EXPORT CONTROLS

U.S. Agencies Need to 

Assess Control List 

Reform’s Impact on 

Compliance Activities

Report to Congressional Requesters

April 2012

GAO-12-613

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-613, a report to 

congressional requesters

April 2012

EXPORT CONTROLS

U.S. Agencies Need to Assess Control List Reform’s 

Impact on Compliance Activities

Why GAO Did This Study

To protect its national security and 

commercial interests, the United States 

has implemented an export control 

system to limit sensitive technologies 

from falling into the wrong hands. The 

Department of State regulates U.S. 

defense exports and the Department of 

Commerce regulates dual-use exports 

that have commercial and military 

applications. Each agency uses a 

separate control list of items that may

require a license to export. Agencies 

use compliance activities to prevent 

the diversion or misuse of exported 

items against U.S. interests or allies. 

Misuse can occur through illicit 

transshipment, the diversion of items 

from their origin through an 

intermediary country to an 

unauthorized destination. In 2010, the 

President announced reforms to the

export control system.

This review examines (1) agencies’ 

compliance activities to address 

transshipment risk and (2) the extent to 

which U.S. agencies assessed the 

impact of export control reforms on the 

resource needs for compliance 

activities. GAO analyzed U.S. licensing 

data for 13 transshipment countries 

and visited Hong Kong, Singapore, and 

the United Arab Emirates.

What GAO Recommends

GAO recommends that Commerce and 

State should assess the potential 

impact of control list reforms on the 

resource needs of their compliance 

activities. Commerce and State 

concurred with GAO’s 

recommendation.

What GAO Found

U.S. agencies engaged in export controls use various compliance activities to 

prevent the diversion or misuse of exported items against U.S. interests or allies 

and reduce illicit transshipment risk. Compliance activities include (1) vetting 

transactions prior to export, (2) analyzing shipping data and monitoring the end

use of items, and (3) educating companies and foreign governments about illicit 

transshipment risks. To vet transactions, agencies review license applications for 

the export of controlled items, consult multiple lists of entities known or 

suspected of violating export control laws or regulations, and screen foreign end 

users to determine their eligibility to receive items without a license. Agencies 

also review shipping records to identify patterns of abuse and to plan end-use 

checks—visiting foreign companies to verify the approved use and location of 

exported items on both licensed items and those eligible for export without a 

license. From 2008 to 2010, Commerce conducted 56 percent of its end-use 

checks on unlicensed exports. In the 13 transshipment countries, unlicensed 

exports accounted for about 94 percent of unfavorable end-use check 

determinations, which indicates that the end use or end user of an export were 

not appropriate. For example, some unlicensed items transshipped illicitly to Iran 

through Hong Kong were used to build improvised explosive devices used 

against Coalition troops in Iraq. When an unfavorable determination is made, the 

Department of Commerce (Commerce) or Department of State (State) may take 

further action, such as denying a license or referring involved entities to 

enforcement agencies for investigation and possible penalties. To educate U.S. 

companies and foreign governments about illicit transshipment risks, Commerce 

and State review the internal controls of companies’ compliance programs; 

conduct outreach to U.S. companies to inform exporters of their responsibilities 

to comply with export control laws and regulations; and provide training to foreign 

governments. 

Agencies have not fully assessed the potential impact that control list reforms 

may pose for the resource needs of their compliance activities. Agencies 

estimate that Commerce will receive between 16,000 and 30,000 additional 

license applications as a result of proposed reforms to move less sensitive items 

from State to Commerce. Agency documents state that this step would allow 

them to focus resources on items most critical to national security and may make 

compliance easier for exporters because Commerce imposes fewer 

requirements than State’s controls. However, Commerce has not assessed the 

impact this added responsibility would have on its end-use check resource 

needs. Also, under the reforms, fewer items may require export licenses, thereby 

reducing uncertainty as to whether export sales will be approved. Some agency 

officials suggested potential risks, such as an increased need for more end-use 

checks and the loss of information from reviewing exports through the licensing 

process prior to export. The agencies have not yet assessed the impact of these 

potential risks on their resource needs.

View GAO-12-613. For more information, 

contact Thomas Melito at (202) 512-9601 or 

melitot@gao.gov.
Page i GAO-12-613 Export Controls

Letter 1 

Background 4

Compliance Activities Address Illicit Transshipment Risk in Three 

Areas 8

Agencies Have Not Fully Assessed Potential Impact of Control List 

Reforms on Resource Needs for Compliance Activities 21

Conclusions 28

Recommendations for Executive Action 29

Agency Comments and Our Evaluation 29

Appendix I Scope and Methodology 31

Appendix II Descriptions of Compliance Activities 34

Appendix III License Application Review 35

Appendix IV List Maintenance 36

Appendix V End-Use Monitoring 37

Appendix VI Comments from the Department of Commerce 41

Appendix VII Comments from the Department of State 45

Appendix VIII GAO Contact and Staff Acknowledgments 47

Related GAO Products 48

Contents
Page ii GAO-12-613 Export Controls

Tables

Table 1: Categories and Lists of Entities of Concern 10

Table 2: Descriptions of Compliance Activities 34

Table 3: Number of License Applications for Commerce and State 

for 13 Transshipment Countries, Fiscal Years 2008–2010 35

Table 4: Commerce and State End-Use Checks, Fiscal Years 2008–

201038

Figures

Figure 1: Total Commerce PSVs Conducted on Exports Shipped 

Without Prior U.S. Government Review Worldwide and in 

13 Transshipment Countries, Fiscal Years 2008–2010 17

Figure 2: Unfavorable PSVs for Transshipment Countries, Fiscal 

Years 2008-2010 18

Figure 3: Numbers of Parties on State and Commerce Watch List by 

Transshipment Country for 2011 37

Figure 4: Commerce’s End-Use Checks in 13 Transshipment 

Countries, Fiscal Years 2008–2010 39

Figure 5: State’s Blue Lantern End-Use Checks in 13 Transshipment 

Countries, Fiscal Years 2008–2010 40
Page iii GAO-12-613 Export Controls

Abbreviations

BIS Bureau of Industry and Security

CCL Commerce Control List

DDTC Directorate of Defense Trade Controls

DOD Department of Defense

EAR Export Administration Regulations

ECO Export Control Officer

EXBS Export Controls and Border Security

OFAC Office of Foreign Assets Control

PSV post-shipment verification

SDN Specially Designated Nationals

STA Strategic Trade Authorization

UAE United Arab Emirates

USML U.S. Munitions List

VEU Validated End-User 

WMD weapons of mass destruction

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Page 1 GAO-12-613 Export Controls

United States Government Accountability Office

Washington, DC 20548

April 23, 2012

The Honorable Susan M. Collins

Ranking Member

Committee on Homeland Security 

and Governmental Affairs

United States Senate

The Honorable Jon Kyl

Ranking Member

Subcommittee on Crime and Terrorism

Committee on the Judiciary

United States Senate

To further its national security and economic interests, the United States 

controls the export of sensitive defense and dual-use items (having both 

commercial and military applications) to foreign governments and 

commercial entities. Such items can range from sophisticated technology 

designed for military use, such as F-15 aircraft, to unsophisticated and 

commonly available electronic switches that have ultimately been used in 

improvised explosive devices by terrorists in Iraq and Afghanistan. The 

U.S. government seeks to limit the risk of sensitive items falling into the 

wrong hands, while allowing legitimate trade to occur and uses the export 

control system to balance these U.S. interests. Multiple federal agencies 

administer the laws, regulations, and processes that make up the 

regulatory compliance and enforcement framework governing the export 

control system. Primarily, the Department of State (State) regulates 

defense exports, and the Department of Commerce (Commerce) 

regulates dual-use exports.1

The U.S. government also conducts activities to encourage compliance 

with its export control laws and to prevent the diversion or misuse of 

Each agency maintains a separate list of 

items to be controlled and exported with a license after government 

review, or without a license under designated exceptions.

 

1

In addition, the Department of Defense (DOD) provides input on which items should be 

controlled by either State or Commerce and conducts technical and national security 

reviews of export license applications submitted by exporters to either State or 

Commerce. 

 
 

Page 2 GAO-12-613 Export Controls

exported items against U.S. interests or allies.2 Compliance activities 

include reviewing export license applications to decide whether to 

approve or deny them, visiting foreign companies to verify the approved 

use and location of exported items—referred to as end-use checks—and 

conducting courses for exporters—called outreach—to inform them of 

their responsibilities to comply with export control laws and regulations. 

Of particular concern to the agencies conducting compliance efforts is 

illicit transshipment of items—the transfer of merchandise from its place 

of origin through an intermediary country—to an unauthorized final 

destination such as Iran.3

Our reports to Congress and testimony at congressional hearings have 

highlighted the need for export control reform. We have called for, among 

other things, a strategic reexamination of existing programs within the 

U.S. export control system to identify needed changes and ensure the 

advancement of U.S. interests. In 2010, the United States announced a 

fundamental reform of its export control system, by proposing, among 

other things, to reduce the numbers and types of items requiring 

government review and licensing before export. Members of Congress 

raised concerns that, absent efforts to first address compliance and 

enforcement shortfalls, reform of the system could exacerbate current 

weaknesses, including the risk of illicit transshipment.

Illicit transshipment challenges compliance 

efforts because it poses a significant risk to the safe transfer of sensitive 

U.S. technologies to authorized end users.

In this review, we (1) examined how U.S. agencies use compliance 

activities to address the risk of illicit transshipment and (2) analyzed the 

extent to which U.S. agencies assessed the impact of the export control 

reform on the resource needs of compliance activities. This is the fourth in 

a series of four reports we have issued on this subject since November 

 

2

“Diversion” refers to the transfer or release, directly or indirectly, of a good, service, or 

technology to an end user or an intermediary that is not an authorized recipient of the 

good, service, or technology.

3

The U.S. government has no agreed-upon definition of transshipment. However, the 

Census Bureau proposed a definition stating that “transshipment” refers to the transfer of 

merchandise from the country or countries of origin through an intermediary country or 

countries to the country of destination. We use that definition for the purposes of this 

report. Transshipment is one type of reexport, according to Commerce, whose regulations 

define reexport as the shipment or transmission of an item subject to the Export 

Administration Regulations from one foreign country to another. According to Commerce, 

diversion can occur through transshipment.
 

