Export Controls: Challenges Exist in Enforcement of an Inherently Complex System
Released: 2006-12-20T00:00:00

Letter

Background

The U.S. government’s control over the export of defense and dual-use items is intended to ensure that U.S. interests are protected in accordance with the Arms Export Control Act and the Export Administration Act. The U.S. government’s control over the export of defense and dual-use items is primarily divided between two departments—State and Commerce, respectively (see table 1)—with support for enforcement activities primarily from Commerce, through its Bureau of Industry and Security’s Office of Export Enforcement (OEE); Department of Homeland Security, through its Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE); and Justice, through the FBI and the U.S. Attorneys Office.

State and Commerce require exporters to identify items that are on the departments’ control lists and to obtain license authorization from the appropriate department to export these items, unless an exemption applies. Exemptions are permitted under various circumstances, such as allowing for the export of certain items to Canada without a license. Many dual-use items are exempt from licensing requirements. While items can be exempt from licensing requirements, they are still subject to U.S. export control laws. Because exporters are responsible for complying with export control laws and regulations, regulatory and investigative enforcement agencies conduct outreach to educate exporters on these laws and regulations. When shipping controlled items, exporters are required to electronically notify CBP officials at the port where the item will be exported, including information on the quantity and value of the shipment, the issued export license number, or an indication that the item is exempt from licensing requirements.

Export enforcement aims to ensure U.S.-controlled items do not fall into the wrong hands and to limit the possibility that illegal exports will erode U.S. military advantage. Export enforcement involves inspecting items to be shipped, investigating potential violations of export control laws, and punishing export control violators. When inspectors, investigators, and prosecutors have questions about whether an item is controlled and requires a license, they request a license determination. CBP and ICE request license determinations through ICE’s Exodus Command Center, which refers the request to State and Commerce; OEE requests determinations directly from Commerce licensing officers. Some FBI agents request license determinations through the Exodus Command Center, while others make such requests directly to State or Commerce.

In fiscal year 2005, Department of Justice data showed that there were more than 40 individuals or companies convicted of over 100 criminal violations of export control laws. State reported over $35 million and Commerce reported $6.8 million in administrative fines and penalties for fiscal year 2005. See appendix II for a list of selected export control cases.

For more than a decade, we have reported on a number of weaknesses and vulnerabilities in the U.S. export control system and made numerous recommendations, several of which have not been implemented. For example, in September 2002, we reported that Commerce improperly classified some State-controlled items as Commerce-controlled, increasing the risk that defense items would be exported without the proper level of review and control to protect national interests. In June 2006, we reported that this condition remains unchanged and that Commerce has not taken the corrective actions that we recommended in 2002. We have also reported on long-standing problems in enforcement, including poor cooperation among the investigative agencies.

Export Control Enforcement Is Complex, Involving Varying Roles, Responsibilities, and Authorities among Multiple Agencies

Enforcing U.S. export control laws and regulations is inherently complex. Multiple agencies are involved in enforcement and carry out various activities, including inspecting shipments, investigating potential export control violations, and taking punitive actions that can be criminal or administrative against violators of export control laws and regulations. Authorities for export control enforcement are provided through a complex set of laws and regulations. These authorities and some overlapping jurisdiction for conducting enforcement activities add to the complexity.

Multiple Agencies Are Responsible for Export Enforcement

Enforcement—which includes inspections, investigations, and punitive actions against violators of export control laws—is largely conducted by various agencies within Commerce, Homeland Security, Justice, and State depending on the facts and circumstances of the case. These agencies’ key enforcement responsibilities are shown in table 2.

Inspections of items scheduled for export are largely the responsibility of CBP officers at U.S. air, sea, and land ports, as part of their border enforcement responsibilities. To help ensure that these items comply with U.S. export control laws and regulations, CBP officers check items against applicable licenses prior to shipment, selectively conduct physical examinations of cargo at the port and in warehouses, review shipping documents, detain questionable shipments, and seize items being exported illegally. As part of their responsibilities, CBP officers are required by State to decrement (reduce) the shipment’s quantity and dollar value from the total quantity and dollar value authorized by the exporter’s license. This process helps to ensure that the shipment does not exceed what is authorized and that the license has not expired. However, Commerce does not require CBP officers to decrement Commerce licenses. Commerce officials said they have shipping tolerances that allow exporters to ship controlled items exceeding the quantity and value approved in a license, but this varies based on the controlled item. CBP officers do not currently have a formal means for determining if exporters have exceeded authorized license quantities and values for dual-use items within any shipment tolerances permitted for that controlled item. As a result, they cannot ensure accountability on the part of exporters or that Commerce regulations have been properly followed. CBP has an automated export system, which is used for decrementing State licenses. This system has built-in tolerances to allow the shipment to exceed the total value of a State license by 10 percent, as permitted by regulations.

