Iran Sanctions: Complete and Timely Licensing Data Needed to Strengthen Enforcement of Export Restrictions
Published: 2010-03-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 1995, the United States banned exports to Iran of most U.S. goods without a Treasury Department license. In 2008, the U.S. media, citing U.S. government statistics, reported that U.S. firms were exporting numerous goods to Iran. The statistics are maintained by the Census Bureau and are based on data filed by exporters or their agents. The United States has also generally banned unlicensed transshipments of U.S. goods to Iran via other nations. In this report, GAO assesses the extent to which (1) U.S. trade statistics accurately depict exports to Iran, (2) Treasury licenses exports to Iran in accordance with the trade restrictions and provides licensing data to enforcement agencies and Congress, and (3) Iran obtains U.S. military and dual-use goods through transshipment. GAO analyzed Census export data, a randomly selected sample of Treasury export licenses, Treasury licensing information systems, and U.S. government transshipment data. It also interviewed relevant U.S. government officials.
section_title: What GAO Found
paragraphs: U.S. trade statistics for exports to Iran erroneously include goods that were not exported to Iran. While the statistics indicate that U.S. firms exported 278 types of goods to Iran from 2004 to 2008, 97 of these types of goods were instead exported to Ireland, Iraq, and other countries. The misidentification of Iran as the recipient resulted from errors in export data filings that Census did not detect or correct. As a result of our review, Census officials stated, Census has begun manually checking all new filings of exports to Iran and posting corrections to a Census Web page. While Treasury is licensing exports to Iran in accordance with export restrictions, it cannot provide complete and timely information about the licenses it has issued. Its paper-based licensing information systems cannot be searched to quickly identify licenses for exports of goods to Iran. For example, Treasury was unable to address a 2009 request from U.S. Customs and Border Protection (CBP) officials for complete and timely licensing data to support CBP inspectors at U.S. ports. Treasury's information systems weaken the ability of the government to assess compliance with Iran sanctions. Treasury plans to upgrade its licensing information system for agricultural and medical exports to Iran. However, the upgrade would not address its inability to readily identify licenses for other goods, including civilian items with potential military uses. A wide range of U.S. military and dual-use goods are illegally transshipped to Iran through the United Arab Emirates (UAE), Malaysia, Singapore, and other countries, according to U.S. officials. The Justice Department has prosecuted several individuals for efforts to transship military aircraft parts to Iran.

section_title: Letter
paragraphs: Iran’s actions to enrich uranium, conceal its nuclear program, and sponsor  international terrorism present significant challenges to U.S. national  interests. In response, the United States has banned the export of most  U.S. goods to Iran without an export license from the Department of the  Treasury. According to Treasury officials, Treasury’s general policy is to  deny most license applications for Iran with the exception of agricultural  and medical goods specified in a 2000 law. Treasury is responsible for  maintaining records of its export licensing decisions. In 2008, the U.S.  media, citing U.S. government official trade statistics, reported that U.S.  firms had exported a wide range of restricted goods to Iran, including  military rifles. At that time, Treasury officials questioned the statistics’  accuracy and stated that Treasury had licensed exports to Iran in  compliance with U.S. law and policy. The statistics, which are maintained  by the U.S. Census Bureau (Census), are based on data that exporters or  their agents file. In addition to restricting direct exports, the United States  has also generally prohibited U.S. firms from knowingly shipping goods to  Iran through other nations without a Treasury license. This prohibition  includes dual-use goods (civilian goods with potential military  applications) that the Department of Commerce has licensed for export to  other countries. The Departments of Commerce, Defense, Justice, and  Homeland Security are responsible for detecting and prosecuting illegal  transshipment of U.S. goods to Iran.
In this report, we assess the extent to which (1) U.S. trade statistics  accurately depict U.S. exports to Iran, (2) Treasury licenses U.S. exports to  Iran in accordance with the trade restrictions and provides complete and  timely licensing data to enforcement agencies and Congress, and (3) Iran  obtains U.S. military and dual-use items through illegal transshipments. We  also present information in appendix II regarding U.S. legal tools for  sanctioning foreign firms that export sensitive non-U.S. technologies to Iran.
To assess the extent to which U.S. statistics accurately depict U.S. exports  to Iran, we asked Census to review the export statistics for Iran and  identify the addresses of the recipients of the exports. We also met with  Census officials to determine their methods and policies for assuring the  accuracy of the statistics. To assess Treasury’s licensing activities, we  selected a random sample of Treasury export licenses for agricultural and  medical goods and determined if the goods and recipients cited in the  licenses were consistent with U.S. law. We also reviewed Treasury  documents concerning the systems Treasury uses to record its licensing  activities, interviewed Treasury and other executive branch officials, and  requested detailed licensing data from Treasury. To review the extent to  which U.S. goods are illegally transshipped to Iran, we obtained and  analyzed lists of relevant criminal prosecutions from the Department of  Justice. We also discussed transshipment issues with officials of the  Departments of Commerce, Defense, Homeland Security (including U.S.  Customs and Border Protection and U.S. Immigration and Customs  Enforcement), Justice, and the Treasury; the Federal Bureau of  Investigation; and other government agencies. The Department of  Commerce (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.
We conducted this performance audit from May 2009 to March 2010 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. Our scope and methodology are described  in greater detail in appendix I.
subsections: section_title: Background
paragraphs: The U.S. government’s official trade statistics are maintained by the U.S.  Census Bureau for use as economic indicators and measures of the U.S.  balance of trade with other countries. The statistics are based primarily on  data filed by exporters and their agents into the electronic Automated  Export System (AES) database. Census maintains the AES data on a  mainframe computer operated by the Department of Homeland Security’s  U.S. Customs and Border Protection. While most filers enter data through  the Census Bureau’s AESDirect or a related Census system, others have  developed their own software for this purpose. The data filed into AES  includes the recipient country. Until recently, filers of export data  designated the recipient country by choosing a two-letter international  standard country code. Data filers also designate the type of good being  exported from a list of more than 8,000 internationally harmonized  commodity codes. According to these statistics, the United States  exported worldwide nearly $1.3 trillion during 2008.
