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57–609PDF 2010

TRANSSHIPMENT AND DIVERSION: ARE U.S.

TRADING PARTNERS DOING ENOUGH

TO PREVENT THE SPREAD OF DANGEROUS

TECHNOLOGIES?

HEARING

BEFORE THE

SUBCOMMITTEE ON TERRORISM, 

NONPROLIFERATION AND TRADE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

JULY 22, 2010

Serial No. 111–122

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

HOWARD L. BERMAN, California, Chairman 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

BRAD SHERMAN, California 

ELIOT L. ENGEL, New York 

BILL DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

DIANE E. WATSON, California 

RUSS CARNAHAN, Missouri 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

MICHAEL E. MCMAHON, New York 

THEODORE E. DEUTCH, Florida 

JOHN S. TANNER, Tennessee 

GENE GREEN, Texas 

LYNN WOOLSEY, California 

SHEILA JACKSON LEE, Texas 

BARBARA LEE, California 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

MIKE ROSS, Arkansas 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

JIM COSTA, California 

KEITH ELLISON, Minnesota 

GABRIELLE GIFFORDS, Arizona 

RON KLEIN, Florida 

ILEANA ROS-LEHTINEN, Florida 

CHRISTOPHER H. SMITH, New Jersey 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

DANA ROHRABACHER, California 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

JOE WILSON, South Carolina 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

BOB INGLIS, South Carolina 

GUS BILIRAKIS, Florida 

RICHARD J. KESSLER, Staff Director 

YLEEM POBLETE, Republican Staff Director 

SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE

BRAD SHERMAN, California, Chairman 

GERALD E. CONNOLLY, Virginia 

DAVID SCOTT, Georgia 

DIANE E. WATSON, California 

MICHAEL E. MCMAHON, New York 

SHEILA JACKSON LEE, Texas 

RON KLEIN, Florida 

EDWARD R. ROYCE, California 

TED POE, Texas 

DONALD A. MANZULLO, Illinois 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

(III)

C O N T E N T S 

Page

WITNESSES 

The Honorable Kevin J. Wolf, Assistant Secretary for Export Administration, 

Bureau of Industry and Security, U.S. Department of Commerce .................. 7

Mr. Vann H. Van Diepen, Acting Assistant Secretary, Bureau of International 

Security and Nonproliferation, U.S. Department of State ................................ 18

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Kevin J. Wolf: Prepared statement .............................................. 10

Mr. Vann H. Van Diepen: Prepared statement ..................................................... 20

APPENDIX 

Hearing notice .......................................................................................................... 46

Hearing minutes ...................................................................................................... 47

(1)

TRANSSHIPMENT AND DIVERSION: ARE U.S. 

TRADING PARTNERS DOING ENOUGH TO 

PREVENT THE SPREAD OF DANGEROUS 

TECHNOLOGIES? 

THURSDAY, JULY 22, 2010

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TERRORISM,

NONPROLIFERATION AND TRADE,

COMMITTEE ON FOREIGN AFFAIRS, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:11 a.m., in room 

2172, Rayburn House Office Building, Hon. Brad Sherman (chairman of the subcommittee) presiding. 

Mr. SHERMAN. I want to thank our witnesses and ranking member for being here. This is the seventh or eighth hearing this subcommittee has had this Congress regarding export controls. It is 

long past time that Congress reauthorize the EAA. My own philosophy is that we need a taller fence around a smaller field, but obviously anything we do in the area of export controls can be rendered 

meaningless by transshipment, and that is why we are having this 

hearing today, to focus on transshipment and diversion and review 

U.S. efforts to keep American and other sensitive Western technologies and equipment out of the hands of those who can use them 

to threaten our national security. 

Most importantly, this hearing is about preventing lax export 

controls and policies in countries that trade with the West from allowing technology and equipment relevant for the development of 

nuclear weapons to reach Iran, Syria, North Korea, and similar 

states. 

In 1998, Pakistan conducted its first nuclear test, having developed its weapons far before then. Pakistan had gained that capacity through international deception in part, whereby the true end 

user of various equipment was obscured through clandestine procurement networks. We now see similar networks on behalf of 

other states that either are trying to develop nuclear weapons or 

have done so illegally. These proliferation techniques need countries to be the transshipment hub in the supply chain. Technology 

and equipment in countries with high tech manufacturing can go 

to those hub countries, and then on to the prohibited country. 

These hub countries have weak or nonexistent export controls, ineffective custom and law enforcement officials, and most importantly, 

little or no political will to do anything about this critical problem. 

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In addition, large trade volumes at major transshipment ports 

can help camouflage the illicit shipment of diverted goods. In 2004, 

the U.N. Security Council adopted Resolution 1540, which obligates 

member states to enact and enforce measures that would prevent 

proliferation of weapons of mass destruction to non-state actors. Efforts under this resolution generally include strategic trade controls. And many countries are enacting or strengthening such laws 

to reach compliance with that U.N. Security Council resolution. 

I would like to highlight the record of three countries that despite having made some strides still serve as transshipment and diversion hubs and generally do not effectively control exports to Iran 

and other countries of proliferation concern. The first of these is 

the UAE, one of the largest transshipment hubs. For two decades, 

it was a major hub through which traffickers of nuclear technology 

and dual-use material have routed their illegal commerce to countries including Iran, Iraq, and Libya. Pakistani scientist A.Q. Khan 

operated key parts of his smuggling ring out of the Emirates. 

Nuclear traffickers shipped via the UAE because the UAE lacked 

significant export control laws and made the UAE one of the easiest places in the world to mask the real destination of cargo. Although the UAE has cracked down on smugglers in recent years by 

acting to interdict suspect shipments and by closing down some 

Iranian front companies, the Emirates still have not issued regulations or created an enforcement agency for their export control law, 

which was passed in 2007. So those seeking to ballyhoo cooperation 

with the UAE pointed to the statute. Three years later, no enforcement agency, no regulations. 

Another concern is the UAE governing structure, where each 

emirate is semi-independent and retains some national power. 

Well, eventually, their Federal Government will enforce export controls. Currently, any enforcement is the purview of each emirate. 

Particularly noteworthy is the emirate known as RAK—that is Raz 

Al Khaimah—because of its close proximity to Iran, the depth of 

Iranian investments in that emirate, and its remoteness from the 

center of the emirates. 

Malaysia is the second country I want to highlight. It got an inadequate record of preventing the diversion of weapons-related 

technology shipments. Malaysia’s lack of export controls has allowed arms traffickers to ship sensitive materials to pariah nations 

such as Iran and North Korea. Shipments have included parts for 

bombers and items sent to firms linked to Iran’s nuclear ballistic 

missile program. Reportedly, as a condition for the prime ministerial invite to the nuclear security conference here in April, Malaysia enacted a strategic trade act this year. 

Prior to the enactment of this legislation, Malaysia didn’t even 

have significant export controls on its books. However, as we have 

seen with the Emirates, just having a law on the statute books is 

insufficient. We must make it clear that we cannot be faked into 

acting as if Malaysia has acted appropriately by enacting a statute 

if they fail to move forward expeditiously toward regulations, enforcement regimes, et cetera. 

Finally we have China. The Chinese legislation regulation concerning the control of sensitive technologies is more mature than 

the other countries I have mentioned, but the political will to enVerDate 0ct 09 2002 07:55 Nov 19, 2010 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 F:\WORK\TNT\072210\57609 HFA PsN: SHIRL
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force these regulations remains lacking. U.S. designation lists are 

littered with Chinese entities, yet Chinese authorities are unwilling 

to meaningfully control strategic trade. In one example in The 

Washington Post, a North Korean businessman used his Beijing office to facilitate the transfer of nuclear technology to Syria. 

I should mention Iran at this point. Earlier this month, the U.N. 

Security Council took a step in the right direction by imposing another round of sanctions. Just 3 weeks ago, Congress further reinforced and went beyond the U.N. sanctions by passing the good 

first, but not sufficient, step, comprehensive Iran Sanctions, Accountability and Disinvestment Act, which imposes an array of new 

economic policies aimed at persuading Iran to change its behavior. 