Investigations of potential violations of export control laws for dual-use items are conducted by agents from OEE, ICE, and FBI. Investigations of potential export violations involving defense items are conducted by ICE and FBI agents. FBI has authority to investigate any criminal violations of law in certain foreign counterintelligence areas. The investigative agencies have varying tools such as undercover operations and overseas investigations for investigating potential violations and establishing cases for potential criminal or administrative punitive actions.

Punitive actions, which are either criminal or administrative, are taken against violators of export control laws and regulations. Criminal violations are those cases where the evidence shows that the exporter willfully and knowingly violated export control laws. U.S. Attorneys Offices prosecute criminal cases in consultation with Justice’s National Security Division. These cases can result in imprisonment, fines, forfeitures, and other penalties. Punitive actions for administrative violations can include fines, suspension of an export license, or denial or debarment from exporting, and are imposed primarily by State or Commerce, depending on whether the violation involves the export of a defense or a dual-use item. In some cases, both criminal and administrative penalties can be levied against an export control violator.

The export control and investigative enforcement agencies also conduct outreach activities, primarily educating exporters on U.S. export control laws and regulations. For example, in fiscal year 2005, ICE agents conducted more than 1,500 industry outreach visits around the country. Outreach activities can include seminars and programs, specialized training, publications, advice lines, Web sites, and individual meetings with industry, academia, and other government agencies. These activities can result in companies self-disclosing violations, tips and reports of potential violations by others, and cooperation in investigations and intelligence gathering.

Enforcement Authorities Are Granted through Various Laws and Regulations

Authorities for export control enforcement are provided through a complex set of laws and regulations. For defense items, authorities are granted under the Arms Export Control Act, the Department of Justice Appropriations Act of 1965, the USA Patriot Improvement and Reauthorization Act, and the Foreign Wars, War Materials and Neutrality Act. These statutes and the regulations stemming from them give concurrent jurisdiction for investigations to ICE and FBI (see fig. 1).

For dual-use items, authorities are granted under the Export Administration Act, the International Emergency Economic Powers Act, the Department of Justice Appropriations Act of 1965, the USA Patriot Improvement and Reauthorization Act, and the Foreign Wars, War Materials and Neutrality Act. These laws and their implementing regulations give investigative authority for dual-use items to OEE as well as to ICE and FBI, which also have investigative authority for defense items (see fig. 2).

Agencies Face Several Challenges in Enforcing Export Control Laws

Several key challenges exist in enforcing export control laws—challenges that potentially reduce the effectiveness of enforcement activities. First, overlapping jurisdiction for investigating potential export control violations and instances where coordination among the investigative agencies has not been effective have had an impact on some cases. Second, license determinations—which confirm whether an item is controlled by State or Commerce, and thereby help confirm whether a violation has occurred—are key to ensuring the pursuit of enforcement activities and are dependent on complete and specific information available at the time. Third, prosecuting export control cases can be difficult, since securing sufficient evidence to prove the exporter intentionally violated export control laws can represent unique challenges in some cases. Finally, multiple and sometimes competing priorities have made it difficult for enforcement agencies to maximize finite resources in carrying out export control enforcement responsibilities.

Coordination on Investigative Cases Has Been Limited in Some Instances

While ICE, OEE, and FBI have jointly coordinated on investigations, coordination can be challenging, particularly in terms of agreeing on how to proceed with a case. Formal agreements for coordinating investigations do not exist among all the investigative agencies. The extent to which agencies coordinate and cooperate on investigations is largely dependent on individual work relationships.

Agencies have sometimes not agreed on how to proceed on cases, particularly those involving foreign counterintelligence. For example, FBI and OEE agents disagreed as to whether certain dual-use items planned for export warranted an investigation. Specifically, without coordinating with OEE and ICE, FBI pursued the investigation, arrested the exporter, and held the shipment of items, valued at $500,000. Ultimately, criminal charges were not pursued because the items did not require a license. With respect to foreign counterintelligence cases involving export controls, investigators have not always been certain about their respective roles on these cases.

Formal agreements for coordination do not exist among all the investigative agencies. Specifically, ICE and FBI do not have a formal agreement to coordinate cases involving export control violations. Formal agreements that exist have not been updated in recent years. In 1983, Commerce entered into an agreement with the FBI dealing with certain headquarters-level coordination functions. In addition, a 1993 agreement between Customs and Commerce outlines the investigative responsibilities of each agency, but it does not reflect departmental changes that occurred as a result of the establishment of Homeland Security in March 2003. This agreement also directs these agencies to enter a joint investigation when it is determined that more than one agency is working on the same target for the same or related violations. However, it can be difficult to determine whether these conditions exist because these agencies do not always have full access to information on ongoing investigations. According to several agents we spoke with, sharing information on ongoing investigations in general can be challenging because of the agencies’ varying and incompatible databases, the sensitivity of certain case information, and the agencies’ varying protocols for classifying information.