U.S. exports to Iran are severely restricted by U.S. laws and regulations.  Before 1979, the United States enjoyed good relations with the Iranian  government and exported military equipment to Iran. However, U.S.- Iranian relations deteriorated sharply following the 1979 Iranian revolution  and the consequent seizure of U.S. embassy personnel. Iran’s subsequent  efforts to enrich uranium and support international terrorism prompted  the United States to impose numerous sanctions on Iran, including a 1995  ban on almost all U.S. exports to that country. The current ban is  administered by the Office of Foreign Assets Control of the U.S.  Department of the Treasury, which is also responsible for licensing  financial transactions with Iran and imports from Iran. Under the ban, in  general, a U.S. person must obtain a Treasury license before exporting or  selling goods to Iran. Congress had already restricted exports to Iran by  prohibiting the export of dual-use goods (civilian goods with potential  military applications) to Iran. This prohibition can be waived by the  President if the President determines that doing so is essential to the  national interests of the United States.
According to Treasury officials, Treasury policy is to generally deny  license applications for the export of U.S. goods to Iran, with the  exception of goods covered by the Trade Sanctions Reform and Export  Enhancement Act of 2000 (TSRA). TSRA requires the President to  terminate any unilateral agricultural or medical sanctions against a foreign  country or foreign entity. TSRA also states that the export of agricultural  commodities, medicine, or medical devices to a designated state sponsor  of terrorism, such as Iran, shall only be made pursuant to 1-year  licenses. As a result, Treasury licenses the export of agricultural goods,  medicines, and medical goods to Iran and other sanctioned countries.  Treasury has issued a growing number of licenses for agricultural and  medical exports to Iran following passage of TSRA, as shown in figure 1.  TSRA licenses may not be granted for exports to entities linked to  international terrorism, the proliferation of weapons of mass destruction,  or narcotics trafficking.
The trade ban also generally prohibits exports of U.S. goods (including  dual-use items) to countries other than Iran without a Treasury license if  the exporter has reason to know the goods are specifically intended for  transshipment to Iran. Foreign firms are generally prohibited from  knowingly reexporting goods on Commerce’s list of controlled dual use  goods to Iran even if those goods were originally legally exported from the  United States to a third country under a Commerce license. For example,  dual-use U.S. goods exported to countries other than Iran under a  Commerce license may not be subsequently transshipped to Iran without a  Treasury license if the exporter knew or had reason to know that such  goods were intended for Iran. The Departments of Commerce, Defense,  Homeland Security, Justice, and the Treasury investigate allegations of  illegal transshipment of U.S. goods to Iran. Exporters who knowingly ship  U.S. goods to Iran via other countries without a Treasury license are  subject to prosecution by the Department of Justice. Congress is  considering new sanctions that would restrict Iran’s ability to import  goods from other countries.
section_title: U.S. Export Statistics for Iran Erroneously Include Goods Not Exported to Iran
paragraphs: The U.S. government’s official statistics for U.S. exports to Iran  erroneously include many types of goods that U.S. firms did not export to  Iran. The misidentification of Iran as the recipient country in the statistics  is the result of export data filing errors that Census did not detect or  correct. Census officials stated that, as a result of our review, Census has  begun manually checking new export filings reporting exports to Iran.  While Census policy is not to correct errors in the statistics that are older  than 1 year, it has begun posting Iran-related corrections on a separate  Web page.
subsections: section_title: U.S. Export Statistics Contain Numerous Erroneous Entries for Iran
paragraphs: U.S. export statistics erroneously indicate that U.S. exporters shipped 278  types of goods to Iran from 2004 to 2008. At our request, Census reviewed  its records and determined that more than a third (97) of these types of  goods had not been exported to Iran. As shown in table 1, the types of  goods erroneously included in the Iran export statistics include military  rifles exported to Iraq and aircraft parts exported to Ireland, Israel, and  Iraq. The remaining types of goods in the export statistics for Iran are  primarily agricultural, medical, humanitarian, or informational.
The misidentification of Iran as the recipient country for these and other  exports was the result of errors made by filers of export data into the  Automated Export System. In checking its records at our request, Census  determined the addresses of the recipients to which the shipment were to  be delivered. It found many cases of “improbable” addresses, such as  “Dublin, Iran.” In these cases, exporters apparently mistook the two-letter  country code for Iran (“IR”) for the code for the actual recipient country.  For example, exporters shipping goods to Ireland might enter “IR” instead  of the correct code for Ireland (“IE”). Table 2 depicts the code for Iran and  the codes for several other recipient countries.
section_title: Census Did Not Detect or Correct Errors in Export Data for Iran
paragraphs: Census officials stated that they did not detect or correct all of the Iran- related errors in new exporter filings or in the export statistics for  previous years. The officials focused on detecting errors involving high- dollar value transactions because of the statistics’ use in determining the  U.S. balance of trade rather than the sensitivity of the reported recipient  country. The officials stated that they did not focus on detecting errors in  the data for exports to Iran because the value of such exports was  relatively small. In 2008, the reported value of U.S. exports to Iran was  $683 million, while the total value of all U.S. exports worldwide was nearly  $1.3 trillion. Moreover, the officials stated, the policy of the Census  Bureau is not to make changes in trade statistics that are more than a year  old. For example, Census officials have not corrected an erroneous entry  in the statistics concerning the alleged export of rifles to Iran in 2004,  although they learned of the error in 2008. Census officials also stated that  Census is not involved in enforcing U.S. export controls on Iran.
