GAO-13-119R Country-Based Export License Exemptions

November 16, 2012 

The Honorable Ileana Ros-Lehtinen 

Chairman 

The Honorable Howard Berman 

Ranking Member 

Committee on Foreign Affairs 

House of Representatives 

Subject: Export Controls: Compliance and Enforcement Activities and Congressional 

Notification Requirements under Country-Based License Exemptions 

In 2010, the United States announced a reform of its export control systems that 

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

government review and licensing before export. The U.S. government uses the export 

control system to limit the risk of sensitive items falling into the wrong hands, while at the 

same time allow legitimate trade of these items to occur. In particular, the United States 

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

and military, proliferation or terrorist applications) to foreign governments and commercial 

entities and non-governmental organizations. As part of the export control reform effort, 

the Department of State (State), the Department of Commerce (Commerce), and other 

agencies are reassessing the level of control warranted for certain defense items they 

consider to be less sensitive. 

The U.S. government generally requires each export of defense articles, services, and 

dual-use items to undergo a government review and receive a license before export. 

However, State and Commerce provide certain exemptions1

—commonly referred to as 

country-based license exemptions—for the export of selected items to particular 

destinations that present a lower risk of misuse or diversion.2

 In April 2012, State began 

implementing a bilateral defense cooperation treaty between the United Kingdom (UK) 

and the United States to allow certain defense articles and services to be exported without 

a license.3

 A similar treaty with Australia is expected to enter into force in 2013. In 

addition, State implements a long-established country-based license exemption for 

 

1

In this report, we use the term “exemption” to refer to both State’s license exemptions and Commerce’s 

license exceptions. 

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

Announcement of Entry Into Force of the Defense Trade Cooperation Treaty Between the United States and 

the United Kingdom, 77 Fed. Reg. 23,538 (Apr. 19, 2012).

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-13-119R Country-Based Export License Exemptions

Canada for the export of specific items without a license.4 In 2011, Commerce established 

the Strategic Trade Authorization (STA) license exemption, which allows the export, 

without a license, of items controlled for multiple reasons, including national security and 

nuclear nonproliferation, to 36 destinations judged to be of low risk of diversion.5

 The STA 

also allows the export of items controlled only for national security reasons to eight 

additional destinations judged to be of low risk of diversion for such items.6

Additionally, as part of the export control reform, the administration is working to establish 

a framework to transfer control of thousands of defense items from State’s U.S. Munitions 

List to Commerce’s Commerce Control List.7

 In comments on a draft of this report, 

Commerce stated that the President’s Export Control Reform Initiative will enhance 

national security by (1) allowing greater interoperability with NATO and our other allies 

while still maintaining and expanding robust controls and, in some cases, prohibitions on 

exports or reexports to other countries and for proscribed end users and end uses; 

(2) enhancing the U.S. defense industrial base by reducing the current incentives for 

foreign companies to design out or avoid U.S.-origin content that is controlled by the 

International Traffic in Arms Regulations (ITAR) particularly with respect to generic, 

unspecified parts and components; and (3) permitting the U.S. government to focus its 

resources on controlling, monitoring, investigating, analyzing, and, if need be, prohibiting 

exports and reexports of more significant items to destinations, end uses, and end users 

of greater concern than our NATO allies and other multiregime partners. 

Historically, State has controlled defense items, while Commerce controlled dual-use 

items. According to the Acting Secretary of Commerce, items that will be transferred from 

State’s list to the more flexible Commerce list are those that do not perform an inherently 

military function and do not provide the United States with a military or intelligence 

advantage. This would allow the United States to put in place more logical controls on 

trade with close allies while maintaining strict controls over exports and re-exports to 

others, according to the Acting Secretary. According to documents obtained from 

Commerce, most of the defense articles being considered for transfer to Commerce are 

those determined to no longer warrant stricter controls under State, and include largely 

 

4

22 C.F.R. § 126.5.

5

15 C.F.R. § 740.20. The complete list of reasons for control include national security, chemical or biological 

weapons, nuclear nonproliferation, regional stability, crime control, or significant items. The 36 destinations 

are 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.

6

The eight destinations are Albania, Hong Kong, India, Israel, Malta, Singapore, South Africa, and Taiwan.

7

The United States Munitions List identifies defense items controlled by State, and the Commerce Control List 

identifies dual-use and commercial items controlled by Commerce. According to § 730.3 of the Export 

Administration Regulations (EAR), the convenient term dual use is sometimes used to distinguish the types of 

items covered by the EAR from those that are covered by the regulations of certain other U.S. government 

departments and agencies with export licensing responsibilities. In general, the term dual use serves to 

distinguish EAR-controlled items that can be used for both military and other strategic uses (e.g., nuclear) and 

commercial applications. Although the short-hand term “dual use” may be employed to refer to the entire 

scope of the EAR, the EAR also applies to some items that have solely civil uses. For the purposes of this 

report, we refer to items under Commerce jurisdiction as “dual-use” items.
Page 3 GAO-13-119R Country-Based Export License Exemptions

generic parts and components of military equipment.8 As part of the process, Commerce 

has proposed to establish a new classification category called the “600 series” to control 

the export of defense articles transferred to Commerce.9

 Under the proposed rules, 

certain defense items placed in the 600 series will be subject to additional export 

restrictions when using an STA license exemption in comparison to those in place for 

dual-use items. Under the proposed rules, certain defense items placed under Commerce 

control will be eligible for an STA license exemption.10 

In your request, you raised concerns about compliance and enforcement activities11 for 

items exported without a license, such as those under the country-based license 

exemptions. Of particular concern are those defense items proposed to be transferred 

from State’s to Commerce’s control, which may include items such as certain firearms and 

satellite technology. You also raised concerns about potentially diminishing congressional 

notification requirements. U.S. law requires State to notify Congress of certain defense 

exports and to report to Congress certain statutory violations and has different 

requirements for Commerce to do so for dual-use Items.12 Finally, you raised concerns 

about whether notifications to Congress for the export of certain defense articles and 

services and for statutory violations related to those exports would continue if such articles 

and services move to Commerce for control. 

As such, in response to your request, we analyzed State’s and Commerce’s compliance 

and enforcement activities for items exported with a license and those that could be 

exported under four existing or proposed country-based license exemptions: the Defense 

Trade Cooperation Treaties with the UK and Australia (hereafter referred to as “the 

treaties”), the Canadian exemption, and the STA.13 Specifically, this report describes 

existing and proposed (1) compliance and enforcement activities for exports under both 

licenses and country-based license exemptions and (2) requirements for State and 

Commerce to notify Congress of certain defense exports and of violations of export 

control laws. 

To address these objectives, we reviewed relevant statutory authorities that guide State’s 

and Commerce’s export controls processes. We identified the existing country-based 

license exemptions and interviewed State and Commerce officials to determine the 

compliance and enforcement activities each agency implements with respect to these 

 

8

We did not assess the level of controls warranted for items being considered for transfer to Commerce for 

control.

9

76 Fed. Reg. 41,958 (July 15, 2011).

1077 Fed. Reg. 37,524 (June 21, 2012).

11Compliance activities, such as vetting parties to a transaction and review of recordkeeping, are intended to 

encourage compliance with export control laws and regulations, while enforcement activities, such as 

investigations of potential violations of export control laws and regulations, are intended to apply penalties for 

violating them. 

1222 U.S.C. §§ 2776(c)(6) and 2753 and 50 U.S.C. app. §§ 2405, 2413.

13Although Commerce implements several license exemptions that take into account destination and item or 

technology, we limited our review to the STA.
Page 4 GAO-13-119R Country-Based Export License Exemptions

exemptions.14 We also identified and compared the various congressional notification 

requirements for the three country-based license exemptions to the requirements for 

licensed items. We conducted this performance audit from March 2012 to November 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. 

