    [Senate Hearing 106-350]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 106-350

     THE INSPECTORS GENERAL REPORT ON THE EXPORT-CONTROL PROCESS FOR DUAL-
                       USE AND MUNITIONS LIST COMMODITIES

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 23, 1999

                                   __________

          Printed for the use of the Committee on Governmental Affairs

                          U.S. GOVERNMENT PRINTING OFFICE
     60-283 cc                   WASHINGTON : 2000
    ------------------------------------------------------------------------------
    For sale by the Superintendent of Documents, Congressional Sales Office
             U.S. Government Printing Office, Washington, DC 20402

                       COMMITTEE ON GOVERNMENTAL AFFAIRS

                       FRED THOMPSON, Tennessee, Chairman
    WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
    TED STEVENS, Alaska                  CARL LEVIN, Michigan
    SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
    GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
    PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
    THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
    ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
    JUDD GREGG, New Hampshire
                 Hannah S. Sistare, Staff Director and Counsel
                Christopher A. Ford, Chief Investigative Counsel
                  Curtis M. Silvers, Professional Staff Member
          Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                   Laurie Rubenstein, Minority Chief Counsel
                     Darla D. Cassell, Administrative Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Thompson.............................................     1
        Senator Lieberman............................................     4
        Senator Akaka................................................    33

                                   Witnesses

    Donald Mancuso, Acting Inspector General, Department of Defense..     6
    Johnnie E. Frazier, Acting Inspector General, Department of
      Commerce.......................................................    11
    John C. Payne, Deputy Inspector General, Department of State.....    13
    Gregory H. Friedman, Inspector General, Department of Energy.....    15
    Lawrence W. Rogers, Acting Inspector General, Department of
      Treasury.......................................................    15
    L. Britt Snider, Inspector General, Central Intelligence Agency..    16

                         Alphabetical List of Witnesses

    Frazier, Johnnie E.:
        Testimony....................................................    11
        Prepared statement...........................................    73
    Friedman, Gregory H.:
        Testimony....................................................    15
        Prepared statement...........................................   104
    Mancuso, Donald:
        Testimony....................................................     6
        Prepared statement...........................................    50
    Payne, John C.:
        Testimony....................................................    13
        Prepared statement...........................................    94
    Rogers, Lawrence W.:
        Testimony....................................................    15
        Prepared statement...........................................   119
    Snider, L. Britt:
        Testimony....................................................    16
        Prepared statement...........................................   127

                                    Appendix

    Chart entitled ``Referrals of Dual-Use Cases''...................    47
    .................................................................
    Letter from Senator Thompson, dated Aug. 26, 1998, to six
      agencies.......................................................    47
    Information submitted by Senator Akaka entitled ``Dual-Use
      License Process''..............................................   132
    Letter from R. Andrew German, Managing Counsel, Legal Policy
      Section, Law Department, U.S. Postal Service, dated June 30,
      1993, to William A. Reinsch, Under Secretary for Export
      Administration, U.S. Department of Commerce concerning the
      letter report of June 15, 1999.................................   137

     THE INSPECTORS GENERAL REPORT ON THE EXPORT-CONTROL PROCESS FOR DUAL-
                       USE AND MUNITIONS LIST COMMODITIES

                                  ----------

                            WEDNESDAY, JUNE 23, 1999

                                           U.S. Senate,
                             Committee on Governmental Affairs,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:06 a.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Fred
    Thompson, Chairman of the Committee, presiding.
        Present: Senators Thompson, Collins, Specter, Lieberman,
    and Akaka.

                 OPENING STATEMENT OF CHAIRMAN THOMPSON

        Chairman Thompson. Good morning. Let us come to order,
    please.
        During the Cold War, export control rules were a major
    plank in our national security strategy. Things have changed a
    lot since then. Back in those days, we elevated it to such
    importance that we had an international regime called COCOM,
    where we got together with other countries to try to make sure
    that we all kept the wrong kinds of materials out of the wrong
    hands.
        Since the Cold War, we have taken a different attitude. We
    have relaxed our controls considerably as a matter of national
    policy. There are far fewer items that even require a license,
    and that is reflected in the numbers, some of which we will see
    today.
        COCOM is gone now. It has been replaced by other regimes
    that are not nearly as stringent and that basically depend upon
    the voluntary compliance of the members nation. So that has
    been going on for some time now.
        Recently, our attention has been grabbed again and we have
    been hearing things at an ever-increasing rate that should
    cause us all great concern with regard to matters of national
    security and whether or not we are losing items, elements,
    information, and technology that will turn out to be dangerous
    to this country. We certainly are very much aware of the
    espionage issues that we have seen.
        But while that is a back-door problem, we have also got a
    substantial front-door problem, and that has to do with our own
    policies and the way that we treat our exports in this country.
    While we have been relaxing our standards, we know that we are
    targeted in this country. Our technology is targeted. As
    Senator Rudman has pointed out, not only do we do the Nation's
    best work in these laboratories of ours, but we do world class
    work in terms of our technology there. They are certainly
    targeted.
        The Cox report has pointed out that with regard to
    satellite technology, supercomputers, and machine tools, all
    these things, we are targeted. People want this stuff, and if
    it is proper and legitimate, then we want them to have it. We
    are interested in sales. But I think there is a growing
    concern, and I think properly so in this country, that we have
    tilted the balance too far in favor of sales and away from
    national security at a time when we should know better. If we
    did not know better even a few months ago, we know better now.
        We know that some of this dual-use technology is being
    diverted. We put these conditions on these licenses and say you
    cannot do this and cannot do that and then people proceed to do
    this and do that and we have few ways of checking up on them.
    Indeed, the ways that we do have, we do not utilize.
        We stumble across things like the McDonnell Douglas machine
    tool case a while back, where the Chinese said that they were
    buying all these tools for commercial airline purposes. The
    only problem was, it was for military purposes, as we only
    accidentally found out.
        We know, by the same token, that many of these countries
    that we are dealing with proliferate weapons as a matter of
    policy. The world's greatest proliferators, with whom we are
    trading, send weapons of mass destruction, biological and
    chemical capabilities, to these rogue nations. Yet we expect
    them to honor their word concerning what they are going to do
    with the products that we send them. I think we have been very
    naive and I think that what has been going on recently surely
    will be a wake-up call to us.
        In August 1998, I wrote to the Inspectors General at six
    Federal agencies, the Departments of Commerce, Defense, State,
    Treasury, and Energy, and the Central Intelligence Agency. I
    requested that they undertake a review of U.S. export control
    policy and report their findings to this Committee. Several of
    these IGs had undertaken a review of the export-control
    processes in 1993, but in the world of export control rules,
    that was a very long time ago. The statute governing export
    controls, the Export Administration Act, lapsed in 1994 and has
    been continued and amended since then only through Executive
    Orders.
        I requested that the IGs give us an assessment of how the
    post-Cold War export control system works and how it does not.
    The interagency report that we have before us today is the
    fruit of their labors, and I think it is particularly timely.
    It is no less important today than ever before that we strike a
    sensible balance between promoting commerce and protecting
    national security.
        The Senate is presently working on the reauthorization of
    the Export Administration Act and it is our hope that this IG
    review will help inform and educate members on the complexities
    of the major export control system, thus equipping us to meet
    the challenges of adapting the Export Administration Act to
    today's world of rapidly-changing technologies and new security
    threats.
        This is the second hearing the Governmental Affairs
    Committee has had as a result of the IG's export control
    review. We held a hearing on June 10 with the Department of
    Energy Inspector General that helped illuminate Energy's role
    in the export-control process and highlighted the problem of
    uncontrolled ``deemed exports'' which occur when foreign
    nationals visiting DOE weapons labs come into contact with
    sensitive dual-use and munitions technologies. We will have a
    chance to explore that a little bit further today.
        I want to thank all of you for your hard work in this area
    over a long period of time. I think that we are going to learn
    some important things today. Many of us have had a chance to go
    through the reports that you have filed, and they speak for
    themselves. Hopefully, we can use this forum to highlight and
    elucidate the points you make in the reports.
        I think that what we are going to see is that these matters
    are becoming more and more complex, and licensing officers are
    required to do more and more all the time. But we are giving
    them less time in which to do it. We are giving them
    practically no formal training. We are not making any
    assessment of the cumulative effect of this technology that we
    are giving to these various nations. We examine this little
    hole in the dike and say, that is no big problem, and nobody
    has any idea how many holes there are in the dike.
        We have got a process where, by law, the Department of
    Commerce, primarily concerned with selling things, is given
    responsibility in this area. They are supposed to bring in,
    when appropriate, these other agencies to take a look. The
    President's Executive Order allows any agency now to take a
    look at what they feel like they ought to take a look at.
        But it does not take a rocket scientist, which is perhaps
    an appropriate reference, to come away with the notion that
    this process is designed basically for Commerce to get its way,
    and that this is a process that is designed to basically
    discourage appeal. If you are an agency out there and have a
    problem with a proposed export license, you do not have time,
    for one thing, to do much with it. We will examine some of
    these things today.
        CIA is supposed to do end-user checks within 9 days, for
    example. That is ridiculous. I do not care what your analysis
    is on that. On its face, knowing what we know, with the
    problems we have--we are dealing with China and we are dealing
    with all these other countries, India, former Soviet Bloc
    countries--the CIA is given 9 days to check on the end-user
    situation and to what they are supposed to be doing with that.
    That is just one example.
        We place conditions on these licenses that look real good
    on paper. They are all there, right there. They are conditions.
    We are not going to let them do this, we are not going to let
    them do that. But then we do not follow up to see whether or
    not they are doing it anyway. There are time constraints,
    pressures to get the stuff out the door and get on to the next
    one, and in some cases, just clear violations of the law.
        The law requires, for example, that there be training
    programs for licensing officers. Statutory law requires that.
    The Department of Defense, I know, and I assume these other
    agencies, also have regulations requiring that, they set this
    up. I am sure that, many times, the representatives of these
    departments come up here and say, we have got these programs,
    requirements and so forth, but, in fact, there is no formal
    training that I can detect.
        They say it is on-the-job training, which is basically what
    you call it when you do not have a training program. When you
    are not doing any training, that is what you call it, which is
    fine if you are a plumber's helper, but it is not fine if you
    are an airline pilot, and we have got to decide whether or not
    we are dealing with stuff here that more likely relates to one
    or the other.
        The Department of Defense is supposed to assess defense-
    related export licenses. The Department of Defense is also
    supposed to analyze the cumulative effect of what we are doing
    here. You would think somebody might be doing that. The
    Department of Defense is supposed to be doing it. They do not
    do it. Nobody does it. They just do not do it.
        That reminds me of some testimony we heard yesterday from
    Senator Rudman when he was talking about the Department of
    Energy. He was talking about the culture at the Department of
    Energy, the problems that they have--arrogant, dysfunctional,
    and not even paying any attention to the President of the
    United States. When he puts down an Executive Order, it takes
    forever to get it done. You get a few people scurrying around
    at the top, but down within the bowels of the organization,
    they think, ``we were here when you got here, we are going to
    be here when you are gone.'' What makes us think that is just
    applicable to the Department of Energy?
        So I think your assessment seems to be that the railroad is
    running on time, there is no real indication that there is any
    breakdown, apparently, it is working, and so on. But we do not
    know whether it is working or not. All we know are these things
    that pop up every once in a while that show that we have
    serious diversion problems, we have got serious end-user
    problems, and we have got serious espionage problems. What we
    need to concentrate on is not necessarily trying to get to the
    bottom line of whether or not you can prove that our lunch has
    been stolen in any particular instance, which is almost
    impossible to prove anyway. We have got to look at the
    procedures that we have got and whether or not they are decent
    procedures and whether or not they are being followed and
    carried out. I think that is what you have done here.
        Thank you for your work and I look forward to getting into
    it with you. Senator Lieberman.