However, as our experience with Pakistan’s nuclear program demonstrated, export control laws will be of little value unless we can 

properly control the flow of global cargo at transshipment hubs. 

And when I say ‘we,‘ I mean not only the United States, but those 

countries cooperating with us. 

The United States has offices and law enforcement agencies that 

work to keep sensitive goods out of the hands of weapons 

proliferaters and terrorists. One such office is the Department of 

State’s Export Control Cooperation, ECC, which provides assistance related to strategic trade control systems and prevents illicit 

transfer of weapons-related technology materials. A major component of this office is the Export Control and Border Security program, EXBS, which provides foreign assistance for the development 

and implementation of trade controls. 

In addition, the Department of Commerce’s Bureau of Industry 

and Security’s, BIS, transshipment country export control initiative 

is tasked with strengthening trade compliance and export control 

systems with those countries and companies that continue to act as 

transshipment hubs. I think it is important that we provide aid to 

countries that have the political will to prevent diversion, and at 

the same time the State Department has to advise Congress and 

be frank with regard to those countries where the lack of political 

will is a reason for us to reevaluate other aspects of our relationship with that country. 

Finally, and perhaps most importantly, the Iran sanctions legislation I referenced moments ago includes a title I introduced here 

in the House, championed by Senator Dodd in the Senate, that 

would create a new export control category for countries that are 

of transshipment or diversion concern and have taken ineffective 

steps to rein in this problem. A country slapped with this designation will be denied critical U.S. technology, including technology 

needed for the development of their manufacturing in high tech 

sectors. 

I know it is early, but I hope at this hearing, we will highlight 

the need for a vigorous implementation of Title III of the Iran sanctions bill. And I want to hear how your agencies will do just that. 

I thank my colleagues for their indulgence, as I have gone over 

time. And again, I hope this hearing will provide us with a greater 

understanding of transshipment threats and our ability to effectively minimize such threats to our national security. 

Now I will recognize the gentleman from California, Mr. Royce. 

4

Mr. ROYCE. Thank you very much, Mr. Chairman. Thank you for 

this hearing and the work that we have done on this issue. The diversion and transshipments of sensitive U.S. technology are very 

significant security threats around the globe, and keeping these 

items out of the wrong hands is an increasing challenge as global 

trade of dual-use items just keeps increasing. 

There is no more determined violator of this—I think you and I 

agree, Chairman—than Iran. Its regime very aggressively, cleverly 

and effectively targets advanced technology for its nuclear program 

and some of its other weapons programs. Frequent targets of this 

are American companies, so checking Iran’s procurement network 

has to be a top priority. 

Another critical country on this front is China because its manufacturing sector has very weak export controls, which makes it a 

key target. China’s notorious record as a WMD proliferater demands that it be given very close scrutiny. In the ’90s, we did work 

on this committee calling attention to the transfer of ring magnets 

from China to Pakistan and into the hands of A.Q. Khan’s network. 

So I am a skeptic on China’s commitment to export controls given 

its past behavior, and certainly given its nonchalance about nonproliferation in general. Its planned sale just announced of two nuclear reactors to Pakistan, and its multibillion-dollar investment in 

Iran’s energy sector are additional cases in point in terms of the 

way China behaves in this regard. And I think Beijing’s pressure 

on the Obama administration to loosen export controls is concerning. 

There are some positive developments, and you hit on several of 

them, Chairman. The UAE has made progress, especially in checking shipments to Iran. The UAE recently stopped a North Korean 

vessel carrying arms to the Islamic Republic. So they have moved 

in the right direction. More is needed. 

There are reports that transshipment and diversion activities 

may now be shifting elsewhere in the region. Malaysia passed an 

export control law in April, as you mentioned. That is a good start. 

It is only a start, and certainly Malaysia was a past hub of activity 

for A.Q. Khan as well. So any steps in Malaysia have to be in the 

right direction since there was no real focus on it prior to this law. 

Our export control system certainly needs reform, and we agree 

on this. And I am interested in determining if the administration’s 

reform proposals would strengthen our security by effectively reducing transshipments and reducing diversion. And I think the 

other point I would make is that this hearing is really an opportunity to look at the Obama administration’s implementation of the 

Iran sanctions legislation, the conference committee of which you 

and I served on, Mr. Chairman, that was signed into law last 

month. And I would like to be clear here. 

I think that legislation was a disappointment, a big one. As I 

said when the conference report passed, good sanctions were weakened by delays, half measures, and waiver after waiver. And that 

was at the administration’s insistence. That is too bad. But on 

Iran, with the waivers that the administration negotiated, the decisions are now in the administration’s court. Will it actually sanction foreign companies doing business with Iran? The fact that the 

administration hasn’t imposed a single sanction on an Iranian tradVerDate 0ct 09 2002 07:55 Nov 19, 2010 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\WORK\TNT\072210\57609 HFA PsN: SHIRL
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ing partner points to more inaction, just what we can’t afford toward Iran. 

I hope I am wrong. I suspect I am right, and I yield back, Mr. 

Chairman. 

Mr. SHERMAN. Thank you. Would you like an opening statement? 

I recognize the gentlemen from Illinois for 5 minutes. 

Mr. MANZULLO. Thank you, Mr. Chairman, for calling this very 

important hearing to examine and discuss the issues of diversion 

and transshipment of sensitive export control technology. Our Government must establish an export policy based upon clearly defined 

national security and foreign policy priorities that also recognizes 

the realities of a global supply chain and encourages legitimate 

trade. 

It is clear that overly broad controls are detrimental to U.S. national security interests as well as our overall global competitiveness, to which the United States has gone 50 years ago from a 50-

percent market share in machine tools in the world, to 18 years ago 

13 percent, and now we are at 7 percent. And because, in many 

cases, of our export controls, we are losing our technology because 

the American manufacturers have made it very difficult—the government has made it very difficult for them in many cases to export their precision machinery, and foreign nations have taken that 

over. 

It makes little sense to impose controls on widely available products that detract our enforcement personnel from more significant 

threats to our national security. As part of this goal to double the 

exports by 2015, President Obama ordered a broad-based interagency review of U.S. export control regulations. The results of that 

review are now being put into motion. Defense Secretary Gates outlined four goals for the administration’s export control reform initiative back in April: An overhaul of the structure of the control 

lists, efficient licensing policies and practices that account for the 

realities of innovation and production, better coordination in our 

enforcement measures, and a unified IT infrastructure. 

I truly believe that if we strive to meet these goals, we will 

produce a more predictable, efficient, and transparent system that 

benefits not only our national security, but our global competitiveness. And as we continue to discuss proposals to modernize our export control system, it is imperative that we remain mindful of diversion and transshipment risks. I have long been an advocate for 

tougher penalties that justly target those who flout our export control laws and regulations. The Export Control Improvement Act, 

H.R. 3515, which I introduced last year with this subcommittee’s 

chairman, my friend Brad Sherman, and another good friend, 

Adam Smith of Oregon, would address several problems with the 

current system by expanding enforcement authorities for BIS and 

also mandating updates to the computerized automated export system, AES. 

The bill would strengthen our current trade controls by requiring 

the Federal Government to modernize the AES, update it continually, making the filing process for shipments abroad more thorough and significantly reducing unintentional illegal exports. The 

bill also authorizes an accountability system for export interVerDate 0ct 09 2002 07:55 Nov 19, 2010 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\WORK\TNT\072210\57609 HFA PsN: SHIRL
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mediaries and enhances prosecution of exporters who attempt to 

circumvent electronic blocks. 

I know that the Bureau of Industry and Security regularly accesses AES data to verify compliance with the Export Administration regulations and to support its investigative functions. For example, AES data contributed to a BIS investigation that led to the 

identification of a major diverter of U.S.-origin aircraft parts to 

Iran. I hope our proposals, aimed at strengthening the statutory requirements for the AES, will be included in any rewrite of the Export Administration Act. 