Summary 

Some compliance activities for the export of controlled items under State and Commerce 

licenses differ from compliance activities under country-based license exemptions, but 

enforcement activities are generally the same. Compliance activities provide information 

for exporters, licensing officials, and enforcement agencies to help assess the validity of 

export transactions, identify potential violations, or prevent violations before they occur. Of 

the seven compliance activities we identified, three differ for licensed exports compared 

with country-based license exemptions. These activities are (1) license application review, 

(2) vetting parties to transactions, and (3) compliance program reviews (recordkeeping).15

In contrast to these compliance activities, the other four compliance and three 

enforcement activities, such as inspection of exports, investigations, and punitive actions 

for violations, are generally the same for both licensed exports and country-based, 

license-exempt exports. 

The congressional notification requirements for State and Commerce to report proposed 

exports and statutory violations vary because each agency’s authority stems from different 

legislative statutes.16 Specifically, each agency’s export control regulations derive from 

different legislative authorities and aim to control articles that have different levels of 

concern for diversion or unintended use. State is required by law to notify Congress of 

proposed exports of major defense equipment, articles, and services that meet specific 

dollar thresholds under a license or treaty.17 Commerce is required to notify Congress of 

proposed exports that are destined for a designated state sponsor of terrorism or could 

make a significant contribution to the military potential of the government of a country that 

has repeatedly provided support for acts of international terrorism.18 However, in June 

2012, Commerce issued a proposed rule that would add a new requirement to notify 

Congress of pending exports of major defense equipment, such as articles under the 

proposed 600 series, including those exported under the STA, that meet the same dollar 

 

14We did not assess the potential effectiveness of the compliance and enforcement activities conducted by 

State and Commerce. 

15For the purposes of this report, we characterize the license application review as a compliance activity to be 

consistent with Commerce’s own usage in its annual report and congressional testimony as well as our past 

reports. 

16State’s authority stems from the Arms Export Control Act (AECA). 22 U.S.C. §§ 2751-2799aa-2. 

Commerce’s authority stems from the Export Administration Act (EAA). 50 U.S.C. app. §§ 2401-2420. 

1722 U.S.C. § 2776(c)(6).

1850 U.S.C. app. § 2405(j).
Page 5 GAO-13-119R Country-Based Export License Exemptions

thresholds as those required of State.19 As of November 2012, Commerce was 

considering how to implement its proposal. In terms of enforcement actions, State is 

required to notify Congress of certain violations of export laws.20 Commerce is required to 

provide an annual report to Congress that includes statutory violations resulting in 

administrative and criminal penalties.21

Background 

The U.S. export control system seeks to prevent defense and dual-use items from falling 

into the wrong hands and, at the same time, allow legitimate trade to occur. Defense items 

can include sophisticated technology designed for military use—such as tanks, fighter 

aircraft, submarines, firearms, satellites, missiles—and training. Dual-use items can 

include less-sensitive, commonly available items such as computers, radars, and 

telecommunication equipment. Historically, State regulates defense exports, and 

Commerce regulates dual-use exports. Defense items controlled by State are identified in 

the United States Munitions List, which is implemented under the ITAR.22 Dual-use Items 

controlled by Commerce are identified in the Commerce Control List, which is 

implemented under the Export Administration Regulations (EAR).23 Table 1 identifies the 

U.S. agencies and offices that regulate, enforce, or participate in the defense and dualuse export control systems. 

Table 1: Roles and Responsibilities in the U.S. Defense and Dual-Use Export Control Systems 

Principal 

regulatory 

agency/office Mission 

Statutory 

authority 

Implementing 

regulations Control list 

State Department’s 

Directorate of 

Defense Trade 

Controls 

Regulates and 

enforces 

controls on the 

export of 

defense articles 

and services 

Arms Export 

Control Act 

(AECA), as 

amended 

International 

Traffic in Arms 

Regulations 

(ITAR) 

United States Munitions List 

Commerce 

Department’s 

Bureau of Industry 

and Securitya

Regulates and 

enforces 

controls on the 

export of dualuse items 

Export 

Administration Act 

(EAA) of 1979, as 

amendedb

Export 

Administration 

Regulations 

(EAR) 

Commerce Control List 

 

1977 Fed. Reg. 37,524 (June 21, 2012).

2022 U.S.C. § 2753. 

 

2150 U.S.C. app. § 2413. 

22State implements the ITAR and regulates the export of defense items pursuant to the Arms Export Control 

Act (AECA). 22 U.S.C. § §2751-2799aa-2. 

 

23Commerce implements the EAR and regulates the export of items subject to the EAR, including dual-use 

items, pursuant to the Export Administration Act (EAA). 50 U.S.C. app. §§ 2401-2420. The Export 

Administration Act (EAA) of 1979, as amended lapsed on August 20, 2001. However, the President has, to the 

extent permitted by law, kept in effect the provisions of the EAA and its implementing regulations through 

Executive Order 13222 of August 17, 2001 (66 Fed. Reg. 44,025). Executive Order 13222 was issued under 

the authority provided by the International Emergency Economic Powers Act (50 U.S.C. §§ 1701 et seq.) and 

most recently was extended by Presidential Notice of August 15, 2012. 77 Fed. Reg. 49,699 (Aug. 16, 2012). 
Page 6 GAO-13-119R Country-Based Export License Exemptions

Principal 

regulatory 

agency/office Mission 

Statutory 

authority 

Implementing 

regulations Control list 

Other federal agencies 

Department of 

Defense 

Provides input on which items should be controlled by either State or Commerce and 

conducts technical and national security reviews of export licenses submitted by 

exporters to either State or Commerce. 

Department of 

Homeland Security 

Enforces defense and dual-use export control laws and regulations through border 

inspections and investigations. 

Department of 

Justice 

Investigates suspected criminal violations in certain areas of counterintelligence, 

including potential export control violations, and prosecutes suspected violators of arms 

and dual-use export control laws. 

Department of 

Energy 

Participates in the review of export license applications submitted to State and 

Commerce and provides input on which items should be subject to control under the 

ITAR and EAR, respectively. 

Source: GAO. 

Notes: Data are from GAO, Export Controls: Observations on Selected Countries’ Systems and Proposed Treaties, 

GAO-10-557 (Washington, D.C.: May 27, 2010). 

a

Commerce’s Bureau of the Census implements the Foreign Trade Regulations which require, with some exceptions, that 

exporters provide shipping data through the Automated Export System (AES).The AES is the central point through which 

exporters must electronically file the export shipment data required by multiple agencies. 15 C.F.R. part 30. 

b

50 U.S.C. app. §§ 2401-2420. The Export Administration Act (EAA) of 1979, as amended, lapsed on August 20, 2001. 

However, the President has, to the extent permitted by law, kept in effect the provisions of the EAA and its implementing 

regulations through Executive Order 13222 of August 17, 2001 (66 Fed. Reg. 44,025). Executive Order 13222 was issued 

under the authority provided by the International Emergency Economic Powers Act (50 U.S.C. §§ 1701 et seq.) and most 

recently was extended by Presidential Notice of August 15, 2012. See 77 Fed. Reg. 49,699 (Aug. 16, 2012).

Generally, to receive approval to export certain items, exporters must submit a license 

application to State if their export is a defense item or to Commerce if their export is a 

controlled dual-use item that requires a license. However, both State and Commerce 

provide exemptions that allow the export of controlled items without a license if certain 

conditions are met. State implements three country-based license exemptions: the 

Defense Trade Cooperation Treaty with the United Kingdom (UK), the Defense Trade 

Cooperation Treaty with Australia, and a license exemption for Canada. Although 

Commerce implements several license exemptions, the STA is the only exemption based 

primarily on the destination of the export.24 According to Commerce, license exemptions 

reduce uncertainty and delays faced by exporters of items in the licensing process. 