                 OPENING STATEMENT OF SENATOR LIEBERMAN

        Senator Lieberman. Thanks, Mr. Chairman. Thanks to the IGs.
    As you have indicated, Mr. Chairman, for the second time in
    recent weeks, we will be taking up an issue this morning of
    vital interest, which is the export-control process. In many
    ways, it is the other expression of the concern that has
    generated a lot of controversy and attention on the Hill right
    now, and that is the extent to which we are maintaining
    security at our national laboratories. The export-control
    process deals with some of the same questions through a
    different window.
        I do want to say that I am again very impressed by the
    reports put together by the IGs. This critical area of national
    concern has been given in these reports the kind of careful
    attention that it merits, and I truly thank the IGs for that.
    Their work will be particularly helpful in light of the
    imminent debate over reenactment of the Export Administration
    Act.
        An export-control process that works well is critical both
    to our national security and to our national economic well-
    being. These reports, more than any other material that I have
    seen on the subject, offer not only insight into the way the
    system works now, but also some very helpful guidance on how to
    make the system work better in the future.
        I was very heartened to read that, on the whole, the IGs
    conclude that the current control process is working pretty
    well, and, in fact, has, ``greatly improved'' since the 1993 IG
    report. I was specifically reassured to note that the IGs found
    no evidence of political pressure on licensing officers to
    change recommendations on applications.
        Nevertheless, the reports do point out that significant
    improvements are still needed. Some of these matters, such as
    better training and records management, fall to the individual
    agencies to address. Others may require interagency
    cooperation. In fact, they do require interagency cooperation.
        For example, I was surprised to learn of the absence of an
    overall mechanism to address the question of the cumulative
    effect of multiple exports to a particular country. Various
    licensing officers at different places in our government, each
    focusing on the sale of one commodity, if I can call it that,
    at a time, might consider each purchase to be benign, but if
    all the acquisitions were considered together, they might well
    paint a more ominous picture of a country or purchaser seeking
    to obtain components necessary to design, for instance, a
    weapon of mass destruction.
        So drawing the agencies together to consider cross-cutting
    issues like this should be one of the most important outcomes
    of this effort. We should strongly encourage interagency
    cooperation to look at this question of cumulative analysis.
        We in Congress also need to take steps to strengthen the
    export-control process. All of the IGs have endorsed
    legislative action to revive the Export Administration Act,
    which, hopefully, will be coming up for consideration this
    session, and this, too, is an area where I think we will want
    to explore and respond to the problem of cumulative effects.
        On the whole, I am encouraged that the relevant agencies
    seem to agree with the recommendations put forth by these IG
    reports and are apparently working to implement responses.
    However, in some cases, progress may be hampered by resource
    constraints.
        Commerce, for example, is currently using an export control
    database that was designed in 1984. The Department is seeking
    funding, $2.5 million, which in a budget the size that we have
    is really not much at all, to create a state-of-the-art system
    that would be compatible with the other agencies and, I think,
    would pay for itself, certainly in increased security, many
    times over.
        Finally, Mr. Chairman, with the agencies generally
    expressing support for the IG recommendations, I hope that our
    Committee will consider holding a follow-up hearing to take
    stock of their progress in implementing these recommendations
    several months down the road so that our continued oversight
    here will, hopefully, help keep the momentum of improvement and
    reform going.
        But the bottom line is I thank the IGs. I thank you for
    requesting these reports. I thank the IGs for their very
    carefully considered and constructive responses and I look
    forward to their testimony this morning.
        Chairman Thompson. Thank you very much.
        I would ask that each of you give a short summary of what
    we are dealing with here. We will have ample opportunity for
    everyone to express their views. Mr. Mancuso, I think you might
    have an overview of the entire situation yourself, so we will
    just start with you.

       TESTIMONY OF DONALD MANCUSO,\1\ ACTING INSPECTOR GENERAL,
                         DEPARTMENT OF DEFENSE

        Mr. Mancuso. Mr. Chairman and Members of the Committee, I
    appreciate the opportunity to discuss the Federal Government's
    export licensing process for dual-use commodities and
    munitions. In response to the Chairman's letter of August 26,
    1998,\2\ Inspector General teams from the Departments of
    Commerce, Defense, Energy, State, Treasury, and the CIA
    conducted an extensive review. Our efforts were coordinated by
    a working group, thus avoiding duplication and enabling us to
    track individual export license application cases across agency
    lines and to address interagency issues. The results are
    contained in an interagency report and six individual agency
    reports.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Mancuso appears in the Appendix
    on page 50.
        \2\ The letter referred to appears in the Appendix on page 47.
    ---------------------------------------------------------------------------
        I have Evelyn Klemstine with me today, who is on my staff
    and who acted as the facilitator for the team and who will also
    be available to answer any questions.
        Inasmuch as my office assembled and published the
    interagency report, I will begin my testimony by summarizing
    its main points in this joint endeavor.
        Dual-use commodities are goods and technologies with both
    military and commercial applications. The dual-use export
    licensing process is governed by the Export Administration Act
    of 1979, as amended. Although the Act expired in 1994, its
    provisions are continued by Executive Order 12981, under the
    authority of the International Emergency Economics Powers Act.
    Munitions exports are controlled under the provisions of the
    Arms Export Control Act.
        The dual-use export licensing process is managed and
    enforced by the Department of Commerce, although the Department
    of State manages munitions export licensing. The Departments of
    Defense and Energy review the applications and make
    recommendations to Commerce and State. The Central Intelligence
    Agency and Customs Service provide relevant information to
    Commerce and State, while Customs also enforces licensing
    agreements for all export shipments except outbound mail, which
    is handled by the Postal Service. In 1998, the Department of
    Commerce received 10,696 dual-use export license applications,
    while State received 44,212 munitions export license
    applications.
        The overall objective of the interagency review was to
    determine whether current practices and procedures are
    consistent with established national security and foreign
    policy objectives. To accomplish this objective, we reviewed
    various random samples of licensing cases to determine if
    prescribed processing procedures were followed within each
    agency and in multi-agency groups.
        To a considerable extent, our June 1999 report is an update
    of a similar report that was issued jointly by Commerce,
    Defense, Energy, and State IGs in 1993. The previous report
    covered the pertinent issues under seven headings, and this
    current report is structured along similar lines.
        The first area relates to the adequacy of export control
    statutes and Executive Orders. We concluded that, in general,
    the Arms Export Control Act and the provisions of the Export
    Administration Act, as clarified by Executive Order 12981, are
    consistent and unambiguous. However, the Commerce and Defense
    IG teams stressed that the dual-use licensing process would be
    best served if the Export Administration Act were reenacted
    rather than continue to operate under a patchwork of laws and
    Executive Orders.
        Executive Order 12981 is generally consistent with the
    Export Administration Act. However, the order requires
    modification to reflect the merger of the Arms Control and
    Disarmament Agency with the Department of State and to clarify
    representation at the Advisory Committee on Export Policy. In
    addition, policy and regulations regarding the export licensing
    requirements for items and information deemed to be exports
    needs clarification and the exporter appeals process should be
    formalized.
        The second area pertains to procedures used in the export
    license review processes. Commerce, Defense, Energy, and State
    IG teams concluded that processes for the referral of dual-use
    license applications and interagency dispute resolution were
    adequate. Officials from those Departments were generally
    satisfied with the 30-day limit for agency reviews under the
    Executive Order. However, not every agency could meet that
    limit. Several defense components and the CIA indicated they
    would benefit from additional time to review dual-use license
    applications.
        Defense and State IG teams were satisfied with the referral
    of munitions license cases for review. However, the Commerce IG
    believed that the inclusion of the Department of Commerce in
    the munitions case referral process should be considered. The
    Commerce commodity classification process could also benefit
    from additional input on munitions-related items from the
    Departments of Defense and State. Also, Energy officials
    believe that a more formal review process for munitions was
    needed, as the officials there were unclear on their role in
    the current process.
        The third area pertains to the cumulative effect of
    multiple exports to individual foreign countries. The U.S.
    Government lacks an overall mechanism of conducting cumulative
    effect analysis. However, some of the agencies involved in the
    licensing process perform limited cumulative effect analysis,
    but to varying degrees. Commerce, Defense, Energy, and State IG
    teams concluded that additional effect analysis would benefit
    the license application review process.
        The fourth area relates to information management.
    Commerce, Defense, and State teams questioned the adequacy of
    automated information systems their Departments use to support
    license applications reviews. Specifically, there were
    shortfalls in data quality, systems interface, and
    modernization efforts. The audit trails provided by most of the
    respective export licensing automated databases was adequate,
    but Defense procedures did not ensure that final Defense
    positions were accurately recorded. The CIA reported
    unsatisfactory documentation of end-user checks on munitions
    license applications.
        The fifth set of issues concern guidance, training, and
    undue pressure on case analysis. A review indicated that
    Defense, Energy, and State licensing officials had adequate
    guidance to perform their mission. However, the Department of
    Commerce licensing officers and CIA licensing analysts could
    benefit from additional guidance. On-the-job training was the
    primary training available at Commerce, Defense, Energy, and
    State for licensing officers. The Commerce, Defense, and State
    teams identified a need for standardized training in their
    agencies. With very few exceptions, Commerce and Defense
    licensing officers reported they were not pressured to change
    recommendations on license applications. No Energy or State
    licensing officials indicated that they had been pressured.
        The sixth area regards monitoring and compliance and end-
    use checks. Commerce did not adequate monitor exports from
    exporters on shipments made against licenses and the Department
    of State's end-use checking program could be improved. Commerce
    and State still use foreign nationals to conduct an unknown
    number of end-use checks. The Commerce IG team found that most
    end-use checks were being conducted by U.S. and foreign
    commercial service officers or Commerce enforcement agents. The
    State IG team concluded it may be appropriate to use foreign
    nationals to do the checks under certain conditions.
        The seventh area pertains to export controls enforcement.
    The Treasury IG team determined that although Customs Service
    export enforcement efforts have produced results, the Customs
    Service is hindered by current statutory and regulatory
    reporting provisions for exporters and carriers. The Treasury
    IG team also identified classified operational weaknesses in
    Customs export enforcement efforts. The IG teams made specific
    recommendations relevant to their own agencies. Those
    recommendations and management comments are included in the
    separate reports issued by each office.
        Now, I would like to change focus from the interagency
    report to the report issued by my office. Again, I emphasize
    that our objective was to review the export licensing process
    and not to assess the appropriateness of individual license
    applications. To summarize the results of the Defense team's
    review, I will address each of the 14 issues in the Chairman's
    letter, as posed in his 1998 letter. The full text of each
    issue in the letter is posted to my right on the board.
        Issue 1 asked that we examine relevant legislative
    authority. We found that the general nature of the Export
    Administration Act and the Arms Export Control Act creates a
    broad framework, but we found no inconsistencies or ambiguities
    in either law. We concluded that the dual-use licensing process
    would be best served through the reenactment of the Export
    Administration Act.
        Issue 2 requested our review of the Executive Order. We
    found that the Executive Order, as implemented, is generally
    consistent with the objectives of the Export Administration
    Act, but inasmuch as the Executive Order decreased from 40 to
    30 days the time that the Department has to review license
    applications, this has resulted in a potential inability to
    locate information necessary to inject into the review process.
        Issue 3 questioned whether Commerce is properly referring
    export license applications out for review by other agencies.
    Our review indicated that Defense officials expressed general
    satisfaction with referrals from Commerce but disagreed with
    Commerce's decision not to refer 5 of 60 sampled applications.
    They also expressed concern that Commerce referred too few
    commodity classification requests for review. As a result, in
    some cases, decisions on licensing applications with national
    security implications were made without the benefit of Defense
    Department input.
        Issue 4 concerns the interagency dispute resolution
    process. With one exception, we found that the interagency
    escalation process provides Defense a meaningful opportunity to
    appeal disputed dual-use license applications, although the
    outcome of the process often favors the Commerce position.
    Defense elected not to escalate some disputed dual-use
    applications after weighing such considerations as the
    substance of the case, the viewpoints expressed by Department
    principals, and the likelihood of prevailing at the Committee
    appeal process. Disputes over munitions applications were
    resolved successfully between office chiefs of Defense and
    State.
        Issues 5 and 6, I will address concurrently, since the
    conclusions are the same and the issues relate to whether
    current licensing processes adequately take into account
    cumulative effect. We found that the license process at the
    Defense Threat Reduction Agency occasionally takes into account
    cumulative effect, but that participants in the licensing
    process do not routinely analyze the cumulative effect of
    proposed exports or receive assessments to use during license
    reviews. In addition, Defense did not conduct required annual
    assessments that could provide information on the cumulative
    effect of proposed exports.
        As of March of this year, the Defense Threat Reduction
    Agency had initiated action designed to increase the degree to
    which cumulative effect analysis was incorporated into the
    licensing process. We recognize that organizing and resourcing
    a meaningful cumulative effect analysis process poses a
    significant challenge, but this is clearly an area that needs
    more emphasis.
        Issue 7 questions whether license applications are being
    properly referred for comment to the military services, the
    intelligence community, and other related groups. We determined
    that Defense components, except Defense Intelligence Agency,
    received about the same number of case referrals over the past
    8 years. However, the Defense Threat Reduction Agency did not
    always appropriately refer applications to other Defense
    components for review. Of the applications we reviewed, various
    components considered that 12 percent of the dual-use and 24
    percent of the munitions license applications had not been
    properly referred.
        Issue 8 questions whether license review officials are
    provided sufficient training and guidance. We concluded that
    Defense organizations involved in the review process receive
    appropriate guidance. Nearly all licensing officials told us
    that the guidance was adequate for performing their duties.
    Licensing officers also stated that they generally had
    sufficient training. However, some officials believe that a
    classroom training program and training for personnel reviewing
    export licensing applications should be established. We
    concluded that putting more emphasis on training would be
    prudent.
        Issue 9 questions the adequacy of the databases used in the
    licensing process, such as Defense Foreign Disclosure and
    Technical Information System, FORDTIS. We found that FORDTIS
    provides a useful communication and coordination mechanism for
    the Department on export control matters, although limitations
    exist in the system that reduce support to decision makers. In
    addition, inadequacies exist in the use of FORDTIS to provide
    an audit trail for export licensing decisions.
        Issue 10 notes that a Defense licensing official has
    described instances wherein licensing recommendations he
    entered into FORDTIS were later changed without his consent or
    knowledge. We found that instances have, in fact, occurred in
    which recommended positions entered in FORDTIS by a licensing
    officer were changed without the consent or knowledge of that
    officer, although the number of such occurrences could not be
    determined. These changes are, however, permissible under
    existing Department policy and appear to have been based on
    supervisors' disagreements with licensing officers'
    conclusions. We note, however, that the documentation related
    to the changes was not always complete.
        Issue 11 questioned whether license review officials are
    being pressured improperly by their superiors to issue or
    change specific recommendations. We interviewed all Defense
    Threat Reduction Agency licensing officers, and with one
    exception, they indicated that they had not been subjected to
    any improper pressure to change specific recommendations on
    license applications. However, several staff members stated
    that management applied indirect pressure and encouraged
    certain viewpoints.
        Issue 12 asked whether our government still uses foreign
    nationals to conduct pre-license or post-shipment licensing
    activities and whether such a practice is advisable. In
    general, Commerce and State conduct these activities. Defense
    provides limited support to them through our Defense attache
    offices, and we also monitor certain foreign space launch
    activities under the provisions of munitions licenses. Defense
    has not used and does not plan to use foreign nationals to
    support these efforts.
        Issue 13 questions whether the licensing process leaves a
    reliable audit trail for assessing license performance. We
    concluded that FORDTIS provides a long-term audit trail but
    does not always contain complete and accurate records of
    Defense and U.S. Government positions. As a result, the audit
    trail cannot be used as a reliable means of assessing the
    degree to which Defense positions are in agreement with
    positions taken by the U.S. Government.
        Finally, issue 14 asks that we examine the procedures used
    to ensure compliance with conditions placed on export licenses.
    The Defense Threat Reduction Agency has adequate procedures for
    monitoring foreign space launch activities. An informal process
    for reporting potential violations of license conditions and
    technology assessment control plans was also adequate. However,
    we found that the expected increases in the number of launch
    monitoring missions, coupled with a programmed increase in
    staff to support these missions, dictate that the Department
    move to a more formal approach for reporting violations.
        As a result of our overall review, we made numerous
    recommendations to the Department to improve the effectiveness
    and efficiency of the export licensing review efforts. In this
    regard, we recommended that the Department take measures to
    clarify responsibility for cumulative effect analysis and to
    improve both FORDTIS and internal procedures so as to ensure
    that better data is available for licensing officials.
    Additional recommendations involve such things as improved
    training and enhanced coordination with State and Commerce.
        The Department was generally responsive to our findings and
    recommendations. We will be tracking progress on the agreed-
    upon actions for our audit follow-up process.
        In conclusion, Mr. Chairman, we hope that this extensive
    multi-agency review will be useful to both the involved
    agencies and the Congress as efforts to update and improve U.S.
    export licensing practices continue. That concludes my
    statement.
        Chairman Thompson. Thank you very much.
        Mr. Mancuso covered the waterfront here, so feel perfectly
    free to be extremely brief. [Laughter.]
        If you feel moved to add or subtract from what Mr. Mancuso
    said, feel free to do so, but do not feel that you are going to
    be compelled to.
        Mr. Frazier.