The second half of that bill focuses on enforcement measures and 

addresses transshipment, re-exportation, and diversion of controlled items by providing guidelines and consequences for designation of a country as a destination of diversion concern or of possible 

diversion concern. Some of these changes were incorporated into 

the Iran sanctions bill recently signed into law. Specifically, Title 

3 of H.R. 2194 included much of the language we introduced in 

H.R. 3515. These new mandates should provide another set of tools 

for our Government to combat diversion and transshipment of sensitive technologies. 

Chairman, I greatly appreciate the opportunity to share my 

views and concerns. I look forward to continuing to work with you 

and other colleagues on the committee in crafting legislation that 

will improve our national security by reforming our export control 

system. I thank you again for having this hearing. 

Mr. SHERMAN. Thank you, Mr. Manzullo. I will now recognize 

Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. It is a pleasure to be with 

you. And let me join you in welcoming our distinguished witnesses. 

The topic of today’s hearing is one that is particularly relevant in 

light of the recent situation and our sanctions on Iran, that this 

committee, with the leadership of Chairman Berman and others, 

was able to push through this legislative chamber, which the President has now signed into law. 

The Iran Sanctions Act, the strongest sanctions we have placed 

on the Islamic Republic, have already begun to have immediate effect in pressuring and punishing international companies who do 

business with Iran. Now we have got to ensure that in conjunction 

with these economic sanctions that we address and prevent the 

trade of dangerous technologies from into the hands of rogue states 

like Iran and terrorist organizations. 

The United States and its trading partners must be ever-vigilant 

about the trade and smuggling of dual-use technologies into Iran, 

into China, into North Korea, and others whose interests are in direct opposition to the United States and our friends and allies. One 

particular trading partner I would like to address is the UAE. 

Dubai has been working to improve its image, for sure. And the reality has a venue for such counterproductive trade. They have in 

fact clamped down on financial flows to suspected terrorist organizations following the September 11th attacks. 

However, Dubai in 2003 was also known as the base of operations for front companies working for the Pakistani scientist A.Q. 

Khan and his nuclear procurement network. Very dangerous business. Today, the UAE says that it is taking action to maintain nuVerDate 0ct 09 2002 07:55 Nov 19, 2010 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 F:\WORK\TNT\072210\57609 HFA PsN: SHIRL
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clear security and counter threats. It has closed down 40 international and local firms as part of a crackdown on violators of the 

sanctions that were also passed by the United Nations. And this 

is a good thing. 

Earlier this year, the UAE and the United States signed an 

agreement for the installation of equipment at UAE ports for the 

detection of nuclear materials. This is another good thing. These 

good things, these steps, are steps in the right direction, but we 

must go further. 

In 2007, the UAE enacted a new export control law, which included license requirements for the export or re-export of sensitive 

goods. In 2008, the law was amended to toughen its implementation. And in 2009, the UAE cabinet formed a committee to improve 

compliance and enforcement. 

So the fundamental question we have got to answer today regarding the UAE is this. What is the status of the implementation 

of the UAE export control law, and how is the United States involved in its implementation and oversight? 

So again, Mr. Chairman, thank you for giving venue to explore 

how the administration has led in this way and continues to do so, 

and I look forward to the witnesses. 

Mr. SHERMAN. Thank you for that opening statement. Our ranking member does have a good excuse for not being here. He is questioning Chairman Bernanke, so I am sure Assistant Secretary Wolf 

and the Acting Assistant Secretary will not be offended. And I will 

ask my questions in the first round after other members. That way, 

if they are not suitably entertained here, they can leave after they 

ask their questions. On the other hand, I would hope that they 

would stay for the grand finale, which of course will be my own 

questioning of the witnesses. 

First, I would like to introduce the Honorable Kevin Wolf. Mr. 

Wolf was sworn in to his current post as Assistant Secretary of 

Commerce for Export Administration in February 2010. Prior to 

joining the Bureau of Industry and Security in the Department of 

Commerce, he was a partner in the Washington, DC, office of 

Bryan Cave. From 1996 to 1997, Mr. Wolf was the Special Assistant Counsel to the House Committee on Standards of Official Conduct. 

In any case, welcome back to the House. But before you begin 

your remarks, it is also my pleasure to introduce and welcome back 

Vann Van Diepen. Mr. Van Diepen has been the principal Deputy 

Assistant Secretary of State for International Security and Nonproliferation since June 2009, and now is the Acting Assistant Secretary. From 2006 to 2009, he was a national intelligence officer for 

Weapons of Mass Destruction and Proliferation in the Office of the 

Director of National Intelligence. Prior to that, Mr. Van Diepen directed the State Department’s Office of Missile Threat Reduction. 

Mr. Wolf, please proceed. 

STATEMENT OF THE HONORABLE KEVIN J. WOLF, ASSISTANT 

SECRETARY FOR EXPORT ADMINISTRATION, BUREAU OF INDUSTRY AND SECURITY, U.S. DEPARTMENT OF COMMERCE 

Mr. WOLF. Chairman Sherman, Ranking Member Royce, and distinguished members of the committee, thank you for the opporVerDate 0ct 09 2002 07:55 Nov 19, 2010 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\WORK\TNT\072210\57609 HFA PsN: SHIRL
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tunity to testify before the Terrorism, Nonproliferation and Trade 

Subcommittee regarding the work the Department of Commerce is 

doing to prevent the diversion of controlled goods through transshipment areas. 

The dual-use export control system is a vital tool on the front 

line to fight the effort to protect national security of the United 

States against a diversion of threats our nation faces. The department’s Bureau of Industry and Security, or BIS, administers and 

enforces the Export Administration regulations, known as the EAR, 

to further U.S. national security, foreign policy, and economic security interests. 

The commodities, software, and technology that are subject to 

the EAR are generally referred to as dual-use items and are for 

supposed civilian use, but also may have a range of military applications or are controlled for other foreign policy reasons. In administering and enforcing the EAR, BIS works closely with a number 

of other agencies, including the Departments of Defense, Energy, 

Homeland Security, Justice, State, Treasury, and the intelligence 

community. And since arriving at BIS, I have placed a particular 

emphasis on interagency cooperation. 

BIS employs a variety of methods to prevent diversion of items 

subject to the EAR to unauthorized destinations and uses. These 

methods include interagency review of export license applications, 

identification of high-risk foreign parties, extensive outreach to the 

business community, end use checks, and reviews and analysis of 

export data from various sources. BIS controls the export, re-export, and transfer of all items subject to the EAR. Last year, BIS 

processed approximately 20,000 export license applications. The 

value of those applications was about $60 billion—with a b—for 

items subject to the EAR. 

The Commerce Department, along with the Departments of Defense, Energy, and State, have the opportunity and generally do review all aspects of a proposed export to evaluate the risk of diversion either in-country or to a third country, or to evaluate any 

other national security or foreign policy risks. The entity list is one 

tool increasingly used to address the diversion issue. BIS places on 

the entity list individuals and companies based on specific facts 

that the entities have been involved, are now involved, or pose a 

significant risk of becoming involved in activities contrary to the 

national security or foreign policy interests of the United States. It 

is a fairly broad standard. 

The expanded entity list has proven to be an extremely effective 

tool against diversion and has significant consequences for the listed entities that I will be able to describe later. BIS also imposes 

restrictions on exports and re-exports through the issuance of temporary denial orders. These TDOs deny the export privileges of a 

company or an individual to prevent an imminent export control 

violation. 

Vigorous enforcement is a critical aspect of addressing transshipment concerns. The bureau’s Office of Export Enforcement conducts end-use checks to confirm the bona fides of a foreign entity 

to ensure that sensitive items are not used in ways that threaten 

national security interests of the United States, and for other reasons. 

9

There is a group of people who work with the Office of Export 

Enforcement, special agents and export compliance officers, whose 

principal mission is to ensure that items on the EAR entering the 

regions and the countries where they work are used in accordance 

with U.S. export control laws and regulations. 

The bureau also conducts research and analysis of open source, 

intelligence, financial, statistical, and other information, including 

export data from the automated export system, to identify trends 

in controlled trade, including with regard to transshipment, and 

develop productive end-use checks and actionable law enforcement 

leads. 

