deal with—— 

Mr. STUPAK. KERIF? 

Mr. ALVIS [continuing]. Anybody. We deal with three companies—— 

Mr. STUPAK. And then they—— 

Mr. ALVIS [continuing]. That we are allowed to audit. 

Mr. STUPAK. OK. 


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Mr. ALVIS. As I mentioned earlier, we haven’t audited them, 

however, we do cooperate with law enforcement, FBI whenever— 

obviously as the biggest manufacturer whenever there is an investigation, we cooperated with GAO on this end. 

We are a resource, and every time we have gone to one of our 

dealers, all their paperwork has been right on the money. So the 

end-use statements that we put out there, whenever we have had 

to follow up, they have always had all the paperwork and all the 

documentation. 

Mr. STUPAK. Well, I take it from your answer then KERIF had 

no requirement of contacting you and saying, hey, I signed up a 

new company to sell night vision. 

Mr. ALVIS. No. 

Mr. STUPAK. OK. 

Mr. KUTZ. Mr. Chairman, I would just say, too, ITT was able to 

trace this item down within a couple of hours, very quickly. 

Mr. STUPAK. By going through—— 

Mr. ALVIS. We make 175,000 night-vision tubes a year. Every 

tube we make is serial numbered whether it is going to the U.S. 

military. Everything we do is ITAR, so we don’t have the dual-use 

distinction. Everything is ITAR. The downgraded tubes or the nonmilitary spec tubes that we sell into the commercial market are 

also serial numbered. So whenever GAO—and that is a very— 

that—there is 2 generations behind that goggle up there on the 

front is 2 generations behind what the U.S. Army currently has. 

We could still take that serial number. We can also autopsy any 

tubes and see what has been done to it. 

Mr. STUPAK. Sure. Let me ask you this in tab three, and you may 

want to pass that down to him, in there it says, ‘‘KERIF shall exercise no control over the activities and operations of reseller, dealer.’’ 

In other words, Mr. Kutz’s company there with the GAO. 

Have you ever seen these agreements like that? Is that something your distributors do, where they shall exercise no control over 

the activities and operations of a reseller, dealer? 

Mr. ALVIS. I have actually never looked at a dealer agreement 

that came from one of our distributors to a lower-level distributor. 

Mr. STUPAK. OK. 

Mr. ALVIS. However, I will see if our team—Greg, have you ever 

looked at—— 

Mr. STUPAK. He can’t answer. He would have to answer through 

you, sir. He can advise you but he can’t—— 

Mr. ALVIS. Oh. OK. Fine. 

Mr. STUPAK. It is also on the board up there, too. 

Mr. ALVIS. KERIF, even though they are the distributor—— 

Mr. STUPAK. KERIF. OK. 

Mr. ALVIS. Yes. KERIF. They gave the agreement to the fictitious 

company. 

Mr. STUPAK. Right. 

Mr. ALVIS. They are not the one—they are not our dealer. So 

there is—— 

Mr. STUPAK. Right. 

Mr. ALVIS [continuing]. A layer in there. 

Mr. STUPAK. There is a layer in there. 


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Mr. ALVIS. And that layer in there is required to have the enduse statements and all the documentation that we are likely to 

audit and occasionally call on them to give back to us in cooperation with law enforcement. 

Mr. STUPAK. OK. I guess the part that gets me a little bit is the 

law prohibits exports of your product outside the United States, but 

when it is—but when you hire a distributor, you don’t control who 

that distributor signs up as dealers of your product. So the distributor signs up a dealer and doesn’t control the activities of the 

dealer. So it sounds like we got a crazy system here. You can’t export, you hire a distributor, he hires dealers, and everyone says we 

exercise no control over the activities of the next person. 

Go ahead. 

Mr. ALVIS. This distributor, this real-world distributor, not the 

fictitious company—— 

Mr. STUPAK. Right. 

Mr. ALVIS [continuing]. Would be the distributor that hired him, 

would be in violation of our agreement. 

Mr. STUPAK. Of your agreement? 

Mr. ALVIS. Of our agreement. 

Mr. STUPAK. OK. 

Mr. FITTON. Mr. Chairman. 

Mr. STUPAK. Sure. 

Mr. FITTON. As a dealer myself in night-vision goggles and equipment, the certificates that I signed as a dealer setting up myself 

as a distributor or dealer for the company I have to agree not to 

export the items through any distributor I purchase it through. So 

even down to my level giving it to the end user I have to abide by 

these same laws and regulations. 

Mr. STUPAK. Sure, because you are in the United States, but 

then after you sell it to someone, they can do anything they want 

with it in a way. 

Mr. FITTON. Correct. Once it falls into civilian hands, then it is 

out of our control. 