     TESTIMONY OF JOHNNIE E. FRAZIER,\1\ ACTING INSPECTOR GENERAL,
                         DEPARTMENT OF COMMERCE

        Mr. Frazier. Thank you, Mr. Chairman. Mr. Chairman and
    Members of the Committee, I, too, am very pleased to appear
    before you today to discuss our review of the Department of
    Commerce's export licensing process for dual-use commodities.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Frazier appears in the Appendix
    on page 73.
    ---------------------------------------------------------------------------
        Commerce's Bureau of Export Administration administers the
    Nation's dual-use export control licensing and export system
    for national security, foreign policy, and nonproliferation
    reasons. Based on our review of BXA and as generally supported
    by the findings of the other IGs, we determined that the
    interagency license review process is working reasonably well
    and has improved much since 1993.
        The Departments of Defense, Energy, State, Justice, and the
    CIA now review many more of the license applications submitted
    to Commerce. In fiscal year 1998, BXA referred 85 percent of
    license applications. That is up from 53 percent in 1993.
    Clearly, this multi-agency review brings divergent policy views
    and more information to bear on license decision-making. In
    addition, the four-level escalation process for resolving
    license disputes among the referral agencies is working
    relatively well.
        While we found significant areas of improvement since our
    1993 review, we also identified a number of issues that warrant
    the attention of the Commerce Department, the administration,
    and the Congress. First and foremost, it is time to push even
    harder for new legislation to replace the expired Export
    Administration Act.
        There is also a need to clarify the licensing policy and
    regulations regarding the release of controlled technology to
    foreign nationals working in Federal and private research
    facilities, commonly referred to as deemed exports. We found a
    general lack of knowledge and understanding on the part of U.S.
    industry and the Federal laboratories about deemed export
    regulations and when such an export license is required.
        A third area where we see the need for change involves the
    requirement that post-shipment verifications be conducted for
    every high-performance computer, or HPC, greater than 2,000
    MTOPS that is shipped to countries of concern. Our review
    concluded that this is not an effective use of government
    resources. This requirement has enforced BXA to divert some of
    its enforcement resources to verify shipments of lower-end HPCs
    or on multiple visits to the same end users.
        Mr. Chairman, in response to your question about the
    adequacy of guidance and training for licensing officers, we
    have mixed findings. We initially identified the lack of up-to-
    date guidelines as one of BXA's major weaknesses. However, near
    the end of our review, BXA officials issued new work guidelines
    for licensing officers and are considering further changes. We
    have also recommended that BXA establish a formal training
    program for all of its licensing officers to supplement the
    current on-the-job training.
        In response to your question, Mr. Chairman, about the
    pressure on licensing officers, most BXA licensing officials
    reported that they had not been pressured into changing their
    recommendations on specific licenses. Two of the 36 licensing
    officers who responded to our survey question did State,
    however, that they have received some pressure from management,
    but our intensive follow-up on this question did not provide
    evidence to support these individuals' statements.
        We did, however, have questions about BXA managers'
    instructions to the chair of the operating committee on her
    decision on a few OC cases. We advised them that if the chair
    makes a decision that BXA disagrees with, BXA should escalate
    the case to the Advisory Committee for Export Policy in order
    to avoid even the appearance that this process is not
    transparent.
        The Commodity Classification Process, or CCATS, is another
    area ripe for improvement. First, BXA needs to improve the
    timeliness of its processing of exporter CCATS requests.
    Second, we recommend that BXA refer all Defense-related CCATS
    requests to both the Defense Department and the State
    Department.
        As I stated earlier, I believe that the overall process is
    generally more effective because of greater interagency
    involvement. However, we still found problems. We are
    especially concerned about the licensing officers amending some
    existing licenses without interagency review, inadequate time
    being provided to the CIA's Nonproliferation Center for its
    end-use checks, and BXA's approval of licenses based on a
    favorable end-use check after the pre-license check was
    canceled. BXA management has agreed to correct or address most
    of these problems.
        In addition, I would like to highlight two other problems
    that require interagency action and attention by the Congress.
    First, we found that the CIA and its Nonproliferation Center,
    at their own request, review only 45 percent of all referred
    dual-use export licenses. In addition, they do not always
    conduct a comprehensive analysis of the applications they do
    receive.
        Furthermore, there is no mechanism to track the cumulative
    effect of technology transfers. Such cumulative effect, while
    admittedly difficult to determine, would be a very useful
    addition to the license review process. Another key missing
    element is the screening of all license applications against
    the Treasury Enforcement Communications System database
    maintained by Customs.
        We also have recommended a change in the exporter appeals
    process. Once an export application has been formally denied,
    the exporter has the right to appeal to the Under Secretary of
    Commerce. Although BXA confers informally with the referral
    agencies before deciding on appeals, we believe that the
    interagency process should be formalized.
        Regrettably, Mr. Chairman, we found that BXA is still not
    adequately monitoring license conditions, as we first reported
    in 1993. This means that BXA is less able to determine if
    licensed goods have been diverted to unauthorized end users and
    exporters may receive new licenses even if they did not comply
    with previous licenses. We found recurring problems with
    respect to end-use checks conducted by Commerce's U.S. and
    Foreign Commercial Service, including untimely end-use checks
    and the use of foreign service nationals.
        And finally, Mr. Chairman, in response to your question
    about BXA's automated export licensing system, called ECASS, we
    found that the system's internal controls are generally
    accurate. At the same time, it is clear that BXA's automated
    information system is inefficient and needs to be replaced.
        This concludes my statement and I will be glad to answer
    any questions.
        Chairman Thompson. Thank you very much. Mr. Payne.