BIS maintains a constructive cooperation relationship with the 

U.S. business community on specific diversion threats through targeted industry outreach, which focuses on specific goods and technologies that illicit proliferation networks actively seek to acquire. 

BIS contacts U.S. manufacturers and exporters of these goods and 

technologies to apprise them of acquisition threats and solicit their 

cooperation in identifying and responding to suspicious foreign purchase requests. 

We also have significant outreach activities, and as we will describe later, we support the Department of State in its EXBS program that Vann will describe later, in which we participated considerably in the last year. And in general, I want to thank you for 

the opportunity to discuss these issues with you and the tools the 

Department of Commerce has and uses to protect the national security of the U.S. against the diverse threats our country faces. 

[The prepared statement of Mr. Wolf follows:]

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Mr. SHERMAN. Mr. Van Diepen. 

STATEMENT OF MR. VANN H. VAN DIEPEN, ACTING ASSISTANT 

SECRETARY, BUREAU OF INTERNATIONAL SECURITY AND 

NONPROLIFERATION, U.S. DEPARTMENT OF STATE 

Mr. VAN DIEPEN. Thank you. Mr. Chairman and members of the 

subcommittee, thank you for giving me the opportunity to testify 

on the diversion of sensitive items in transshipment and the State 

Department’s efforts to address this challenge. I ask that you include my prepared testimony into the record of today’s hearing. 

As you have noted, Mr. Chairman, major transshipment hubs 

with weak regulatory controls represent an important vulnerability 

in preventing proliferation-related trade. In these hubs, brokers, 

front companies, and middlemen can facilitate proliferation-related 

activities, hiding their transactions among large volumes of fastmoving commercial goods. In order to stop them, a strong regulatory structure is necessary. And through intensive diplomacy, the 

State Department is taking a leading role in building such a structure. 

Our efforts are apparent in several U.S. Security Council resolutions requiring countries to exercise greater authority over transshipment and to prevent proliferation-rated transfers. As you noted 

in 2004, U.N. Security Council Resolution 1540 established binding 

obligations to take and enforce effective measures against the proliferation of WMD, their means of delivery, and related materials, 

including controlling the transshipment of WMD-related items. Additionally, the U.N. has adopted several resolutions on North Korea’s and Iran’s nuclear and missile programs that call upon countries to stop proliferation-related transactions. These resolutions 

identified states’ authorities to search, seize, and dispose of items 

destined for proscribed programs. The most recently adopted resolution on Iran, U.N. Security Council Resolution 1929, further expanded these authorities. 

In building international support, State also works directly with 

other countries to detect and halt specific proliferation-related 

transactions. We alert these countries to a potentially proliferant 

transaction and request that they investigate and take necessary 

measures to stop any proliferation. These interdiction efforts are 

greatly facilitated by the Proliferation Security Initiative, the PSI, 

a global effort to stop the trafficking of WMD. Many key transshipment centers, including the UAE and Singapore, are partners 

in the PSI. 

The department also meets regularly with various countries bilaterally to discuss proliferant procurement, export and transshipment control, the implementation and enforcement of proliferation-related U.N. Security Council resolutions, proliferation finance, and other relevant issues. These dialogues have proven to 

be an effective way to improve overall cooperation. 

We also work to ensure that the multilateral export control regimes address the risk of diversion during transshipment. Both the 

missile technology control regime and the Australia Group, which 

controls chemical and biological items, have taken steps in this 

area. And we are continuing to improve the regulation and enforcement of transshipment controls by key countries via the export conVerDate 0ct 09 2002 07:55 Nov 19, 2010 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 F:\WORK\TNT\072210\57609 HFA PsN: SHIRL
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trol and related border security assistance program, EXBS, the premiere U.S. Government initiative in this regard. 

During the past 24 months, EXBS has delivered 98 bilateral 

trainings to 37 countries on transit and transshipment related topics. EXBS convenes a global transshipment conference every year, 

providing a forum for supplier countries and transshipment hubs 

to collectively discuss challenges and solutions. EXBS succeeds by 

assisting foreign governments to establish and implement effective 

export control systems that meet international standards. 

In conclusion, the department is employing a number of tools to 

help counter the challenge posed by diversion of sensitive items in 

transshipment, and I look forward to discussing these issues with 

the subcommittee. Thank you. 

[The prepared statement of Mr. Van Diepen follows:]

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Mr. SHERMAN. Mr. Klein, if you want to go first? 

Mr. KLEIN. No. 

Mr. SHERMAN. Done? Okay. Mr. Manzullo. 

Mr. MANZULLO. Thank you, Mr. Chairman. The current U.S. export policies are negatively impacting our high technology industrial base, as I mentioned in my opening statement. We have European countries that are advertising that they are ITAR-free. The 

United States is becoming known as an unreliable supplier. We 

worked last year with Mr. Sherman and Mr. Crawley and Mr. 

Blumenauer 2 years ago on changing section 17(c) of the Export 

Administration Act that has resulted in billions of dollars more of 

aircraft parts that are being exported. 

But one in four people in the majority of the district that I represent are directly involved in manufacturing. Rockford, Illinois 

used to be known as the machine tool center of the world. And I 

am very concerned that this country has lost its cutting edge in 

machine tool technology. Now, I know today’s topic is transshipment, and I don’t think we have too many examples of transshipments of machine tools. They just copy them, and so that takes 

care of that. 

But my question to both of you in the broadest sense is how do 

we strike that balance on national security, and at the same time 

try to encourage exports of many machine tools that have been 

commoditized around the world and as to which we have archaic 

rules, such as if it is over four access in some cases, you need a 

license, and some countries you can’t ship to at all. It is an open 

question. 

Mr. WOLF. No. Thank you. It is a good question. First, as a general principle, I don’t view export controls as a balancing of national security against economic interests. They are national security controls. And then it comes to the issue of how you define what 

national security is. And if you don’t have a healthy industrial 

base, and if you have export rules that motivate companies to offshore their work, or if you have rules that are so complex that no 

one understands, you are harming your national security and your 

economic base. And so as very well laid out by Secretary Gates and 

then later by General Jones, the reform plan clearly takes those 

issues into account with this, as generally described, as earlier described, a smaller yard with a higher fence, so that we can review 

the lists of things that are controlled now so that we can put more 

resources and more emphasis on the things that really matter 

without harming the industrial base. 

So the points that you have made are already being contemplated and considered. I mean, it is a general answer to a general question. I would be happy to go into more detail on this or 

transshipment-specific topics, as you like. 

Mr. VAN DIEPEN. The only thing I would add to what Kevin has 

said is that one of the things that we do at State to try and ameliorate this problem is to promote multilateral implementation of export controls. To the extent to which export controls are not unilateral, not only are they more effective, but it helps the commercial 

playing field, so to speak. And so the work that we have done to 

expand the membership of the international nonproliferation regimes to promote countries who are not members unilaterally apVerDate 0ct 09 2002 07:55 Nov 19, 2010 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 F:\WORK\TNT\072210\57609 HFA PsN: SHIRL
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plying the same standards, the requirements of U.N. Security 

Council Resolution 1540 for all countries to have proliferation-related export controls, is another way in addition to the internal 

business of export control reform of trying to address some of the 

concerns that you have mentioned. 

Mr. MANZULLO. The reason I mention that is we have a unique 

situation in Rockford, Illinois. When Ingersoll Machine Tool, the 

giant company, went into bankruptcy, it got split into four parts. 

One part, just prior to the bankruptcy, was sold—the tool cutting 

division was sold to an Israeli company. I am sorry. The cutting 

tool division was sold to an Israeli company. The machine tool division was sold to an Italian company. And the production line was 

sold to a Chinese company that is wholly owned by the Chinese 

Government, Dalian. And that is the Ingersoll production line. And 

we have a unique situation where if they actually wanted to manufacture high end machines, they may not be able to ship those machines to China, even though the Chinese Government owns that 

American company. 