The extent to which agencies coordinate their investigative efforts in the field can depend on individual work relationships and informal mechanisms that facilitate communication. Some field locations have established joint task forces to discuss investigative cases. For example, OEE, ICE, and FBI agents in one field location told us that they routinely collaborate on investigations as part of a joint task force that meets monthly. Agents in another location recently established a task force to locally coordinate export control investigations. In addition, some agencies have agents on detail to other investigative agencies. For example, in one field location, an ICE agent is detailed to FBI to coordinate cases and share export control information. FBI officials told us the detail has been useful because the ICE agent can readily provide FBI access to certain Homeland Security data, which saves critical investigative time for the FBI agents. At another field location, an OEE agent has been on detail at ICE for 7 years, which has facilitated information sharing and joint cases between the two agencies. According to several agents with whom we spoke, personalities can be a key factor in how well agents from different agencies work together on investigations.

For example, an OEE agent in charge of one field location told us that the field agents work effectively on cases with ICE agents in one field location, but not with ICE agents in another field location because of disagreements stemming from 15 years ago about how to proceed with investigations.

Confirming Whether Items Are Controlled and Need a License Is Key to Pursuing Enforcement Activities

Confirming whether a defense or dual-use item is controlled and requires a license, known as a license determination, is integral to enforcement agencies’ ability to seize items, pursue investigations, or seek prosecutions. However, confirmation can sometimes be difficult. Many inspectors and investigators told us that the time it takes to make determinations or sometimes changes to previously made determinations can affect some of their enforcement activities. According to Commerce and State officials, they depend on complete, specific, and pertinent information from the inspectors and investigators to make timely and correct determinations so that appropriate enforcement actions can be pursued. Moreover, new or additional information may become available as an investigation proceeds, which can affect a license determination.

Some inspectors and investigators—including OEE field agents who request license determinations directly from Commerce—stated that obtaining license determination decisions can be time consuming and has taken as much as several months. In several instances, State and Commerce licensing officers needed more information about the item before making a license determination, which added to the time it took to respond. In addition, State officials said they often request technical support from the Department of Defense when making determinations for defense items, which can add to the time it takes to make a license determination. We found that responses to requests for license determinations ranged from 1 day to 8 months during fiscal year 2005. While State established in September 2004 a goal of 30 days for processing license determinations, it revised this time frame to 60 days in April 2005 because of resource limitations. Commerce recently established a 35-day time frame to make a license determination requested by OEE agents. However, Commerce, in conjunction with the Exodus Command Center, has not established goals or a targeted time frame for responding to license determination requests. Goals help establish transparency and accountability in the process.

While some inspectors and investigators told us that their enforcement actions have been affected by unclear determinations or changes to previously made license determinations, Commerce and State officials said that determinations are dependent on such factors as the completeness and specificity of the information presented to them at the time of the request. In one instance, CBP officers were not given a clear determination as to whether the item was controlled, leaving officers to decide how to proceed. In other instances, investigators dropped their cases or pursued other charges based on changes made to the determination or inconsistent information provided to the exporter. For example, OEE agents executed search warrants based on a license determination that the equipment was controlled for missile technology and antiterrorism purposes. Subsequently, Commerce determined that no license was required for this equipment, and thereby the case was closed. In another example, licensing officers provided OEE agents with a license determination that differed from the commodity classification provided to the exporter. As a result of the inconsistency between the license determination and classification, Commerce pursued a lesser charge against the exporter. In addition, in June 2005, ICE led a joint investigation of a Chinese national for allegedly exporting critical U.S. technology to China, and on the basis of an initial license determination review by State that the item was controlled, ICE obtained search and arrest warrants. However, 9 months later, ICE agents requested a subsequent license determination to confirm that the item was controlled. It was determined that the item was not subject to State or Commerce export control, and therefore the case was dropped. Both State and Commerce headquarters officials stated that their ability to make license determinations is dependent upon several factors, including the completeness and accuracy of the information provided by the inspectors and investigators at the time of the request. These determinations can be subject to change as new or additional pertinent information becomes available as the case proceeds.