State-Implemented Treaties and the Canada Exemption

In 2007, the United States signed separate Defense Trade Cooperation Treaties with the 

UK and Australia to provide for the license-free export or transfer of selected defense 

items under certain circumstances. The treaty with the UK entered into force in April 2012, 

while the treaty with Australia is expected to enter into force in 2013. State’s 

implementation of the UK treaty and future implementation of the Australia treaty fall 

under the authority of the AECA. The stated goals of the treaties include achieving fully 

 

24Commerce implements other license exemptions. For example, the exemption “Servicing and Replacement 

of Parts and Equipment” allows for the export and reexport of one-for-one replacement of parts or servicing 

and replacement of previously exported equipment without a license. 

 
Page 7 GAO-13-119R Country-Based Export License Exemptions

interoperable forces, establishing a closer framework for security and defense 

cooperation, and leveraging strengths of the security and defense industries. Only 

authorized governmental and nongovernmental entities, facilities, departments, agencies, 

and personnel in each country party to the treaties are eligible to export, acquire, or 

transfer applicable items under the treaties. The treaties establish the process for certain 

defense articles to be exported into and within these “approved communities” without a 

license as long as exports are in support of certain (1) combined military and 

counterterrorism operations; (2) cooperative security and defense research, development, 

production, and support programs; (3) mutually agreed-upon security and defense 

projects in which the end user is the UK or Australian government; or (4) U.S. government 

end-uses. According to State, as of September 2012, there were no reported exports of 

U.S. Munitions List hardware made pursuant to the UK Treaty exemption in the ITAR.25 

Established in 1954, State’s Canadian exemption grew out of the U.S. and Canadian 

geographic relationship, economic partnership, and mutual interest in the defense of North 

America. As with the treaties, State implements the Canadian exemption through the 

ITAR.26 The scope of the Canadian exemption has evolved since its inception. Earlier 

versions allowed, without a license, the export and import of arms, ammunition, and 

implements of war, and the export of unclassified technical data. Later revisions expanded 

the items eligible for the exemption to include defense services and increased the types of 

items requiring a license.27 According to State, between October 1, 2007, and September 

30, 2008—the latest data available from State—exporters conducted roughly 35,000 

transactions, worth an estimated $1.7 billion, using the Canadian exemption.28 

Commerce-Implemented Strategic Trade Authorization License Exemption

Under the STA license exemption, the export, reexport, and in-country transfer of dual-use 

items may be made without a license to destinations that pose a relatively low risk of 

misuse or diversion. The STA, implemented through the EAR, authorizes the export, 

reexport, and in-country transfer of items subject to controls for reasons of national 

security, chemical or biological weapons, nuclear nonproliferation, regional stability, crime 

 

25State can verify only exports of hardware technology transfers for which exporters are required to file export 

shipment data electronically. This requirement does not apply to technology exports; as such, technology 

exports may have occurred under the treaty without State’s knowledge.

2622 C.F.R. § 126.5.

27In April 1999, State revised its regulations to clarify when the exemption could be used, and limited the 

defense items that could be exported under the exemption. State took this action on the basis of its analysis 

that exports were being reexported from Canada to countries of concern without U.S. government approval 

and that controls over defense and ammunition transfers needed strengthening. For additional information see 

GAO, Defense Trade: Lessons to Be Learned from the Country Export Exemption, GAO-02-63 (Washington 

D.C.: Mar. 29, 2002). 

28State’s End-use Monitoring of Defense Articles and Defense Services, Commercial Exports FY 2009, 

contains a review of the Canadian exemption and determined the number of transactions and dollar value 

associated with the Canadian exemption for fiscal years 2007 and 2008. In this report, State erroneously 

reported to Congress that $17 billion in exports were conducted under the Canadian exemption during this 

period; the correct amount is $1.7 billion; State officials told GAO they plan to report the correct amount to 

Congress. 
Page 8 GAO-13-119R Country-Based Export License Exemptions

control, or significant items to 36 destinations.29 It also enables the export of certain items 

controlled for national security reasons to another eight destinations. According to 

Commerce, from July 2011 to July 2012—the 12 months after the STA exemption entered 

into effect—74 exporters used the STA exemption to conduct 604 transactions worth 

$33.9 million. 

Under the rules proposed by Commerce in June 2012, certain defense items and services 

transferred to Commerce control, such as those to be placed in the 600 series, will be 

eligible for an STA license exemption.30 However, for these eligible defense items, the 

use of the STA is limited to ultimate government end use by one of the 36 authorized 

destinations and requires a previously issued State or Commerce license.31 

Export Processes for Defense and Dual-Use Articles

Generally, exporters are responsible for determining if State or Commerce controls the 

article they seek to export and if a license is required or an exemption may be used. If the 

item requires an export license, the exporter must submit a license application to State or 

Commerce, depending on which agency controls the item, and then follow the designated 

export control process. Exporters seeking to export items controlled by State must register 

with the department regardless if the item is exported under a license or a license 

exemption; however, exporters are not required to register with Commerce.32 If the item is 

eligible for a license exemption—such as under the treaties, the Canadian exemption, or 

the STA—the exporter may choose not to submit a license and follow the streamlined 

export control process under the respective exemption.33 Figure 1 outlines the U.S. export 

control processes when items are exported under a license or a country-based license 

exemption. A full description of these processes is included in enclosure II. 

 

2915 C.F.R. § 740.20. See 15 C.F.R. § 742.14 for the regulatory explanation of significant item as a reason for 

control.

3077 Fed. Reg. 37,524 (June 21, 2012). 

31The proposed rule states that the purchaser, intermediate consignee, ultimate consignee and end user must 

have been previously approved on a State or Commerce export license.

3222 C.F.R. § 122.1.

33The items that Commerce controls may be eligible for other license exemptions.
Page 9 GAO-13-119R Country-Based Export License Exemptions

Figure 1: Export Control Process under a License and Selected Country-Based License Exemption 

Notes: Other agencies may review license applications referred to them by State or Commerce. 

Under Commerce’s proposed rules, certain defense items to be placed in the proposed 600 series would be eligible for the 

STA, but 600 series items that would require a congressional notification would not be eligible for the STA. 

Congressional Notifications

Items controlled under State’s jurisdiction have different controls from those under 

Commerce’s jurisdiction, including different requirements to notify Congress of defense 

transfers and statutory violations. State implements export controls of defense items, 

including country-based license exemptions, pursuant to the Arms Export Control Act 

(AECA), which requires that State notify Congress of certain defense transfers and export 

statutory violations.34 Commerce implements controls of dual-use exports, including the 

STA and other license exemptions, under the Export Administration Act (EAA), which 

 

3422 U.S.C. §§ 2776, 2753.
Page 10 GAO-13-119R Country-Based Export License Exemptions

requires Commerce to notify Congress of proposed exports which are destined for 

designated state sponsors of terrorism or could make a significant contribution to the 

military potential of a government of a country that has repeatedly provided support for 

acts of international terrorism.35 However, Commerce is also required to provide an 

annual report to Congress with information on the number of administrative cases and 

criminal convictions as a result of export control statutory violations by individuals and 

companies.36 Since Commerce is expected under export control reform to have 

jurisdiction over certain defense items, members of Congress have raised concerns about 

whether notifications to Congress for the exports currently controlled by State will continue 

after they are transferred to Commerce. 

Certain Compliance Activities for Exempted Exports Differ from Activities for 

Licensed Exports, but Enforcement Activities Are Generally the Same 

Certain compliance activities for the export of controlled items under State and Commerce 

licenses differ from compliance activities under country-based license exemptions, but 

enforcement activities are generally the same. The three compliance activities that differ 

are (1) license application review, (2) vetting parties to transactions, and (3) compliance 

program reviews (recordkeeping). In contrast to these compliance activities, the other four 

compliance and three enforcement activities, such as inspection of exports, and 

investigations and punitive actions for violations, are generally the same for both licensed 

exports and country-based license-exempt exports. 