Page 3 GAO-12-613 Export Controls

2010. Our first report identified the extent to which agencies’ actions and 

the proposed export control framework addressed findings in our previous 

reports in the areas of export control lists, licensing, enforcement, and 

information technology.4 Our second report, issued on March 14, 2012, 

was a version of this report containing information designated “For Official 

Use Only.” Our third report, issued on March 27, 2012, covered the 

enforcement of U.S. export controls in light of the Export Control Reform 

Initiative.5

To address the two objectives of this review, we analyzed licensing, enduse monitoring, and other data from Commerce, State, and the 

Department of the Treasury (Treasury) for 13 transshipment countries 

and locations.6

 

4

GAO, Export Controls: Agency Actions and Proposed Reform Initiatives May Address 

Previously Identified Weaknesses, but Challenges Remain, 

We also drew a random, nongeneralizable sample of 56 

Commerce end-use checks and 21 State end-use checks to determine 

how results from those activities were incorporated into other compliance 

activities. We identified export control compliance activities that 

Commerce, State, and Treasury conduct to encourage compliance with 

export control laws and to prevent the diversion or misuse of exported 

items against U.S. allies or interests. We identified these compliance 

activities through interviews with agency officials and review of 

documentation. Appendix II lists and describes the eight compliance 

activities that we reviewed. We met with U.S. officials of Commerce, the 

DOD, State, and Treasury, and representatives of companies in 

Washington, D.C., and with U.S. embassy and foreign government 

officials in Hong Kong, Singapore, and the United Arab Emirates (UAE). 

We reviewed documentation on agency actions taken to encourage 

GAO-11-135R (Washington, 

D.C.: Nov. 16, 2010). 

5

GAO, Export Controls: Proposed Reforms Create Opportunities to Address Enforcement 

Challenges, GAO-12-246 (Washington, D.C.: Mar. 27, 2012).

6

For the purpose of this report, we designated as transshipment countries Canada, China, 

Cyprus, Hong Kong (a special administrative region of China), Indonesia, Jordan, 

Malaysia, Malta, Philippines, Singapore, Taiwan, Thailand, and UAE. We generated this 

list of 13 transshipment countries by reviewing prior GAO work on transshipment and 

diversion; congressional testimony; countries with entities on the Entity List or Unverified 

List; input from State and Commerce; lists of the busiest transshipment ports worldwide; 

and those countries where a Commerce Export Control Officer has been stationed. We 

refer to Hong Kong and Taiwan as transshipment “countries” only for the purposes of this 

report. None of the agencies we contacted maintains a comparable list of transshipment 

countries.
 

Page 4 GAO-12-613 Export Controls

compliance actions and interviewed U.S. government officials, including 

representatives of Commerce’s Bureau of Industry and Security (BIS); 

DOD’s Defense Technology Security Administration; State’s Directorate 

of Defense Trade Controls (DDTC); and Treasury’s Office of Foreign 

Assets Control (OFAC). We also spoke with export control reform task 

force members and reviewed recent White House press releases on the 

export reform initiatives. U.S. agencies engage in a variety of activities 

intended to foster compliance with U.S. export control law and 

regulations, and other activities to enforce these laws and exact penalties 

for violating them. We did not review enforcement activities that address 

investigations, civil and criminal penalties, seizures, indictments, 

prosecutions, or convictions as our third report addressed these activities. 

Commerce provided us with transshipment-related information that it 

controls as being “For Official Use Only.” We have not included that 

information in this report but have instead incorporated it into a “For 

Official Use Only” report that is not publicly available. Appendix I 

discusses our scope and methodology in more detail.

We conducted this performance audit from August 2010 to April 2012 in 

accordance with generally accepted government auditing standards. 

These standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

The current U.S. export control system seeks to limit sensitive items from 

falling into the wrong hands and, at the same time, allow legitimate trade 

to occur. The export control system is governed by a complex set of laws, 

regulations, and processes and multiple federal agencies administer its 

regulatory framework and ensure compliance. State and Commerce each 

have a role in U.S. export licensing. Generally, exporters may submit a 

license application to State if their items are controlled on the U.S. 

Munitions List (USML) or to Commerce if their items are controlled on the 

Commerce Control List (CCL) to receive export approval. Exemptions are 

permitted under various circumstances, such as allowing for the export of 

certain items to Canada without a license. Even though many dual-use 

items do not require a license for export to most destinations, they are still 

subject to U.S. export control laws. All items subject to the Export 

Background 

Export Control System
 

Page 5 GAO-12-613 Export Controls

Administration Regulations (EAR), whether or not on the CCL, require 

exporters to comply with the EAR.7 As part of the application review 

process, State and Commerce consult with other agencies, including 

DOD. Exporters require a license for most arms exports. In 2010, 

Commerce processed 21,660 export licenses, and State processed 

82,937 export licenses.8

The imposition of economic sanctions has been a long-standing tool for 

addressing a range of national security threats. As of February 2012, 

OFAC maintains primary responsibility for administering more than 20 

separate sanctions programs. These sanctions programs include (1) 

country-based programs that apply sanctions to an entire country—such 

as Iran, or Sudan; and (2) targeted, list-based programs that address 

individuals or entities engaged in specific types of activities such as 

Additionally, offices within State, Commerce, 

Treasury, and the Departments of Homeland Security and Justice 

conduct compliance activities to identify potential violations or prevent 

them before they occur; they also conduct export control enforcement 

activities to identify and penalize violations after they occur. When 

compliance activities, such as end-use checks, result in unfavorable 

determinations, Commerce or State may take further action, such as 

denying a license or referring involved entities to enforcement agencies 

for investigation and possible penalties. Enforcement also strives to 

prevent or deter the illegal export of defense and dual–use items, such as 

controlled components that were shipped to countries like Iran, which 

were later found in weapons and devices used against U.S. forces in Iraq. 

Export control enforcement activities include inspecting items to be 

exported, investigating potential export control violations, and pursuing 

and imposing criminal and administrative penalties against violators.

 

7

For items controlled by Commerce, exporters are to determine whether a license is 

required or one of the licensing exceptions permissible under the EAR is applicable. 

Commerce may require a license for an export based on a variety of reasons, including 

limiting the proliferation of chemical, biological weapons and the country of destination. A 

license exception, as opposed to a license requirement, is an authorization that allows an 

exporter to export or reexport without a license, under stated conditions, items subject to 

the EAR, which would otherwise require a license. If an item is not listed on the control list 

but is subject to the EAR, it falls into a category known as EAR99. State refers to the 

eligibility of exports of items on the USML without a license under certain conditions as 

exemptions. 

8

This State number represents all arms export license processed by DDTC, which include 

applications for the export of arms and agreements between U.S. industry and foreign 

entities to provide technical assistance or manufacturing capability. 
 

Page 6 GAO-12-613 Export Controls

terrorism, proliferation of weapons of mass destruction (WMD), or 

narcotics trafficking. For example, according to Treasury officials, they 

use the authorities under the International Emergency Economic Powers 

Act and Executive Order 13224 to designate those who provide support 

to terrorists, freezing any assets they have under U.S. jurisdiction and 

preventing U.S. persons from doing business with them.9

In August 2009, the President announced that he was directing a 

comprehensive review of the U.S. export control system. This review 

found that the U.S. export control system has a complicated structure with 

multiple agencies and control lists, which has led to jurisdictional 

confusion and hindered the ability of allies to cooperate with U.S. forces. 

In April 2010, the administration announced a reform framework that 

would create an export control system that is more effective, transparent, 

and predictable by creating a single control list, licensing agency, 

enforcement agency, and information technology system for licensing. 

The administration also found that licensing procedures and conditions 

are not consolidated or uniform across agencies, with various agencies 

monitoring and enforcing export controls.10

Our past work has highlighted the need for export control reform through 

reports to Congress and testimony at congressional hearings. Over the 

last decade, GAO has made a number of key findings and 

recommendations directed to State, Commerce, DOD, Homeland 

Security, Justice, and Treasury, to improve the U.S. export control 

system.

The current process relies on 

separate information systems, some of which are paper-based, which are 

not accessible to all agencies involved.

11

 

9

Under the authority provided by the International Emergency Economic Powers Act (50 

U.S.C. §§1701 et seq.), the President has continued the EAR in effect through Executive 

Order No. 13222 of August 17, 2001 (3 C.F.R., 2001 Comp. p. 738 (2002)), as extended 

most recently by Notice of August 12, 2011, 76 Fed. Reg, 50661. 

Some of the issues we identified include a lack of systematic 

assessments, poor interagency coordination, and inefficiencies in the 

license application process.

10In 2007, GAO designated the programs that identify and protect technologies critical to 

U.S. national security interests as a high-risk area. GAO has maintained its designation. 

See GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007); 

and High Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011). 

11A list of Related GAO Products appears at the end of this report. 

Export Control Reform 

Initiative 
 

Page 7 GAO-12-613 Export Controls

The administration plans to begin implementing export control reforms 

through interim changes that can be carried out by regulation or executive 

order. Reforms requiring legislative action—creation of a single licensing 

agency, control list, and enforcement agency—will come last and had not 

been proposed as of March 2012. As of February 2012, the 

administration has taken steps to implement export control reform 

including proposing regulations to move controlled export items from the 

USML to the CCL, and clarifying which items pertain to each list, and 

establishing an Export Enforcement Coordination Center by executive 

order.12

In July 2010, a senior State official testified that transshipment hubs (i.e., 

countries or areas that function as major hubs for the legitimate trading 

and shipment of cargo) with weak controls on imports, exports, and 

reexports represent an important vulnerability to efforts to prevent illicit 

proliferation-related trade. Our previous work identified cases of illicit 

transshipment involving parties in UAE, Singapore, and Malaysia.13 As 

congressional attention focused on transshipment, members also raised 

concerns about the resources needed for compliance activities, 

domestically and overseas. For example, in the same July 2010 hearing, 

a member expressed concern that only one Commerce individual was 

stationed in the UAE to conduct end-use checks for dual-use exports.14

 

12See Exec. Order No. 13558, 75 Fed. Reg. 69, 573 (Nov. 15, 2010).

According to U.S. officials, Iran has obtained U.S. military and dual-use 

goods that have been illegally transshipped by firms and individuals 

through locations in numerous countries, including the UAE, Malaysia, 

and Singapore. The goods included components for U.S.-built fighter 

aircraft, electronics, and specialized metals. To address the problem, U.S. 

13GAO, Iran Sanctions: Complete and Timely Licensing Data Needed to Strengthen 

Enforcement of Export Restrictions, GAO-10-375 (Washington, D.C.: Mar. 4, 2010).

14End-use checks are conducted to determine the bona fides of the transaction and the 

end user, and to ensure that an exported item is being used in accordance with U.S. 

export control regulations and the terms of the export license. Commerce determines that 

end-use checks had favorable, unfavorable, or limited and nonconclusive results. A check 

is favorable when it can confirm the end use and end user of an export are appropriate. 

An unfavorable determination means that Commerce considers the end user to be 

unreliable. Nonconclusive determinations result when Commerce cannot determine the 

reliability of the end user. For example, if Commerce is unable to conduct a site visit. A 

limited result means that the individual conducting the check provided incomplete 

information or did not follow Commerce guidance in carrying out the check.

Transshipment and 

Diversion
 

Page 8 GAO-12-613 Export Controls

agencies have conducted undercover investigations to detect Iranian 

procurement networks, prosecuted criminal cases against at least 30 

firms and individuals for transshipping or attempting to transship goods to 

Iran, and provided export control training and support to the UAE and 

other countries.