Although the dollar value of U.S. exports to Iran is small relative to the  value of all U.S. exports, the accuracy of the Census Bureau’s Iran export  statistics is important. The nature and composition of the U.S. exports to  Iran is sensitive because the United States has severely restricted trade  with Iran as a state sponsor of terrorism. Also, other U.S. government  agencies use these statistics in connection with the trade with Iran. For  example, Commerce and Homeland Security enforcement officials use the  statistics as part of their enforcement targeting efforts. In addition,  officials from the Department of State stated that they employ these  statistics in defending U.S. trade policy with Iran in discussion with other  governments.
section_title: Census Has Taken Action in Response to Our Review
paragraphs: In response to our review, Census officials have taken action to improve  the accuracy of statistics concerning current U.S. exports to Iran.
Beginning in August 2009, Census officials began routine accuracy checks  of new filings of exports to Iran and other heavily sanctioned countries  (Cuba, North Korea, and Sudan), regardless of the dollar value of the  exports. Census officials stated that they are now checking recipient  addresses to verify that they match the reported country of destination  and are calling filers of export data to verify questionable entries.
Although they have not formalized the process, Census officials have  stated that they intend to continue these accuracy checks.
Census also clarified the country selection process in AESDirect, the filing  system used by most exporters to enter information into the Automated  Export System. Because exporters often apparently assumed that “IR” was  the code for other countries, Census has changed the data entry process to  include a pull-down menu that lists all the countries of the world by their  complete names.
In June 2009, Census began posting an online list of corrections to Iran  export data. However, Census officials stated that they will continue  their policy of not correcting errors in the trade statistics older than 1  year.
Census officials stated that it is too early to determine the extent to which  these recent efforts may improve the accuracy of U.S. statistics concerning  exports to Iran.
section_title: Treasury Is Licensi Exports to Iran in Accordance with Trade Ban but Cannot Provide Complete and Timely Inform ation on Its Licensing Decisions
paragraphs: Treasury is licensing exports to Iran in accordance with the trade ban but  cannot provide other agencies or Congress with complete and timely  licensing information. It is hindered by paper-based information systems  that cannot be searched to identify licenses for the export of goods to Ira As a result, Treasury has been unable to quickly respond to requests for  complete information on such licenses. Treasury is planning to upgrade it system for tracking licenses for agricultural and medical exports to Iran,  which are permitted by TSRA. However, the upgrade would not include  the small number of export licenses for other types of goods, such as dual- use civilian aviation equipment with potential military uses.
subsections: section_title: Treasury Licenses for Exports to Iran Are in Accordance with the Trade Ban
paragraphs: Our review of a sample of TSRA licenses found no evidence that Treasury  has issued TSRA licenses for the export of goods other than those covered  by TSRA. We also found no evidence that TSRA licenses involved recipients  engaged in forbidden activities. We selected a random sample of 58 licenses  from 1,833 TSRA export licenses issued by Treasury between October 2006  and August 2009. The licenses selected authorized the export of more than  275 types of goods. None of the licenses in our sample authorized the export  of nonagricultural or nonmedical items. Also, none of the end users listed on  the licenses in our sample appeared on Treasury’s Specially Designated  Nationals and Blocked Persons List, which contains individuals known to be  linked to international terrorism, the proliferation of weapons of mass  destruction, and narcotics trafficking.
We also reviewed 34 non-TSRA licenses that Treasury issued between  January 2008 and July 2009. As shown in table 3, we found that all but one  of the licenses involved the return of human remains to Iran; official U.S.  government and law enforcement matters; educational, research, and  exchange programs; and media-related enterprises for broadcasting or  Internet connectivity. The remaining license involved the export of dual- use equipment to help ensure the safety of Iran’s U.S.-built civilian  airliners. U.S. law prohibits the export of any dual-use item to Iran and  states that the President may waive the prohibition if doing so is essential  to the interests of the United States. The President has delegated the  authority to issue such waivers to the Secretary of State. We obtained a  list of waivers from the Department of State and confirmed that a waiver  had been issued for this dual-use export.
section_title: Treasury Information Systems Cannot Provide Complete and Timely Licensing Data to Other Agencies and Congress
paragraphs: Treasury cannot provide other agencies or Congress with complete and  timely information concerning the licenses it has issued. It cannot do so  because it relies on paper-based information systems that cannot be  searched to identify licenses for the export of goods to Iran. Treasury’s  primary licensing information system for export licenses is based on  correspondence tracking software. According to a Treasury official  familiar with the system, it contains nonstandardized data for license  applications entered before 2007, relies on manual data entry, and requires  time-consuming case-by-case review by licensing officials to ensure its  reliability and suitability for release. Treasury’s secondary information  system was created by TSRA licensing personnel to support the licensing  of exports of TSRA goods. In January 2009, an internal Treasury budget  request characterized the TSRA information system as a “largely paper- based” system that hinders “the speed, efficacy, reliability, and security of   licensing, enforcement and compliance activities.” Treasury  officials must manually review all TSRA licensing data for Iran to identify  licenses that authorize the export of goods. Because the TSRA system is  not integrated with Treasury’s primary licensing information system, TSRA  licensing officials must manually enter the same data into both systems.
Treasury has been unable to consistently provide timely and complete  licensing information for Iran to other agencies and Congress. For  example, a Treasury official informed U.S. Customs and Border Protection  (CBP) officials in 2009 that Treasury’s information systems could not  provide CBP with complete and timely information on licenses issued for  the export of goods to Iran. CBP officials stated that they had sought the  information to help CBP officers at U.S. ports quickly determine whether  goods slated for export to Iran had been properly licensed by Treasury.  CBP officers currently use a more time-consuming process to access  limited Treasury data through a third agency. Treasury officials stated in  January 2010 that their licensing information systems focus on the  exceptions that Treasury grants to the Iran trade embargo, rather than on  controls over the export of specific goods.