Compliance and Enforcement Activities Aim at Preventing Export Control Violations 

Compliance activities provide information for exporters, licensing officials, and 

enforcement agencies to assess the validity of particular export transactions, identify 

potential violations, or prevent violations before they occur. Enforcement activities strive to 

prevent or deter the illegal export or transshipment of defense and dual-use items. We 

identified seven export control compliance activities and three enforcement activities that 

the Departments of Commerce, Homeland Security (DHS), Justice, State, and the 

Treasury conduct to encourage compliance with export control laws and prevent the 

diversion or misuse of exported items against U.S. allies or interests.37 Within each 

compliance and enforcement activity, State, Commerce, or other agencies perform 

specific tasks. Table 2 describes the seven compliance and three enforcement activities, 

along with selected tasks associated with the export of defense and dual-use items. 

 

3550 U.S.C. app. § 2405. 

3650 U.S.C. app. § 2413.

37See GAO, Export Controls: U.S. Agencies Need to Assess Control List Reform’s Impact on Compliance 

Activities, GAO-12-613 (Washington, D.C.: Apr. 23, 2012); and Export Controls: Proposed Reforms Create 

Opportunities to Address Enforcement Challenges, GAO-12-246 (Washington, D.C.: Mar. 27, 2012). 
Page 11 GAO-13-119R Country-Based Export License Exemptions

Table 2: Description of Compliance and Enforcement Activities and Selected Tasks for Export of 

Defense and Dual-Use Items 

Activity Activity description Selected tasks associated with activity 

Compliance activities 

License application 

review 

When deciding whether to approve or 

deny an export license application, 

State and Commerce, among other 

agencies, evaluate it against several 

factors, including how the recipient 

plans to use the item. 

 Agencies review transaction prior 

to export to identify parties to 

transaction, proposed export’s end 

use, and destination. 

Vet parties to the 

transaction 

Review and assess all parties to the 

transaction. 

 Reviewing agencies vet license 

applicant, end-user, and any other 

parties to the transaction against 

internal lists, as well as export and 

licensing histories, intelligence, law 

enforcement, and public 

information. 

 State or Commerce vets parties to 

country-based exemption export 

prior to the first transaction or after 

shipment of selected exports. 

End-use monitoring Conduct checks, as needed, including 

site visits, to verify the bona fides of 

entities and appropriate receipt and 

use of controlled items. 

 State and Commerce conduct 

prelicense checks of applicant, 

end-user, or other parties to 

transaction to verify bona fides. 

 State and Commerce conduct 

postshipment verification checks to 

determine appropriate receipt and 

use of export. 

Shipping data analysis Review selected export declarations to 

identify potential violations and select 

exports for postshipment verification 

check. 

 Commerce conducts real-time 

analysis of information input into 

the Automated Export System 

(AES). 

 State and Commerce conduct 

regular postshipment analysis of 

AES data. 

Compliance program 

reviews 

Review and critique companies’ 

programs to manage export-related 

decisions and transactions to ensure 

compliance with regulations and 

license conditions. 

 State and Commerce review 

exporter’s records to ensure the 

exporter meets requirements. 

 State and Commerce conduct onsite review of exporters’ 

compliance programs. 

List maintenance Update and maintain lists that inform 

the licensing process by providing key 

information on entities of concern to 

licensing officers and the public. 

 State and Commerce update and 

maintain internal “watch lists,” 

among other lists. 

 State, Commerce, and Treasury 

maintain prohibited and sanctioned 

parties’ lists. 
Page 12 GAO-13-119R Country-Based Export License Exemptions

Activity Activity description Selected tasks associated with activity 

Outreach Provide courses, workshops, and 

seminars for exporters to inform them 

of their responsibilities to comply with 

export control laws and regulations. 

Provide training to foreign government 

officials. 

 State and Commerce provide 

information to exporters to assist in 

compliance efforts. 

 State, Commerce, DHS, and 

Justice provide training and 

seminars to foreign government 

officials on how to investigate, 

detect, and interdict unauthorized 

transfers of items. 

Enforcement activities

Inspection of goods Inspect items, including review and 

validation of documentation, scheduled 

for export at U.S. air, sea, and land 

ports. 

 DHS’s Customs and Border 

Protection primarily inspects 

exports at U.S. ports. 

Investigation of 

violations 

Investigate potential violations of 

export control laws for dual-use and 

defense items. 

 Commerce, DHS’s Immigration 

and Customs Enforcement, and 

the Justice Department’s Federal 

Bureau of Investigations may 

investigate potential violations. 

Punitive actions for 

violations 

Pursue punitive actions, either criminal 

or administrative, taken against 

individuals or companies for violations 

of export control laws and regulations. 

Penalties include imprisonment, fines, 

suspension of an export license, 

denial, or debarment from exporting, 

among others. 

 State, Commerce, DHS, and the 

Departments of Justice and the 

Treasury may all take punitive 

actions for violations. 

 Punitive actions taken against 

violators may be criminal or 

administrative. 

Source: GAO analysis of State, Commerce, DHS, and Departments of Justice and the Treasury information. 

Vetting and Compliance Program Reviews for Country-Based License-Exempt Exports 

Are Different from Those Followed for Licensed Exports

We identified three compliance activities that differ for licensed exports compared with 

country-based license-exempt exports. The compliance activities that differ are (1) license 

application reviews (2) vetting parties to transactions and (3) compliance program reviews 

(recordkeeping). The other four compliance and three enforcement activities are generally 

the same. 

License Application Reviews 

Because country-based license exemptions do not require a license, neither State nor 

Commerce conducts license application reviews for items exported under an exemption. 

For transactions requiring a license, the exporter submits an application that State or 

Commerce officials review. As part of the application review process, State and 

Commerce may consult with other agencies. When deciding whether to approve or deny 

an export license application, State and Commerce evaluate it against several factors, 

including how the recipient plans to use the item. 

Vetting Parties to a Transaction 

The process for compliance activities undertaken to vet parties to a transaction for 

licensed exports is different from the process for those activities undertaken to vet parties 

for country-based license-exempt exports. Generally, for items exported under a State or 
Page 13 GAO-13-119R Country-Based Export License Exemptions

Commerce license, U.S. agency officials review the license application and screen all 

entities that are party to each transaction against various agency lists, as well as export 

and licensing histories, and public, law enforcement, and intelligence information. These 

lists include State’s internal Watch List; Commerce’s internal Watch List; Commerce’s 

Denied Persons List, Entity List, and Unverified List; State’s Nonproliferation Sanctions 

List and the AECA Debarred List; and the Department of the Treasury’s Specially 

Designated Nationals List.38 State and Commerce may also conduct a prelicense check to 

verify the credentials of a party before approving a license.39 Such prelicense checks may 

include a site visit to the proposed end-user or foreign consignee.40 Both State and 

Commerce may request input or a review of the license application by another agency, 

such as the Departments of Defense and Energy, as part of the vetting process.41 

The vetting process for State-licensed exports differs from the process for exports under 

the UK and Australia treaties. Although the treaties do not require a license, they do 

require prior vetting and membership into an “approved community.” Approved 

communities include exporters and end users that both treaty members (the United States 

and the UK, or the United States and Australia) have vetted and approved. UK officials vet 

UK applicants for approved community membership; applicants must have “List-X” 

approved facilities, an indication that the facility is approved to hold classified information. 