U.S. agencies engaged in export controls use multiple compliance 

activities to reduce illicit transshipment risk. These activities include (1) 

vetting transactions prior to export by screening applications against four 

categories of lists of parties of concern, among other steps, (2) analyzing 

shipping data and monitoring end use of items, and (3) educating 

companies and foreign governments about the risks of illicit 

transshipment, although State’s outreach efforts have been largely 

inactive since 2008.

To address illicit transshipment risks, agencies vet parties to transactions 

prior to export in three ways. First, agencies examine license applications 

to assess the transaction. Second, they vet individual parties to the 

transaction by, for example, confirming their credentials before issuing a 

license (a prelicense check). Third, agencies screen applicants to identify 

trusted end users for the Validated End-User (VEU) program.

When deciding to approve or deny an export license application, 

Commerce and State evaluate it against several factors, including an 

assessment of all parties to the transaction and how the recipient plans to 

use the item. Commerce factors the risk of illicit transshipment into the 

license application review process through a risk assessment tool that 

assigns a weighted score to an application, based on the level of concern 

associated with the listed party, country, product, and exporter. A high 

score may prompt further investigation and an end-use check by 

Commerce or embassy officials. In technical comments on a draft of this 

report, Commerce stated that the risk assessment tool would affect the 

license review process only when Commerce determined that a 

prelicense check would be necessary. In those cases, Commerce 

incorporates transshipment risk in the license application review process 

by dividing countries into three categories of risk, with the third category 

including countries identified as transshipment points. Commerce’s list of 

highest risk countries includes 7 of the 13 transshipment countries in our 

review. For fiscal years 2008 through 2010, Commerce reviewed 63,304 

license applications worldwide, 19,693 (31 percent) of which were for 

exports to the 13 transshipment countries we identified. It approved 84 

Compliance Activities 

Address Illicit 

Transshipment Risk in 

Three Areas

U.S. Agencies Vet 

Transactions Prior to 

Export 

License Application Review 

Vets Transactions Prior to 

Export
 

Page 9 GAO-12-613 Export Controls

percent of license applications for these transshipment countries, denied 

1 percent, and returned 15 percent of the applications to exporters 

without taking action on them.15

State conducts a case-by-case review of export license applications 

against established criteria or “warning flags” for determining potential risk 

of exporting USML items to foreign recipients. As part of the license 

review process, State may conduct a prelicense end-use check to provide 

more information on the transaction before it acts on the license 

application. State’s guidance on conducting end-use checks (known as 

Blue Lantern monitoring) identifies three broad categories that may trigger 

an end-use check, including whether there are indicators for 

transshipment through multiple countries or companies.

Appendix III contains additional 

information on the number of license applications that Commerce and 

State reviewed for the 13 transshipment countries between fiscal years 

2008 and 2010.

16 For fiscal years 

2008 through 2010, State reviewed 164,998 license applications 

worldwide and 28,550 for exports to the 13 transshipment countries (17 

percent of all applications).17 It approved 86 percent of license 

applications for these countries,18 denied 1 percent, returned without 

action 13 percent, and suspended or revoked 1 percent of preexisting 

licenses.19

Treasury does not review licenses for the 13 transshipment countries 

because none of these countries is an embargoed or sanctioned country. 

 

15A licensing agency may return an export license application without action because the 

application lacked needed information or the applicant withdrew the application, among 

other reasons.

16Blue Lantern end-use monitoring entails the prelicense, postlicense, or postshipment 

inquiries or “checks” undertaken to verify the legitimacy of a transaction and to provide 

“reasonable assurance” that the recipient complies with the requirements imposed by the 

U.S. government with respect to use, transfers, and security of defense articles and 

defense services; and that such articles and services are being used for the purposes for 

which they were provided.

17For the purpose of this report, we reviewed licenses for permanent export. State also 

authorizes temporary exports and technical data. 

18Approved license applications include those that were approved with provisos, such as 

those specifying how items can be used and by whom.

19Suspending a license temporarily removes the privilege of exporting, while revoking a 

license annuls it and rescinds the authority to export.
 

Page 10 GAO-12-613 Export Controls

However, it assesses illicit transshipment risk when it licenses goods to 

several destinations, such as Iran and Sudan, in its administration of U.S. 

embargoes and sanctions. According to Treasury officials, OFAC screens 

end users in the license review process against the sanctions lists it 

administers because it assesses the risk of illicit transshipment or of 

reexport when placing individuals on these lists.

Commerce, State, and Treasury each maintain several screening lists 

that inform the licensing process by providing information on entities of 

concern to licensing officers and the public. These lists encompass a 

range of designations including those related to proliferation of WMD, 

terrorism, and actions contrary to U.S. national security and foreign policy 

interests. We reviewed four categories of lists outlined in table 1 below.20

Table 1: Categories and Lists of Entities of Concern

Category List Agency Description

Additional Licensing 

Requirements

Entity List Commerce List of parties that are subject to specific license 

requirements for the export, reexport, and/or in country 

transfer of specified items. Parties on this list are subject to 

licensing requirements. 

Unverified Parties Unverified List Commerce List of persons in foreign countries who were parties to past 

export transactions where prelicense checks or postshipment 

verifications could not be conducted for reasons outside the 

control of the U.S. government.

Prohibited and Sanctioned 

Parties 

Specially Designated 

Nationals List

Treasury List of blocked persons, blocked vessels, specially 

designated nationals, specially designated terrorists, 

specially designated global terrorists, foreign terrorist 

organizations, and specially designated narcotics traffickers 

whose assets are blocked and U.S. persons are generally 

prohibited from dealing with them. 

Nonproliferation 

Sanctions List

State List of parties that have been sanctioned under various 

statutes, designed to combat the proliferation of WMD.

 

20Commerce officials also suggested that the public screen parties against the Denied 

Persons List and the AECA Debarred List. For the purposes of this report, we have 

classified these activities as enforcement rather than compliance activities.

Agencies Screen Applications 

against Four Categories of Lists 

of Parties of Concern 
 

Page 11 GAO-12-613 Export Controls

Category List Agency Description

Internal Watch Lists Watch List – State State List of parties whose association with an export license 

application indicates a need for closer examination by 

licensing officers. 

Watch List – Commerce Commerce List of individuals and companies that Commerce has 

determined warrant increased scrutiny for export licensing 

purposes, including those companies that receive 

unfavorable end-use checks.

Source: GAO analysis of agency documents.

• Entity List: Commerce’s considerations for additions to the Entity List 

include the end use of allegedly transshipped items. For example, on 

October 31, 2011, the End-User Review Committee added a firm 

located in Hong Kong and Singapore for diverting U.S.-origin items 

from Hong Kong to Iran.21 The diversion was part of the efforts of a 

larger procurement network that arranged for the transshipment of 

radio frequency modules from Singapore to Iran for use in improvised 

explosive devices found in Iraq. Placement of an individual’s name on 

the Entity List notifies exporters of a potential licensing requirement or 

a ban on exports. In August 2008, Commerce expanded criteria for 

addition to the Entity List to allow an entity to be placed on the list if 

there is reasonable cause to believe, based on specific and articulable 

facts, that the entity has been involved, is involved, or poses a 

significant risk of becoming involved in activities that are contrary to 

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

of December 2010, at least 56 percent of the 359 entities on the Entity 

List22

• Unverified List: The Commerce Unverified List is a public list that 

includes the names and countries of foreign entities that were parties 

to transactions for which Commerce could not conduct a prelicense 

check or postshipment verification (PSV) due to factors outside of 

U.S. government control. The list informs the licensing process by 

providing exporters with information about entities of concern. For 

example, we determined that, of the 36 persons or entities currently 

were from the 13 transshipment countries in our review.

 

21The End-User Review Committee, composed of representatives of the Departments of 

State, Defense, Energy, and Commerce, and other agencies, as appropriate, is 

responsible for placing entities on the Entity List based on evidence that the entities pose 

a significant risk of involvement in activities contrary to U.S. national security or foreign 

policy interests. Commerce chairs the End-User Review Committee.

22In our analysis of the Entity List, we included entities and their subordinates and aliases 

in our calculations. 
 

Page 12 GAO-12-613 Export Controls

on the Unverified List, 78 percent are from the 13 transshipment 

countries we reviewed. When Commerce established the Unverified 

List in 2002, it advised exporters that the participation of a person on 

this list in any proposed transaction would raise a ‘‘red flag’’ for 

exporters under established guidance. Commerce stopped updating 

the Unverified List after it expanded the scope of the Entity List in 

August 2008 and is considering eliminating the Unverified List in 

2012. Commerce officials said that they will review the Unverified List 

and assess the 36 entities currently on it against criteria for inclusion 

on the Entity List, transferring them, if warranted, on a case-by-case 

basis. Commerce will monitor the entities that are not transferred 

through its internal Watch List.

• State and Treasury Sanctions Lists: State and Treasury publish lists 

of individuals sanctioned under various statutes for activities relating 

to concerns ranging from nonproliferation to drug enforcement. 

Treasury officials indicated that both direct exports and 

transshipments from the United States to a sanctioned entity or to an 

embargoed country without authorization constitute diversion and are 

thus violations. For example, in December 2008, Treasury sanctioned 

an Iranian shipping line for facilitating the transport of cargo and 

employing deceptive shipping practices to advance Iran’s nuclear and 

missile programs. Additionally, Treasury designated the company’s 

subsidiaries in four transshipment countries—China, Malta, 

Singapore, and UAE. Of the 4,929 designations on the Specially 

Designated Nationals (SDN) list, 167 were from the 13 transshipment 

countries.23

• State and Commerce Watch Lists: State and Commerce screen 

parties named in a license application against internal Watch Lists, 

which include participants added because of illicit transshipment risk. 

Specifically, Commerce and State both add names of entities 

identified through unfavorable end-use checks, including names of 

 

23The 167 entities designated on the SDN list from the 13 transshipment countries 

represent designations that trigger a license requirement under the EAR, such as 

Specially Designated Global Terrorist and Nonproliferation and Weapons of Mass 

Destruction. 
 

Page 13 GAO-12-613 Export Controls

entities from transshipment countries, to the Watch Lists.24 According 

to State and Commerce, officials check all names on every export 

license application against their Watch Lists. As of September 2011, 

State’s Watch List contained 100,248 entities, of which 8,731 (about 9 

percent) were from the 13 transshipment countries we reviewed. As of 

November 2011, the Commerce Watch List contained 36,849 active 

entities, of which 8,309 (about 23 percent) were from the 13 

transshipment countries we reviewed. Appendix IV details the 

numbers of entities from each transshipment country listed on State 

and Commerce Watch Lists for 2011. To confirm that the results of 

end-use checks are incorporated into the license application review 

process, we analyzed a random, nongeneralizable sample of 21 State 

end-use checks and 56 Commerce end-use checks during our site 

visits in Hong Kong, Singapore, and the UAE.25

Agencies may also conduct a prelicense check to verify the credentials of 

a party in advance of approving a license. A prelicense check may 

include a site visit to the proposed end user or consignee. Commerce and 

State may also seek the input of other agencies, particularly DOD, to vet 

transactions by reviewing end-user history and other factors.