       TESTIMONY OF JOHN C. PAYNE,\1\ DEPUTY INSPECTOR GENERAL,
                          DEPARTMENT OF STATE

        Mr. Payne. Thank you, Mr. Chairman, and Members of the
    Committee. We appreciate the opportunity to testify today on
    this very important issue. I have a very brief statement which
    I will attempt, as you suggested, to make even briefer, based
    on the discussion earlier.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Payne appears in the Appendix on
    page 94.
    ---------------------------------------------------------------------------
        The Secretary of State is charged with administering the
    Arms Export Control Act for defense articles and services on
    the U.S. munitions list. Munitions are generally products that
    have been specifically designed for military application. In
    fiscal year 1998, State's Office of Defense Trade Controls
    processed over 44,000 munitions license applications.
        The State Department also reviews, for foreign policy
    considerations, dual-use license applications referred by
    Commerce. During fiscal year 1998, State reviewed over 8,000
    dual-use applications, which represent about 75 percent of all
    the applications Commerce had received.
        In our 1993 review, we found fragmented licensing
    responsibilities within State, confusion at overseas posts
    about responsibilities for end-use checks and verifications,
    and a lack of program files and documentation. State has made
    improvements since the 1993 review, including consolidating the
    export license functions and improving documentation of the
    referral process.
        During our current review, we found that, overall, the
    export licensing process is working as intended and the State
    Department consistently executed its export licensing
    responsibilities in accordance with existing policies. We found
    no significant inconsistencies or ambiguities in the
    legislative authorities that guide the export licensing
    process.
        Based on a statistical sample of applications processed, we
    found that State referred all appropriate applications to other
    agencies for review and fully addressed all concerns that they
    raised. We found no evidence that State licensing officials had
    ever been improperly pressured by their superiors to approve
    applications. Finally, we found that an adequate and reliable
    audit trail existed for the processing of both munitions and
    dual-use licenses at State.
        In addition to these improvements, we identified some areas
    which need further attention. State's formal process for
    conducting end-use checks, referred to as the Blue Lantern
    program, was created to verify the ultimate end use and end
    user of U.S. defense exports. Although State continues to
    refine its program, we believe that further changes are needed.
        First, given the limited number of Blue Lantern checks each
    year, 418 checks out of 44,000 licenses in 1998, attention
    should be concentrated on the most significant munitions
    categories. In addition, State needs to more closely monitor
    and follow up on Blue Lantern requests assigned to overseas
    posts. We found requests that had not been addressed for almost
    a year. Also, the Department needs to assist posts with
    appropriate expertise for technical on-site inspections when
    they are required.
        Licensing officers need additional training. State relies
    primarily on the apprenticeship approach, and although this
    provides important hands-on training, there is no formal
    training for new licensing officers. Training for more
    experienced licensing officers is practically nonexistent.
        The current munitions licensing process does not fully
    measure cumulative effect of technology transfers. State can
    improve its assessment of the cumulative effect by expanding
    the use of trend analyses and other reporting mechanisms.
    Nevertheless, State represents only one piece of a much larger
    picture. To fully assess the cumulative effect, information on
    technology transfers resulting from munitions and dual-use
    exports and foreign military and third-country sales need to be
    considered, as well as the internal capabilities of the
    specific country. A comprehensive assessment will probably
    require a joint effort with resources and coordination from
    various Federal departments and agencies involved in the
    licensing process. It likely will also require Congressional
    direction.
        Many of the concerns cited above are symptomatic of a
    larger problem at the State Department, insufficient resources
    to meet the expanding licensing mandate. State has fewer
    employees, heavier workloads, and lower pay grades in licensing
    activities than its counterparts at Commerce and Defense. In
    fiscal year 1998, 16 State licensing officers processed over
    44,000 applications. Processing times have also increased. In
    1992, State took an average of 4.5 days to process a non-
    referred license application. It now takes an average of 21
    days, and State's mandate continues to increase as
    responsibility for all commercial satellite cases was
    transferred from Commerce in March of this year.
        Recognizing the need for additional resources and the
    recent statutory change in commercial satellite responsibility,
    Congress has recommended that State provide an additional $2
    million to hire more senior-level personnel and support staff
    to improve the scrutiny of the export license applications,
    enhance end-use monitoring, and strengthen compliance
    enforcement measures. Earlier this month, State increased the
    export licensing budget by $2 million and plans to fund an
    additional 23 positions.
        That concludes my statement, Mr. Chairman. I would be happy
    to try to answer any questions.
        Chairman Thompson. Thank you very much. Mr. Friedman.

        TESTIMONY OF GREGORY H. FRIEDMAN,\1\ INSPECTOR GENERAL,
                          DEPARTMENT OF ENERGY

        Mr. Friedman. Mr. Chairman, considering the fact that I
    testified before you on June 10 on this subject, if it is the
    will of the Chair, I would be more than happy to forego an
    opening statement.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Friedman appears in the Appendix
    on page 104.
    ---------------------------------------------------------------------------
        Chairman Thompson. Thank you very much. Mr. Rogers.

     TESTIMONY OF LAWRENCE W. ROGERS,\2\ ACTING INSPECTOR GENERAL,
                         DEPARTMENT OF TREASURY

        Mr. Rogers. Well, that is fast. Thank you, Mr. Chairman. I
    appear here today on behalf of the Treasury IG and, basically,
    our role in answering your letter from last year has been to
    look at the process that goes on in Customs, the last check-
    point as materials, goods leave the country.
    ---------------------------------------------------------------------------
        \2\ The prepared statement of Mr. Rogers appears in the Appendix on
    page 119.
    ---------------------------------------------------------------------------
        I would like to be very brief and just say, generally, we
    noted that while we were not involved in this earlier report, I
    think it is good we are here now. Customs has made the outgoing
    check on goods as one of their core groups. We looked at their
    process and found several things that we reported as issues,
    among them being untimely export reporting data that comes
    after departure, which makes it very difficult to target
    enforcement effort. We think that there needs to be an
    improvement in the internal Customs license enforcement
    efforts, better training, staffing at checkpoints, and so
    forth.
        We also think that there is an issue about slowness in
    response to data inquires from Customs to the Department of
    Commerce, noted also by the Department of Commerce, I think,
    that the applications that are being processed by Commerce and
    State are not routinely screened against the Treasury
    Enforcement Communications System, but this is one of the
    issues that Customs agreed to take on, and, in fact, I would
    like to say that in every case, they have agreed with the
    recommendations and are undertaking some ameliorative effort to
    correct them.
        Overall, we hope that the recommendations are helpful to
    them and we think they have been. I would say also that some of
    our report has been classified for limited official use only
    because of our concern and Customs' concern that details about
    their operations at the borders might enable people to avoid
    Customs controls at exit points.
        With that, sir, I will conclude my statement.
        Chairman Thompson. Thank you very much. Mr. Snider.