Once the UK approves applicants, State and other agencies, such as the Departments of 

Defense and Justice, vet the member applicants. Once applicants become members of 

the approved community, State does not vet exporters or end-users before each 

transaction. According to State officials, State can limit the eligibility of or remove 

members from the approved community. State officials explained that the vetting process 

will be similar for Australia once the treaty enters into force. 

In contrast to the process for State-licensed exports and for the treaties, State does not 

vet parties to transactions under the Canadian exemption before the transaction. The 

 

38The Denied Persons List includes individuals and entities that have been denied export privileges. Any 

dealings with a party on this list that would violate the terms of its denial order are prohibited. The Entity List 

includes parties whose presence in a transaction can trigger a license requirement supplemental to those 

elsewhere in the EAR. The list specifies the license requirements and policy that apply to each listed party. 

The Unverified List includes end users whom Commerce’s Bureau of Industry and Security has been unable 

to verify in prior transactions. The presence of a party on this list in a transaction is a “red flag” that should be 

resolved before proceeding with the transaction. The Nonproliferation Sanctions List includes parties that 

have been sanctioned under various statutes. The AECA Debarred List includes entities and individuals 

prohibited from participating directly or indirectly in the export of defense articles, including technical data and 

defense services. The AECA Debarred List includes persons convicted in court of violating or conspiring to 

violate the AECA and subject to “statutory debarment” or persons established to have violated the AECA in an 

administrative proceeding and subject to “administrative debarment.” The Specially Designated Nationals List 

includes parties who may be prohibited from export transactions on the basis of the Department of the 

Treasury’s Office of Foreign Assets Control regulations. The EAR requires a license for exports or reexports to 

any party in any entry on this list. 

39According to Commerce guidance on end-use checks, an on-site visit is a requirement for all prelicense 

checks except under unusual circumstances that must be reported. State, however, does not require an onsite visit for all prelicense checks. 

40Consignee refers to a recipient of the exported item during any phase of the export transaction. 

41As provided for under Executive Order 12981, State and the Departments of Defense and Energy have the 

authority to review any export license application submitted to Commerce, and Commerce may refer export 

license applications to other departments or agencies as appropriate. Exec. Order No. 12,981, 60 Fed. Reg. 

62,981 (Dec. 5, 1995). If there is disagreement among the agencies on the disposition of the application, the 

application goes through an interagency dispute resolution process. 
Page 14 GAO-13-119R Country-Based Export License Exemptions

Canadian Controlled Goods Directorate vets end users and approves them to receive 

U.S. exports. State officials said that Canadian government officials have briefed them on 

the vetting and registration process. State officials expressed confidence in the vetting 

process because, according to them, Canada wants to protect U.S. defense articles and 

be seen as a reliable trading partner. Table 3 summarizes the differences in the 

compliance activities for State-licensed exports and State’s country-based license 

exemptions. 

Table 3: Differences among Compliance Activities for State-Licensed Exports, Exports under the UK 

and Australia Treaties, and Exports under the Canadian Exemption 

Activity State-licensed export 

UK and pending 

Australia treaty 

exemptionsa

 Canadian exemption 

License application review State reviews the license 

application and proposed 

transaction before a 

license is issued. 

Members of the 

approved community 

may export to other 

members of the 

approved community 

without prior State 

approval. 

State does not review 

the transaction prior to 

export. 

Vet parties to the transaction State vets all entities party 

to the export transaction 

before a license is issued. 

State vets all exporters 

applying for membership 

in “approved 

communities.” Only 

members of the 

approved communities 

are allowed to export 

items under the treaty. 

State does not vet 

entities party to a 

transaction under the 

Canadian exemption.b

Compliance program review State reviews exporter’s 

compliance program and 

records; in accordance 

with ITAR, exporters are 

required to maintain 

specific records of their 

transactions for inspection 

upon request. 

State reviews exporter’s 

compliance program and 

records. In addition to 

the standard ITAR 

requirements, exporters 

must apply treaty 

markings to the items 

exported. 

State reviews 

exporter’s compliance 

program and records. 

In addition to the ITAR 

requirements, 

exporters must 

provide an annual 

report to State on 

transactions 

conducted under the 

Canadian exemption. 

Source: GAO analysis of State and Commerce information. 

a

Although signed and ratified by the United States, the treaty with Australia had not entered into force as of the 

date of this report. The information in this column is based on the regulations for the treaty with the UK, which 

State officials said would be similar. 

b

The Canadian Controlled Goods Directorate vets end users and approves them to receive U.S. exports.

For transactions using the STA for current dual-use items, Commerce does not vet parties 

to the transaction before export. Commerce officials said that after the shipment has 

occurred, they identify and vet parties to the transaction and subsequently review new 

exporters to ensure compliance with STA requirements. However, Commerce has 

proposed that in order to use the STA for the export of defense items that may be placed 

under its control, the item must be destined for the end use of a government of one of the 

36 authorized destinations. In addition, certain parties to the transaction would be required 

to have a previously issued State or Commerce license, or have been listed on a previous 
Page 15 GAO-13-119R Country-Based Export License Exemptions

license, indicating that those parties had been previously vetted.42 Table 4 summarizes 

the differences among the compliance activities for Commerce-licensed items and 

Commerce’s STA exemption. 

Table 4: Differences among Compliance Activities for Commerce-Licensed Exports and STA License 

Exemption Exports 

Activity Licensed export STA license exemption 

STA license exemption 

for defense items 

(proposed 600 series)a

License application 

review 

Commerce reviews the 

license application and 

proposed transaction 

before a license is 

issued. 

Commerce does not 

review the transaction prior 

to export. 

Commerce does not plan 

to review the transaction 

prior to export unless 

certain parties to the 

transaction were not 

previously authorized on a 

State or Commerce 

license. 

Vet parties to the export 

transaction 

Commerce vets entities 

party to the export 

transaction before a 

license is issued. 

Commerce identifies and 

vets parties to the 

transaction postshipment. 

Specified parties will be 

required to have a 

previous State or 

Commerce license to use 

the STA for defense items.

Compliance program 

review 

Commerce reviews 

exporter’s records. In 

accordance with the 

EAR, exporters are 

required to maintain 

specific records of their 

transactions and produce 

them for inspection upon 

request. 

Commerce reviews 

exporter’s records. In 

addition to the 

requirements for licensed 

exports, exporters are 

required to obtain and 

maintain consignee 

statements. 

Commerce will review 

exporter’s records. In 

addition to the 

requirements for licensed 

exports, exporters will be 

required to obtain and 

maintain enhanced 

consignee statements. 

Source: GAO analysis of State and Commerce information. 

a

On June 21, 2012, Commerce proposed limitations on the export of items to be placed in the 600 series, 

including those eligible for export under the STA. The information in this column represents the proposed 

regulations in the June 21, 2012, Federal Register notice. 77 Fed. Reg. 37,524.

Compliance Program Review 

If there are compliance concerns, State and Commerce each review and critique 

companies’ compliance programs and records to manage export-related decisions and 

transactions to help ensure they conform with regulations and license conditions. Both the 

ITAR and the EAR require exporters to maintain specific documentation for licensed 

exports, including a description of the item, transaction date, and destination, which helps 

facilitate such reviews and ensure compliance with laws and regulations.43 In addition to 

 

42The proposed rule states that the STA may be used for 600 series items only if the purchaser, intermediate 

consignee, ultimate consignee, and end user have been previously approved on a State or Commerce export 

license. 77 Fed. Reg. 37,524 (June 21, 2012).

43Specifically, the ITAR requires maintenance of records concerning the manufacture, acquisition, and 

disposition (to include copies of all documentation on exports using exemptions and applications and licenses 

and their related documentation) of defense articles; technical data; defense services; brokering activities; and 

information on political contributions, fees, or commissions furnished or obtained (22 C.F.R. § 122.5). 

Additionally, requirements specific to the EAR include contracts, financial records, and export control 

documents such as the license and AES filing (15 C.F.R. § 762.2).