We submitted 11 

unfavorable checks to State to determine the actions in response to 

the unfavorable determinations. State placed or updated the 

placement of 9 of the 11 entities identified in these unfavorable enduse checks on agency watch lists and referred 6 to State’s 

enforcement division for possible investigation. For Commerce, 

according to its Watch List guidance, all companies that receive 

unfavorable prelicense checks or PSVs are placed on the Watch List. 

However, for the 26 end-use checks with unfavorable results that we 

submitted to Commerce, we could not confirm that Commerce placed 

the names of the associated entities on its Watch List.

 

24Commerce and State end-use checks may have favorable, unfavorable, or inconclusive 

results. A check is favorable when it can confirm that the end use and end user of an 

export are appropriate, unfavorable when it confirms that they are not, and inconclusive 

when it cannot confirm them, usually through an inability to conduct the check. Due to an 

unfavorable result, Commerce or State may take further action, such as denying a license 

or referring involved entities to enforcement agencies for investigation and possible 

penalties. 

25GAO reviewed UAE-specific State end-use data collected for and reported in our report, 

Persian Gulf: Implementation Gaps Limit the Effectiveness of End-Use Monitoring and 

Human Rights Vetting for U.S. Military Equipment, GAO-12-89 (Washington, D.C.: Nov. 

17, 2011).
 

Page 14 GAO-12-613 Export Controls

Commerce screens applicants for a variety of factors, including reexport, 

to identify trusted end users for the VEU program.26 The VEU is an export 

licensing framework that allows validated end users to receive eligible 

items on the Commerce Control List without a license. As of November 

2011, Commerce conferred VEU status on 11 companies from 2 

countries, China—one of the 13 GAO-designated transshipment 

countries—and India. The End-User Review Committee considers factors 

such as the entity’s record of compliance with U.S. export controls and its 

willingness to host on-site reviews by U.S. government personnel to 

ensure program compliance.27 Commerce also vets potential recipients of 

VEU authorizations with the law enforcement and intelligence 

communities. In addressing illicit transshipment risk, Commerce requires 

VEU applicants to adhere to conditions on diversion, retransfer, and 

reexport of specified items.

To confirm exporters’ and recipients’ adherence to U.S. export control 

requirements, Commerce and State analyze shipping data and conduct 

end-use checks of items exported overseas. They use these activities to 

confirm compliance with export control requirements by verifying the end 

use of controlled items and by reviewing export documentation for 

potential violations.

Both Commerce and State analyze shipping information to identify illicit 

transshipments and other potential violations of export control laws. The 

Census Bureau maintains shipping information on U.S. exports in the 

Automated Export System, the primary instrument for collecting export 

trade data. The U.S. government requires exporters to file shipping 

information with the system for any items subject to Commerce or State 

control, whether they need licenses or are eligible for exceptions.

Commerce uses data from the Automated Export System to determine 

exporter’s compliance with the EAR on items subject to licensing 

requirements, select candidates for end-use checks, and target other 

compliance and enforcement activities. In addition, Commerce used 

 

26Transshipment is one form of reexport, according to Commerce regulations.

27In addition to administering the Entity List, the End-User Review Committee also is 

responsible for determining whether to add to, remove from, or otherwise amend the list of 

validated end users and associated eligible items set forth in the EAR.

Commerce Screens Applicants 

to Identify Trusted End Users 

for the VEU Program 

Agencies Address Illicit 

Transshipment Risk by 

Analyzing Shipping Data 

and Monitoring End Use 

of Items

Two Agencies Analyze Shipping

Information to Identify Illicit 

Transshipments and Other 

Potential Violations
 

Page 15 GAO-12-613 Export Controls

available Automated Export System and international Customs data to 

develop a methodology that assesses the potential risk of illicit diversion 

of items on the Commerce Control List. This methodology is part of a 

Commerce developed Transshipment Identification Strategy that also 

included the publication of seven best practices for preventing diversion 

through transshipment points. U.S. agencies have assessed a risk of illicit 

transshipment from Hong Kong to mainland China, from UAE to Iran, and 

from China to Iran.

State also uses shipping information as part of its end-use monitoring 

program to identify illicit transshipments and other forms of diversion. 

Specifically, State officials said that they check shipping information 

against approved license applications for discrepancies when considering 

whether to initiate an end-use check and use such information to verify 

the exporter’s use of license exemptions. For example, in fiscal year 

2009, State reported reviewing 35,000 shipments to Canada made under 

an exemption specific to that country. As a result of that review, State 

reported initiating eight end-use checks to verify the credentials of end 

users who were listed on State’s Watch List. State determined that the 

export in question did not result in a diversion. Like Commerce, State 

obtains shipping data from the Automated Export System maintained by 

the Census Bureau, pursuant to a Memorandum of Understanding with 

that organization. As the Memorandum of Understanding expired in 

November 2011, State and Census must complete a new Memorandum 

of Understanding for State to continue receiving this shipping data, 

according to a senior Census Bureau official. A State official stated that 

they continued to receive the shipping data between November 2011 and 

February 2012, but Census stopped providing this data, pending 

completion of a new Memorandum of Understanding, according to the 

Census Bureau official.

Commerce and State address illicit transshipment risk by verifying the 

end use of controlled items. Guidance for both agencies identifies illicit 

transshipment as a factor to consider in assessing the need for end-use 

checks.

Commerce may conduct an end-use check on any item subject to the 

EAR that is exported. Commerce’s authority to conduct PSV checks is 

established in the Export Administration Act of 1979, which provides the 

legal and administrative basis for U.S. controls on dual-use exports and is 

supplemented by the EAR. According to Commerce, PSV checks 

strengthen assurances that exporters, shippers, importers, and end users 

comply with the terms of export license and licensing conditions. 

Commerce and State Verify 

End Use of Controlled Items

Commerce’s End-Use Checks 

for Transshipment Countries
 

Page 16 GAO-12-613 Export Controls

Commerce conducts PSV checks to confirm that the dual-use item 

arrived at its destination and is being used as intended. Commerce 

Export Control Officers (ECO), special agents, or other U.S. government 

personnel visit companies overseas to meet with importers or end users 

in an attempt to verify the use and location of these items.

Our analysis of end-use checks, where Commerce made a favorable or 

unfavorable determination, indicated that Commerce focused its efforts 

on transshipment countries; it conducted 57 percent of 1,412 end-use 

checks for fiscal years 2008 to 2010 in the 13 transshipment countries we 

reviewed. Of these checks, 33 percent were unfavorable. Appendix V 

provides additional data on end-use checks for the 13 transshipment 

countries. The three locations where we conducted site visits—Hong 

Kong, Singapore, and UAE—represented about 36 percent of Commerce 

end-use checks conducted globally for this period and nearly 62 percent 

of unfavorable determinations worldwide.

To address transshipment concerns in Southeast Asia, Commerce 

stationed an ECO in Singapore, with regional responsibilities in Malaysia, 

Indonesia, Thailand, and the Philippines to conduct end-use checks, 

among other duties.28

Commerce also conducts a significant number of its PSVs on unlicensed 

exports.

Commerce end-use check guidance indicates that 

ECOs should be aware of warning signals, including whether a consignee 

is aware of relevant restrictions to the reexport or retransfer of the item. 

For fiscal years 2008 through 2010, Commerce conducted 49 percent of 

all its end-use checks in five locations: UAE, Hong Kong, Singapore, 

Taiwan, and China. Moreover, Commerce determined that 62 percent of 

all unfavorable end-use checks for this period occurred in three of these 

locations: Hong Kong, the UAE, and Singapore.

29

 

28In total, BIS has ECOs with areas of operation covering 12 of the 13 transshipment 

countries that we designated. Commerce has five ECOs stationed in 4 of the 13 

transshipment countries that we designated—China (2), Hong Kong, Singapore, and the 

UAE. The ECOs in Hong Kong, Singapore, and the UAE also have regional 

responsibilities. 

Specifically, Commerce conducted 913, or about 56 percent, of 

the 1,619 checks on such transactions. Moreover, Commerce checks on 

unlicensed exports shipped in the 13 transshipment countries accounted 

29For the purposes of this report, unlicensed exports include exports requiring no prior 

government review, including items subject to the EAR eligible for license exceptions. 
 

Page 17 GAO-12-613 Export Controls

for 70 percent of all such checks worldwide. Figure 1 shows the numbers 

of Commerce PSVs conducted on unlicensed exports in the 13 

transshipment countries.

Figure 1: Total Commerce PSVs Conducted on Exports Shipped Without Prior U.S. Government Review Worldwide and in 13 

Transshipment Countries, Fiscal Years 2008–2010

Commerce can conduct a PSV on any exported item for any reason 

related to a compliance concern, such as an enforcement investigation, 

intelligence information, or other information that analysts have available 

to them. Additionally, in technical comments on a draft of this report, 

Commerce stated that PSVs on licensed exports are more likely to result 

from commodity or regional concerns, including transshipment, which will 

prompt further scrutiny to ultimate or intermediate consignees even 

though they are known not to be the end user.

Between 2008 and 2010, 223 (94 percent) of the 238 Commerce 

unfavorable postshipment checks in transshipment countries were on 

unlicensed exports. Unfavorable postshipment checks on unlicensed 

exports in the 13 transshipment countries accounted for 88 percent of all 

unfavorable postshipment checks in these countries in 2008 and rose to 

97 percent in 2010. (See fig. 2.)
 

Page 18 GAO-12-613 Export Controls

Figure 2: Unfavorable PSVs for Transshipment Countries, Fiscal Years 2008-2010

Note: Numbers may not add due to rounding.

Items exported without a license may pose risks to U.S. national security, 

according to U.S. government officials. These items include those not on 

the CCL and those on the CCL that do not require a license to certain 

destinations. For example, agencies discovered that U.S. electronics 

components and devices were used to build improvised explosive devices 

that were deployed against Coalition forces in Iraq after they were illicitly 

transshipped to Iran through Hong Kong. According to Commerce 

officials, the U.S. government established an interagency task force 

consisting of several defense intelligence units, and Treasury’s Financial 

Crimes Enforcement Network, to address the threat posed by these 

devices.

EAR items subject to license requirements have also been transferred 

without a license to unauthorized destinations through transshipment 

points. It is the policy of the U.S. government to facilitate U.S. exports to 

legitimate civilian end users in the People’s Republic of China (China), 

while preventing exports that would enhance the military capability of that 
 

Page 19 GAO-12-613 Export Controls

country. Commerce officials stated that integrated electronic circuits have 

been diverted to China (a destination requiring a license for these items) 

through Hong Kong (where no license is required). A senior Commerce 

official stated that certain types of integrated electronic circuits contribute 

to China’s military advancement.