Commerce and ICE have recently taken actions to address problems in the license determination process. In June 2006, Commerce established new procedures on how to request and process license determinations internally and is currently revising and providing training for its licensing officers and OEE agents. In August 2006, ICE’s Exodus Command Center implemented a new system, known as the Exodus Accountability Referral System, to track license determination requests, provide enforcement agencies access to the status of their requests, and provide performance statistics to field agents, inspectors, and regulatory agencies. These actions recognize some of the problems with license determinations. However, it is too early to determine their impact on export enforcement activities.

Challenges Exist in Taking Criminal and Administrative Punitive Actions against Alleged Export Violators

When developing a case for criminal prosecution, Assistant U.S. Attorneys (AUSA) must obtain sufficient evidence of the exporter’s intent to violate export control laws. Gathering evidence of intent is particularly difficult in export control cases, especially when the item being exported is exempted from licensing or the case requires foreign cooperation. For dual-use violations, Commerce officials said that the lapsed status of the Export Administration Act has made it cumbersome for prosecuting cases. When pursuing administrative cases, State, unlike Commerce, has limited access to attorneys and an Administrative Law Judge, making it challenging to pursue the full range of administrative actions against export control violators.

Several AUSAs who prosecute many different types of cases, told us that it can be challenging to secure sufficient evidence that an exporter intentionally violated export control laws. In particular, securing such evidence can be especially difficult when the items to be exported are exempted from licensing requirements. We previously reported similar concerns of officials from Customs (now within Homeland Security) and Justice about investigating and prosecuting violations when exemptions apply, noting that it is particularly difficult to obtain evidence of criminal intent since the government does not have license applications and related documents that can be used as proof that the violation was committed intentionally.

Investigations and prosecutions that involve items and individuals in foreign locations can further complicate evidence-gathering efforts. According to ICE officials, a foreign government may or may not cooperate in an overseas export control investigation or arrest, and foreign and U.S. laws on export controls may differ as to what constitutes a violation. One OEE field office estimated that over half of its cases involve foreign persons or entities.

According to Commerce officials, enforcement of dual-use export controls under the expired Export Administration Act is a key challenge for them because it adds an element of complexity to cases and can encumber prosecutions. These officials said they have encountered difficulties convincing AUSAs to accept cases to prosecute under a set of regulations, promulgated under a lapsed statute and kept in force by emergency legislation. To counter these difficulties, Commerce, Homeland Security, and Justice officials said they support the renewal of the Export Administration Act. Commerce stated that renewal of this act would provide enforcement tools to OEE for conducting investigations and increase penalty provisions for violators.

For administrative actions, export control regulations allow both State and Commerce to pursue administrative cases before an Administrative Law Judge, but State has never exercised this authority. Commerce officials stated that they bring cases before an Administrative Law Judge when an alleged export violator disputes the charges or objects to the administrative settlement actions proposed by Commerce. Commerce has a formal agreement with the Coast Guard Office of Administrative Law Judges, which is renewed annually, to hear its cases, and Commerce’s attorneys bring about one to three administrative cases before an Administrative Law Judge each year.

State has never brought a case to an Administrative Law Judge and does not have attorneys with the experience needed to pursue such export control cases or a standing agreement with any agency to provide an Administrative Law Judge. In cases where an agreed settlement with the violating company appears unlikely and a formal hearing is needed, State would have to seek services from attorneys in the private sector or from other departments to help represent the government’s interests. To obtain access to an Administrative Law Judge to hear a case, State officials told us they would need to first request the Office of Personnel Management to appoint a judge on a temporary basis. State would then need to establish an interagency memorandum of understanding with that agency to establish payment and other arrangements. Without a formal agreement to access an Administrative Law Judge and ready access to attorneys to pursue such cases, State officials told us that it is challenging to proceed with administrative cases. State officials indicated that they are exploring various options on how to get access to attorneys with relevant experience to handle such cases, including seeking assistance from other departments on a temporary basis. However, State’s options appear to rely on ad hoc interagency arrangements and would not build any internal expertise for handling such cases in the future.

Agencies Faced with Balancing Multiple Priorities and Leveraging Finite Human Resources

Each enforcement agency’s priorities—and the resources allocated to those priorities—are influenced by the mission of the department in which the agency resides. At times, agencies have competing priorities, making it difficult to effectively leverage finite enforcement personnel. Limited training on export controls has further challenged agencies to use their enforcement personnel effectively. Some agencies have recently taken actions to target more resources to export enforcement activities. However, it may be too early to determine the impact these actions will have in the long term. In addition, priorities could shift and necessitate the reassignment of staff.

The investigative agencies have been particularly challenged to effectively leverage their resources.