Similarly, as of March 1, 2010, Treasury had yet to provide Congress with a  required biennial report on TSRA licenses issued to Iran from October 1,  2006 to September 30, 2008. Treasury officials noted that Treasury has  published quarterly reports that contain the number of TSRA licenses  issued during this period. However, the data in the quarterly reports were  not consistent with data that Treasury provided us during our review. A  TSRA official stated that Treasury could not resolve the inconsistencies in  a timely manner because of information system limitations. In addition,  Treasury required more than 2 months to provide GAO with adequate data  concerning its TSRA licenses.
Treasury has begun work to upgrade its system for managing TSRA  licensing information. During our review, Treasury hired a contractor in  September 2009 to begin designing a system to better manage TSRA  licensing information. The stated goal of the project is to provide Treasury  with an integrated, largely paperless TSRA database that would allow it to  better collect and manage information, conduct analysis, improve  efficiency, provide U.S. law enforcement agencies with better information,  and improve the timeliness of reports to Congress. Treasury intends to  complete the upgrade by September 2010. Treasury officials informed us  that they gave priority to upgrading the TSRA database because of the  volume of licensing requests.
However, the new TSRA system would not include licenses that Treasury  has issued for the export of goods that are not agricultural or medical in  nature, including dual-use civilian goods with potential military  applications. Congress has prohibited the export of any dual-use item to  Iran and has stated that the President may waive the prohibition if doing  so is essential to the interests of the United States. Treasury has had  difficulty in identifying licenses for dual-use items. For example, Treasury  officials informed a Defense Department Central Command (CENTCOM)  official in 2009 that they could not provide CENTCOM with a list of  Treasury licenses for the export of U.S. dual-use civilian aircraft parts to  Iran. According to the CENTCOM official’s report, Treasury officials stated  they could not do so because of information system limitations. Similarly,  Treasury took more than 4 months to provide GAO with adequate data  concerning a dual-use export license and 33 other non-TSRA licenses  issued during the preceding 18 months (January 1, 2008-July 2009).  Treasury officials stated in December 2009 that Treasury had yet to  determine when it might upgrade its licensing information system for non- TSRA export licenses.
In 2007, we identified the lack of data concerning U.S. trade sanctions as a  governmentwide problem affecting the U.S. government’s ability to assess  the impact of the sanctions on Iran. Given Treasury’s central role in  licensing exports to Iran, its inability to provide complete and timely  licensing information weakens government efforts to determine whether  dual-use and other goods exported to Iran have been properly licensed and  to assess compliance with the trade ban.
section_title: Iran Is Obtaining Illegal Transshipments of U.S. Military and Dual-Use Goods through Other Countries
paragraphs: According to U.S. officials, Iran is obtaining U.S. military and dual-use  goods that are being illegally transshipped by firms and individuals  through locations in numerous countries, including the United Arab  Emirates, Malaysia, and Singapore. The goods include components for  U.S.-built fighter aircraft, electronics, and specialized metals. To address  the problem, U.S. 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  United Arab Emirates and other countries.
subsections: section_title: Wide Range of Military and Dual-Use Goods Involved in Iran Transshipment Cases
paragraphs: Firms and individuals have transshipped or attempted to transship a wide  range of U.S. military and dual-use goods to Iran, according to U.S.  officials. The Department of Justice reported in September 2009 that  individuals and firms were seeking to transship military components to  Iran. For example, the department listed nine major criminal prosecutions  between 2007 and September 2009 that involved transshipment of  components for Iran’s U.S.-built fighter aircraft. These aircraft include the  F-14 fighter, a highly capable aircraft used by the U.S. Navy until 2006 (see  fig. 2); the F-4 fighter-bomber; and the F-5 fighter. The department also  reported efforts to transship parts for Iran’s U.S.-built military helicopters,  military-grade night vision equipment, submachine guns, computers, and  specialized laboratory equipment. Immigration and Customs Enforcement  officials expressed concern regarding Iranian efforts to acquire through  transshipment electronic components for missiles, parts for Iran’s U.S.- built Hawk anti-aircraft missiles, specialized steel, and pumps with nuclear  applications.
section_title: Goods Are Transshipped through Several Nations
paragraphs: Firms and individuals have transshipped or attempted to transship goods  though intermediaries in several countries. A 2009 report by the Justice  Department cited 30 cases that involved the use of intermediaries in the  United Arab Emirates (UAE), Malaysia, Singapore, Thailand, Australia,  Canada, Colombia, Brazil, Austria, France, Germany, Luxembourg, The  Netherlands, and the United Kingdom. As shown in figure 3, the cases  involved efforts to ship the goods to Iran through the use of intermediaries  in these countries. More than 50 percent of the cases listed involved use of  intermediaries in the UAE for transshipment. About 20 percent involved  the use of Malaysia and Singapore. U.S. goods involved in these cases  included U.S. military aircraft components, laboratory equipment,  specialty alloy pipes, night vision goggles, and sensitive technologies sent  to Iranian missile and nuclear entities.