 
Page 16 GAO-13-119R Country-Based Export License Exemptions

the requirements outlined in the ITAR and EAR, each of the three country-based license 

exemptions has one additional requirement: 

 Under the treaties, exporters are required to apply and maintain appropriate treaty 

markings or other identification on the items to help ensure that future approved 

community members understand compliance requirements. 

 Exporters using State’s Canadian exemption must also submit semiannual reports 

to State on their use of the defense service provisions of the Canadian exemption. 

 Exporters using Commerce’s STA exemption must obtain and maintain consignee 

statements. The statement, which the exporter obtains from the consignee, serves 

as an acknowledgement of an agreement to the STA requirements. The statement 

must include, among other things, (1) an indication that the consignee receiving 

the shipment acknowledges it was shipped pursuant to the STA exemption; (2) an 

indication that the consignee receiving the shipment agrees not to transfer or 

reexport the items to any destination, use, or user prohibited by the EAR; and (3) 

the export control classification numbers of the specific items exported.44 If an item 

exported using the STA is re-exported or retransferred, the re-exporter or 

transferor must furnish the export control classification number for the item 

shipped to the subsequent consignee, according to Commerce. 

According to Commerce officials, although the STA exemption is the only Commerce 

license exemption that requires the specific STA consignee statement, other Commerce 

exemptions require written assurances from foreign parties and also serve as a 

compliance mechanism.45 Commerce officials noted that, in enforcement cases, the STA 

consignee statements would be useful if a violation of export laws and regulations occurs 

because the statement would help prove intent to violate the regulation. Commerce 

recently proposed that the STA consignee statement for the export of the defense items 

that may be placed under its control would be enhanced to include a specific provision 

that would permit end-use checks by the U.S. government.46 

Other Compliance and Enforcement Activities Are Generally the Same 

Other compliance activities are generally the same for licensed exports and country-based 

exempted exports. According to State and Commerce officials, all exports, whether under 

a license or a license exemption, may be subject to end-use monitoring checks, which 

helps ensure that parties to the transaction comply with export license terms, licensing 

conditions, exemption terms, and export regulations. Both State and Commerce analyze 

shipping data to determine which exports should receive postshipment verification checks 

(part of end-use monitoring) for licensed exports, for country-based license-exempt 

exports, and for any other exports subject to the ITAR and EAR. In addition to selecting 

exports for postshipment verification checks, Commerce also analyzes STA shipping data 

to verify that the item–country relationship is correct and to identify exporters using the 

 

4415 C.F.R. § 740.20. 

45In previous discussions with Commerce officials, we were told that the STA exemption is the only 

Commerce license exemption that requires a consignee statement. 

4677 Fed. Reg. 37,524 (June 21, 2012).
Page 17 GAO-13-119R Country-Based Export License Exemptions

STA exemption for the first time. According to Commerce officials, all first-time users of 

the STA exemption for current dual-use items are subject to a Commerce Compliance 

Review to verify compliance with the license exemption regulations (such as obtaining the 

consignee statement). In addition, Commerce officials conduct real-time analysis of 

shipping data in order to verify compliance with laws and regulations, and to detect and 

prevent illegal transactions. According to State and Commerce officials, country-based 

license exemptions do not influence the process the agencies use for updating and 

maintaining lists of parties against which applicants or end-users are screened during the 

vetting process. As part of their ongoing outreach efforts, both State and Commerce 

officials said they have conducted outreach to exporters and foreign government officials 

to educate them about the country-based license exemptions. 

Enforcement activities are generally the same for licensed exports and country-based 

exempted exports. According to State and Commerce officials, all exports, regardless of 

how they are exported, are subject to inspection and possible seizure at the border, 

investigation for potential violations, and punitive actions for actual violations. Further, 

State officials said that all exports under ITAR, including exports under a license, the 

treaties, and the Canadian exemption are subject to retransfer or reexport restrictions in 

accordance with ITAR regulations. Items exported under the treaties may only be 

retransferred or reexported to another member of the approved community in accordance 

with the requirements outlined in the exemption. Items exported under STA cannot be 

transferred or reexported in violation of the EAR. In addition, items exported under the 

STA are not eligible to use certain parts of the license exemption “Additional Permissive 

Re-exports,” which allows for reexport without a license and may be used under certain 

circumstances with licensed exports.47 

State and Commerce Have Different Requirements for Notifying Congress of 

Proposed Controlled Exports and Statutory Violations; Commerce Has Proposed 

Harmonizing Certain Notification Requirements

State is required by statute to notify Congress of certain proposed defense exports and 

statutory violations; Commerce is required to notify Congress of exports of dual-use items 

in specific cases and is not required to provide notification of statutory violations 

generally.48 The congressional notification requirements for exports and statutory 

violations vary because State and Commerce export control regulations derive from 

different authorities and aim to control articles that have different levels of concern for 

diversion or unintended use. State is required to notify Congress of proposed exports of 

major defense equipment, articles, and services that meet specific dollar thresholds under 

a license or treaty.49 Commerce is required to notify Congress in cases in which proposed 

exports are destined for a designated state sponsor of terrorism or could make a 

significant contribution to the military potential of a government of a country that has 

repeatedly provided support for acts of international terrorism.50 However, in June 2012, 

Commerce issued a proposed rule that would require congressional notification of 

 

4715 C.F.R. § 740.20. Items exported under the STA are not eligible for paragraphs (a) or (b) of the license 

exemption Additional Permissive Re-exports. 

4822 U.S.C. §§ 2776, 2753 and 50 U.S.C. app. §§ 2405, 2413. 

 

4922 U.S.C. §§ 2776 and 2753; see also 22 C.F.R. § 126.17.

5050 U.S.C. app. § 2405.
Page 18 GAO-13-119R Country-Based Export License Exemptions

pending exports of major defense equipment, such as articles under the 600 series, 

including those exported under the STA, that meet the same dollar thresholds as those 

required of State.51 As of November 2012, Commerce was considering how to implement 

its proposal. In terms of enforcement actions, State is required to notify Congress of 

certain violations of export laws that exceed specified statutory dollar thresholds.52

Commerce reports statutory violations that result in administrative and criminal cases as 

part of its annual report to Congress. 

State Is Required to Notify Congress of Proposed Exports for Certain Defense Items and 

of Statutory Violations

The AECA requires State to notify Congress of proposed exports for major defense 

equipment on the basis of set thresholds that vary among items requiring a license and 

those under the treaties.53 According to State officials, exporters are responsible for 

informing State when controlled items exported with a license or under any of the countrybased license exemptions will reach the congressional notification threshold. When State 

obtains this information, it is required to submit a notification to Congress. Since export of 

major defense equipment, articles, and services are not included under the Canadian 

exemption and continue to require a license, AECA congressional notification 

requirements do not apply.54 

State must notify Congress of planned exports of controlled items that required a license 

within certain parameters. Specifically: 

 State must notify Congress at least 30 days before the export of any major 

defense equipment requiring an export license in the amount of $14 million or 

more, of defense articles or defense services sold under a contract in the amount 

of $50 million or more, and firearms in an amount of $1 million or more to countries 

outside of the North Atlantic Treaty Organization (NATO), Japan, Australia, New 

Zealand, South Korea, and Israel.55 

 State must notify Congress at least 15 days before the export of any major 

defense equipment requiring an export license in the amount of $25 million or 

more, of defense articles or defense services sold under a contract in the amount 

of $100 million or more, or of firearms in an amount of $1 million or more to NATO, 

Japan, Australia, New Zealand, South Korea, and Israel.56

 

5177 Fed. Reg. 37,524.

5222 U.S.C. § 2753.

5322 U.S.C. §§ 2753 and 2776. 

 

54Specifically, the Canadian exemption does not cover firearms and ammunition, generation III (or more 

sophisticated) night vision equipment, launch vehicles, most spacecraft, missiles, USML items, and related 

technical data identified on the Missile Technology Control Regime Annex, as well as other sensitive military 

technologies, including those that require congressional notification. 