Commerce’s overall mission is to promote U.S. economic development and technological advancements. OEE resides within Commerce’s export control agency, and its priorities emphasize investigating potential violations of dual-use exports related to weapons of mass destruction, terrorism, and unauthorized military end use. In carrying out these priorities, some of OEE’s nine field offices—which are responsible for conducting investigations in multiple states, ranging from 3 to 11 states—have had difficulty pursuing investigative leads outside their home state. Some OEE field agents told us that not having a physical presence in the other states adversely affects their ability to generate investigative leads, and that their caseload is largely within their home state.

Homeland Security’s mission is to create a unified national effort to secure the country while permitting the lawful flow of immigrants, visitors, and trade. ICE is the largest investigative branch within Homeland Security. In addition to investigating potential defense and dual-use export violations, ICE investigates drug smuggling, human trafficking and smuggling, financial crimes, commercial fraud, document fraud, money laundering, child exploitation, and immigration fraud. ICE has recently taken action to expand its existing investigation workforce devoted to export control. As of September 2006, ICE data showed that total arrests, indictments, and convictions had surpassed the totals in each fiscal year since ICE’s creation in 2003.

Justice’s overall mission is to enforce U.S. laws, and FBI’s mission is to protect the United States against terrorist and foreign intelligence threats and to enforce criminal laws. As the lead counterintelligence agency in the United States, FBI investigates potential dual-use and defense export violations that have a nexus with foreign counterintelligence. FBI has over 456 domestic offices. Fifty-six offices are required to have at least one team of agents devoted to counterintelligence. These teams cover all 50 states, and some agents are located within the 456 domestic offices. FBI agents are also responsible for conducting other investigations involving espionage and counterproliferation.

CBP, the sole border inspection agency, has also been challenged to leverage its resources. One of CBP’s primary responsibilities is to detect and prevent terrorists and terrorist weapons from entering U.S. ports, and it devotes most of its resources to inspecting items and persons entering the country. For items leaving the United States, CBP uses an automated targeting system to identify exports for examination by its officers. The workload and the number of officers assigned to inspect exported cargo can fluctuate daily. For example, at one of the nation’s busiest seaports, the CBP Port Director stated that there can be five officers assigned to inspecting exports one day and none the next. Export enforcement efforts are further challenged by the limited time officers have to review shipment documentation. State regulations require 24 hours’ advance notification before shipment for ship or rail and 8 hours’ advance notification for plane or truck. However, Commerce regulations do not have time frames specified other than Census Bureau requirements of notification prior to departure. Moreover, some officers also spend some of their limited time hunting down items on planes or in shipping containers because documents, such as air waybills, cannot be located or information on items to be exported is incomplete. CBP officials stated that they have internal initiatives under way to address resources devoted to export control inspections.

U.S. Attorneys offices have many competing priorities, including prosecuting cases involving terrorism, counterterrorism, and government contractor fraud. Each of the U.S. Attorneys offices has attorneys who can work on cases involving potential export control violations. However, several investigators noted that the level of interest in and knowledge of export control laws varies among AUSAs.

According to several enforcement agency officials, they would like more advanced training on export controls that could help them use their time more efficiently—and thereby better leverage finite resources—but such training is limited. While some specialized training has been provided to officers in the field, CBP has reduced the number of training courses directly relating to export controls for the last quarter of fiscal year 2006 primarily because of budget constraints. CBP officials said they are considering restructuring the training curriculum. ICE and FBI investigators also said that they would like more opportunities for advanced training on export controls. While ICE headquarters has not funded its advanced strategic export controls course at the Federal Law Enforcement Training Center for the past 2 years, it reinstated this course in May 2006 and has subsequently trained over 100 agents. ICE officials also noted that training on weapons of mass destruction was provided to over 2,000 agents and analysts during fiscal years 2005 and 2006. Commerce plans additional training for OEE agents in fiscal year 2007. Justice, recognizing a need for training on export controls for its attorneys, provided a training conference in May 2006 for AUSAs, with presentations from Justice, Commerce, State, and the intelligence community. Commerce, State, and Justice have also recently sponsored training conferences for enforcement agencies covering topics such as export control laws and regulations, license determinations, and proving criminal intent.

Criminal Outcomes Are Not Systematically Provided to Export Control Agencies

Criminal indictments and convictions are key to informing the export control process and licensing decisions. While Justice and the other enforcement agencies have databases to capture information relating to their own export enforcement activities (see table 3), outcomes of criminal cases are not systematically shared with State and Commerce.