The Arms Control Export Act, as amended in 1996, requires, to the extent 

practicable, that end-use monitoring programs provide reasonable 

assurance that recipients comply with the requirements imposed by the 

U.S. government in the use, transfer, and security of defense articles and 

services.30

Our analysis of State end-use checks under its Blue Lantern program 

showed that State focused a smaller portion of its end-use checks on 

transshipment countries than did Commerce. According to U.S. and Hong 

Kong government officials, the risk of illicit transshipment of dual-use 

exports is higher than for military exports, in part because proliferators 

hide their relatively small number of proliferation-related transactions—

most of which involve dual-use items—within a large volume of fastmoving commercial goods. For fiscal years 2008 through 2010, State 

conducted 26 percent of the total number of end-use checks in the 13 

transshipment countries we reviewed; 22 percent of these checks were 

unfavorable. In conducting end-use checks, State guidance indicates that 

end-use check officers are required to determine that the proposed end 

user appears to be a reliable recipient of sensitive U.S. defense articles, 

technology, or services, and that the end user is familiar with U.S. 

restrictions with respect to use, transfer, or reexport. See appendix V for 

more detailed information on Commerce and State end-use checks.

In addition, end-use monitoring programs are to provide 

assurances that defense articles and services are used for the purposes 

for which they are provided. Accordingly, under State’s monitoring effort 

known as the Blue Lantern program, State conducts end-use monitoring 

of direct commercial sales of defense articles and services and related 

technology. Specifically, a PSV is used (1) to confirm whether licensed 

defense goods or services exported from the United States have been 

received by the party named on the license and (2) to determine whether 

those goods have been or are being used in accordance with the 

provisions of that license.

 

3022 U.S.C. § 2785.

State’s End-Use Checks for 

Transshipment Countries
 

Page 20 GAO-12-613 Export Controls

To educate companies and foreign governments about illicit 

transshipment risks, agencies have programs to review the internal 

controls of U.S. companies’ compliance programs, conduct outreach to 

U.S. companies and universities, and provide training to foreign 

governments.

Commerce helps firms address illicit transshipment risk by conducting an 

informal review of firms’ compliance programs at the firms’ request. 

Commerce reviews the written procedures and internal controls for a 

company’s compliance program against Commerce’s Export 

Management Compliance Program guidelines to help it develop an 

internal control program that can thwart diversion of technologies to 

countries of concern. The Export Management Compliance Program 

guidance identifies indicators of risks posed by transshipment, such as 

insufficient compliance safeguards throughout the shipping process and 

unverified end destination addresses. In fiscal year 2010, Commerce 

conducted 18 reviews of corporate written compliance programs and 

conducted two 2-day and three 1-day seminars on developing an export 

management and compliance program in various U.S. cities.

Commerce and State officially have outreach programs to educate 

industry on issues, including illicit transshipment risks. Commerce’s 

outreach program expanded in 2011 to increase its focus on illicit 

transshipment, but State’s program is largely inactive. Between January 

and November 2011, Commerce has conducted approximately 24 

outreach events across the United States. Commerce has added a 

training session on its Best Practices for Preventing Unlawful Diversion of 

U.S. Dual-Use Items Subject to the Export Administration Regulations, 

Particularly through Transshipment Trade, published in August 2011, 

which identifies seven best practices that guard against diversion risk, 

particularly through transshipment. A Commerce official stated that, due 

to the ongoing risk of illicit diversion of controlled items subject to the 

EAR, Commerce has added the best practices component to outreach 

events.

State’s program to visit companies has been largely inactive since 2008. 

This program had considered transshipment risks and was in place to 

determine whether companies were properly exercising their regulatory 

responsibility in licensing and compliance. State also used the information 

gathered from visits to adjust or revise U.S. regulations and practices. 

State visited more than 60 companies between October 2005 and 

September 2008. While State has made two such visits since 2008, the 

Agencies Educate U.S. 

Exporters and Foreign 

Governments about Illicit 

Transshipment Risks, but 

One Program Is Largely 

Inactive
 

Page 21 GAO-12-613 Export Controls

visits were made to companies due to ongoing enforcement actions, 

rather than mainly for outreach.

State also addresses illicit transshipment risk by conducting export control 

training of foreign governments through its Export Controls and Border 

Security (EXBS) program. In determining the countries of focus for EXBS, 

State conducts country-by-country threat assessments to determine the 

points of greatest risk, assessing risk factors in a given country, including 

the risks of diversion, production, and proliferation. EXBS categorized as 

a diversion risk 9 of the 13 transshipment countries we examined; 7 of 

those countries are currently EXBS partner countries.31 In fiscal years 

2009 and 2010, EXBS conducted training in the UAE, which included a 

seminar on how to investigate, survey, detect, and interdict unauthorized 

transfers of items. EXBS announced in its 2011 Strategic Plan that transit 

and transshipment trade will be a priority, and EXBS will work with each 

shipment hub to build its capacity to target transit and transshipment 

cargo efficiently, without negatively affecting legitimate trade and 

competitiveness.

State and Commerce have not fully assessed the potential impact of 

reforming the agency control lists and transferring items from State to 

Commerce on the resource needs of their compliance activities. 

Assessing impact includes analyzing the potential benefits and risks of

the control list reforms, but the agencies lack information on how control 

list changes will impact their resource needs for conducting compliance 

activities. They expressed the view that some benefits would likely 

include a reduced compliance burden for industry and enhanced national 

security for the United States by focusing on items, destinations, and end 

users of concern. In the one assessment that it performed, Commerce 

estimated financial benefits of one regulatory change but did not assess 

any potential risks to compliance activities beyond licensing. In contrast, 

several compliance officials stated that risks could include the burden on 

Commerce’s and State’s capacity to monitor the end use of an increased 

number of items and the loss of information prior to export resulting from 

fewer license requirements. However, the agencies did not evaluate the 

implications of these risks on their resource needs.

 

31The seven transshipment countries that are EXBS partner countries are Indonesia, 

Malaysia, Philippines, Singapore, Taiwan, Thailand, and UAE.

Agencies Have Not 

Fully Assessed 

Potential Impact of 

Control List Reforms 

on Resource Needs 

for Compliance 

Activities
 

Page 22 GAO-12-613 Export Controls

As an interim step to creating a single control list, the administration 

proposed revising the list of items controlled by Commerce and State. 

Thus, Commerce proposed a rule in July 2011 establishing a structure to 

move items from the USML to the CCL that the President has determined 

no longer need to be controlled on that list.32 As we previously reported, 

an interagency task force created export control criteria to determine the 

items and technologies that should be controlled by Commerce or State.33

A DOD-led interagency team is currently revising the lists so controlled 

items will be identified using objective criteria such as horsepower, speed, 

and accuracy rather than maintaining an item on the USML simply 

because, historically, its form and fit has associated it with a military item. 

Those items that do not remain on the USML after this review will move to 

Commerce’s jurisdiction. As of January 2012, State has proposed 

revisions to 5 of 20 categories of military items. The 5 categories include 

items such as tanks, aircraft, and submersible vessels. Proposed 

revisions to 4 of the 5 USML categories would change the USML controls 

on generic parts, components, accessories, and attachments that are 

specifically designed or modified for a defense article to control specific 

types of parts, components, accessories, and attachments.34

Those items moved to the CCL may also become eligible for export for 

ultimate government end use to the destinations identified on a new 

license exception known as the Strategic Trade Authorization (STA). In 

Items whose 

functions provide immediate tactical utility without modification will remain 

on the USML, while all other items would move to the CCL.

 

3276 Fed. Reg. 41,958 (July 15, 2011). Before the President may make such jurisdictional 

changes, however, he must report the results of the review to Congress. 22 U.S.C. § 

2778(f)(1). The President must describe how items moved from the ITAR will be controlled 

under other provisions of law. The purpose of the proposed rule is to describe how items 

that no longer warrant control on the USML will be controlled on the CCL. 76 Fed. Reg. 

76,072 (Dec. 6, 2011). 

33GAO-11-135R. 

34These categories include Category VII, Tanks and Military Vehicles; Category VIII, 

Aircraft and Associated Equipment; Category XX, Submersible Vessels Oceanographic, 

and Associated Equipment; Category VI, Surface Vessels of War and Special Naval 

Equipment. See 76 Fed. Reg. 41,958 (July 15, 2011); 76 Fed. Reg. 68,675 (Nov. 7, 2011); 

76 Fed. Reg. 80,291 (Dec. 23, 2011); 76 Fed. Reg. 80,282 (Dec. 23, 2011); 76 Fed. Reg.

76,085 (Dec. 6, 2011); 76 Fed. Reg. 76,072. The administration also proposed the 

creation of a new category for gas turbine engines that would combine parts of multiple 

categories. 76 Fed.Reg.76, 072 (Dec. 6, 2011). For submersible vessels, the 

administration determined that most parts and components would remain on the USML 

because they provide a critical military and technological advantage to the United States.

Agencies Propose to Move 

Items from State to 

Commerce and to 

Introduce a New License 

Exception 
 

Page 23 GAO-12-613 Export Controls

June 2011, Commerce finalized this new license exception to allow 

exports of certain items without a license to countries determined to be 

low risk.35 These items would be subject to certain notification 

requirements. Specifically, the STA authorizes certain exports that 

Commerce now controls for multiple reasons to 36 destinations, many of 

which are NATO allies or export control regime participants.36 Further, the 

exception authorizes certain exports to an additional eight countries but 

limits the exception for items that Commerce now controls for national 

security reasons only.37 These countries include four transshipment 

countries that we reviewed, Hong Kong, Singapore, Malta, and Taiwan. 

The licensing exception imposes additional requirements, such as 

directing the exporter, reexporter, or transferor to exchange information 

with the recipient regarding the applicable control list category number, 

and stating that the export occurs under the STA exception to mitigate the 

risk of reexport to an unauthorized destination or end user.

 

3576 Fed. Reg. 35,276 (June 16, 2011). A license exception is an authorization that allows 

a company to export, under stated conditions, items subject to the EAR that would 

otherwise require a license.

3615 C.F.R. § 740.20. Commerce authorizes exports that are controlled for specific 

reasons to 36 countries: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, 

Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, 

Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, 

Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, 

Switzerland, Turkey, and the United Kingdom. 

37The eight destinations to which the license exception authorizes exports controlled for 

National Security reasons are Albania, Hong Kong, India, Israel, Malta, Singapore, South 

Africa, and Taiwan. According to technical comments provided by Commerce, the use of 

the exception is limited to those items that the Wassenaar Arrangement, a multilateral 

export control regime that aims to restrict trade in dual-use technologies, considers less 

sensitive. 
 

Page 24 GAO-12-613 Export Controls

U.S. agencies have not fully assessed the potential impact that export 

control reform of control lists might pose for the resource needs of the 

range of compliance activities agencies undertake, as suggested by 

federal internal control standards and executive branch requirements.38

State and Treasury officials confirmed that they have not conducted such 

an assessment. In technical comments on a draft of this report, 

Commerce stated that it had conducted an assessment of compliance 

activities and that it is hiring eight dedicated compliance officers. 

However, Commerce provided no evidence of such an assessment. 