And yesterday, we had a tariff act, a tariff relief act, where we 

charged tariffs to manufacturers on items that are not even available domestically. And the reason I raise that is that appears to 

be no focus on this country—and I am not being critical—no focus 

as to the impact on manufacturing of all the various agencies that 

are involved, except to the extent that we have lost this huge market share around the world on it. And I know we have talked to 

both of you, and I know of your sensitivities and your desire to 

make sure that you do everything possible to maintain our industrial capacity. 

But I am just really, really concerned. And as much as I admire 

my friend Mr. Royce, we do have some differences on the extent to 

which these controls have actually hurt us. But I just wanted to 

raise that as a point of thought, and I appreciate your comments 

on it. And thank you for coming today. 

Mr. SHERMAN. Thank you. I would just comment that on those 

occasions when we do not allow an export, not only are we not 

helping build the industrial base of the United States, we are helping build the industrial base in whatever country that does get the 

order. With that, I would like to recognize the gentleman from 

Florida for 5 minutes. 

Mr. KLEIN. Thank you, Mr. Chairman. And, gentleman, thank 

you for being here today and giving us your insight on this. Obviously, there is a balance of interests, as has been mentioned by Mr. 

Manzullo and the chairman. We have an interest in our industrial 

base and creating jobs in the United States. We also have an interest in our national security and the nonproliferation, and the proliferation security initiative, which obviously has good goals. 

What I would like to focus on for a second is the recognition—

I think it has already been said, but just to reiterate this—that 

when other countries are not participating, and there is a free flow 

of these goods or these components or products, obviously as a 

world interest in national security, we are not getting to the endpoint or the end goal. 

Specifically, China. China is not a signatory, correct, to the proliferation security initiative? 

32

Mr. VAN DIEPEN. Correct. 

Mr. KLEIN. They are not. Okay. Very large economy, very industrious at this point, and very much pushing itself out into all parts 

of the world. The significance of China not being a participant of 

this initiative, what does it mean, in your opinion, to the effectiveness of this international effort to control these components? And 

what are we doing about it as the United States reacting to this 

or using our efforts to reach out to them or get other countries to 

reach out to them engage them in this? 

Mr. VAN DIEPEN. Right. I think that the presence or absence of 

their subscription to PSI, I think, is less significant than the extent 

to which China is effectively preventing proliferation-related transfers from coming out of its economy in its territory. I mean, if 

things were under a good control, but they weren’t a member of 

PSI, I am not sure that would be a particularly problematic situation. Likewise, if they were a member of PSI, but we saw the continued levels of activity that we are seeing coming out from Chinese entities, that would still be quite problematic. 

Really, what we have been trying to do over a number of administrations over more than 20 years is to try and persuade the Chinese to put on and more effectively enforce controls on Chinese entities to keep them from getting involved in proliferation-related activity. We have done a good job over the years, I think, in getting 

them committed to the right standards. They are now members of 

the right treaty regimes. They support Security Council resolutions 

like U.N. 1540, which could not have passed without China’s vote, 

that set the right standards. They have on paper a pretty good set 

of domestic export controls. But our most persistent problem over 

these past 20 years has been the fact that individual Chinese entities continue to engage in proliferation-related activity, and that is 

despite repeated imposition of U.S. sanctions against those entities 

under a variety of different laws and authorities, despite repeatedly 

bringing this up diplomatically with the Chinese. So this is a——

Mr. KLEIN. So as to your assessment of where we are at today 

versus 5 years ago? 

Mr. VAN DIEPEN. Is that we are—things are a lot better in terms 

of some of the details of what is being shipped. And we can get into 

some of that in a classified setting. But overall, there is still much 

too much proliferation-related activity going on from Chinese entities, and it is our continuing challenge to try and push that into 

a better direction. 

Mr. KLEIN. Mr. Wolf, any different opinion? 

Mr. WOLF. No. I agree. 

Mr. KLEIN. I mean, I think, Mr. Chairman, as we all know, this 

is obviously a huge issue because to the extent we are preventing 

our companies in the United States from producing—and we understand the importance of doing it. We are doing the right thing in 

the United States. But if we are punishing, you know, American 

companies and other companies from producing things, and we 

don’t have the real controls, and other companies are supplying 

components of WMDs to terrorist organizations or whatever, it is 

a very—the outcome is no different. And that is a big problem. So 

I think there really does have to be—and I appreciate the effort. 

And I am in agreement with you. Once you signed a piece of paper, 

33

if you are not following it through, it doesn’t really matter. We may 

have the worst case scenario, where they haven’t signed it, and 

they are not really putting the necessary controls in place. 

We want to do whatever we can to get the necessary controls and 

get other countries that engage in commerce with China to make 

this a high priority issue, that this is a matter of international national security, not just the United States. This isn’t just our game. 

This is everybody’s game in terms of making sure that these products don’t get into the hands of the wrong people for development. 

Thank you, Mr. Chairman. 

Mr. SHERMAN. Thank you. Members are reminded that immediately after this open hearing, we will go into a classified hearing 

in another room, and hear the real answers to all these questions. 

With that, Mr. Royce. 

Mr. ROYCE. Thank you, Mr. Chairman. Let me ask Deputy Assistant Secretary Van Diepen a question. The Obama administration hasn’t imposed sanctions on any Iranian trading partner. It 

was clear to me, I think, and to others involved in the sanctions 

legislation on the conference committee that the administration 

really doesn’t want to sanction foreign companies. The new sanctions law is full of waivers, unfortunately. So I was going to ask 

you, what is going to be different now. Will there be a willingness 

to sanction, and what role will your office play in making decisions 

on bringing sanctions? 

Mr. VAN DIEPEN. Well, Mr. Ranking Member, first of all, I am 

not quite sure what was meant by Iranian trading partners, but 

during the time of this administration entities who have engaged 

in various proliferation-related activities with Iran have been sanctioned. In fact, we just recently sanctioned——

Mr. SHERMAN. If I can interrupt the witness, the gentleman from 

California was referring to the Iran Sanctions Act, and those companies who invest in the Iranian oil sector. 

Mr. VAN DIEPEN. Thank you. I appreciate that clarification. Now 

in terms of the new sanctions legislation, the portion of it that is 

really directly relevant to the work of the Nonproliferation Bureau, 

is Title 3, dealing with potential countries of diversion concern. 

And, you know, we will be part of the State Department’s part of 

dealing with the consequences that will flow from the report that 

the DNI is supposed to be doing under that legislation that talks 

about potential such countries. So, you know, this will become part 

of the normal policy implementation process. 

Mr. ROYCE. Let me ask you another question. China has a long 

history of proliferation. I spoke in my opening statement about 

some of that past activity, especially providing those critical components to Pakistan’s capability originally, A.Q. Khan’s network and 

their ability to bring an atomic weapon online. China now appears 

determined to sell Pakistan two nuclear reactors, and that is certainly against the norms of the Nuclear Suppliers Group. What is 

the administration’s position on the sale by China to Pakistan of 

these reactors? 

Mr. VAN DIEPEN. Based on the facts that we are aware of, it 

would appear to us that that sale would not be able to occur consistent with NSG rules unless the NSG were to give it a specific 

exemption, which, of course, China does not currently have for 

34

that. So if they were to proceed with that sale without such an exemption, it would be contrary to NSG guidelines. 

Mr. ROYCE. I would ask you—well, then what will our position 

be at the—we have input. Will you advance the position in opposition? 

Mr. VAN DIEPEN. Yes, sir. I mean, by definition, we don’t support 

any activity that is inconsistent with the guidelines of these various regimes that——

Mr. ROYCE. So you will raise that. 

Mr. VAN DIEPEN. And have, yes. 

Mr. ROYCE. And we will have the ability to block that. 

Mr. VAN DIEPEN. Well, what we can block is giving the exemption, but if China decides to go ahead without the exemption and 

violates the rules, the group per se can’t block the sale. But we can 

certainly make clear our opposition and try and take steps to persuade them to do otherwise. 