U.S. officials stated that the UAE has taken steps to address the use of its  territory for transshipment. They noted that the UAE has increased  cooperation with U.S. enforcement entities and enacted new export  control legislation in 2007. According to the UAE government, the new law  addresses goods subject to import and export control procedures, bans  the export or re-export of strategic goods (including arms and military  hardware, chemical and biological materials, and dual-use items) without  a special license, and specifies penalties of imprisonment of up to a year  and fines totaling over $270,000. U.S. officials met with UAE officials in  June 2009 to discuss the implementation of the new law. Commerce  officials stated that the law contains the basic elements of an export  control regime to combat transshipment. However, some U.S. officials also  stated that individuals involved in illegal transshipment may shift their  operations to other nations, such as Malaysia and Singapore.
section_title: Actions Are Being Taken by U.S. Agencies to Combat Transshipment
paragraphs: U.S. enforcement officials stated that they pursue allegations of  transshipment. For example, Defense Criminal Investigative Services and  U.S. Immigration and Customs Enforcement officials stated they conduct  undercover investigations to detect efforts by Iranian procurement agents  to obtain U.S. goods in response to requests from Iran’s military-industrial  establishment. To do so, procurement agents may seek to build long-term  relationships with suppliers by initially buying small quantities of  relatively-innocuous items before seeking more sensitive items. Defense  Criminal Investigative Services and U.S. Immigration and Customs  Enforcement officials stated that, in one case, a procurement agent with  ties to the Iranian military attempted to procure about 700 goods,  including aircraft parts and radar components. Most of the goods would  have required U.S. government licenses to be exported to their alleged  destination in the United Arab Emirates. The individual seeking the parts  typically identified himself as a United Arab Emirates businessman in  approaching U.S. firms, according to U.S. enforcement officials. The  individual provided false documents and attempted to convince the U.S.  firms that they did not need to obtain export licenses.
U.S. law provides criminal penalties for the illegal transshipment of goods  to Iran. For example, violators of Treasury’s Iranian Transactions  Regulations may receive sentences of up to 20 years imprisonment and  fines of up to $1 million. The Justice Department has reported that from  January 2007 to September 2009 it handled at least 30 criminal  prosecutions involving actual or attempted transshipments to Iran. Five  individuals convicted in connection with these cases received sentences of  imprisonment that ranged from 6 months to more than 5 years.
The Commerce Department is responsible for licensing U.S. exports of  dual-use items to the UAE, as well as countries other than Iran. To help  detect illegal transshipments of U.S. dual-use goods, Commerce  enforcement personnel select a sample of previously shipped goods and  attempt to verify they are located and being used in accordance with  licensing conditions.
U.S. agencies have provided export control assistance to countries that  have been used by intermediaries to transshipment goods to Iran. For  example, the UAE has received assistance provided by U.S. agencies,  including the Department of Homeland Security and the Department of  Energy. The Departments of Commerce and Justice have also worked with  the UAE in improving its controls over exports.
section_title: Conclusions
paragraphs: While the United States government has severely restricted U.S. exports to  Iran, it cannot readily determine the extent to which it has issued licenses  for such exports or the extent to which goods marked for Iran are leaving  U.S. ports. U.S. agencies should have complete, reliable, and timely  information concerning these matters to ensure the U.S. government is  implementing the ban on exports to Iran. While covert transshipments of  U.S. goods through third-party countries are inherently difficult to detect,  erroneous reports of overt shipments of U.S. goods to Iran have prompted  concerns that the United States is not abiding by its own export ban. The  Census Bureau has taken some steps to detect and correct errors in its  latest statistics, but the Treasury Department has yet to take action to  ensure that it can retrieve complete and timely data on which exports to  Iran it has licensed and which it has not.
section_title: Recommendation for Executive Action
paragraphs: To help ensure that U.S. agencies have timely access to reliable data  concerning licensed U.S. exports to Iran, we recommend that the  Secretary of the Treasury ensure that the Department of the Treasury  develop the capability to provide other agencies and Congress with  complete and timely information concerning all licenses issued for the  export of goods to Iran.
section_title: Agency Comments and Our Evaluation
paragraphs: Treasury provided written comments regarding a draft of our report,  which are reprinted in appendix III. With regard to our recommendation,  Treasury stated that it is already able to access, review, and share  information relating to TSRA licenses and that it “hopes” to enhance its  abilities to process non-TSRA licensing information. It also indicated that  it plans to share licensing data with CBP in the future through the  Automated Commercial Environment (ACE) system. Treasury  acknowledged that its ability to search some parts of its current licensing  databases is limited and that its data systems could be improved. Treasury  also acknowledged that it “has work to do” before it can provide CBP with  the specific data CBP needs to validate licensed exports. While Treasury is  able to access and share licensing information, it cannot do so in a  complete and timely manner. As noted in our draft report, Treasury  required more than 2 months to provide us with complete licensing data  for agricultural and medical exports and more than 4 months to access  and share 34 recent export licenses for other types of goods, including a  dual-use good with potential military applications. The ACE system is still  in development and is not ready to receive Treasury’s export data. We  therefore have not changed our recommendation that Treasury develop  the ability to provide complete and timely information regarding all export  licenses for Iran.
Treasury also stated that, contrary to the notion that the administration of  the sanctions program had been weakened, nothing in our draft report  indicated that enforcement actions regarding exports to Iran, or the  implementation of the sanctions, had been impaired by incomplete and  untimely licensing data. Treasury’s assertion is in contrast with a 2009  internal Treasury budget request, in which Treasury officials stated that  (1) Treasury’s information processes were hampering “the speed, efficacy,  reliability and security” of its enforcement and compliance activities and  (2) Treasury would be able to provide better information to law  enforcement agencies if it upgraded its TSRA information system. Also, as  noted in our report, limitations in Treasury’s information systems  prevented it from responding to a request from U.S. Customs and Border  Protection officials for more complete and timely licensing information to  aid CBP agents at U.S. ports.
Treasury also stated that it appreciated the report’s finding that Treasury  is licensing the export of goods to Iran in accordance with the laws and  regulations imposing sanctions on Iran. However, it expressed concern  that our draft report title conveyed an impression that Treasury’s  information systems were weakening the implementation of economic  sanctions against Iran. We therefore modified the title of our report to  clarify our message and reinforce our recommendation.