Moreover, Commerce’s fiscal year 2013 Congressional Budget 

Justification did not identify the need for compliance officers in its request 

for 24 additional licensing officers. Although the administration intends to 

move up to 30,000 license applications from State’s to Commerce’s 

jurisdiction, Commerce is targeting only 850 end-use checks in each of 

fiscal years 2013 and 2014, the same number it targeted for fiscal year 

2012. Federal standards call for, among other things, a regulatory 

analysis to include the following three basic elements: (1) a statement of 

the need for the proposed action, (2) an examination of alternative 

approaches, and (3) an evaluation of the benefits and costs—quantitative 

and qualitative—of the proposed action and the main alternatives 

identified by the action. The evaluation of benefits and costs is to be 

informed by a risk assessment. In November 2011, Commerce’ s 

Inspector General identified Commerce’s need to ensure adequate 

resources to monitor compliance and to detect and prevent diversions of 

controlled technology in the context of export control reform as among its 

top management challenges for fiscal year 2012.39

Risk assessment is one of five standards for an internal control system 

that provides reasonable assurance that an organization will achieve 

effective and efficient operations, reliable financial reporting, and 

compliance with applicable laws and regulations. Commerce has not 

 

38GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1. 

(Washington, D.C.: November 1999). The five standards for internal control are: control 

environment, risk assessment, control activities, information and communications, and 

monitoring. Also see GAO, Transportation Worker Identification Credential: Internal 

Control Weaknesses Need to Be Corrected to Help Achieve Security Objectives, 

GAO-11-657 (Washington, D.C.: May 10, 2011); OMB, Circular No. A-94,Guidelines and 

Discount Rates for Benefit-Cost Analysis of Federal Programs (Washington, D.C.: October 

1992); OMB, Circular No. A-4, Regulatory Analysis (Washington, D.C.: September 2003). 

39See Department of Commerce: Fiscal Year 2011 Performance and Accountability 

Report, Appendix E.

Agencies Have Not Fully 

Assessed Potential Impact 

of Control List Reforms on 

All Compliance Activities 

but Have Assessed the 

Estimated Resource 

Impact on License Review
 

Page 25 GAO-12-613 Export Controls

analyzed the impact of the reform on its compliance activities beyond 

estimating the number of State licenses that will move to its jurisdiction 

and potential resources needed to address them. State also has not 

assessed the risks of reform proposals on its compliance activities. 

According to a State official, current export control reform efforts are 

focused on revising the USML. The State official noted that, as items are 

moved from the USML to the CCL, the department will have better insight 

into potential impacts and will be able to assess resource needs.

Agencies have stated some potential benefits for national security and for 

exporters as a result of reform. However, agencies did not provide an 

analysis supporting the expected benefits. According to agencies’ 

statements, the U.S. government would

• have greater interoperability with NATO and other allies;

• be able to focus its resources on sensitive technologies, destinations, 

and end users of higher risk than those found in NATO counterparts 

or other allies; and

• benefit from an enhanced defense industrial base by reducing the 

current incentives for foreign companies to avoid U.S. parts and 

components.

State and Commerce documents identify the following four potential 

advantages to industry of moving items from the USML to the CCL:

• relief from more stringent USML requirements, such as registration 

fees and the need to obtain manufacturing and technical assistance 

agreements;

• reduction of license requirements;

• simplification of license application procedures; and

• increased availability of exceptions.40

 

40According to Commerce, the USML, with few exceptions, allows exemptions from 

licensing requirements only to Canada. Under the rule proposed on November 7, 2011, 

many exports and reexports of the USML Category VII parts and components that would 

be moved to the CCL would become eligible for license exceptions that apply to 

shipments to U.S. government agencies, shipments valued at less than $1,500, parts and 

components being exported for use as replacement parts, temporary exports, and License 

Exception STA, reducing the number of licenses that exporters of these items would need. 
 

Page 26 GAO-12-613 Export Controls

Commerce assessed the potential impact of control list reform on its 

resources only for the compliance activity of license application review. 

Commerce documents indicate that, as of July 2011, it did not have the 

workforce in place to accommodate the 16,000 to 30,000 additional 

license applications estimated to result from the move of a significant 

number of items from the USML to the CCL without causing backlogs and 

delays. In March 2012, Commerce established a new office to adjudicate 

license applications and conduct other actions for items moved from the 

USML, and it has begun to solicit applicants to staff the office.41

Furthermore, according to a Commerce cost benefit analysis, the new 

STA license exception would help remove the burdens associated with 

applying for a license and reduce the uncertainty associated with the 

license application review process. Commerce’s Bureau of Industry and 

Security (BIS) estimated that approximately 2,300 licensed transactions 

would have been eligible for the STA exception in 2010. Therefore, BIS 

estimated that the public benefit to foregoing the license application 

review for those transactions eligible for the STA exception could result in 

a savings ranging from $1.5 million to $5.1 million per year.42 BIS also 

stated that the license exception would reduce uncertainty by removing 

the need for U.S. exporters to inform prospective buyers of U.S. 

technology that sales are contingent upon government approval for each 

transaction. BIS also estimated that the license exception would benefit 

the government by allowing Commerce to focus its licensing resources on

transactions of greater risk than those eligible for the STA exception. BIS 

officials stated that the STA exception would not increase costs to the 

government.

 

41Commerce also reprogrammed funds from both within BIS and from the Census Bureau 

to staff the new office. 

42BIS calculated a range of $1.5 million to $5.2 million in potential savings to exporters by 

estimating several scenarios that made different assumptions about key factors such as 

interest rates and the face value of the licenses. The benefits of the STA exception might 

be even greater if Commerce included in its estimates the approximately 20,000 

transactions that would be eligible for the exception once items moved from the USML to 

the CCL.
 

Page 27 GAO-12-613 Export Controls

Although U.S. agencies have not fully assessed the risks and resource 

implications that reform of export control lists may present in 

implementing compliance activities, agency officials conducting those 

activities identified two potential risks. These include an increased 

workload at Commerce from the transfer of thousands of license 

applications from State’s to Commerce’s jurisdiction, as well as the loss of 

information from the licensing process prior to export. Neither Commerce 

nor State has conducted a detailed risk assessment of the impact of the 

reforms on any of the compliance activities they undertake besides 

licensing and their associated workforce needs. Standards for Internal 

Control in the Federal Government indicates that internal controls should 

provide for an assessment of the external and internal risks the agency 

faces and that management needs to address.

A Commerce official also stated that a reduction in exports needing 

licenses would likely make compliance activities, such as end-use 

monitoring, more difficult because officials use export licenses for some of 

the information they rely on. Without such information, U.S. officials 

conducting end-use checks might need to expend more time and 

resources obtaining the needed information, according to the official. In 

fact, Commerce has focused more end-use checks on unlicensed items. 

We found that unlicensed exports may also pose resource implications for 

compliance activities concerning specific transshipment countries—Hong 

Kong, Singapore, and Taiwan. Items exported to these countries might be 

eligible to use a license exception for certain controlled items. Thus, some 

exports would avoid the need for prior government approval for each 

transaction. Commerce officials said that they might mitigate any risks 

that this might pose by shifting resources to target and increase 

compliance actions, such as outreach and shipping data analysis. In 

technical comments on a draft of this report, Commerce stated that it 

conducts end-use checks on unlicensed items now without significant 

difficulty and does not understand the basis for the conclusion that 

unlicensed exports may also pose resource implications for compliance 

activities concerning specific transshipment countries. However, BIS 

reported as recently as 2011 that it is considering requiring exporters to 

include additional information in the Automated Export System for 

unlicensed exports. Requiring this information, according to BIS, would 

allow it to determine more quickly the accuracy of a claimed use of 

authority to ship without a license or pursuant to a license exception, in 

some transactions. In addition, this information would enable BIS to target 

its end use checks of exports more effectively because it could select 

items of the greatest significance without extensive follow-up information 

from the exporter. By taking advantage of the additional information, BIS 

Agency Officials Identified 

Two Potential Risks of 

Reform for Compliance 

Activities, but Agencies 

Have Not Assessed 

Implications of These 

Risks on Resource Needs
 

Page 28 GAO-12-613 Export Controls

indicated that it could make more effective use of its enforcement

resources.

A State compliance official said that losing the information generated by 

license applications would make tracking entities and commodities that 

are at risk more difficult and resource intensive. State officials also noted 

that, if reform resulted in the removal of some license requirements for 

certain goods, then State would need to shift its emphasis on reviewing 

license application data to reviewing shipping data. Currently, most 

defense items require a license for export. However, in certain instances, 

arms may be exported without a license (i.e., under an exemption) but are 

still subject to the Arms Export Control Act. Fewer license requirements 

would mean that more compliance verification would need to be 

conducted after the item has shipped, thereby increasing the need for 

PSVs, according to the official.

U.S. export control agencies generally address illicit transshipment risk in 

implementing their compliance activities, and Commerce, in particular, 

has focused on this risk by performing increased end-use checks in 

transshipment countries and on excepted or unlicensed items. Moreover, 

several of the agencies’ compliance activities are interdependent. For 

example, the results of unfavorable postshipment verifications provide 

entity names for agencies to add to the sanctions and Watch Lists, and 

Watch Lists provide names that should be flagged for further scrutiny 

during the license review process. Therefore, changes that affect one 

compliance activity may also affect others. Despite this interdependence 

of compliance activities, agencies have not fully assessed the potential 

impact of the reform initiative that licensing and control list reforms may 

pose for resource needs. The administration’s framework to reform U.S. 

export controls, with initial changes to Commerce and State control lists, 

may significantly affect the entire export control system. Moving numbers 

of items from State’s control list to Commerce’s list will shift the licensing 

burden for addressing concerns over misuse or diversion of these items 

in such countries from one agency to another. Moreover, control list 

reform may also shift the burden among various compliance activities in 

ways that cannot be anticipated without assessing the impact on 

resources of such changes for each activity.

Conclusions 
 

Page 29 GAO-12-613 Export Controls

As the administration moves forward with its control list reforms, we 

recommend that the Secretaries of Commerce and State, in consultation 

with other relevant agencies, assess and report on the potential impact, 

including the benefits and risks of proposed export control list reforms, on 

the resource needs of their compliance activities, particularly end-use 

monitoring.

We provided a draft of this report to Commerce, DOD, State, and 

Treasury for their review and comment. Both Commerce and State 

provided written comments, which we have reprinted in appendixes VI 

and VII, respectively.43

Commerce and State agreed with our recommendation to assess and 

report on the potential impact of export control list reforms on the 

resource needs of their compliance activities. State said that it will be in a 

better position to evaluate the resource needs for compliance activities, to 

include end-use monitoring, as decisions are made on moving items from 

the USML to the CCL. It stated that its intent to dedicate all necessary 

resources to compliance activities commensurate with the requirements 

of a revised USML remains unchanged.

DOD and Treasury did not provide comments on 

the draft. Commerce and State also provided technical comments, which 

we incorporated in this report, as appropriate.

Commerce stated that, to the extent that information is available, BIS has 

used licensing data, public comments, and interagency expertise to 

address both benefits and risks of moving items from the USML to CCL. 