State and Commerce officials stated that information on the outcomes of criminal cases, including indictments and convictions, is important to the export licensing process, particularly since indicted or convicted exporters may be denied from participating in the process. The Arms Export Control Act requires that appropriate mechanisms be developed to identify persons who are the subject of an indictment or have been convicted of an export control violation. Specifically, if an exporter is the subject of an indictment or has been convicted under various statutes, including the Export Administration Act, State may deny the license application. Further, Commerce can deny export privileges to an exporter who has been criminally convicted of violating the Export Administration Act or Arms Export Control Act. According to both State and Commerce officials, information on indictments and convictions is gathered through an informal process. For example, an ICE agent, who serves as a liaison with State and is colocated with State’s export control officials, compiles criminal statistics from ICE field offices in a monthly report that is shared with State compliance officials. Information on criminal export control prosecution outcomes could help inform the export control process by providing a complete picture of the individual or company seeking an export license or trends in illegal export activities.

Conclusions

Agencies responsible for enforcement have to operate within the construct of a complex export control system, which offers its own set of challenges from the outset. Further compounding this situation is the failure to coordinate some investigations and address a host of other challenges that can lead to a range of unintended outcomes, such as the termination of investigative cases. At a minimum, limited resources available for enforcement efforts may not be used effectively. Consequently, there is a need to ensure that enforcement agencies maximize finite resources and efforts to apprehend and punish individuals and companies who illegally export sensitive items that may be used to subvert U.S. interests.

Recommendations for Executive Action

To enhance coordination in the current system, we recommend that the Secretary of Commerce direct the Under Secretary for Industry and Security, the Secretary of Homeland Security direct the Assistant Secretary of Homeland Security for U.S. Immigration and Customs Enforcement, and the Attorney General direct the Director of the FBI in conjunction with the Assistant Attorney General in charge of the National Security Division to take the following two actions: establish a task force to evaluate options to improve coordination and cooperation among export enforcement investigative agencies, such as creating new or updating existing operating agreements between and among these agencies, identifying and replicating best practices for routinely collaborating on or leading investigations, and establishing a mechanism for clarifying roles and responsibilities for individual export control cases involving foreign counterintelligence, and report the status of task force actions to Congress.

To ensure discipline and improve information needed for license determinations, we recommend that the Secretary of Homeland Security direct the Assistant Secretary of Homeland Security for U.S. Immigration and Customs Enforcement and the Secretary of Commerce direct the Under Secretary for Industry and Security to establish goals for processing license determinations. We also recommend that that Secretary of Homeland Security direct the Assistant Secretary of Homeland Security for U.S. Immigration and Customs Enforcement, the Secretary of Commerce direct the Under Secretary for Industry and Security, and the Secretary of State direct the Deputy Assistant Secretary for Defense Trade Controls to coordinate with licensing officers, inspectors, investigators, and prosecutors to determine what additional training or guidance is needed on license determinations, including the type of information needed to make license determinations.

To ensure systematic reconciliation of shipments with Commerce licenses, we recommend that the Secretary of Commerce direct the Under Secretary for Industry and Security, in consultation with the Commissioner of Homeland Security’s U.S. Customs and Border Protection, to determine the feasibility of establishing a requirement for CBP to decrement Commerce licenses and an action plan for doing so.

To ensure that State and Commerce have complete information on enforcement actions, we recommend that the Attorney General direct the Director of the Executive Office for U.S. Attorneys, in consultation with the Assistant Attorney General in charge of the National Security Division, to establish formal procedures for conveying criminal export enforcement results to State’s Directorate of Defense Trade Controls and Commerce’s Bureau of Industry and Security.

Agency Comments and Our Evaluation

The Departments of Commerce, Homeland Security, and State provided comments on a draft of this report. Justice and Defense did not provide formal comments. Commerce, Homeland Security, Justice, and State also provided technical comments, which we incorporated in this report as appropriate. Overall, the departments providing comments agreed with the need for coordination, but in some instances, noted some differences in possible approaches. They also indicated that certain actions were already under way to address some of our recommendations. We modified one recommendation accordingly.

In commenting on our first recommendation—to establish a task force to improve coordination and cooperation among export enforcement investigative agencies and report the status of task force actions to the Congress—Commerce stated that it was already taking action to improve coordination through various work groups and acknowledged that it will continue to seek ways to improve coordination. Commerce also commented that the draft report does not provide the data and analysis to support that there is a lack of coordination. We disagree. We spoke with numerous agents in the field who cited coordination as a challenge. The examples we provided were illustrations of some of the types of coordination challenges that existed. Our evidence indicates that coordination is a challenge given that three agencies with differing approaches have concurrent jurisdiction to investigate potential violations of export control laws. At times, these agencies have competing priorities, making it difficult to leverage finite enforcement personnel for oftentimes complex cases.