The Department of Commerce provided formal written comments  concerning the Census Bureau’s maintenance of U.S. export statistics.  Commerce’s comments were technical in nature and did not address our  findings or recommendation. We have incorporated Commerce’s  comments in our text as appropriate and reproduced them in appendix IV.  The other agencies cited in this report did not provide formal comments.  CBP, U.S. Immigration and Customs Enforcement, and Treasury provided  technical comments, which we incorporated as appropriate.
We are sending copies of this report to the Departments of Commerce,  Defense, Energy, Homeland Security, Justice, State, and the Treasury, as  well as interested congressional committees. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-8979 or christoffj@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. Key contributors are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To assess the extent to which U.S. statistics accurately depict U.S. exports  to Iran, we analyzed the results of a Census Bureau review of records  regarding all types of goods reportedly shipped to Iran from 2004 through  2008 to determine the specific destinations of those goods. In reviewing its  records, Census checked the shipping address of the ultimate recipient for  each good. Based on the results of its review, Census provided us with the  actual country of destination and the total dollar value of each type of  good that was sent to a country other than Iran. We used that information  to adjust the data found in the U.S. export statistics. We also reviewed a  Census Web page listing corrections to U.S. export data concerning Iran to  corroborate the posted corrections with those that Census had provided to  us. We also met with Census officials to determine their methods and  policies for assuring the accuracy of the statistics.
To assess the Treasury Department’s licensing activities, we first reviewed  U.S. laws and regulations that established sanctions on U.S. exports to  Iran, including Treasury’s Iranian Transaction Regulations. We then  reviewed a random sample of 58 licenses that were issued by Treasury to  exporters from October 2006 to August 2009. With this probability sample,  each member of the study population had a nonzero probability of being  included, and that probability could be computed for any member. The  random sample was taken from a list of 1,833 licenses provided to us by  Treasury. On the basis of the sample, we estimate no more than 5 percent  of the population contained errors, at a 95 percent confidence level,  which we judged to be sufficiently reliable for our review. In the digital  PDF copies of licenses we obtained, we verified that all licenses were for  agricultural goods, medicines, and medical devices allowed under TSRA  and the Iranian Transactions Regulations. We also looked at the intended  end users in the license to verify that none were sponsors of international  terrorism. The names of end users in the licenses were compared with a  search of Treasury’s Specially Designated Nationals and Blocked Persons  list, which is maintained and updated daily on Treasury’s Web site. For  non-TSRA goods, we reviewed all non-TSRA licenses provided by Treasury  for January 2008 to June 2009. For dual-use items, we verified that a  waiver had been obtained for the export of goods to Iran before a license  was granted. We also interviewed officials from the Departments of the  Treasury and State on their collaboration and joint decision-making for  licenses granted for export to Iran that required a presidential waiver. To  assess Treasury’s ability to provide complete and timely licensing data to  other agencies and Congress, we obtained documents concerning  Treasury information systems, including contracting and budget  documents for a planned upgrade. We obtained a Treasury presentation on  the TSRA Database and Foreign Assets Control Database systems used to  store records of its licensing activities. We also obtained and reviewed all  of the mandated biennial and quarterly reports for TSRA on Treasury’s  Web site. We compiled these reports into a comprehensive total of  licenses issued by Treasury and then compared it with the list Treasury  provided to us for the overlapping time periods. We also interviewed  relevant Treasury licensing, information technology, and enforcement  officials. We interviewed officials from the Departments of Commerce and  Homeland Security and other entities who use Treasury licensing  information. In addition, we requested detailed licensing data from  Treasury and monitored its ability to comply with our request.
To review the extent to which U.S. goods are being illegally transshipped  to Iran, we obtained and analyzed lists of relevant criminal prosecutions  from the Department of Justice. We also discussed transshipment issues  with officials of the Departments of Commerce, Defense, Homeland  Security, Justice, and the Treasury; the Federal Bureau of Investigation;  and other government agencies. We relied on secondary sources for  descriptions of foreign laws.
section_title: Appendix II: U.S. Legal Tools for Sanctioning Foreign Companies That Transfer Sensitive Technology
paragraphs: The U.S. government has a number of legal tools to exert pressure on  foreign entities that transfer foreign sensitive technologies to Iran. These  tools allow the United States to penalize foreign entities by freezing their  U.S. properties, limiting their ability to trade with the United States,  prohibiting them from obtaining U.S. government procurement contracts,  or otherwise impairing their ability to work with U.S. entities. Some of  these tools are specifically focused on the transfer of technologies to Iran,  while others can be applied to a wider range of actions. The laws  presented below are discussed only in the context of non-U.S. entities  transferring sensitive non-U.S. technologies to Iran from outside the  United States. Please refer to the original text of the laws for the full  content.
subsections: section_title: Executive Orders 13382, 12938, and 13094
paragraphs: These executive orders establish criteria for the application of sanctions  on foreign firms that provide sensitive technologies to Iran. The orders  draw their authority from the International Emergency Economic Powers  Act (IEEPA) and several other acts of Congress.
Executive Order 13382 allows the Secretary of State or the Secretary of the  Treasury, in consultation with each other and other relevant agencies, to  freeze the assets of persons designated as being engaged in the  proliferation of weapons of mass destruction (WMD), as well as members  of their support networks. The order also states that frozen assets may  not be transferred, paid, exported, withdrawn or otherwise dealt in and  prohibits any transactions by a U.S. person or within the United States  taken to evade or avoid such prohibitions. Foreign persons can be  designated under the order if they have engaged, or attempted to engage,  in activities or transactions that have materially contributed to the  proliferation of (or pose a risk of doing so) WMD or WMD delivery  systems (such as missiles capable of delivering WMD). Such activities  include efforts by any person or country of proliferation concern to  manufacture, acquire, possess, develop, transport, transfer, or use WMD or  WMD delivery systems.