However, Commerce provided no evidence that it completed such an 

assessment or that it assessed the benefits and risks of control list reform 

changes on the range of other compliance activities discussed in this 

report. Nonetheless, the availability of such information shows that such 

an assessment can be done.

Commerce also stated that several references throughout this report refer 

to the USML as “more stringent” and state that the CCL “imposes fewer 

requirements than State’s controls.” Commerce said it would be more 

accurate to say that the CCL’s flexibility provides more options in 

 

43These written comments apply to both the earlier report issued March 14, 2012, which 

contained information designated “For Official Use Only” and to this report.

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 30 GAO-12-613 Export Controls

protecting national security interests. However, State reported in its 

August 2011 Final Plan for Retrospective Analysis of Existing Rules that 

defense articles that do not require the stringent controls of the Arms 

Export Control Act will be moved to the jurisdiction of Commerce, where 

the licensing burden on exports can be dramatically reduced. Also, we 

reported in 2008 that, in most cases, Commerce’s controls over dual-use 

items are less restrictive than State’s controls over arms.44 Many items 

controlled by Commerce do not require licenses for export to most 

destinations, while State-controlled items generally require licenses for 

most destinations. Also, some sanctions and embargoes only apply to 

items on State’s U.S. Munitions List and not to those on the CCL.

We are sending copies of this report to the appropriate congressional 

committees; the Secretaries of Commerce, Defense, State, and the 

Treasury; and other interested parties. In addition, the report is available 

at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please 

contact me at (202) 512-9601 or at melitot@gao.gov. Contact points for 

our offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix VIII.

Thomas Melito

Director, International Affairs and Trade

 

44GAO, Export Controls: State and Commerce Have Not Taken Basic Steps to Better 

Ensure U.S. Interests Are Protected, GAO-08-710T (Washington, D.C.: Apr. 24, 2008).
Appendix I: Scope and Methodology

Page 31 GAO-12-613 Export Controls

In this review, we (1) examined how U.S. agencies use compliance 

activities to address the risk of illicit transshipment and (2) analyzed the 

extent to which U.S. agencies assessed the impact of the export control 

reform on the resource needs of compliance activities. Commerce 

provided us with transshipment-related information that it controls as 

being “For Official Use Only.” We have not included that sensitive 

information in this report but have instead incorporated it into a “For 

Official Use Only” report that is not publicly available. To examine how 

U.S. agencies use compliance activities to address the risk of illicit 

transshipment, we reviewed documents from the Departments of 

Commerce, State, the Treasury, and Defense, including guidance, 

staffing information, and Congressional Budget Justifications. We also 

interviewed officials at each agency. We then identified examples of 

cases for each compliance activity where agency documents or officials 

indicated that they implemented the compliance activity to address illicit 

transshipment risk. We also analyzed available data, including licensing 

statistics, numbers of end-use checks for 13 transshipment countries, 

numbers of designations on various lists for entities from the 13 GAOdesignated transshipment countries, numbers of 13 transshipment 

countries that are partner countries for Export Control and Related Border 

Security program training, Department of Commerce correspondence to 

Validated End-User designees, and agency outreach materials for 

companies. We also reviewed relevant laws and regulations, interviewed 

U.S. and host country officials, and analyzed end-use monitoring and 

licensing data. To identify 13 transshipment countries, we examined prior 

GAO work on transshipment and external diversion; congressional 

testimony; countries with a Commerce Export Control Officer in place; 

input from the Departments of State, Commerce, Justice, and Homeland 

Security; countries with entities on either the Entity List or Unverified List; 

and a listing of the world’s busiest transshipment ports. We interviewed 

host government officials in Hong Kong and Singapore to obtain 

information on joint efforts with the U.S. government to mitigate illicit 

transshipment risks.

In examining the end-use monitoring compliance activity, we reviewed 

Departments of State and Commerce end-use monitoring activities 

through reviewing relevant program guidance, including State’s Blue 

Lantern Guidebook, and cables associated with selected end-use checks. 

We interviewed officials in State’s Directorate of Defense Trade Controls 

who administer the Blue Lantern program and reviewed export licenses. 

We also traveled to Singapore, Hong Kong, and the United Arab Emirates 

(UAE) to interview Blue Lantern points of contact and Commerce Export 

Control Officers. In examining State and Commerce end-use checks, we 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 32 GAO-12-613 Export Controls

conducted an analysis of global end-use check data for fiscal years 

2008–2010 and data on those checks conducted in transshipment 

countries. We also reviewed a random, nongeneralizable sample of enduse checks records during our overseas visits to Hong Kong, Singapore, 

and UAE, during which we obtained information from State and 

Commerce officials on how they conduct end-use checks. We reviewed 

21 State Blue Lantern end-use checks from fiscal year 2009 and 2010 in 

Hong Kong and Singapore. Twelve of these 21 checks resulted in 

unfavorable determinations, and we confirmed that actions had been 

taken in 11 of those cases. For State end-use checks in UAE, we relied 

on a related GAO engagement (GAO-12-89) that reviewed State end-use 

monitoring in the UAE among other countries.1 We reviewed 56 

Commerce end-use checks from fiscal year 2009 through the third 

quarter of 2011 in Hong Kong, Singapore, and UAE.2

We determined that the licensing data, end-use check data, and Watch 

List data were sufficiently reliable for the purpose of describing how U.S. 

agencies use compliance activities to address the risk of illicit 

transshipment. For the Departments of State and Commerce licensing 

data, we interviewed knowledgeable agency officials in coordination with 

other ongoing GAO reviews of export controls. We also reviewed 

technical manuals related to both departments’ licensing databases and 

determined that they were both sufficiently reliable for us to report overall 

statistics for how many licenses were issued for fiscal years 2009 and 

2010, around the world, and for the number of licenses issued in this time 

period for transshipment countries. For end-use monitoring data, we also 

interviewed agency officials, consulted agency manuals, and compared 

the number of checks we received with data published by the agency. We 

determined that the end-use check information provided by the agency 

was reliable for the purposes of describing how agencies monitor the enduse of items to address the risk of illicit transshipment. For State and 

We also examined 

the parties on the State and Commerce Watch Lists that were from the 13 

transshipment countries we reviewed.

 

1

GAO-12-89. 

2

In drawing our sample of Commerce end-use checks, we considered an additional fiscal 

year, fiscal year 2011, as two Commerce officials responsible for conducting end-use 

checks in Singapore and UAE had arrived during that time, and we wanted to learn about 

the checks they conducted. Our sample of Commerce checks reflects a range of fiscal 

years, the type of checks that were conducted, and the actions that resulted from the 

checks.
Appendix I: Scope and Methodology

Page 33 GAO-12-613 Export Controls

Commerce Watch List data, we interviewed agency officials about the 

sources of information they incorporate into the Watch List and reviewed 

the guidance agencies use in updating the Watch List. We determined 

that the data was sufficiently reliable for the purpose of describing how 

agencies monitor the end-use of items to address the risk of illicit 

transshipment.

To analyze the extent to which agencies assessed the potential impact of 

the export control reform initiative for the resource needs of compliance 

activities, we reviewed the proposed export control reform initiatives, 

White House press releases on the export reform initiatives, relevant 

executive orders, Federal Register notices, comments from the public, 

relevant laws and regulations, and agency documentation and studies on 

the proposed impact of the reform initiative on their compliance activities. 

We interviewed agency officials and interagency and export control 

reform task force members to gather information on the proposed reform 

initiatives and agency assessments of the benefits and risks posed by 

those initiatives. To gather industry input into the potential impact of 

proposed Export Control Reform initiatives, we met with industry 

representatives from: (1) The Aerospace Industry Association, (2) The 

National Council on International Trade Development, (3) The National 

Association of Manufacturers, and (4) the American Chamber of 

Commerce in Singapore.

We conducted this performance audit from August 2010 to April 2012 in 

accordance with generally accepted government auditing standards. 

These standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Descriptions of Compliance 

Activities

Page 34 GAO-12-613 Export Controls

Compliance activities provide information for exporters, licensing officials, 

and enforcement agencies to assess the validity of particular export 

transactions or to identify potential violations or prevent them before they 

occur. We identified eight export control compliance activities that the 

Departments of Commerce, State, and Treasury conduct to encourage 

compliance with export control laws and to prevent the diversion or 

misuse of exported items against U.S. allies or interests. Table 2 

identifies and describes those eight compliance activities that are relevant 

to transshipment.

Table 2: Descriptions of Compliance Activities

Compliance activity Description

License application review When deciding whether to approve or deny an export license application, State and Commerce 

evaluate it against several factors, including an assessment of all parties to the transaction and how 

the recipient plans to use the item.

End-use monitoring Prelicense or postshipment checks, including visits, to verify the bona fides of entities and appropriate 

receipt and use of controlled items.

Shipping data analysis Review of selected Shippers Export Declarations to identify Export Administration Regulation 

violations and refer them to the Office of Export Enforcement for further investigation.

Training A program of education, seminars, and workshops designed to help countries develop and improve 

their strategic trade and related border control systems.

Compliance program 

reviews

Reviews and critiques of companies’ programs to manage export-related decisions and transactions to 

ensure compliance with the Export Administration Regulations and license conditions.

List maintenance Lists that inform the licensing process by providing key information on entities of concern to licensing 

officers and the public.

Outreach Courses, workshops, seminars, visits for exporters to inform them of their responsibilities to comply 

with export control laws and regulations.

Validated end-user 

assessments

Licensing framework that allows select screened end users to receive controlled items without a 

license.

Sources: GAO analysis of Commerce, State, and Treasury data.

Appendix II: Descriptions of Compliance 

Activities
Appendix III: License Application Review

Page 35 GAO-12-613 Export Controls

When deciding whether to approve or deny an export license application, 

the Departments of State and Commerce evaluate it against several 

factors, including an assessment of all parties to the transaction and how 

the recipient plans to use the item. Table 3 shows the total number of 

Commerce and State license applications for fiscal years 2008 through 

2010 worldwide and for the 13 transshipment countries that we reviewed, 

as well as their status for this period.

Table 3: Number of License Applications for Commerce and State for 13 Transshipment Countries, Fiscal Years 2008–2010

Agency Location

Number of license 

applications

Number 

approved

Number 

denied

Number returned 

without action

Commerce Worldwide 63,304 53,051 435 9,818

Transshipment 19,693 16,596 170 2,927

State Worldwide 164,998 82,902 865 20,319

Transshipment 28,550 10,127 232 3,767

Sources: GAO analysis of Commerce and State data.

Appendix III: License Application Review
Appendix IV: List Maintenance

Page 36 GAO-12-613 Export Controls

U.S. export control agencies maintain lists that inform the licensing 

process by providing key information on entities of concern to licensing 

officers and the public. The top three locations with the most entities of 

concern, in order, were China, the UAE, and Hong Kong for the State 

Watch List and China, Hong Kong, and UAE for the Commerce Watch 

List. Figure 3 shows the numbers of parties on State’s and Commerce’s 

Watch Lists from the 13 transshipment countries that we reviewed. As of 

September 2011, State’s Watch List contained 100,248 parties, of which 

8,731 (about 9 percent) were from the 13 transshipment countries we 

reviewed. As of December 2011, the Commerce Watch List contained 

36,849 active entities, of which 8,309 (about 23 percent) were from the 13 

transshipment countries we reviewed.