      TESTIMONY OF L. BRITT SNIDER,\1\ INSPECTOR GENERAL, CENTRAL
                          INTELLIGENCE AGENCY

        Mr. Snider. Thank you, Mr. Chairman. I will also try to be
    brief, in view of your admonition.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Snider appears in the Appendix on
    page 127.
    ---------------------------------------------------------------------------
        The CIA supports the export licensing process at State and
    Commerce by providing relevant intelligence information that is
    available within the agency on end users and intermediaries
    identified in export license applications. The CIA obtains this
    information in the normal course of its activities to gather
    and analyze information on proliferation activities around the
    world and on programs that other governments have for
    developing weapons of mass destruction.
        The agency also provides additional support to the
    licensing process by preparing and providing finished
    intelligence reports and briefings on the results of its
    activities and through its participation in a number of the
    advisory committees that participate in the licensing process.
        What we attempted to do in our review was to look at what
    the CIA is currently doing to support this process and identify
    ways that the Agency can improve its support. We found, first,
    that not all of the agency databases that might reasonably be
    expected to contain relevant information on end users were
    routinely being searched by the analysts doing such searches.
    We recommended that this be corrected.
        Second, we found that the searches undertaken by CIA
    analysts were not being documented in a uniform way, either in
    terms of what was being done as part of the search or in
    documenting what was being reported to the Commerce and State
    Department. We recommended that be corrected.
        Third, we believe that the response time of 9 days which
    the CIA has to review cases from the Department of Commerce is
    unrealistic and cannot be satisfied within the existing staff
    resources of the Nonproliferation Center. It is recommended
    that the agency work with Commerce to establish a more
    realistic response time and then that the agency staff its
    analytical capabilities accordingly.
        Fourth, we found that Commerce does not fully appreciate
    the nature and limitations of the agency's capabilities to
    support the licensing process, and in turn, we found that
    agency analysts did not always understand or have a clear
    perception of the licensing officer's needs. To remedy this, we
    recommended a full-time agency liaison officer be assigned to
    Commerce to help bridge the gap.
        Finally, we saw the need for guidance to the agency
    analysts who were providing support to the licensing process to
    ensure that they understand what management expects in terms of
    type of searches, the degree of searches that they are expected
    to do, and also guidance that provides for alternative
    reporting channels in those cases where sensitive intelligence
    information cannot be routinely included in end-user reports.
    We recommended that the Special Assistant to the DCI for
    Nonproliferation formulate this guidance.
        In sum, while the CIA plays a limited supporting role in
    the export licensing process, we believe it can play that role
    more effectively and more efficiently. Indeed, I might add, Mr.
    Chairman, that the offices involved in the process at CIA have,
    in fact, taken steps to improve their performance as a result
    of our inquiry, so I think it is already having salutary
    effects on the agency's performance. Thank you very much.
        Chairman Thompson. Thank you very much.
        Senator Collins, do you have any preliminary comments
    before we get started here?
        Senator Collins. I do not, Mr. Chairman. I just want to
    thank you for holding this hearing. This is a very important
    issue that the Committee has been involved in for some time and
    I salute your leadership.
        Chairman Thompson. Thank you very much.
        Gentlemen, thank you very much. As I said, your reports are
    very comprehensive. You have had quite a long time to work on
    this and it shows. I congratulate you for that.
        I do not necessarily agree with some of the assessments.
    Your factual analysis, I think, is probably unassailable, but
    the idea that some of these things are working reasonably well
    kind of depends on what you expect and what you call reasonably
    well.
        I mean, it is true, for example, that more cases are being
    referred out to these other agencies and the Executive Order
    did that. That is a step in the right direction, but when you
    look and see that they have less time to deal with these
    complex matters and there are more of them to deal with, and
    that they are not getting adequate training, and then you find
    that when they object, they are immediately rolled and there is
    no appeal taken--you have this nice, beautiful appeal process,
    but it is not being used. Nothing has ever gotten to the
    President. Nothing has ever even gotten to the second level of
    appeal. So, I mean, it depends on what you think is working
    reasonably well. The process is there. You talk to most of the
    managers and I am sure they will tell you that things are
    working just great.
        It is your job to be objective and you have been and I
    appreciate it, but it is our job to be skeptical, so we are
    going to have to go through these things one at a time and
    maybe try to get underneath the surface a little bit.
        There are so many issues here and so many departments, the
    best way to handle it maybe is to go back to the questions that
    we originally asked, and that is kind of the way that you have
    dealt with it in your report. We will see how far I can get
    there. I will not go through all of them, Senator Collins,
    before I turn to you, so do not get too concerned.
        The first two have to do with the statutory framework, and
    the second question also has to do with the Executive Order
    pursuant to the statute and how that is working. Basically, you
    think the statute is not ambiguous, and that is fine. I believe
    you all recommend or think it would be a good idea for the
    Export Administration Act to be reauthorized, is that basically
    correct?
        Mr. Frazier. Yes, sir.
        Chairman Thompson. Was it you, Mr. Frazier, who said, for
    example, that we need to let the world know we are serious
    about this? If nothing else, that would do that. Is that
    correct?
        Mr. Frazier. That is correct. I think that anything that we
    can do to remove the ambiguity, the confusion, to send signals
    not only to the rest of the world but to all of the referral
    agencies. So I think that is the first step, getting the Act
    reauthorized.
        Chairman Thompson. The Executive Order, of course, set up
    this escalation process, whereby the agencies will get
    together. First of all, you have an operating committee that is
    chaired by an employee of the Department of Commerce, and we
    can talk about that a little bit more in a minute, but the
    operating committee considers these licenses. The licenses that
    are referred to the operating committee are growing, as I
    recall. Every year, there are more and more coming in to that
    level. It consists of representatives from all the relevant
    departments and agencies, and I believe they are at the
    operating committee level. I think we will have a chart here in
    a minute that will show that.
        Basically, at that level, the chair of the operating
    committee can basically do what she wants to do. She is
    supposed to listen, but she can make the determination at that
    level herself as to whether or not to approve or not approve a
    license or approve with conditions, is that basically correct?
        Mr. Frazier. That is correct, but what we find in practice
    is that she surely works to achieve a consensus. In one
    instance, I think, we made reference to the fact that she felt
    that she had been pressured in a couple of cases to advance the
    BXA position. What we have said in that regard to BXA is that
    they should treat her as an independent person. If there is a
    problem, they should then have it elevated to the next level.
    But she is a Commerce representative.
        Chairman Thompson. Right. I was thinking more of the
    framework right now, more than actually how it works in
    practice. But your points are well taken.
        Then if one of the agencies wants to appeal that, it goes
    to the Advisory Commission on Export Policy, and that is
    comprised of people at the assistant secretary level or some
    confirmable position, as I recall it, with the advice and
    consent of the Senate.
        Mr. Frazier. Correct.
        Chairman Thompson. Then, if an agency is dissatisfied
    there, they can go to the Export Administration Review Board.
    Then the next appeal is to the President. So that is the
    process this Executive Order set out, and we can discuss that
    in a little bit more detail.
        I think one of the things that was pointed out that the
    Executive Order did not address, and the law apparently does
    not address at all, is what about exporter appeals? You have
    got this process where it comes into Commerce, Commerce refers
    or chooses not to refer to these other agencies and so forth
    and everybody has their input and it is supposed to be
    considered. But if an exporter is denied and he appeals that
    denial, there is a danger that he can circumvent that whole
    process if he gets the initial decision overturned by Commerce
    alone. Is there not a danger that he can circumvent that whole
    process and wind up with his license without having to go
    through the process?
        Mr. Frazier. Well, it should not work that way. One of the
    things that they do now, and it is through an informal----
        Chairman Thompson. You mean it should not work that way?
        Mr. Frazier. There is an informal process that exists now.
    The final decision is left to the Under Secretary for BXA. He
    makes the final decision on the appeals. However, we could not
    find an example where he made that decision without going back
    to the appropriate referral agencies, and what we are
    recommending is that process be formalized. As it is now, it is
    an informal process and in practice, he looks for the input.
        Chairman Thompson. But I think throughout this, it is
    important for us to keep in mind and for you gentlemen as
    Inspectors General, what you go in there and they tell you how
    it works, that is important. You can listen to them and we will
    give them the benefit of the doubt on some of these credibility
    issues and so forth, despite the Rudman report.
        But the formalized process is what we first of all need to
    look at. I am not too interested in the fact that somebody who
    is in charge of it says that it is working good and he picks up
    the phone and does this, that, and the other. The fact of the
    matter is, right now, there is no process--I mean, it can work
    exactly as I suggested and what you are suggesting is that be
    changed.
        Mr. Frazier. Yes. In fact, Mr. Chairman, one of the points
    that you mentioned was that you, as the Chairman, are
    skeptical. I think, as the IG community, that is exactly the
    mantle that we wear very proudly. We think that this process
    should be formalized. I think that the point you make is right
    on the money.
        Chairman Thompson. Thank you. The third question was to
    please determine if there is a continued lack of interagency
    accord, as stated in your 1993 interagency report regarding
    whether the Commerce Department is properly referring export
    license applications out for review by other agencies. I am
    going to broaden that a little bit. This really has to do with
    how the whole process works. I want to go through a few points
    here and see if we can discuss them a little more.
        This timing situation was very much of a surprise to me,
    and Mr. Snider referred to the problem that the CIA has.
    Anybody who has ever dealt with the Federal Government has been
    exasperated. It takes forever to do anything, and yet it looks
    like, in dealing with dual-use export items, it is absolutely
    imperative to get everything done in as short a period of time
    as possible. We have the CIA being given 9 days to check out
    end users. Mr. Snider, what is the problem with that?
        Mr. Snider. The problem with that is it is simply not
    enough time for the analysts who are overwhelmed with many
    cases to do that kind of an analysis.
        Chairman Thompson. And the cases are escalating, are they
    not, the numbers?
        Mr. Snider. The number of cases is escalating, the number
    of databases they have to check, people they have to consult
    are increasing, so timing is a problem.
        Chairman Thompson. For the uninitiated, when I say check
    out end users, what are we talking about here? What are they
    doing?
        Mr. Snider. Well, end-users are people or companies who are
    identified in license applications as being the ultimate
    recipients or the intermediaries to receive the technology or
    equipment in question that is being exported. And what we do is
    attempt to see what information the agency may have that might
    bear upon a decision to license such an export.
        Chairman Thompson. In other words----
        Mr. Snider. They may be involved in proliferation
    activities that the agency has detected heretofore, this sort
    of thing.
        Chairman Thompson. In order words, you look and see who the
    actual end user is probably going to be, and what their
    activities have been, and whether or not they are the kind of
    people you want to have this technology.
        Mr. Snider. Correct.
        Chairman Thompson. Then you also look, do you not, at the
    likelihood that this might not really be the end user? This
    might wind up in somebody else's hands and somebody else not on
    the application is really the end user.
        Mr. Snider. That is correct.
        Chairman Thompson. So that is not an overnight process, is
    it?
        Mr. Snider. No, it is not.
        Chairman Thompson. I mean, you are dealing with foreign
    entities and we are dealing in a world now where you have all
    these partnerships. You talk to the Russians, you talk to the
    Chinese, and when they get caught red-handed in some of the
    proliferation activities, they say, well, that was not us, it
    was one of these companies out here and we really do not have
    much control over these companies, and they do joint ventures a
    lot and various kinds of entities are together and they are the
    end user.
        Mr. Snider. You are correct.
        Chairman Thompson. So you get 9 days in order to check all
    that out. The Department of Defense components, and when we say
    Department of Defense components, we are talking about, what,
    Army, Navy, and all the----
        Mr. Mancuso. Right, and the intelligence agencies and any
    other Office of the Secretary of Defense components.
        Chairman Thompson. When they are brought in, when these
    matters are referred to them, I believe they get 10 days to
    make their assessment, is that correct?
        Mr. Mancuso. That is correct. And, in fact, what we found,
    for instance, in the Navy is that the 10-day period has forced
    them to adopt a system whereby they no longer refer the matters
    for review down to the appropriate commands, but rather, they
    rely on whatever front office or headquarters expertise they
    have developed to make those decisions, because getting it down
    to the people who would best be able to analyze it could not be
    handled within the 10-day period.
        Chairman Thompson. That speaks for itself.
        The Bureau of Export Administration, I believe, only has 9
    days from the filing of the appeal within which to make a
    decision?
        Mr. Frazier. From the filing of an application.
        Chairman Thompson. I am sorry, for an application for a
    license?
        Mr. Frazier. Yes.
        Chairman Thompson. They have 9 days, and within that time,
    they have to decide what?
        Mr. Frazier. They have to make a lot of decisions in that
    period. They have to look at the reasonableness of the
    application to see if it seems to have merit, to see if it is
    logical, what is included in the application, and then they
    have to make a decision as to who it is going to be referred
    to. You would hope that they would check their database, which
    is ECASS, they would go to other sources that are available to
    them to decide what should happen during those 9 days. I surely
    agree with Britt that the 9 days that the CIA has to look at
    these licenses that are referred to is unacceptable. It is not
    enough time. I think that is something that definitely needs to
    be examined.
        Chairman Thompson. Chronologically, is it accurate to say
    that the Bureau of Export Administration wants this CIA
    assessment before they make their determination?
        Mr. Frazier. Well, no, not necessarily. In fact, one of the
    things that they will be doing, when an application comes in,
    they will be making an assessment as to whether it has to go to
    the CIA.
        Chairman Thompson. I see.
        Mr. Frazier. In fact, we had a chart that had the process.
    I do not know if that is available.
        Chairman Thompson. So that comes first. I think I
    understand what you are talking about.
        Again, in terms of the process, I think more than one of
    you were concerned that we are not taking advantage of the
    technology we have over at Treasury to check these people out,
    to check these exporters out, to run them through their
    database over there to see what kind of record these exporters
    have. Customs, I guess, is where the records lie, and that this
    has been a problem.
        Mr. Frazier. Yes.
        Chairman Thompson. You have pointed these things out before
    in prior reports. Why do they not check? The conditions on
    these licenses are really only as good as the people carrying
    them out, and so who the exporter is is important. So let us
    see whether or not they have prior violations, for example. Let
    us see what kind of citizens they are.
        Apparently, Mr. Rogers, you have that information over
    there, but it is not being called upon. Is that a correct
    assessment?
        Mr. Rogers. The information is available. It is used to