5522 U.S.C. § 2776. Pursuant to the AECA, major defense equipment means any item of significant military 

equipment on the USML having a nonrecurring research and development cost of more than $50 million or a 

total production cost of more than $200 million (22 U.S.C. § 2794(6)).

5622 U.S.C. § 2776. 
Page 19 GAO-13-119R Country-Based Export License Exemptions

State is also required in the notification to identify the foreign country or international 

organization to which such export will be made, the dollar amount of the items to be 

exported, and a description of the items to be exported.57

Regulations for the implementation of the UK treaty require similar congressional 

notification for proposed exports.58 The specific thresholds for congressional notification 

for exports of major defense equipment under the UK treaty are the same as those 

required under licensed exports to NATO countries listed above. Approved community 

members are required to notify State of a proposed export that meets the above 

thresholds.59 State then has 30 days to respond to the exporter. An exporter may not 

export the item until an official response from State has been received. In addition, State 

is required to submit an annual report to Congress on the treaties. This report should 

include a summary of the amount of exports under the treaty and the defense articles 

transitioned into the treaty, with an analysis of how the treaty is being used. 

In addition, the AECA requires State to notify Congress of certain violations of export 

laws.60 According to State officials, Section 3 of the AECA mandates State to notify 

Congress of certain violations concerning transfers of defense articles, training, and 

services under Foreign Military Sales, Excess Defense Articles, and Military Assistance 

Programs, and in some cases defense articles under Direct Commercial Sales. State 

officials noted that State provides notifications of violations of Direct Commercial Sales for 

cases where exports exceed certain statutory thresholds.61 According to State officials, if 

there is such a violation, State notifies Congress in writing or through a briefing to the 

Speaker of the House of Representatives and to the Chairperson of the Senate Foreign 

Relations Committee. In addition, State issues an annual report to Congress on its Blue 

Lantern end-use monitoring program,62 which includes, among other things, information 

on the number of unfavorable determinations from end-use checks conducted during the 

fiscal year.63 According to State officials, all defense exports under State’s control, 

regardless of license requirements, may be subject to Blue Lantern inquiries. In addition to 

the Blue Lantern annual report, Congress also requires a separate annual report on enduse monitoring and compliance activities specifically related to the treaties. 

 

5722 U.S.C. § 2776(c). 

58Implemented in 22 CFR C.F.R. § 126.17(o). The regulations for the implementation of the Australia treaty 

have not been developed because the treaty is not yet in effect. 

5922 C.F.R. § 126.17(o).

6022 U.S.C. § 2753.

61According to State, the set threshold to report Defense Commercial Sales is $14 million in major defense 

equipment or $50 million of other defense articles.

62The Blue Lantern program is operated in accordance with section 40A of the AECA (22 U.S.C. § 2778). 

63An unfavorable determination means that the Blue Lantern’s findings of fact are not consistent with the 

information contained in the application or license. 
Page 20 GAO-13-119R Country-Based Export License Exemptions

Commerce Is Proposing to Notify Congress Voluntarily of Certain Controlled Exports and 

Currently Reports on Some Statutory Violations 

The Export Administration Act (EAA) requires Commerce to notify Congress of certain 

proposed dual-use exports, but no general requirement to notify Congress of statutory 

violations. The EAA requires Commerce to notify Congress of proposed exports which are 

destined for a designated state sponsor of terrorism or could make a significant 

contribution to the military potential of a government of a country that has repeatedly 

provided support for acts of international terrorism.64 According to Commerce officials, the 

absence of a broader congressional notification requirement under the EAA raised 

concerns that Congress would no longer have oversight of exports of certain defense 

items that might be transferred from State control to Commerce control. Subsequently, in 

June 2012, Commerce issued a proposed rule that includes notifying Congress of planned 

exports of major defense equipment to be placed under Commerce control that meet the 

same dollar thresholds as those required of State.65 Commerce officials also said that the 

requirement would apply to major defense equipment that might be eligible for the STA 

exemption. As of September 2012, Commerce was reviewing comments on and 

considering how to implement the proposed rule. 

The EAA also does not contain specific requirements for Commerce to notify Congress of 

export controls violations. However, it requires Commerce to submit an annual report to 

Congress that includes information on export control violations.66 The report includes 

information on the number of administrative cases and criminal convictions as a result of 

export control violations by individuals and companies. For example, in 2011 Commerce 

reported its investigations resulted in the criminal conviction of 39 individuals and 

businesses for export violations and that penalties for these convictions came to 

$20,214,000 in criminal fines and more than 572 months of imprisonment.67 Cases include 

violations such as attempting to export controlled goods without a license and making 

false statements in a license to export firearms. The report provides information on the 

amount collected in fines resulting from convictions and administrative cases each year. 

According to Commerce officials, any violations related to the STA that result in criminal or 

administrative penalties will also be included in the report. 

Agency Comments and Our Evaluation 

We provided a draft of this report to the Departments of Commerce and State for their 

review and comment. In written comments (which are reproduced in enclosure III), 

Commerce stated that our report could be improved by describing the rationale for making 

less-sensitive items moved from the United States Munitions List to the “600 series” in the 

Commerce Control List eligible for the STA license exemption. We have incorporated the 

 

6450 U.S.C. app. § 2405. 

 

6577 Fed. Reg. 37,524.

6650 U.S.C. app. § 2413(a)(19).

67Department of Commerce, Bureau of Industry and Security, Annual Report to Congress for Fiscal Year 2011

(Washington, DC: Department of Commerce), accessed July 2, 2012, 

http://www.bis.doc.gov/news/2012/bis_annual_report_2011.pdf.
Page 21 GAO-13-119R Country-Based Export License Exemptions

suggested language as provided. Commerce also provided additional technical 

comments, which we incorporated as appropriate. State did not provide written comments 

on the draft of this report but provided technical comments, which we incorporated into the 

report, as appropriate. 

As agreed with your offices, unless you publicly announce the contents of this report 

earlier, we plan no further distribution until 30 days from the report date. At that time, we 

will send copies to interested congressional committees, the Secretary of State, and the 

Secretary of Commerce. In addition, the report will be available at no charge on the GAO 

website at http://www.gao.gov. If you or your staffs have any questions about this report, 

please contact me at (202) 512-9601 or 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 contributed to this report are listed in Enclosure IV. 

Thomas Melito 

Director 

International Affairs and Trade 

Enclosures (4) 
Enclosure I

Page 22 GAO-13-119R Country-Based Export License Exemptions

Objectives, Scope, and Methodology

In this review, we analyzed the Departments of State’s (State) and Commerce’s 

(Commerce) compliance and enforcement activities and congressional notification 

requirements for controlled items exported with a license and those exported under four 

country-based license exemptions: the Defense Trade Cooperation Treaties with the 

United Kingdom (UK) and Australia (hereafter referred to as “the treaties”), the Canadian 

exemption, and the Strategic Trade Authorization (STA). Specifically, we compared 

existing and proposed (1) compliance and enforcement activities for exports under both 

licenses and country-based license exemptions, and (2) requirements for State and 

Commerce to notify Congress of certain defense exports and of violations of export 

control laws or regulations. 