Mr. ROYCE. In April, The Wall Street Journal reported that an 

Iranian procurement firm obtained critical valves and vacuum 

gauges made by a French company that until December was owned 

by a U.S. firm. Allegedly, the valves moved through an intermediary representing the Chinese company that was based outside 

of Shanghai. The story reported that an investigator said that Iran 

has made ten attempts to acquire valves used in uranium enrichment, and they did that over the last 2 years. That is the tenacity 

that we are up against. 

What could you tell us about this case? 

Mr. VAN DIEPEN. I am not familiar with the details of that particular case. We would be happy to provide you with more information on that subsequently. 

Mr. ROYCE. Okay. I am going to ask you lastly about authority 

to interdict here. Assistant Secretary Van Diepen, you said in your 

testimony that the most recent U.N. sanctions on Iran single out 

the Islamic Republic of Iran’s shipping lines for cargo inspection 

vigilance when there is reason to believe its business could contribute to proliferation-related activity. What does vigilance actually mean? Do you have authority to interdict with this vigilance? 

The administration sought a more aggressive mandate at the U.N., 

reportedly seeking to blacklist this firm. What action would that 

outcome have allowed for or required, and right now what action 

can be taken, in your opinion? 

Mr. VAN DIEPEN. In terms of what would have been permitted 

prior, I think it is better for us to get that to you definitively in 

writing so I don’t get it wrong. In terms of the current situation 

under the vigilance, I think the key thing it does is it provides 

those countries that are willing or can be persuaded to take action 

a better basis to act. It doesn’t go as far as we would have liked 

because there is no mandatory quality to it. So if there is a country 

that takes what we would regard as the wrong course and chooses 

not to act in that situation, they would not technically be in violation of a U.N. Security Council resolution in doing so. 

But because of the language in the resolution, we would have a 

better basis to pressure that country to try and do the right thing, 

but it would not be required to do the right thing. 

35

Mr. ROYCE. Let me ask you one last question. Reportedly, Microsoft recently provided the source code of some of its biggest products to Russia’s Federal security bureau. Reportedly, similar deals 

have been done with China by Microsoft, who provides the operating system for 90 percent of the world’s computers, including our 

Government’s. As I understand it, source code that is relevant to 

specific products like a missile or night vision goggles is controlled 

under U.S. export control laws. 

However, operating system source code used in commercially 

available computers or servers is generally not controlled. Given 

the increased emphasis on protecting U.S. national security and 

commercial infrastructure from cyber attacks, should such code be 

controlled under U.S. export control laws? Do you think this is a 

valid concern? I would appreciate your opinion, and ask that of Assistant Secretary Wolf. 

Mr. WOLF. Sure. I won’t comment on any particular export or license application here because of statutory prohibitions on public, 

but with respect to the general principle about software and source 

code and operating code, there is a Commerce control list which 

identifies a wide variety of different types of software for the production, development, and use of end items and software that contains different degrees of encryption controls that are controlled for 

export from the U.S. 

You know, we would have to go down into the weeds about what 

the particular issues are of concern, but there are already significant controls in a variety of types of software. And the extent to 

which additional types should be controlled, that is part of the reform and the review effort now. 

Mr. ROYCE. But to finish the point, at the U.S.-PRC’s Strategic 

and Economic Dialogue held this past May in Beijing, the administration reported that both countries would be working to expand 

high tech trade. China has long complained about U.S. export controls and the administration is promoting export control reform. So 

the question is, are plans afoot to relax export controls on China? 

Mr. WOLF. The reform effort is not country-specific. We are not 

attempting to change the China military end-use rule. We are not 

trying to change the prohibitions that are specific to China as part 

of the reform effort. We are not considering issues with respect to 

any particular country. So to the extent that there is reform and 

a license is no longer required for a particular item because its export would no longer present a threat, what would go for China 

would go for any other country in that same group of countries. 

So no, we are not focusing on trying to relax trade or export controls with China per se. 

Mr. ROYCE. Thank you very much, Mr. Wolf. Thank you, Chairman. 

Mr. SHERMAN. I thank the ranking member. And perhaps he 

would want to co-sponsor the bill I will introduce next week to 6 

months after the enactment of such bill in MFN for China. It is 

time to cut the Gordian Knot. Mr. Van Diepen, the ranking member went through a number of specifics. I will go through a number 

of specifics. But is China absolutely confident that everything they 

have done in this area does not put at risk at all their access to 

36

U.S. markets and does not put at risk at all America’s policy of not 

encouraging or helping Taipai move in a nuclear direction? 

Mr. VAN DIEPEN. Well, Mr. Chairman, that sort of requires a degree of insight into the Chinese mind. 

Mr. SHERMAN. Let me put it like this. Are you aware of anything 

the State Department has done that would lead the Chinese to believe that they are at any risk of a change of either of those two 

policies? 

Mr. VAN DIEPEN. Well, I assume related to at least the first one 

is the fact that, you know, we have sanctioned many, many Chinese firms for engaging in——

Mr. SHERMAN. No. I am asking about their access to U.S. markets in general for civilian goods. I am talking about Most Favored 

Nation (MFN) status for each and every one of their consumer 

products. 

Mr. VAN DIEPEN. I guess I would say that is sort of out of my 

lane in the department. 

Mr. SHERMAN. Let me ask something more specific. In late 2009, 

British naval forces intercepted a ship from China near Dubai containing nuclear components intended for the Iranian firm Kalaye 

Electric. The firm was designated by the U.S. and the U.N. as an 

entity involved in Iran’s proliferation-sensitive nuclear activities. In 

April 2010, The Wall Street Journal reported that a firm associated 

with that Iranian firm had acquired special hardware for enriching 

uranium from a French company via a Chinese trading group. And 

I will just use initials for that group, ZOT Corp. 

What are we doing to address Iran’s acquisition of nuclear components from Chinese companies or via transshipments from 

China, Mr. Van Diepen? 

Mr. VAN DIEPEN. Through a whole host of measures, we have 

been trying to work on that problem. Those include direct engagement with the Chinese to try and get them to improve their export 

controls, and more importantly, the implementation and enforcement of those controls; going to them to stop specific transfers 

where we have got releasable intelligence that we can use with the 

Chinese; sanctioning Chinese entities involved in these activities; 

our work in transshipment areas like the UAE——

Mr. SHERMAN. Okay. So we begged China to not sin again, and 

we sanctioned entities. Can you identify the total amount of dollar 

exports that are prevented by our sanctions? Or are we just sanctioning front companies or companies that don’t even export to the 

United States? 

Mr. VAN DIEPEN. There is a mix. In some cases, we are sanctioning——

Mr. SHERMAN. Can you for the record provide a dollar value of 

what those companies were exporting before the sanctions and how 

much that was reduced after the sanctions on those individual companies? Are we talking about millions of dollars here or billions of 

dollars? And does China in any way cooperate with us in preventing front companies or telling us that front companies have 

been created? With the cooperation of a government you can create 

as many front companies as you want. Does China provide any cooperation in the enforcement sanctions against proliferating companies? 

37

Mr. VAN DIEPEN. Yes, but not enough. There have been concrete 

cases where we have gone to the Chinese on specific transactions 

and specific entities, and the Chinese have in fact taken action. But 

there are——

Mr. SHERMAN. No, no, not taken—but, I mean, do they help us 

impose a sanction? Do they say, ‘‘Here are the 19 other names by 

which the sanctioned company goes by—they have asked us to create 19 other company names, and here are the new 19 names.’’? 

Mr. VAN DIEPEN. Not directly. However, they have been doing 

that as part of the U.N. Security Council process that develops lists 

of entities to be subject to designation. 

Mr. SCOTT. They have put their own companies on the U.N. list? 

Mr. VAN DIEPEN. Not that I am aware of. 

Mr. SHERMAN. Okay. Mr. Wolf, in 2007, Mr. Padilla, Assistant 

Secretary of Commerce for Export Administration under the Bush 

administration, gave us testimony before this very subcommittee 

that the Commerce Department had published regulations that 

would expand the entity list to target suspect end users. Two years 

later, in July 2009, Arthur Shulman of the Wisconsin Project, testified before this very subcommittee that his organization had provided Commerce’s Bureau of Industry and Security with concrete 

proposals for updating the entity list, but that none of the proposals had been implemented. He further argued that the list remained unclear, and that it was not a useful tool for exporters. 