    some extent, but time pressures, staffing and other
    limitations, from our perspective, it is not regularly used.
        Chairman Thompson. Any further comments on that point?
        Mr. Frazier. Yes, Mr. Chairman. We think that by automating
    that data--we have recommended since 1996 that they run the
    licenses against the TECS system and it just has not happened.
    We have been told recently that they are going to start working
    with Customs, but we will believe that when it happens because
    it is something that we have been on record about for at least
    3 years, is suggesting that it should happen and it should
    happen immediately.
        Chairman Thompson. All right.
        Mr. Payne. Mr. Chairman, the State Department is one of the
    agencies that does not run each of the applications that it
    receives for munitions list items against the TECS system, but
    it does run the registration information. In order to apply for
    a license, you have to be registered, and at the time a company
    or an individual registers for a license that information is
    run against the TECS system. Now, there would be additional
    benefits to run the individual applications, as well, because
    they will sometimes have additional information, such as
    forwarders or other companies or organizations identified on
    the application that would not have been in the registration
    information.
        This is something that State does not object to, sees a
    need to, but has attributed to a resource problem just the
    additional time needed to run each of the individual 44,000
    applications against the database. So we are hopeful that as
    the resource problem is alleviated somewhat, that more of the
    application information will be run against the TECS system.
        Chairman Thompson. With regard to what you are referring
    to, does that have to deal with munitions items alone?
        Mr. Payne. Yes.
        Chairman Thompson. So you are addressing the munitions side
    of things and these other gentlemen basically have been
    addressing the dual-use side of things. But it all gets back to
    what you are talking about, resources and time constraints.
    People are being required to do more with less and in a shorter
    period of time. That is what it amounts to, and that gives much
    more authority to Commerce, frankly, and the chairman of the
    operating committee on the front end. Those are policy things
    that we can discuss, but I think that picture is fairly clear.
        I have one more question before I turn to Senator
    Lieberman, the fourth question that we asked. Please determine
    if the interagency dispute resolution or escalation process for
    appealing disputed license applications allows officials from
    dissenting agencies a meaningful opportunity to seek review of
    such applications and assess why this process is so seldom
    used.
        We talked about that a little bit earlier, about the
    escalation process. But again, the time constraints here are
    interesting to me. You go to the operating committee. A
    decision there is made by the chair, hopefully with
    consultation, hopefully with a consensus, but she has total
    authority. She has the power, if she chooses to exercise it, to
    totally ignore everybody, and in one case, with regard to
    encryption, she was told by her superiors at the Department of
    Commerce to ignore everybody. Does anybody dispute that?
        [No response.]
        All right. But however that works, I am sure it works fine
    in most cases. You can appeal her decision to the Advisory
    Commission on Export Policy, ACEP. You can appeal to ACEP and
    you have 5 days to appeal that case and it has to be signed by
    an assistant secretary. Now, I do not know how many people have
    experience in getting a busy assistant secretary's attention on
    anything important, or maybe even not so important. But 5 days
    to get someone at that level, to track them down and explain
    this case, you have to have burning ambition in order to do
    that, and it is reflected in the number of cases in which no
    appeal occurs.
        So that is 5 days. Then if you are still of a mind, if you
    have not gotten the picture by then, you can go to the Export
    Administration Review Board, and you have 5 days to do that,
    and the secretary himself has got to do that to make that
    appeal.
        This board has decided two cases since 1992. There have
    been two cases appealed to this board since 1992. The numbers
    are here on the chart, as you can see. Let us take 1998. The
    number of cases referred to the agency is 9,100. Then 766 cases
    were referred to the operating committee, and as we can see,
    those numbers have shown a general increase. They declined
    there for a while, and then after the Executive Order, they
    picked back up.\1\
    ---------------------------------------------------------------------------
        \1\ The chart referred to appears in the Appendix on page 47.
    ---------------------------------------------------------------------------
        But past the operating committee, the numbers have
    decreased. For the cases referred to and reviewed by ACEP, I
    guess 1993 was the highest on this chart, when 142 cases were
    appealed to ACEP. Last year, only 34 were.
        With regard to the next level of appeal, to the Export
    Administration Review Board, in 1998, there were no cases. In
    1997, one case. In 1996, none. In 1995, none. In 1993, none.
    You have to go back to 1991 to find any more, and you have got
    20.
        So, basically, what does that mean? I think one or two of
    you think that means the system is just working dandy because
    everybody agrees on everything. But I think, when you get into
    it and you talk to folks, like the Department of Defense you
    get a different picture. At Defense, for example, who took a
    sample of 26 cases. The Department of Defense, on this random
    sample, approved 6 and opposed 17, was their recommendation,
    almost a 3-to-1 rate of recommended denial over approval.
        The operating committee approved 14 of those licenses over
    Department of Defense objections, and the Department of Defense
    only appealed one case. Out of that whole batch that you
    checked, the random sample, they only appealed one case. You
    talked to them about it, and apparently they told you. But
    after initially opposing these licenses, the Department of
    Defense later changed. Of these 14 cases, 9 of the 14 were with
    regard to China, India, and Russia on issues of risk of
    diversion and end user. But apparently, after a little
    discussion, the Department of Defense decided to go along with
    the licenses, with conditions. Now, we will learn later that
    nobody follows up to see if the conditions are complied with,
    apparently.
        They told you that, well, ``we look at the likelihood of
    success on appeal''--it is kind of like an intersection
    lawsuit, I guess, that you lose in court--in which you decide
    whether to appeal based upon the likelihood of success and how
    important it is. Then they said that they felt like they were
    required to have concrete evidence that the end user is a high
    diversion risk and they felt like that was obviously a high
    standard to have to have--though I do not know how much more
    evidence they would need with regard to China and India and
    Russia. Our own CIA calls China the world's greatest
    proliferator of weapons of mass destruction.
        But, anyway, they wind up basically going against their own
    judgment. They approved 6 and denied 17. They wound up
    basically going along with everything and appealing only one.
    Mr. Mancuso, and correct me if I am wrong on my analysis, tell
    us what additional information you have about that.
        Mr. Mancuso. I have very little----
        Chairman Thompson. Tell us as to why they did not appeal
    more.
        Mr. Mancuso. You are certainly factually correct in your
    description of the numbers and of what happened. We queried
    them on each of the cases and they had a variety of reasons.
    Some of them, they moderated their position after considering
    that the items were, in fact, in support of international
    programs.
        Chairman Thompson. What does that mean?
        Mr. Mancuso. In general, it means that it was not a single
    application. It was going to be a broader application that had
    wider ramifications and they considered that fighting the
    denial for this one specific country apparently would have
    little overall effect and they, again, moderated their
    position.
        Chairman Thompson. Does that mean that there were broader
    foreign policy objectives involved? I saw where you said, in
    support of international programs, and----
        Mr. Mancuso. That is correct.
        Chairman Thompson [continuing]. I am still not sure exactly
    what that means.
        Mr. Mancuso. I think, in a minute, I am going to refer back
    to the person who handled the audit. But before I do that, in a
    number of the cases, they just simply felt that in reviewing
    their arguments, because as you escalate you begin to bring in
    higher-level officials within Defense and consider the
    appropriateness of the escalation, and they felt that they just
    did not have a strong enough policy argument to make at that
    level.
        Chairman Thompson. So you have----
        Mr. Mancuso. I am certainly not saying that I would agree
    with that rationale, but it is their rationale.
        Chairman Thompson. Let us think about this practically. I
    understand what you are saying and I appreciate it. But as a
    practical matter, this person who has this concern, or all
    these concerns with all these items, and this was a random
    sample of 26--goodness knows how many there are out there in
    terms of, say, the Department of Defense objective--but he has
    to go to them and resist. The Department of Commerce, who is
    primarily in charge of this, and presumably some other of our
    agencies, will then presumably say we are all on the same team
    here and this is what we want to do. But this person who thinks
    its a bad idea still has to get to Mr. Assistant Secretary,
    within 5 days and convince him to go against that grain.
        I am not passing judgment on whether or not he should, but
    that is the practical reality of what he has to do in order to
    escalate it to the ACEP level, is that basically correct?
        Mr. Mancuso. That is correct, and I guess in the colloquial
    sense, we all say, how often do you want to expend that silver
    bullet? And they looked at each one of these issues and in
    their own reasoning and with their experience, they decided on
    each of these issues to either accept conditions or to not seek
    a further level of appeal.
        Chairman Thompson. Do they actually change their denial to
    approval in some cases?
        Mr. Mancuso. I believe in some cases, they went with----
        Chairman Thompson. With conditions?
        Mr. Mancuso. The term is ``approve with conditions.'' In
    others, they simply let their objection stand on the OC level
    but failed to follow up within the 5 days to seek appeal. So
    the record would reflect the objection.
        Chairman Thompson. One final point. Is it not also true
    that there is no documentation on why appeals were not taken?
        Mr. Mancuso. In some cases----
        Chairman Thompson. Basically, you are going back and
    talking to them about it, but in terms of a paper trail or in
    terms of an audit trail, it is very difficult to determine the
    reasons why appeals were not taken after objections had been
    lodged, is it not?
        Mr. Mancuso. That is correct, and that goes all the way
    back to the initial licensing officer's decision, where we
    spoke about the fact that we also found that supervisors, in
    some cases, changed the licensing officer's position without
    that person's knowledge or consent.
        Chairman Thompson. We will get to that.
        Mr. Mancuso. And the facts behind that were not documented,
    as well.
        Chairman Thompson. No reasons were given for that, either?
    We will have a chance to revisit some of these things a little
    later.
        Senator Lieberman.
        Senator Lieberman. Thanks, Mr. Chairman. I wanted to get to
    the subject of deemed exports and the deemed export
    regulations. When we had the hearing on Mr. Friedman's report,
    this interested us in the basic notion that the exchange of
    technical information can be effectively an export and,
    therefore, evoke the same kinds of security concerns as the
    sale of a commodity. Therefore, it requires an application for
    a license, very few of which are filed, as Mr. Friedman's
    report showed.
        I note that the Commerce IG has identified this issue as a
    more widespread problem than just at Department of Energy
    facilities. It appears that in addition to problems in the
    federally-funded labs, other agencies, including NIST at
    Commerce, Defense's Army, Navy, and Air Force labs, and the
    Centers for Disease Control and Prevention have not submitted
    any applications on behalf of foreign nationals coming to their
    facilities.
        I know that some people say that the problem here is in the
    ambiguity of the deemed export requirements and the Department
    of Commerce regulations. I just wanted to take that up a bit
    further, and perhaps I will start with Mr. Frazier. Are the
    Commerce regulations ambiguous, and if so, what can we do to
    help to clarify the application of the rule?
        Mr. Frazier. Senator, they are, indeed, ambiguous. I looked
    at a couple of them myself, and when it explains the types of
    people who would have to come in to get an export or deemed
    export, it addresses the question of basic research without
    defining clearly what that means.
        The other thing is that when we interviewed various people
    and we would ask them their impressions as to under what
    circumstances you would need to come in for an export license,
    most of them had varying interpretations and understandings as
    to the circumstances under which you would do that. Even at the
    Department of Commerce, we have our NIST labs and we were
    uncertain as to whether they, in fact, would be required. We
    know that there are various scientists and researchers that
    come to visit at NIST often, but not one deemed export license
    had been requested there.
        It is something that I think is a big loophole. I think
    that most people do not have a clue as to the circumstances
    under which this should happen. We have encouraged BXA to try
    and come up with some better guidelines, to do more outreach,
    to get the message out, to target certain labs in the public
    and private sectors to make sure that they are aware of this.
    It is something that people just do not have a clue on. I think
    that is so unfortunate.
        Senator Lieberman. Is anything happening? Is anybody at
    Commerce responding to try to resolve the situation?
        Mr. Frazier. In response to our report, they have, indeed,
    suggested that they will do more in this area, that they plan
    to do more outreach. I think that it is an area that there
    needs to be clearer guidance, there need to be some policy
    determinations made to clarify it. It should not be something
    that people have to go and make these assessments with these
    ambiguous guidelines. We think that it should be something that
    it is almost a checklist. If you have this, if this is going
    on, come in for the license. I would always encourage people,
    when in doubt, to come in and ask about the license anyway, but
    that is not happening.
        Senator Lieberman. Let me ask anybody who wants to comment
    whether you have any judgment or have reached any judgment on
    the underlying policy here. Is it right to have the category of
    deemed exports and to require license applications, leaving
    aside, for a moment, whether the regulation is ambiguous or
    not.
        Mr. Frazier. I think that it definitely is.
        Senator Lieberman. It is?
        Mr. Frazier. I think it is no question.
        Senator Lieberman. On the theory that I mentioned very
    briefly, which is that in the exchange of information, you can
    have as much either positive or negative occur as in the
    transfer of a commodity.
        Mr. Frazier. Very definitely, even more so in certain
    cases.
        Senator Lieberman. Right.
        Mr. Friedman. I would support that.
        Senator Lieberman. You would? OK. Let me go briefly to the
    cumulative effect problem that we talked about. I appreciate
    you drawing that to our attention.
        What is being done now to assess the cumulative impact of
    controlled exports? Is there any response to the problem or is
    it totally running in separate pipes?
        Mr. Frazier. Clearly, not enough.
        Senator Lieberman. No?
        Mr. Frazier. I think, as the Chairman pointed out, people
    will look at one part of the dam. They will look at this hole,
    they will look at that, but very little is being done on a
    collective basis. In fact, when the staff who did the work
    raised that issue, I asked them to give me some ideas as to
    what kinds of things should happen. You are going to have to be
    willing to put a lot more resources into the issue. You are
    going to have to be willing to spend additional time. I think
    the Chairman has highlighted that repeatedly. Timing becomes an
    issue here. But it is something that is seldom done. It is an
    area that I think we are fairly vulnerable in.
        Senator Lieberman. Did any of you, in your work on this, or
    Mr. Mancuso, discover a specific case in which you were able to
    conclude that the availability of cumulative effect information
    might have changed the outcome of a particular application, or
    was the concern more--I do not want to demean it by saying
    theoretical, but that you saw a potential loophole here?
        Mr. Mancuso. No, Senator, only because we were not
    evaluating the appropriateness of each license application.
    Rather, we were looking at the process.
        Senator Lieberman. Yes.
        Mr. Mancuso. But I would add that when we looked, for
    instance, at the fact that there were a number of applications
    not referred to Defense from Commerce, we did a sampling of
    about 10 percent, and in 5 of the 60 samples, we found
    disagreement in Defense where Defense components felt they
    should have been referred.
        Senator Lieberman. Right.
        Mr. Mancuso. Three of those were cases in which Commerce
