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

Letter

Background

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.

U.S. Export Statistics for Iran Erroneously Include Goods Not Exported to Iran

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.

U.S. Export Statistics Contain Numerous Erroneous Entries for Iran

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.

Census Did Not Detect or Correct Errors in Export Data for Iran

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.

Census Has Taken Action in Response to Our Review

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.

Treasury Is Licensi Exports to Iran in Accordance with Trade Ban but Cannot Provide Complete and Timely Inform ation on Its Licensing Decisions

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.

Treasury Licenses for Exports to Iran Are in Accordance with the Trade Ban

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.

Treasury Information Systems Cannot Provide Complete and Timely Licensing Data to Other Agencies and Congress

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.

Iran Is Obtaining Illegal Transshipments of U.S. Military and Dual-Use Goods through Other Countries

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.

Wide Range of Military and Dual-Use Goods Involved in Iran Transshipment Cases

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.

Goods Are Transshipped through Several Nations

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.

Actions Are Being Taken by U.S. Agencies to Combat Transshipment

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.

Conclusions

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.

Recommendation for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Objectives, Scope, and Methodology

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.

Appendix II: U.S. Legal Tools for Sanctioning Foreign Companies That Transfer Sensitive Technology

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.

Executive Orders 13382, 12938, and 13094

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.

Iran, North Korea, and Syria Nonproliferation Act

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.

Iran-Iraq Arms Nonproliferation Act of 1992

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.

Iran Sanctions Act

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.

Nuclear Proliferation Prevention Act of 1994

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.

Arms Export Control Act

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.

Appendix III: Comments from the Department of the Treasury

The following are GAO’s comments on the Department of the Treasury’s letter.

GAO Comments

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.

Appendix IV: Comments from the Department of Commerce

The following is GAO’s comment on the Department of Commerce’s letter dated February 24, 2010.

GAO Comment

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.

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.