Executive Order 12938 allows the Secretary of State to impose sanctions  against foreign persons if the Secretary has made a determination that  such persons have, on or after November 16, 1990, knowingly and  materially contributed to the efforts of any foreign country, project, or  entity to use, develop, produce, stockpile, or otherwise acquire chemical  or biological weapons. The United States government is prohibited from  procuring goods or services from a designated person or importing  products produced by a designated person, unless exempted from these  sanctions by the Secretaries of State and the Treasury for certain reasons,  such as U.S. military requirements or defense production needs.
Executive Order 13094 expanded Executive Order 12938 to impose  sanctions when the Secretary of State determines that a foreign person on  or after November 16, 1990, has materially contributed or attempted to  contribute materially to the efforts of any foreign country, project, or  entity of proliferation concern to use, acquire, design, develop, produce, or  stockpile weapons of mass destruction or missiles capable of delivering  such weapons. The penalties that could be imposed under Executive  Order 12938 remained the same.
section_title: Iran, North Korea, and Syria Nonproliferation Act
paragraphs: This act allows the President to sanction foreign persons with respect to  whom there is credible evidence indicating that such persons transferred  sensitive goods, services, or technology to Iran after a certain date. Under  the act, the President is required to report to the Senate Foreign Relations  Committee and the House Foreign Affairs Committee every 6 months  identifying foreign persons with respect to whom there is credible  evidence that such persons have, on or after January 1, 1999, transferred  goods, services, or technology listed in specified multilateral export  control lists to Iran. The act allows the President to impose a number of  measures to a foreign person appearing in the report, such as a ban of U.S.  government procurement from the designated person, a ban of U.S.  government arms sales to the foreign person, or the denial or suspension  of licenses to export dual-use items to the foreign person.
section_title: Iran-Iraq Arms Nonproliferation Act of 1992
paragraphs: This act requires the President to sanction persons who, by transferring  or retransferring goods or technology, “knowingly and materially”  contribute to Iran’s efforts to acquire chemical, biological, or nuclear  weapons, or destabilizing numbers and types of advanced conventional  weapons. Mandatory sanctions under the act include (1) a ban on U.S.  government procurement from sanctioned persons and (2) a ban on  licenses for export to or by the foreign person. The sanctions are to be  imposed and last for 2 years, unless the President issues a waiver on the  basis that it is essential to U.S. national interests. The President is  required to report to the Senate Armed Services, Senate Foreign Relations,  House Armed Services, and House Foreign Affairs committees if the  President determines that a person has made a transfer subject to sanction  under the act. In the report, the President must identify the person,  provide details of the transfer, and describe the actions taken or to be  taken under the act.
section_title: Iran Sanctions Act
paragraphs: This act allows the President to sanction persons who provide Iran with  goods, technology, or services if they know that doing so would contribute  materially to Iran’s ability to acquire or develop (1) chemical, biological, or  nuclear weapons or related technologies or (2) destabilizing numbers and  types of advanced conventional weapons. The act requires the President  to impose at least two of the following sanctions:    denying Export-Import Bank assistance for exporting to the foreign    banning licenses to export sensitive technologies to the sanctioned    banning U.S. financial institutions from loaning the sanctioned person  more than $10 million in a 1-year period;  if the sanctioned person is a financial institution, banning that institution  from dealing in U.S. debt instruments or serving as repositories for U.S.  government funds; and    banning U.S. Government procurement, as well as other sanctions that fall  under the powers of the International Emergency Economic Powers Act,  including IEEPA-derived executive orders.
The President may waive these sanctions if the President determines that  doing so is important to the national interest of the United States.
section_title: Nuclear Proliferation Prevention Act of 1994
paragraphs: This act directs the President, with exceptions, to sanction persons if the  President determines in writing that such persons have “materially and  with requisite knowledge” contributed, through the transfer of certain  specified goods or technology, to the efforts of any individual, group, or  non-nuclear-weapon state to (1) acquire unsafeguarded special nuclear  material or (2) to use, develop, produce, stockpile, or otherwise acquire  any nuclear explosive device. The penalty is a ban on United States  government procurement from the sanctioned person lasting at least 1  year. The President may waive the penalty after the sanction has been  imposed for a year if the President determines, and certifies in writing to  Congress, that continuation would have a serious adverse effect on vital  United States interests. The act further requires the President to sanction  persons if the President determines in writing that a United States person  or a foreign person has (by providing financing) knowingly, materially, and  directly contributed or attempted to contribute to an individual, group, or  non-nuclear weapon state’s (1) acquisition of unsafeguarded special  nuclear material or (2) the use, development, production, stockpiling, or  other acquisition of any nuclear explosive device. For at least 1 year,  sanctioned persons may not be primary dealers in U.S. government debt  instruments, serve as depositories of U.S. government funds, directly or  indirectly commence any line of business in the United States, or directly  or indirectly conduct new business from a new location in the United  States. The President may waive these sanctions after a year if the  President determines in writing, and certifies to Congress, that their  continuation would have a serious adverse effect on the on the safety and  soundness of the domestic or international financial system or on  domestic or international payments systems.
section_title: Arms Export Control Act
paragraphs: Portions of the Arms Export Control Act (AECA) require the President to  sanction foreign persons that the President has determined to have (1)  provided to certain countries missile equipment or technology or (2)  contributed to certain countries’ acquisition of chemical or biological  weapons.