    had received an application regarding the transfer of
    technology to India. India was under Presidential order at the
    time that they could not ship items, so Commerce decided
    unilaterally not to share the application request with Defense.
    Well, that has a direct bearing on the cumulative effect
    analysis, because our license officials feel that even though
    Commerce was denying the license, we would want to know what
    was being requested, what was being looked for by this
    particular country, and we would have benefited from that.
        If you are going to look at cumulative analysis, it is not
    just of the matters that are currently being referred. It is,
    overall, what are the items that are even being denied without
    the knowledge of the individual departments, such as Defense.
    So we certainly found some loopholes in looking across the
    board at all of these issues.
        Senator Lieberman. Let me move to that now. I know that DOD
    and DOE expressed concern that Commerce was not appropriately
    referring license applications to them for review, and the DOE
    actually rescinded its delegation of authority to Commerce,
    which had previously allowed Commerce to forego referrals to
    DOE of some license applications.
        Does Commerce disagree with this expression of opinion from
    the Department of Energy and the Department of Defense that it
    was not referring all the licenses it should have to them for
    review?
        Mr. Frazier. I think, as Don pointed out, we had a sample
    of about 60 cases that were not referred, and in looking at
    those, 5 of them should have gone to the Defense Department.
    BXA still took the position on reflection that they still felt
    that they had acted appropriately on all of them----
        Senator Lieberman. They did?
        Mr. Frazier [continuing]. So I think that is their
    position.
        Senator Lieberman. Is any action occurring now within
    Commerce to respond to those concerns expressed by the other
    two agencies?
        Mr. Frazier. In the case of Energy, I think it was returned
    without action. So the five that Don referred to were cases
    that we did both look at, and I think it is drawing a lot of
    attention to that process. We would think that the Department
    would have to be very careful in anything that it makes a
    decision not to refer.
        Senator Lieberman. Finally, I wanted to ask you to
    elaborate a bit on this interesting requirement for post-
    shipment verification of high-performance computers that I know
    was part of the Defense Authorization Act, I think, of 1998.
    That is the post-shipment verification to be conducted on all
    HPCs with a performance capability between 2,000 and 7,000
    MTOPS that went to Tier 3 countries, which are countries that
    we have concern are proliferating. First, help us understand
    what the mechanism was supposed to be for a post-shipment
    verification.
        Mr. Frazier. The issue here is that we would either have
    the U.S. and Foreign Commercial Service, which is stationed
    around the world in 67 countries, do it, or BXA's Safeguard
    Verification Program, where we sent export licensing agents
    from the United States overseas to verify shipments.
        Senator Lieberman. And the verification, obviously, is to
    make sure they are being used----
        Mr. Frazier. That they have, in fact, ended up where they
    said they were going to end up. You go there and you verify
    that.
        Senator Lieberman. Is the purchaser required as a condition
    of the license to give permission for those post-shipment
    verifications to occur? In other words, what is the basis for
    us to go in through either the BXA or Commerce personnel?
        Mr. Frazier. That is a general requirement. One of the
    things with China, China has always been a special problem
    because we exported, I want to say, in the neighborhood of 191
    HPCS to them in FY 1998 alone.
        Senator Lieberman. Right.
        Mr. Frazier. In the process, Commerce did only one HPC
    post-shipment verifications during that year.
        Senator Lieberman. That is exactly right. I was going to
    ask you about that. My numbers say 390 shipments of high-
    performance computers to Tier 3 countries in 1998, 1 year. Only
    104 post-shipment verifications occurred, but, just as you say,
    of 190 high-performance computers sold to China, only one post-
    shipment verification occurred.
        Mr. Frazier. Yes. One of the things is that the Chinese
    Government requires that we get a special approval from them
    before these can be conducted. They usually go with the people
    from the United States who do the post-shipment verifications.
    The United States now requires exporters to obtain an end-user
    certificate from the Chinese Government for each HPC they plan
    to export to China, whether or not the export is licensed.
        Senator Lieberman. So do you think that change will
    increase the proportion of post-shipment verifications----
        Mr. Frazier. Yes, because, basically, what it does is put
    the Chinese Government on notice that if these commodities,
    these high-performance computers, are going to be sent to them,
    it is unacceptable for them not to allow these verifications to
    take place.
        Senator Lieberman. But for now, we do know that of 190
    high-performance computers sold to the Chinese last year, that
    we only have verified in one case that the computer is being
    used for what the representations were that it was going to be
    used for.
        Mr. Frazier. Regrettably, that is true.
        Senator Lieberman. That is something I think we should
    focus in on, because as we see this emerging picture, we want
    to have trade with China, we want to have relations, economic
    and diplomatic, with China, but the picture we get of a very
    broad effort, basically, to obtain the technology that we have
    worked very hard and invested billions of dollars to develop
    and then perhaps to proliferate it, we have got to raise our
    guard. It just struck me that you all have pointed out one area
    here where our guard has been remarkably low, so I hope as we
    continue to oversee, and I ask your help in that, too, what the
    departments are doing, that we press in on this to see that
    more of that post-shipment verification is occurring.
        Thanks to all of you. Thanks, Mr. Chairman.
        Chairman Thompson. Thank you very much.
        Mr. Friedman. Mr. Chairman, could I just clarify one point
    for Senator Lieberman?
        Senator Lieberman. Yes, please.
        Mr. Friedman. I do not know whether you were relying upon
    my testimony from June 10 with regard to the withdrawal of the
    delegations of authority. You may well have been, because that
    is what we were told.
        Senator Lieberman. Right.
        Mr. Friedman. In fact, Senator Lieberman, on July 11, the
    day after the hearing, I believe, the Department sent a memo to
    the Department of Commerce, the responsible parties there, not
    withdrawing the delegation but attempting to clarify the
    circumstances under which delegations will be appropriate. So
    it is a very different----
        Senator Lieberman. I see.
        Mr. Friedman. The actual outcome turns out to be quite a
    bit different than what we had been told and we have not
    analyzed the contents of that document.
        Senator Lieberman. OK. So there is some negotiation going
    on now between the two departments?
        Mr. Friedman. I do not know whether--I cannot tell you
    there is negotiation----
        Senator Lieberman. I appreciate that clarification. As a
    matter of fact, the delegation has not been withdrawn?
        Mr. Friedman. That is correct.
        Senator Lieberman. Thank you.
        Chairman Thompson. Thank you. Let us go back just a moment
    to the escalation process where we left off and the OC chair,
    the operating committee chair where the initial group
    discussion, at least, takes place. It looks to me like we could
    all benefit from a clarification of the role of the chairperson
    of that operating committee. We had a little discussion about
    this earlier. Consensus is said to be the practice, but the
    authority is clear and in some cases it has been exercised
    where unilateral authority could be exercised.
        The Department of Commerce, as I read their response to all
    this, basically says, well, it says right there in plain
    English that she is an employee of the Department of Commerce
    and she is reflecting the Commerce position, and in effect, we
    make no apology about that.
        I think you pointed out that at least the position was, or
    the desire was, when this was set up in the Executive Order,
    that she would be at least somewhat objective. I know, for
    example, in the encryption case, that she told you that she was
    told, basically, not to particularly pay any attention to what
    anybody else thought. Defense and Justice both, I think, had
    problems with that. She is not objective and she ought to be.
        Mr. Mancuso, I think Defense was one that had a problem
    there. This is a policy decision. If, in fact, we want to set
    up someone in Commerce to have unilateral authority, at the
    initial stage, anyway--which, of course, in my estimation is
    extremely important because of the difficulties of going past
    that initial stage--that is a policy decision that I guess
    would be consistent with the Act. Or if we want to have someone
    who is supposed to be objective, that is another way to go.
        It looks to me like we ought to lay our cards on the table
    and acknowledge what it is we are doing. Are there any
    recommendations in your report in terms of--I do not recall--
    clarification of that role, or do you have any thoughts? Mr.
    Frazier has discussed it a bit with me, but do you have any
    thoughts, Mr. Mancuso?
        Mr. Mancuso. As we stated in our report, we clearly feel
    that the process favors the Department of Commerce. That is the
    way the system was set up, that someone in Commerce would head
    up this committee, and it is assumed that the process would
    favor Commerce, which again leads to further analysis as to
    what might be an appropriate case to escalate.
        In that regard, Mr. Chairman, I would respond to your
    earlier question about the international programs. My associate
    has told me that what we were speaking about there is the
    Israeli Arrow program, which has involvement that goes beyond
    Israel and has the support of the Department of State and other
    agencies. So within Defense, the Defense concerns were
    reevaluated in light of the feelings of the other participating
    organizations and the Department felt that their concerns----
        Chairman Thompson. Your initial concern had something to do
    with them, and when you learned that they were a part of the
    process, that alleviated some of your concerns?
        Mr. Mancuso. Well, it also caused some belief that if the
    Defense Department position was not a very strong position,
    clearly, we would not prevail.
        Chairman Thompson. All right. Back on this other point,
    what about the encryption issue? What happened there?
    Obviously, that is a very sensitive subject that we are dealing
    with up here right now. It is another balancing act. I am not
    sure where the administration stands on this today, but in
    times past, anyway, the Justice Department and FBI have taken
    the position that we have to be very, very careful about this.
    Some of our manufacturers over here want to loosen the
    standards and there is another debate going on here involving
    commerce with a little ``c'', commerce versus national
    security.
        Encryption was at State at one time, was it not, and it was
    transferred to Commerce. Was that part of items taken off of a
    munitions list? Anyway, the transfer was made. Then Justice
    became a part of the process. Did that happen simultaneously,
    or exactly how did it come about that encryption came to
    Commerce, and does that sensitive item present a special
    problem? Apparently, it was the only time that the OC chair
    says that she was given those kinds of instructions back at
    Commerce as to how to deal with the subject. First, does
    encryption present a special problem for us? I do not want
    everybody to speak at once.
        Mr. Frazier. I am not aware of the chronology. I think that
    what is tripping us up here is how it got to Justice. I just
    cannot address that point.
        Mr. Payne. Yes. My staff just tells me that in 1996, the
    devices moved from the munitions list to the dual-use list and
    there is a process for moving items back and forth.
        Chairman Thompson. OK. So it was like the satellites?
        Mr. Payne. Exactly, like the satellites.
        Chairman Thompson. Anybody on the staff may speak up if you
    want to. Was Justice involved in the process at that same time,
    or do we know?
        [No response.]
        All right. That is for further consideration.
        On the cumulative effect issue, let us move on to question
    five. Senator Lieberman dealt with that. In the first place, I
    think it is important to point out or highlight what you point
    out in your report here. Mr. Mancuso, I think this is your
    part.
        A Defense science task force report on globalization and
    security issued in December 1998 discussed how globalization
    and technology increases the need for those concerned with
    technology security to focus on the capabilities created by the
    integration and military application of uncontrolled
    technologies. A study released in early 1999 by the Department
    of Commerce discusses how the cumulative effect of
    technological transfers to China might pose long-term economic
    risk to U.S. competitiveness and suggested that the topic
    warranted further study.
        In fact, in the Department of Defense policies and
    procedures directive 2040.2, international transfers of
    technology, the policy states that DOD components--and we've
    discussed what the components were within DOD--shall annually
    assess the total effect of transfers of goods, munitions,
    services, and technology on U.S. security. So there seems to be
    a pretty clear policy directive that DOD is supposed to make
    such an assessment, is there not, Mr. Mancuso?
        Mr. Mancuso. Yes, there is.
        Chairman Thompson. And that is not being followed, is it?
        Mr. Mancuso. No. We found that it is not. At best, it was
    performed on an ad hoc basis.
        Chairman Thompson. My notes indicate that when you talked
    to them about it, they said that it was too costly and too slow
    to make the 30-day turnaround requirement that they had, is
    that correct?
        Mr. Mancuso. Correct. They attributed it to resources and
    timing.
        Chairman Thompson. Resources and timing, a recurring
    problem. The only problem here is that you have an official who
    basically decides to ignore the policy of his own department.
    Hopefully, that is not commonplace. I just came from a hearing
    yesterday on Energy, you can tell, and we saw this time and
    time and time again over there. That is just something that we
    are not going to tolerate.
        Congress needs to face up to the resources issue. Congress
    needs to face up to the timing issue, too, and perhaps we can
    address that in the Export Administration Act. It all gets back
    to the people administering the program, though, and what their
    ideas and proclivities are. If you have a bunch of people who
    so heavily weight things in favor of getting the merchandise
    out the front door, I am not sure any of the procedures are
    going to do you much good. Hopefully, however, we can do
    something about it, by pointing out the importance that this
    not be the prevailing attitude.
        On number seven, the issue of whether or not cases were
    properly referred out to the various agencies for comment, Mr.
    Frazier, I believe that it was you who suggested that the CIA
    should get more time to look at these matters.
        Mr. Frazier. Yes.
        Chairman Thompson. You said in your prepared remarks, too,
    that they were not being referred as many things as you feel
    like they should be referred. In fact, here is the CIA
    apparently saying, we do not want all this.
        Mr. Frazier. That is right.
        Chairman Thompson. They had more important things to do.
    Therein lies another problem, right, Mr. Snider?
        Mr. Snider. That is correct, Mr. Chairman. The
    Nonproliferation Center actually takes the position they are
    getting referrals they should not be getting, where the license
    application really does not involve the potential threat of
    proliferation activity or can be applied to proliferation
    activity. So there is a disconnect there.
        Chairman Thompson. Who makes the determination as to
    whether or not it involves proliferation activity? How do you
    know that until you take a look at it? You have got somebody on
    the other end who does not have the qualifications to make that
    determination making it.
        Mr. Snider. I am not sure how Commerce makes the
    determination. They refer the cases. They decide which should
    be referred under the MOU with the agency. They do that and
    then our analysts take a look at it and assess it from there.
        Chairman Thompson. You generally describe the kind of cases
    you want?
        Mr. Snider. Yes.
        Chairman Thompson. And then they have to decide whether or
    not a particular case fits that category? What is the problem
    with that, Mr. Frazier?
        Mr. Frazier. Well, the thing that we are trying to push,
    Mr. Chairman, is that when in doubt, send it. I mean, do not
    leave it to chance. You are right. The licensing officer has a
    body of information that he or she is working with. They get
    that. If they have any remote consideration that it should be
    referred, it should be referred. I just do not think that you
    leave it to chance. That is the message that we surely have
    tried to get BXA to address.
        Chairman Thompson. All right. Clearly, this is something we
    need to have some further discussion about, and again, if it is
    a resources question, then it is something we need to face up
    to and Congress needs to face up to. We cannot have our cake
    and eat it, too, either.
        Senator Akaka, it just occurred to me that I did not call
    on you. I am so sorry. I am going to stop right now and defer
    to you. You were here earlier and I got carried away.