To address the first objective, we first identified and reviewed statutory authorities, their 

implementing regulations, and proposed changes to these regulations that guide State 

and Commerce’s defense and dual-use export control processes. Specifically, we 

reviewed the Arms Export Control Act (AECA) and the International Traffic in Arms 

Regulations (ITAR), as well as the Export Administration Act (EAA) and the Export 

Administration Regulations (EAR), and selected Federal Register notices. To identify and 

describe the country-based license exemptions, we interviewed officials from State and 

Commerce and reviewed related regulatory and statutory authorities noted above, as well 

as the U.S.-U.K Treaty on Defense Trade Cooperation, the U.S.-Australia Treaty on 

Defense Trade Cooperation, each treaty’s Implementing Arrangements, and applicable 

Federal Register notices. To identify the compliance and enforcement activities for State 

and Commerce’s licensed exports and for the agencies’ country-based license 

exemptions, we interviewed State and Commerce officials, and reviewed agency 

documents and reports, as well as past GAO reports. Specifically, we interviewed officials 

from State’s Directorate of Defense Trade Controls (DDTC), which manages the license 

and license exemption process for defense exports; and Commerce’s Bureau of Industry 

and Security (BIS), which manages the licensing and license exemption process for dualuse items. We reviewed agency documents related to the compliance and enforcement 

activities for both the licensing process and country-based license exemption process, 

including State’s standard operating procedures for admitting members to the UK treaty’s 

approved community, State’s standard operating procedures for providing annual reports 

on the UK treaty, Commerce’s compliance plan for the STA exemption, State’s annual 

Blue Lantern program reports, BIS’s annual reports to Congress, and previous GAO 

reports. To determine and compare proposed compliance and enforcement activities for 

items moving from the United States Munitions List to the Commerce Control List, we 

reviewed selected Federal Register notices and interviewed State and Commerce 

officials. 

To compare the existing and proposed congressional notification requirements for 

transfers and export violations for State’s and Commerce’s licensed exports and these 

requirements for State and Commerce’s country-based license exemptions, we reviewed 

statutory regulations and proposed changes to these regulations, including the Arms 

Export Control Act, International Traffic in Arms Regulations, Export Administration Act, 

Export Administration Regulations, the U.S.-U.K Treaty on Defense Trade Cooperation, 

the U.S.-Australia Treaty on Defense Trade Cooperation, the treaties’ Implementing 

Arrangements, and applicable Federal Register notices. In addition, we interviewed 

officials from State and Commerce, including officials from State’s DDTC and 
Enclosure I

Page 23 GAO-13-119R Country-Based Export License Exemptions

Commerce’s BIS, which manage the licensing and license exempt processes for defense 

and dual-use items, respectively. 

We conducted this performance audit from March 2012 to November 2012 in accordance 

with generally accepted government auditing standards. Those 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.
Enclosure II

Page 24 GAO-13-119R Country-Based Export License Exemptions

Export Process for Defense and Dual-Use Items and Services under Licenses and 

Country-Based Exemptions 

The Departments of State (State) and Commerce (Commerce) administer the regulatory 

frameworks for the export of defense and dual-use items. State administers controls for 

defense items and services, and Commerce does so for dual-use items, which have both 

military and civilian applications. 

Generally, exporters are responsible for determining which agency (State or Commerce) 

controls the item or service they seek to export and which regulatory requirements apply, 

if any. Generally, unless an exemption applies, exporters submit a license application to 

the requisite agency if their item or service is controlled by either State or Commerce to 

receive approval to export. Once a license application is submitted by the exporter, the 

agency reviews the application and may approve, approve with conditions, deny, or return 

the license to the exporter without action.68 When deciding whether to approve or deny an 

application, State or Commerce evaluates it against several factors, including an 

assessment of all parties to the transaction and how the recipient plans to use the item. 

As part of the application review process, State and Commerce may consult with other 

agencies such as the Departments of Defense or Energy.69 If the application for export 

meets certain thresholds, the agencies may provide notification to Congress of the 

pending export.70 If the export license application is approved, the exporter files data into 

the Automated Export System (AES), the central point through which exporters are 

required to electronically file shipment data required by multiple agencies. 

The initial export process differs for country-based license exempt exports because a 

license application is not required. For State’s Canadian exemption and the United 

Kingdom and Australia treaties, exporters first must verify the recipient’s eligibility to 

receive the export, either through verifying their registration with the Canadian Controlled 

Goods Directorate or as a member in the “approved community” for the treaties.71 For the 

treaties, the exporter must also determine if the export reaches a threshold that requires 

notification to Congress of the proposed sale. Once registration or membership has been 

verified and notification provided to Congress, if needed for the treaties, the exporter files 

data into the AES. 

 

68An agency may return a license application without action if, for example, the agency needs additional 

information. 

69As provided for under Executive Order 12981, State and the Departments of Defense and Energy have the 

authority to review any export license application submitted to Commerce, and Commerce may refer export 

license applications to other departments or agencies as appropriate. Exec. Order No. 12,981, 60 Fed. Reg. 

62,981 (Dec. 5, 1995). 

70State is required by statute to notify Congress of pending exports that meet specific dollar thresholds. 22 

U.S.C. § 2776. Commerce is required to notify Congress of pending exports where the item is destined for a 

designated state sponsor of terrorism or could make a significant contribution to the military potential of a 

government of a country that has repeatedly provided support for acts of international terrorism. 50 U.S.C. 

app. 2405. Commerce recently proposed notifying Congress of pending exports of 600 series items that meet 

the same dollar thresholds required for State.

 

71Although signed and ratified by the United States, the treaty with Australia had not entered into force as of 

the date of this report. The information in this enclosure is based on the regulations for the treaty with the UK, 

which State officials said would be similar. 

 
Enclosure II

Page 25 GAO-13-119R Country-Based Export License Exemptions

For all exporters utilizing the Strategic Trade Authorization (STA) exemption, exporters 

must obtain a consignee statement prior to export.72 As proposed, for 600 series items the 

exporter must also verify that a previous State or Commerce license has been issued and 

that the ultimate end-user is the government of one of the 36 destinations, and determine 

if the proposed export reaches a threshold that requires notification to Congress.73 Once 

the consignee statement has been obtained, the exporter files data into the Automated 

Export System. 

Once the exporter files data into the Automated Export System for either licensed exports 

or country-based license exempt exports, the Department of Homeland Security’s 

Customs and Border Protection and other agencies may review and validate the export 

documentation, inspect outbound cargo and detain questionable shipments. In addition, 

Commerce and State may conduct end-use monitoring checks to verify the receipt and 

use of the item or service exported. Exporters are required to maintain STA-related 

documentation, such as the consignee statement. In addition, Commerce officials said 

new users of the STA are identified and undergo an export compliance review. 

 

7215 C.F.R. § 740.20. 

73On June 21, 2012, Commerce proposed restrictions on the export of 600 series items, including those that 

would be eligible for export under the STA. As part of this proposed rule, Commerce proposed notifying 

Congress of planned exports of major defense equipment to be placed under the 600 series of the Commerce 

Control List that meet the same dollar thresholds as those required of State. However, for exports of 600 

series items that meet congressional thresholds, exporters would not be able to use the STA. 77 Fed. Reg. 

37,524.
Enclosure III

Page 26 GAO-13-119R Country-Based Export License Exemptions

Comments of the Department of Commerce 
Enclosure IV

Page 27 GAO-13-119R Country-Based Export License Exemptions

GAO Contact and Staff Acknowledgments 

GAO Contact 

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

Staff Acknowledgments 

GAO staff who contributed to this report includes Jeff Phillips, Assistant Director; Jenna 

Beveridge; Francisco M. Enriquez; and Grace Lui.
Page 28 GAO-13-119R Country-Based Export License Exemptions

Related GAO Products 

Export Controls: U.S. Agencies Need to Assess Control List Reform’s Impact on 

Compliance Activities. GAO-12-613. Washington, D.C.: April 23, 2012. 

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. 

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. 
Page 29 GAO-13-119R Country-Based Export License Exemptions

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 Defense-Related 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. 

Defense Trade: 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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