Section 73 (22 U.S.C. § 2797b): Under this section, subject to exceptions,  the President shall impose sanctions when the president determines that a  foreign persons have knowingly exported, transferred, or otherwise  engaged in the trade of missile equipment or technology controlled under  the Missile Technology Control Regime (MTCR) that contributes to the  acquisition, design, development, or production of missiles in a country  that is not an MTCR adherent. The President shall also apply sanctions  when he has made a determination with respect to a foreign person under  section 2410b(b)(1) of Title 50, Appendix (discussed later). Depending on  the nature of the equipment and technology involved, sanctions could  include (1) denying the foreign persons U.S. government contracts related  to missile equipment or technology, (2) denying the foreign persons any  U.S. government contracts, (3) denying licenses for transfers of missile  equipment or technology controlled under the Arms Export Control Act to  the sanctioned persons, (4) denying licenses for the transfer of all items on  the United States Munitions List to the sanctioned persons, or (5)  prohibiting the importation of products produced by the sanctioned  persons into the United States. The President may waive these sanctions in  certain cases specified in the act. The President may also decide to apply a  waiver with respect to a product or service if the President certifies to  Congress that (1) the product or service is essential to the national  security of the United States and (2) such person is a sole source supplier  of the product or service, and an alternative is not available and cannot be  made available in a timely manner.
Section 81 (22 U.S.C. § 2798): Under this section, the President is required  to sanction, subject to certain exceptions, foreign persons the President  determines to have knowingly and materially contributed, through the  export of certain goods or technology or any other transaction not already  subject to sanctions under the Export Administration Act, to the efforts of  certain foreign countries to use, develop, produce, stockpile, or otherwise  acquire chemical or biological weapons. The sanctions are a ban on U.S.  government procurement from the foreign person and a ban on imports  into the United States from the foreign person for at least 12 months. After  a year of imposing the sanctions, the President may waive the sanctions by  certifying to Congress that doing so is important to the national security  interests of the United States.
Export Administration Act  Portions of this act require the President to sanction foreign persons that  are determined to have (1) provided to certain countries missile  equipment or technology or (2) contributed to certain countries’  acquisition of chemical or biological weapons.
Section 11B (50 app. U.S.C. § 2410b): Subject to certain exceptions, the  President shall impose sanctions when the President determines that a  foreign person has knowingly exported, transferred, or otherwise engaged  in the trade of any MTCR equipment or technology that contributes to the  design, development, or production of missiles in a non-MTCR country.  The section also calls for sanctions on persons who have conspired or  attempted to engage in or facilitated such export, transfer, or trade. The  President shall also impose sanctions under this act if the President makes  a determination with respect to a foreign person under section 73(a) of the  Arms Export Control Act (22 U.S.C. § 2797b(a)) (discussed above).  Depending on circumstances specified in this section, sanctions could  include a 2-year denial of specified licenses for the transfer to the  sanctioned person of AECA-controlled missile equipment or technology  and a 2-year ban on imports into the United States of products produced  by the foreign person. The President may waive these sanctions in certain  specified cases.
Section 11C (50 app. U.S.C. § 2410c): This section requires the President to  impose sanctions, subject to certain exceptions, on foreign persons  determined to have “knowingly and materially” contributed to the efforts  of state sponsors of terrorism and certain other countries to use,  develop, or acquire chemical or biological weapons through certain  exports from a foreign country. The exported goods or technology must be  items that the United States would control under the Export  Administration Act if the items were of U.S. origin. Foreign persons are  subject to bans of at least 1 year on U.S. government procurement and on  imports into the United States from the foreign person. The President may  issue a waiver after 12 months by certifying to Congress that doing so is  important to the national security interests of the United States.
section_title: Appendix III: Comments from the Department of the Treasury
paragraphs: The following are GAO’s comments on the Department of the Treasury’s  letter.
subsections: section_title: GAO Comments
paragraphs: 1.  Treasury’s statement is in contrast with statements contained in a 2009  Treasury internal budget request. As cited in our draft report, the  request stated that OFAC’s information processes were hampering “the  speed, efficacy, reliability and security” of OFAC’s “enforcement and  compliance activities.” Our draft report also noted that a Treasury  official had informed U.S. Customs and Border Protection officials that  Treasury’s licensing information systems could not provide CBP with  more complete and timely Treasury licensing information. CBP  officials stated that they had asked for the information to help CBP  agents at U.S. ports validate licenses for exports to Iran.  However, for  the sake of clarity, we have modified the title of our report.   2.  While Treasury is able to access and share information on licenses for  medical and agricultural exports to Iran to some degree, it cannot do  so in a timely and complete manner. For example, Treasury required  more than 2 months to provide us with requested data on medical and  agricultural export licenses. It required more than 4 months to provide  us with 34 licenses for the export of other types of goods issued over  the preceding 18 months. These licenses included a license for the  export of aircraft equipment with potential military applications. 3.  ACE is a trade processing system that has been in development by  CPB since 2001. Intended to automate border processing, ACE is being  deployed in phases. As Treasury notes in its comments, ACE is not  ready to accept export data that would be of use to enforcement  agencies. 4.  As noted above, we have modified the title of our report for the sake of  clarity.
section_title: Appendix IV: Comments from the Department of Commerce
paragraphs: The following is GAO’s comment on the Department of Commerce’s letter  dated February 24, 2010.
subsections: section_title: GAO Comment
paragraphs: The Bureau of Industry and Security’s comments on pages 39 and 40 are  not directed at our draft report, but are instead directed at the preceding  comments, which were submitted by the Bureau of the Census. The  Bureau of Industry and Security and the Bureau of the Census are separate  bureaus within the Department of Commerce.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Tet Miyabara (Assistant Director),  Patrick Breiding, Joseph Clifton, Lynn Cothern, Etana Finkler, Grace Lui,  Lauren Membreno, and Pierre Toureille made key contributions to this  report. Martin De Alteriis and Justin Fisher provided technical assistance.