What is the status of revisions to the entities list? 

Mr. WOLF. Thank you for the question. I disagree that it is not 

a useful tool. It has, since we have expanded the scope of the entity 

list in 2007, become a critical tool in focusing on the end use and 

end user based aspects of export controls. As we move away from 

controls that can’t really be accomplished through country-specific 

sanctions, the key is to focus on those entities, those people, for 

which we have reason to believe—and it is a very open standard—

have been involved in activities that we don’t like, proliferation-related activities, for example. 

Mr. SHERMAN. You are aware of the Wisconsin Project’s helpful 

suggestions to your department? 

Mr. WOLF. I am. And if they or you or anyone else has suggestions about additional information about also-known-ases or doingbusiness-ases for any particular companies that we have listed, 

send it to me, and we will review it. There is an agency-driven 

process. 

Mr. SHERMAN. And did you respond or has your bureau responded to the suggestions they made in July 2009, which I realize 

was before your time. 

Mr. WOLF. It was before my time. I will have to check into that. 

Mr. SHERMAN. I would like and hope that you would check that. 

Until recently, the Commerce Department had only one individual 

stationed in the UAE to carry out end user verifications. These 

verifications are obviously critical in our efforts to uncover illicit 

transshipments. Has the U.S. placed additional resources in the 

UAE to conduct end user unifications and investigate illicit export 

schemes? How many people have you got on the ground in the 

UAE? 

38

Mr. WOLF. There is one person full time who has an export compliance officer. You are correct. But the work of that export compliance officer is augmented from time to time by direct visits from 

other agents and from foreign commercial service officers. So yes, 

there is one employee. 

Mr. SHERMAN. So we have got one guy, and if somebody from the 

State Department happens to have some extra time, is looking for 

more work to do to help the U.S. Government, they are allowed to 

chip in? 

Mr. WOLF. Well, I wouldn’t view it quite that way. To the extent 

that there is an opportunity to send agents or other officials to the 

UAE to participate in end user checks, that is done. And it is 

not——

Mr. SHERMAN. People are sitting around Commerce and State 

saying, ‘‘I don’t have enough work on my desk. Send me to the 

UAE. I would like to work there for a couple of weeks.’’ Okay. With 

all this help, are we up to 1.1 full time equivalents, or are we still 

at 1.0001 full time equivalents? 

Mr. WOLF. There is one full time——

Mr. SHERMAN. There is one person, okay. Next question. On January 23, 2009, the Commerce Department issued a temporary denial order to prevent the imminent violation of the Export Administration regulations related to the shipment of a U.S. manufactured 

high performance motor boat from South Africa to Iran for use by 

the Iran Revolutionary Guard Corps. The next day, a ship owned 

by the Islamic Republic of Iran Shipping Lines left Durban, South 

Africa with that very boat. Obviously, the denial order failed to 

prevent the export. 

I have a number of questions about this. Why did the system fail 

in this instance, and what is Commerce doing to prevent similar 

occurrences in the future? Did the U.S. contact the South African 

Government seeking to prevent the export of that boat? Why don’t 

you go with those two questions. I will come up with some others. 

Mr. WOLF. Sure. That also was in fact before my time. What I 

know about it generally, though, is that there has been significant 

amount of follow-up with respect to sanctioning particular entities 

that were involved in that transaction. And I know from my past 

life and my current life that the imposition of a sanction against 

a company is significant. Being identified as an entity effectively 

works as a blacklist in that companies in the U.S. and others actually outside the U.S. don’t want to do business with listed companies, and we know that that has an impact because companies do 

come back to us and ask for relief under that. So I will just leave 

it at that. 

Mr. SHERMAN. I have gone over time, with the indulgence of the 

vice chair of the committee, who is now recognized. Let me do a 

second round. 

Mr. SCOTT. All right. Thank you, Mr. Chairman. First, let me get 

your assessment and opinions of the A.Q. Khan procurement network. What is your assessment of it now? How is it? How dangerous is it? Where is it operating? And what do we have to fear 

from it? 

Mr. VAN DIEPEN. The network, as far as we understand, is basically defunct. Because of the efforts taken in a number of countries 

39

against the constituent parts of that network, we think that network is basically defunct. I think the relevance of the A.Q. Khan 

network now is that it shows that there can be such a thing as a 

non-state procurement network, and so we are on the lookout for 

sort of the next A.Q. Khan network, so to speak. And, of course, 

we have done a lot of work in a number of the countries where the 

network was able to operate more freely because there were not export controls in place. And so as the chairman noted in his opening 

statement, for example, the UAE and Malaysia are places that we 

focused on to get them to put in place export control legislation 

that had it been in place would have made illegal what the network was doing, and hopefully will help prevent either a resuscitation of the network or the creation of a new network. 

Mr. SCOTT. Is that your opinion, too, Mr. Wolf? 

Mr. WOLF. Yes. 

Mr. SCOTT. Are there any remnants of it? Is there any indication 

that—you said it has been disbanded. I think that is what you said, 

or words similar to that. But there is no evidence of it operating 

anywhere? There is no remnants of it? There is no shoot-off organization of it? 

Mr. VAN DIEPEN. I think to go beyond the we assess it is defunct, 

we need to get into a classified——

Mr. SCOTT. All right. We don’t want to do that. We will wait for 

the classified point. Now, continuing with that in terms of the 

UAE, what is the status of the implementation of the UAE export 

control law now? They have gone through a process of putting it 

in and an implementation, setting up a committee. What is your 

assessment of that now? 

Mr. VAN DIEPEN. As we understand it, they are continuing to 

staff up the implementation office that would oversee implementation of the law. Now, it is not the enforcement arm. That already 

exists. It is being enforced by the existing customs and law enforcement services, intelligence services, so on and so forth. But the people who would oversee the implementation of the law, that office 

is still being staffed up. Our understanding is that implementing 

regulations have been drafted, but they have not yet been approved 

by the senior levels of the UAE Government that are required to 

do that. 

In addition, the Federal level has been reaching out to the authorities and the various constituent entities of the UAE, the various sheikdoms that constitute the UAE, to help them get up to 

speed because a lot of the actual on-the-ground implementation will 

actually be done at that level rather than at the Federal level. 

Mr. SCOTT. And how are we, meaning the United States, involved in its implementation and oversight? 

Mr. VAN DIEPEN. Our export control and related border security 

program is providing a lot of training to the UAE, again both at 

the Federal level and in some of the key sheikdoms. We assisted 

them in the drafting of the legislation. We have given them advice 

on the implementing regulation. We also have a continuous engagement at the export control policy level. We once or twice a year 

have interagency consultations between the two countries that specifically deal with these export control implementation issues and 

nonproliferation issues. And so there is a lot of both assistance and 

40

follow-up. And, of course, over all of this, we are watching what is 

going on through intelligence and other means to, you know, get 

a sense of is the problem moving in the right direction. 

Mr. SCOTT. Very good. The UAE has been under some degree of 

security and scrutiny as an alleged transshipment point for military and dual-use exports, particularly to Iran, as a hub of operations for weapons proliferaters. What is your assessment now of 

the current situation in the UAE? And are these laws effective? 

Mr. VAN DIEPEN. First of all, it is very clear to us that the UAE 

Government, at the highest levels and also broadly throughout 

their interagency, you know, has internalized and understands the 

importance of nonproliferation and of dealing with the proliferation 

problems through effective action. And the UAE has taken a lot of 

very important steps, not just passing legislation, but in terms of 

stopping specific shipments, shutting down companies, dealing with 

specific individuals. A lot of concrete, real-world activities have 

been engaged in by the UAE to really do things in the real world 

that matter. 

I mean, obviously, it is very important that they have a good export control system in effect. But what really matters is the extent 

to which bad things are affected, and they are taking important, 

concrete steps that in a very tangible way are having an impact on 

the problem. And again, we can go into some of the details on that 

later. 