Homeland Security agrees in principle with our first recommendation, but believes the establishment of an Export Enforcement Coordination Center within ICE would address coordination concerns in the most immediate and comprehensive manner. Homeland Security’s solution is one option for improved coordination. However, it would need to work with the other enforcement agencies to determine the viability of this option. Our recommendation for a joint task force is the means by which to do so. In its technical comments related to coordination, Justice commented that FBI looks forward to working closely with other export enforcement agencies.

In its comments on our second recommendation—to establish goals for the processing of license determinations and coordinate with other enforcement officials to determine what additional training or guidance is needed on license determinations—Commerce noted it was already taking action to improve license determination efforts through developing procedures and leading and participating in training conferences on export enforcement. However, these actions do not fully address our recommendation on establishing goals. Specifically, Commerce has not established formal license determination response times in conjunction with the Exodus Command Center, which is a key means by which license determination requests are processed. Homeland Security agreed to support goal setting by providing input from a law enforcement perspective. In its comments on our draft report, State indicated that it had already established goals for processing license determinations in conjunction with the Exodus Command Center. As a result, we revised our recommendation to direct that Commerce and Homeland Security establish goals for processing license determinations. State concurred with our recommendation to determine what additional training or guidance is needed on license determinations. Specifically, State has agreed with Homeland Security to update and clarify its guidance on license determinations. State further noted that consulting with FBI and ICE regarding additional training for coordinating State’s support to their criminal investigations would build upon its past and ongoing work in this area.

Regarding our third recommendation—to determine the feasibility of having Homeland Security’s Customs and Border Protection officers decrement Commerce export licenses—Commerce expressed some reservation. Specifically, Commerce stated that it has seen no data to indicate that the underlying issue is of sufficient enforcement concern and that automated systems would need to be developed within CBP to support this effort. We do not believe that Commerce should dismiss this recommendation without further analysis. We previously reported that Commerce has not conducted comprehensive analyses of items that have been exported; therefore it is not in a position to know whether it is an enforcement concern. In addition, while resources devoted to outbound enforcement are limited within CBP, it has an automated export system, which is used for decrementing State licenses. This allows CBP officers to ensure accountability on the part of exporters and that State regulations have been properly followed. Homeland Security commented that CBP officials are prepared to act when contacted by Commerce regarding our recommendation.

With respect to our last recommendation—that Justice establish formal procedures for conveying export enforcement results to State and Commerce—Commerce agreed, citing that it supports efforts to improve coordination and communication. Justice indicated support for sharing such information. State also supports this recommendation and noted that it welcomed any additional information that Justice can provide regarding the outcomes of criminal cases involving export control and related violations to help State carry out its regulatory responsibilities.

Formal written comments provided by Commerce, Homeland Security, and State are reprinted in appendixes III, IV and V, respectively.

We are sending copies of this report to interested congressional committees, as well as the Secretaries of Commerce, Defense, Homeland Security, and State; the Attorney General; the Director, Office of Management and Budget; and the Assistant to the President for National Security Affairs. In addition, this report will be made available at no charge on the GAO Web site at http://www.gao.gov.

Please contact me at (202) 512-4841 or calvaresibarra@gao.gov if you or your staff have any questions concerning this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Others making key contributions to this report are listed in appendix VI.

Appendix I: Scope and Methodology

To describe the roles, responsibilities, and authorities of the agencies responsible for export control enforcement of defense and dual-use items, we interviewed cognizant officials, examined relevant documents, and analyzed export control statutes. We interviewed officials about their enforcement roles and responsibilities at the headquarters of the Departments of Commerce, Homeland Security, Justice, and State. We also discussed with Department of Defense officials their role in providing investigative support to agencies responsible for export control enforcement. We developed and used a set of structured questions to interview over 115 inspectors, investigators, and prosecutors in selected locations and observed export enforcement operations at those locations that had air, land, or seaports. We selected sites to visit based on various factors including geographic areas where all enforcement agencies were represented and areas with a mix of defense and high-tech companies represented; field offices with a range of investigative tools available to agents; and experience levels inspectors, agents, and prosecutors had in enforcing export control laws and regulations. On the basis of these factors, we visited Irvine, Long Beach, Los Angeles, Oakland, Otay Mesa, San Diego, San Francisco, and San Jose, California; Fort Lauderdale and Miami, Florida; Boston, Massachusetts; Newark and Trenton, New Jersey; and New York, New York. Additionally, we examined agent operating manuals, inspector handbooks, and a Federal Register notice, which further define the roles and responsibilities of enforcement agencies. To describe export enforcement authorities, we analyzed various statutes and identified the varying enforcement requirements promulgated through implementing regulations.