Appendix IV: List Maintenance
Appendix V: End-Use Monitoring

Page 37 GAO-12-613 Export Controls

Figure 3: Numbers of Parties on State and Commerce Watch List by Transshipment 

Country for 2011

Appendix V: End-Use Monitoring
Appendix V: End-Use Monitoring

Page 38 GAO-12-613 Export Controls

Our analysis of the Department of Commerce’s end-use checks shows 

that Commerce focused its efforts on transshipment countries; it 

conducted 57 percent of all end-use checks for fiscal years 2008 to 2010 

in the 13 transshipment countries we reviewed. Of these checks, 33 

percent were unfavorable. In contrast, the Department of State conducted 

26 percent of all end-use checks for fiscal years 2008 to 2010 in the 13 

transshipment countries we reviewed. Table 4 shows end-use checks for 

Commerce and State for the 13 transshipment countries and worldwide 

for fiscal years 2008-2010.

Table 4: Commerce and State End-Use Checks, Fiscal Years 2008–2010

TotalworldwideTotalworldwide

Checkstransshipment 

countries

Checkstransshipment 

countries

Percentage of 

checks in 

transshipment 

countries

Percentage of 

checks in 

transshipment 

countries

Fiscal year Commerce State Commerce State Commerce State 

2008 376 543 197 158 52 % 29 %

2009 547 649 317 156 58 % 24 %

2010 489 723 290 178 59 % 25 %

Total 1,412 1,915 804 492 57 % 26 %

Source: GAO analysis of Commerce and State data.

For fiscal years 2008 through 2010, Commerce conducted about 57 

percent of the total number of end-use checks in the 13 transshipment 

countries we reviewed. (See fig. 4.)
Appendix V: End-Use Monitoring

Page 39 GAO-12-613 Export Controls

Figure 4: Commerce’s End-Use Checks in 13 Transshipment Countries, Fiscal 

Years 2008–2010

Note: This figure represents only completed prelicense and postshipment verifications for 2008 

through 2010.

a

For fiscal years 2008 through 2010, State conducted about 26 percent of 

the total number of end-use checks in the 13 transshipment countries we 

reviewed; 22 percent of these checks were unfavorable (see fig. 5). 

Other transshipment countries include: Malta, Canada, Cyprus, Philippines, Jordan, Indonesia, 

Thailand, Malaysia.
Appendix V: End-Use Monitoring

Page 40 GAO-12-613 Export Controls

Figure 5: State’s Blue Lantern End-Use Checks in 13 Transshipment Countries, 

Fiscal Years 2008–2010
Appendix VI: Comments from the Department 

of Commerce

Page 41 GAO-12-613 Export Controls

Appendix VI: Comments from the 

Department of Commerce

Note: GAO comments 

supplementing those in 

the report text appear at 

the end of this appendix.
Appendix VI: Comments from the Department 

of Commerce

Page 42 GAO-12-613 Export Controls
Appendix VI: Comments from the Department 

of Commerce

Page 43 GAO-12-613 Export Controls

Following are GAO’s comments on the Department of Commerce’s letter 

dated March 9, 2012.

1. Commerce stated that its new Munitions Control Division will include 

24 personnel; eight of these 24 will be compliance specialists who will 

work within the organization to monitor items shipped. These 

compliance specialists will work with enforcement analysts to identify 

entities to conduct both end-use checks overseas and U.S. company 

onsite audits. However, the rationale for these eight compliance 

specialists is unclear. Commerce’s fiscal year 2013 budget request 

listed only 24 licensing officers and Commerce did not provide us with 

any analysis to show that these would include specifically 8 

compliance specialists. In addition, while the administration intends to 

move up to 30,000 license applications from State to Commerce’s 

jurisdiction, Commerce is targeting only 850 end-use checks for each 

fiscal year 2013 and 2014, which is the same number as for fiscal 

year 2012.

2. Commerce stated that, to the extent that information is available, BIS 

has used licensing data, public comments, and interagency expertise 

to address both benefits and risks of moving items from the USML to 

CCL. It stated that the benefits include moving less sensitive 

munitions items, mostly parts and components, to a more flexible 

licensing regime. However, Commerce provided no evidence that it 

completed an assessment of benefits and risks, nor that it assessed 

the benefits and risks of control list reform changes on the range of 

other compliance activities this report discussed. Nonetheless, the 

availability of such information shows that such an assessment can be 

done.

3. Commerce stated that our report makes several references to the 

USML as “more stringent” and that the CCL “imposes fewer 

requirements than State’s controls.” Commerce said it would be more 

accurate to say that the CCL’s flexibility provides more options in 

protecting national security interests. However, State reported in its 

August 2011 Final Plan for Retrospective Analysis of Existing Rules

that defense articles that do not require the stringent controls of the 

Arms Export Control Act will be moved to Commerce’s jurisdiction, 

where the licensing burden on exports can be dramatically reduced. In 

addition, we reported in 2008 that, in most cases, Commerce’s 

GAO Comments
Appendix VI: Comments from the Department 

of Commerce

Page 44 GAO-12-613 Export Controls

controls over dual-use items are less restrictive than State’s controls 

over arms.1 Many items that Commerce controls do not require 

licenses for export to most destinations, while State-controlled items 

generally require licenses for most destinations. Also, some sanctions 

and embargoes only apply to items on State’s USML and not to those 

on the CCL.

 

1 GAO-08-710T. 
Appendix VII: Comments from the Department 

of State

Page 45 GAO-12-613 Export Controls

Appendix VII: Comments from the 

Department of State
Appendix VII: Comments from the Department 

of State

Page 46 GAO-12-613 Export Controls
Appendix VIII: GAO Contact and 

Staff Acknowledgments

Page 47 GAO-12-613 Export Controls

Thomas Melito, (202) 512-9601 or melitot@gao.gov. 

In addition to the individual named above, key contributors to this report 

were Joseph A. Christoff, Director (ret.); Jeff Phillips, Assistant Director; 

Richard G. Howland, Analyst-in-Charge; Mason Thorpe Calhoun; Alberto 

Leff; Elena McGovern; and Lynn Cothern. Martin de Alteriis, Justin Fisher, 

Mitchell Karpman, and Hai Tran provided assistance with design and 

methodology, statistics, data analysis, and technical expertise, 

respectively. Grace Lui provided legal support, Etana Finkler provided 

graphics support, and Joyce Evans, Jeremy Sebest, and Cynthia S. 

Taylor provided assistance in editing and report preparation.

Appendix VIII: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
Related GAO Products

Page 48 GAO-12-613 Export Controls

Export Controls: Proposed Reforms Create Opportunities to Address 

Enforcement Challenges. GAO-12-246. Washington, D.C.: March 27, 

2012.

Persian Gulf: Implementation Gaps Limit the Effectiveness of End-Use 

Monitoring and Human Rights Vetting for U.S. Military Equipment, 

GAO-12-89. Washington, D.C.: November 17, 2011.

Export Controls: Improvements Needed to Prevent Unauthorized 

Technology Releases to Foreign Nationals in the United States. 

GAO-11-354. Washington, D.C.: February 2, 2011.

Defense Exports: Reporting on Exported Articles and Services Needs to 

Be Improved. GAO-10-952. Washington, D.C.: September 21, 2010.

Persian Gulf: U.S. Agencies Need to Improve Licensing Data and to 

Document Reviews of Arms Transfers for U.S. Foreign Policy and 

National Security Goals. GAO-10-918. Washington, D.C.: September 28, 

2010.

Export Controls: Observations on Selected Countries’ Systems and 

Proposed Treaties. GAO-10-557. Washington, D.C.: June 28, 2010.

Iran Sanctions: Complete and Timely Licensing Data Needed to 

Strengthen Enforcement of Export Restrictions. GAO-10-375. 

Washington, D.C.: March 4, 2010.

Export Controls: Challenges with Commerce’s Validated End-User 

Program May Limit its Ability to Ensure That Semiconductor Equipment 

Exported to China is Used as Intended. GAO-08-1095. Washington, D.C.: 

October 27, 2008.

Defense Trade: State Department Needs to Conduct Assessments to 

Identify and Address Inefficiencies and Challenges in the Arms Export 

Process. GAO-08-89. Washington, D.C.: January 8, 2008.

Nonproliferation: U.S. Efforts to Combat Nuclear Networks Need Better 

Data on Proliferation Risks and Program Results. GAO-08-21. 

Washington, D.C.: October 31, 2007.

Defense Trade: Clarification and More Comprehensive Oversight of 

Export Exemptions Certified by DOD Are Needed. GAO-07-1103. 

Washington, D.C.: October 19, 2007.

Related GAO Products
Related GAO Products

Page 49 GAO-12-613 Export Controls

Export Controls: Challenges Exist in Enforcement of an Inherently 

Complex System. GAO-07-265. Washington, D.C.: December 20, 2006.

Export Controls: Agencies Should Assess Vulnerabilities and Improve 

Guidance for Protecting Export-Controlled Information at Universities.

GAO-07-70. Washington, D.C.: December 5, 2006.

Export Controls: Improvements to Commerce’s Dual-Use System Needed 

to Ensure Protection of U.S. Interests in the Post-9/11 Environment.

GAO-06-638. Washington, D.C.: June 26, 2006.

Defense Trade: Arms Export Control System in the Post-9/11 

Environment. GAO-05-234. Washington, D.C.: February 16, 2005.

Nonproliferation: Improvements Needed To Better Control Technology 

Exports For Cruise Missiles And Unmanned Aerial Vehicles.

GAO-04-175. Washington, D.C.: January 23, 2004.

Export Controls: Post-Shipment Verification Provides Limited Assurance 

That Dual-Use Items Are Being Properly Used. GAO-04-357. 

Washington, D.C.: January 12, 2004.

Defense Trade: Better Information Needed To Support Decisions 

Affecting Proposed Weapons Transfers. GAO-03-694. Washington, D.C.: 

July 11, 2003.

Nonproliferation: Strategy Needed To Strengthen Multilateral Export 

Control Regimes. GAO-03-43. Washington, D.C.: October 25, 2002.

Export Controls: Processes for Determining Proper Control of DefenseRelated Items Needs Improvement. GAO-02-996. Washington, D.C.: 

September 20, 2002.

Export Controls: Department of Commerce Controls over Transfers of 

Technology to Foreign Nationals Need Improvement. GAO-02-972. 

Washington, D.C.: September 6, 2002.

Lessons to Be Learned From the Country Export Exemption. GAO-02-63. 

Washington, D.C.: March 29, 2002.

Export Controls: Clarification of Jurisdiction for Missile Technology Items 

Needed. GAO-02-120. Washington, D.C.: October 9, 2001.

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