Mr. STUPAK. OK. Thanks. 

Mr. Gingrey, anymore questions? Wrap it up here. 

Mr. GINGREY. Mr. Chairman, thank you. I did have a couple 

more that I wanted to address to the GAO, Mr. Kutz or Ms. 

Lasowski, excuse me. 

In my State of Georgia we—in fact, in my Congressional district 

even we have a large number of defense contractors and businesses, both large and small, who work every day in good faith towards the defense of our Nation as well as the defense of our international allies, which is also in our own national defense. 

While there are clearly areas upon which we need additional 

oversight, it also seems that many of these small businesses that 

I represent, who play by the rules, experience sometimes massive 

delays when trying to secure the necessary licensing through the 

State Department and its Directorate of Defense Trade Controls. 

So my first question is this. As a result of your investigation do 

you have any insight with respect to the existing process at the Directorate and its efficiency in approving clearly, clearly aboveboard 

export activities, how timely do you believe the Directorate is in 

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pected to wait in this process, because time is money obviously. 

They lose these opportunities if it drags on too long, and I have had 

one of these companies come to me with this concern. 

Mr. KUTZ. Yes. Nothing we did in the investigation was aboveboard, so I will pass. 

Ms. LASOWSKI. Over the years we have looked at the State Department—— 

Mr. GINGREY. Is your mike on, Ms. Lasowski? 

Ms. LASOWSKI. Over the years—— 

Mr. GINGREY. You got a sweet, low voice. 

Ms. LASOWSKI. Oh, thank you. Let me see if I can speak up a 

little bit here. 

Mr. GINGREY. That is fine. 

Ms. LASOWSKI. Over the years we have looked at the State Department’s licensing process, and we have noted a number of inefficiencies associated with the process. We have recognized that it is 

important for the process to take the time necessary to deliberate 

and to do various verifications and come up with the appropriate 

restrictions that will be placed on the licensed conditions for the exports. 

However, we have noted that a number of inefficiencies have delayed the process, and a couple of years ago when we looked at the 

process, we noted that there were not particular standard operating procedures, there was not a lot of attention in terms of the— 

taking a triage approach in terms of referring the licenses to the 

appropriate parties. 

So when we completed our review, we made a number of recommendations to improve the efficiency of the licensing process. 

We have not been back into examine the current state of play, however, we have been briefed by State Department officials that they 

have taken a number of steps to restructure their workforce and 

to establish procedures and training in an attempt to reduce the 

number of licenses that are in the pipeline and also to ensure that 

they are consistent in terms of their processing with license applications. 

Mr. GINGREY. Well, I appreciate that answer. I would suggest to 

you that the problem is still there, and my information is very, 

very recent, and I sincerely do believe the problem is still there. 

Is this applicable as well to the Department of Commerce? You 

mentioned the Department of State but—— 

Ms. LASOWSKI. In terms of the Department of Commerce, most 

of the exports can occur without an actual license application. So 

very few in terms of what is ultimately under the control is licensed and compared to a much larger volume of licensed applications that occur at the State Department. 

Mr. GINGREY. I see. Sure. Of course. That makes sense. Well, 

thank you all very much. I appreciate the opportunity to hear from 

you and ask you some questions. 

And I thank you, Mr. Chairman. I yield back to you. 

Mr. STUPAK. Thank you, Mr. Gingrey. 

As I said, we started this investigation in 2008. We are going to 

continue our investigation. I want to emphasize again that the witnesses that have appeared here today, they have created no violation of law. ITT, Perkin Elmer, and Mr. Fitton, you guys followed 


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the law, you did not violate the law, and you probably followed the 

absence of law as I think Mr. Walden said earlier. 

So that is work for this committee to do some more work, and 

I want to thank you for your cooperation in providing the requested 

documents as well as the other companies that were part of this 

sting operation that did provide documents to us. 

And I just—I have to for the record note there is one exception. 

Systron Donner of Walnut Creek, California, a company which sold 

the GyroChips to the GAO undercover company, that company, 

Systron Donner, stands out for defiant failure to comply with the 

document request from our committee. While everybody else complied with it, they refused to—and we are going to continue to 

press to receive the information from this company. 

So I want to thank you for your being here, thank you for your 

cooperation, thank you for your testimony, and thank all of our witnesses. And that concludes our testimony for today. 

The rules provide that members have 10 days to submit additional questions for the record. I ask unanimous consent that the 

content of our document binder be entered into the record, provided 

that the committee staff may redact any information that is of 

business proprietary nature or relates to privacy concerns or is a 

law enforcement sensitive in nature. 

Without objection, the documents will be entered in the record. 

That concludes our hearing. The meeting of the subcommittee is 

adjourned. 

[Whereupon, at 1:15 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 


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