Our structured interviews with officials also enabled us to identify challenges agencies faced in enforcing export control laws and regulations. We documented examples of coordination challenges among the investigative agencies and obtained and summarized information on significant export control cases identified by these agencies. We also examined existing memorandums of understanding and agency guidance on coordinating investigations. To document the impact that license determinations have on enforcement activities, we obtained examples of license determinations through Commerce’s Office of Export Enforcement and conducted a case file review of license determinations for fiscal year 2005 at Homeland Security’s Exodus Command Center based on available information on-site. We selected a cross-section of license determination files to review that included requests for defense and dual-use items and that varied in response times. We discussed with Commerce and Homeland Security officials efforts to improve the license determination process. Through our interviews, we also identified challenges with criminal prosecutions and confirmed with headquarters the difficulties in obtaining sufficient evidence. Finally, we identified challenges with agencies’ priorities and human resources and obtained information on staffing levels and priorities for assigning resources. We also reviewed agency training materials to identify export control training available to enforcement personnel.

To assess whether information on criminal enforcement outcomes is provided to export control agencies, we identified export control enforcement information maintained at the various agencies, such as criminal convictions and indictments for violations of export control laws. We also spoke with State licensing and policy officials and Commerce officials to assess whether they received and used this information for informing licensing or other decisions for defense or dual-use items. We also spoke with Justice officials to determine whether the department systematically provided criminal export control prosecution outcome information to State and Commerce export control agencies.

Appendix II: Summary of Selected Export Control Enforcement Cases

For fiscal year 2005, investigative agencies identified several examples of export control enforcement cases, as shown in table 4.

Appendix III: Comments from the Department of Commerce

The following are GAO’s comments from the Department of Commerce letter dated October 3, 2006.

GAO Comments

1. While OEE and ICE had prior contact with FBI before it pursued this case, the agencies did not act together in a concerted way to determine the best way to proceed with this case. 2. Commerce believed that its actions prevented the commission of an export violation. However, its lack of coordination in taking this action undermined enforcement activities.

Appendix IV: Comments from the Department of Homeland Security

Appendix V: Comments from the Department of State

Appendix VI: GAO Contact and Staff Acknowledgments

Acknowledgments:

In addition to the contact name above, Anne-Marie Lasowski, Assistant Director; Matthew Cook; Lisa Gardner; Arthur James, Jr.; Karen Sloan; Lillian Slodkowski; Suzanne Sterling; and Karen Thornton made key contributions to this report.

Related GAO Products

Defense Technologies: DOD’s Critical Technologies List Rarely Informs Export Control and Other Policy Decisions. GAO-06-793. Washington, D.C.: July 28, 2006.

Export Controls: Improvements to Commerce’s Dual-Use System Needed to Ensure Protection of U.S. Interests in the Post-9/11 Environment. GAO-06-638. Washington, D.C.: June 26, 2006.

Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies in the Post-9/11 Security Environment. GAO-05-468R. Washington, D.C.: April 7, 2005.

Defense Trade: Arms Export Control System in the Post-9/11 Environment. GAO-05-234. Washington, D.C.: February 16, 2005.

Foreign Military Sales: DOD Needs to Take Additional Actions to Prevent Unauthorized Shipments of Spare Parts. GAO-05-17. Washington, D.C.: November 9, 2004.

Nonproliferation: Improvements Needed to Better Control Technology Exports for Cruise Missiles and Unmanned Aerial Vehicles. GAO-04-175. Washington, D.C.: January 23, 2004.

Export Controls: Post-Shipment Verification Provides Limited Assurance That Dual-Use Items Are Being Properly Used. GAO-04-357. Washington, D.C.: January 12, 2004.

Nonproliferation: Strategy Needed to Strengthen Multilateral Export Control Regimes. GAO-03-43. Washington, D.C.: October 25, 2002.

Export Controls: Processes for Determining Proper Control of Defense- Related Items Need Improvement. GAO-02-996. Washington, D.C.: September 20, 2002.

Export Controls: Department of Commerce Controls over Transfers of Technology to Foreign Nationals Need Improvement. GAO-02-972. Washington, D.C.: September 6, 2002.

Export Controls: More Thorough Analysis Needed to Justify Changes in High-Performance Computer Controls. GAO-02-892. Washington, D.C.: August 2, 2002.

Export Controls: Rapid Advances in China’s Semiconductor Industry Underscore Need for Fundamental U.S. Policy Review. GAO-02-620. Washington, D.C.: April 19, 2002.

Defense Trade: Lessons to Be Learned from the Country Export Exemption. GAO-02-63. Washington, D.C.: March 29, 2002.

Export Controls: Issues to Consider in Authorizing a New Export Administration Act. GAO-02-468T. Washington, D.C.: February 28, 2002.

Export Controls: Actions Needed to Improve Enforcement. GAO/NSIAD-94-28. Washington, D.C.: December 30, 1993.