Mr. SCOTT. Okay. Very good. Finally, if I may, Mr. Chairman, as 

you know, I am very much involved with making sure we maintain 

excellent relationships with all of our allies, and we have all of our 

allies who are very important. But certainly strategically Turkey is 

extraordinarily important. Our friendship and our partnership is 

long. But I do want to get your analysis of something relative to 

this, particularly as recently we have seen Turkey—or some elements of it seem to be waltzing closer and closer into the orbit of 

Iran on some issues. But let me just ask you to comment on this, 

if you are aware of this. 

Earlier this year, the Institute for Science and International Security issues a report detailing evidence and allegations against a 

former Iranian diplomat who sought to smuggle U.S.-made military 

equipment to Iran. Are you familiar with that? 

Mr. VAN DIEPEN. Not that specific case. 

Mr. SCOTT. All right. Well, according to this report, Istanbul was 

originally chosen as the transshipment point for the equipment 

from the United States. But in January 2006, one of the Iranian 

agents allegedly involved in this scheme cited potential difficulties 

posed by the Turkish Government as a reason to change the transshipment location. Now the reason analysis of this is so important 

is because I think it indicates that Turkey is not a destination of 

diversion concern, if this is the case, and that robust enforcement 

by Turkey has deterred any would-be weapons smugglers. 

Would you say that is an adequate statement? I mean, if you are 

not familiar with the case just from my mentioning it——

Mr. VAN DIEPEN. Well, again, I am not able to comment on the 

specific case, but more broadly, I mean, Turkey is a country that 

is a member of all the multilateral nonproliferation regimes. It has 

worked with us on specific proliferation-related cases. But no counVerDate 0ct 09 2002 07:55 Nov 19, 2010 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 F:\WORK\TNT\072210\57609 HFA PsN: SHIRL
41

try, including the United States, is in a position to say that, you 

know, we have definitively stopped all bad activities from going on. 

And given the fact that Turkey shares a border with Iran, it is certainly a place where, as you noted in your example, Iranians might 

consider trying it. But Turkey is also a place that, you know, has 

in place and tries to enforce the right kinds of controls and works 

cooperatively with us to try and thwart those efforts. But it is difficult to keep yourself entirely from being abused by proliferaters, 

but they are certainly taking a lot of the right steps. 

Mr. SCOTT. Good. So I want to get on the record. This is a good 

report and a good sign from the standpoint of Turkey is concerned. 

I think that what you are saying is that this example works to support the fact that Turkey is very strongly working to make sure 

that this kind of activity does not happen in that region. But I am 

little bit concerned about some of the other countries in the Black 

Sea and the Central Asian region, which may pose diversion concerns. Are there any? Is that region fairly safe? Particularly as 

countries such as the UAE and Malaysia tighten their export control regimes. 

In other words, if you tighten something here, and it opens up 

something here, what we want to make sure of is that if we tighten 

here, that this stays tight, too. 

Mr. VAN DIEPEN. No. And we are very concerned about that as 

well. And in fact, if you look at the past history of this, even the 

UAE didn’t come up—wasn’t originally a big place for this sort of 

thing. But business tended to gravitate there because other places 

got restricted, and so we fully expect that as the UAE starts to 

crack down, proliferaters will go elsewhere. 

Now, in terms of Central Asia, really that was one of the earliest 

places that we started operating in our export control assistance 

activities because we recognized with the breakup of the Soviet 

Union there was going to be a loss of centralized control. And given 

the geographic proximity of those countries to places like Iran and 

other interesting destinations, you know, early on we sought to try 

and head that phenomenon off. And so we have been very actively 

involved in all of those key countries, helping them put laws in 

place, given them enforcement equipment and training, X-ray machines, nuclear radiation detectors, that sort of thing. And so there 

is a fairly substantial effort in place to try and keep that from becoming the next place that folks again. 

But again, given that there is a geographic proximity, given that 

that is a region where smuggling of all types has been endemic for 

centuries, there will always be a potential threat there. But we 

have been doing a lot in cooperation with those governments to try 

and make sure that we have got as good a handle as we can get. 

Mr. SCOTT. Very good. Well, thank you very much. I appreciate 

it, Mr. Chairman. 

Mr. SHERMAN. I am going squeeze in a couple of questions, and 

then we will go to the classified briefing. Continuing with our discussion of the speedboat, the IRISL, the shipping line, has been 

sanctioned by the United States for its support of Iran’s proliferation efforts. Why have no sanctions been issued against any of that 

entity’s front companies, and why have no front companies been 

identified by the State Department? 

42

Mr. VAN DIEPEN. I think I will have to——

Mr. SHERMAN. Did I say State? Excuse me, by the Commerce Department. 

Mr. WOLF. Right. Well, there is the entity list that I was referring to earlier, where many of the companies that are associated 

with that network that you were just describing either are in the 

process of being listed, which would result in the prohibition on exports of items subject to the EAR to those entities. So——

Mr. SHERMAN. Let me get this—okay. In January 2003, this incident occurred. 

Mr. WOLF. Right. 

Mr. SHERMAN. As it happened, a front company was used in that 

instance, and here we are, 11⁄2 years later, and you are in the process of listing your first front company for the shipping line. 

Mr. WOLF. No, no. Some entities already have been listed. I can 

send you the information on——

Mr. SHERMAN. So you have issued sanctions against front companies, and you have identified front companies, of the Islamic Republic of Iran Shipping Lines. 

Mr. WOLF. With respect to—I believe so. I will confirm, but I believe so. 

Mr. SHERMAN. Okay. 

Mr. WOLF. And to the extent that we get new information on 

names and addresses that are the same entity, we will——

Mr. SHERMAN. Well, one would expect that the first thing you 

would do is look at the ship that left Durban, see who it is registered to, and say, well, if we have said that that ship was carrying a speedboat, a power boat, to the Revolutionary Guard, then 

whoever owns that ship needs to be listed on the list or as a front 

company on the list. 

In March 2008, the Bureau of Industry and Security issued a 

temporary denial order against Iran Mahan Air and several additional entities after it was discovered that three Boeing aircraft 

had been exported to Iran by use of Mahan Air, and an additional 

three aircraft were in the process of being exported. Despite the denial order, Mahan Air has continued to seek and acquire aircraft 

with substantial U.S. components to add to its fleet. And, of course, 

these planes can be used for military and transport purposes. 

Likewise, Air Iran has acquired several aircraft that required a 

U.S. export license. What steps is the Commerce Department taking to crack down on illicit acquisition of U.S. aircraft and aircraft 

with substantial U.S. components by Iran and by Mahan Air? 

Mr. WOLF. Well, through the aggregation of information gathered 

during the licensing process, enforcement activities, intel, tips from 

private sector companies, we listed and continue to list the companies that you are referring to as denied entities. And, you know, 

it is part of the regular listing and the review of the process activity of those companies that are involved in exports and re-exports 

to Iran. 

Mr. SHERMAN. So has anyone been sanctioned as a result of the 

fact that Iran has gotten both U.S.-made planes and planes with 

substantial U.S. components? 

Mr. WOLF. The reason I am hesitating a little bit is because 

these are topics probably better left for the closed session. 

43

Mr. SHERMAN. Okay. I hope that during the closed session you 

will be able to show me that companies with substantial U.S. business interest have suffered a significant penalty for this. But I 

would comment that Congress is also at fault here. We have allowed the export to Iran of airport parts or airplane parts. I realize 

it is a safety issue for the planes that Iran acquired many decades 

ago, and our proper response is to tell Iran ground your planes 

until you ground your nuclear program. Instead, Congress is allowing those Boeing parts to go to Iran, showing that we screwed up, 

too. 

So we now have votes, I believe, and then immediately after 

those votes, we will—wait, do we have votes? We do not have 

votes? Okay. Then we will move to the classified session, and then 

we will be interrupted by votes. 

[Whereupon, at 11:35 a.m., the subcommittee was adjourned.] 

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