                   OPENING STATEMENT OF SENATOR AKAKA

        Senator Akaka. Mr. Chairman, do not feel badly about that.
    I am patient and I know you have so many important questions to
    ask.
        Mr. Chairman, I want to commend you for holding this
    hearing, especially after we have had an August 1998
    investigation on the conduct of this interagency licensing
    process for dual-use items, and also a hearing that we had June
    10 on dual-use and munitions export control issues relating to
    DOE.
        Mr. Chairman, I want to ask that my statement be placed in
    the record.
        Chairman Thompson. It will be made a part of the record.
        [The prepared statement of Senator Akaka follows:]
                      PREPARED STATEMENT OF SENATOR AKAKA
        Mr. Chairman, with you, I am pleased to welcome the Inspector
    Generals (IGs) from the Departments of Commerce, Defense, Energy,
    State, and Treasury and the Central Intelligence Agency to discuss
    their reports on the review of the export licensing processes for dual-
    use and munitions commodities.
        I am heartened to learn that the IG's overall conclusion is that
    the dual-use referral and dispute resolution processes work reasonably
    well. The dual-use and munitions license processes have greatly
    improved since the 1993 review was completed. However, more work needs
    to be done to ensure that the United States has a highly efficient,
    effective and transparent export-control process.
        Mr. Chairman, I, therefore, strongly recommend that the Committee
    invite the agencies to report on the measures taken in response to the
    IG's reports in 6 to 9 months. As the case with the 1993 IG reports, we
    do not want to wait another 5 years before someone reviews the actions
    taken by the agencies to implement the sound recommendations made by
    the IG's to improve the performance of our export-control process.
        A catalyst issue for these IG reports was testimony last year
    before this Committee by Dr. Peter Leitner of Defense's Agency on
    Threat Reduction. He testified that recommendations he entered into
    Defense's computer system were later changed without his consent or
    knowledge and that there was undue pressure to issue or change
    recommendations.
        I am pleased to learn that, apparently with very few exceptions,
    although there have been instances of indirect pressure, this is not
    the case. Dr. Leitner's reporting was a serious concern to the
    Committee. I trust that with the IG's review of this issue and
    continued Congressional oversight future problems will be resolved.
        Finally, Mr. Chairman, the various agencies generally agreed with
    the numerous recommendations made by their IG's for improving the
    export-control process, but they highlighted resource and budget
    restraints.
        If the United States is to implement an effective, efficient and
    transparent export license control process, the Congress must ensure
    that the appropriations for each of these agencies is adequate for this
    purpose.
        In light of the recent Cox Report findings and the additional
    funding granted to the Department of Energy's National Laboratories for
    implementing a secure counter-intelligence program, the Congress should
    consider appropriating funds for the specific procedures which need
    enhancements, such as Commerce's antiquated computer system, training,
    personnel resources for monitoring license conditions, end-user
    proliferation reviews and pre-license and post-shipment checks.
        I welcome the witnesses and look forward to their testimony.

        Senator Akaka. I also want to say that I would hope that
    the Committee would not wait another 5 years before we hear
    from this group, that maybe even in 6 months, to see what has
    been done, and even more importantly, so that we can carry out
    your recommendations as they come from you, since you are the
    men in the trenches and have been able to see the problems that
    we have to face.
        I have a question here for Energy. Mr. Friedman, you
    requested your general counsel to look into a possible conflict
    between Section 12(c) of the Export Administration Act
    regarding the protection of companies' proprietary information
    and the 1981 Executive Order 12333 regarding the United States'
    intelligence activities. What specific issues may be in
    conflict and what is the status of your general counsel's
    review on this issue?
        Mr. Friedman. Let me answer the second part of your
    question, Senator Akaka, first. The last time I checked, which
    was about 3 or 4 weeks ago, the general counsel had not opined
    on that issue. They were waiting for additional information and
    they had not rendered an opinion at that point.
        The general essence of the issue is whether export control
    analysts should have full access to intelligence data gathered
    by the Department's intelligence group and to raw information
    and others, conversely, whether the Director of Intelligence
    should have access to whatever information is generated as part
    of the export control licensing process within the Department
    of Energy. That was the technical distinction between those two
    documents that we asked the general counsel to render an
    opinion on.\1\
    ---------------------------------------------------------------------------
        \1\ The information entitled ``Dual-Use License Process'' submitted
    by Senator Akaka appears in the Appendix on page 132.
    ---------------------------------------------------------------------------
        Senator Akaka. Does the general counsel have any problems
    in that?
        Mr. Friedman. I cannot speak for them. Certainly, waiting
    this long for a legal opinion on a matter of this sort is not
    acceptable and I am sure the current general counsel would
    agree with that, but I cannot----
        Chairman Thompson. You ought to give them 9 days.
    [Laughter.]
        Mr. Friedman. My guess is this is a case that illustrates
    your point earlier, Mr. Chairman.
        Senator Akaka. In your report, Mr. Friedman, you indicated
    that the State Department does not have an established
    interagency fora to discuss routine munitions license
    applications and that there is no process for escalating
    disputed applications. What steps has DOE taken with the State
    Department to rectify these issues?
        Mr. Friedman. Well, as I indicated on June 10, the under
    secretary has formed a task force to look at the broad range of
    export control issues and that is one of the issues on their
    plate. At this point, I, frankly, cannot tell you whether they
    have instituted any kind of discussions with the State
    Department on this matter.
        Mr. Payne. Senator Akaka, may I address that from the State
    Department perspective?
        Senator Akaka. Yes, Mr. Payne?
        Mr. Payne. On the munitions side, there is not an
    escalation process similar to the dual-use side. The State
    Department has the final authority to make the decision. Now,
    there is a fairly extensive referral of licenses to the
    Department of Defense and Energy and so forth and we are not
    aware of any specific cases where the State Department has not
    fully taken into consideration the concern expressed by the
    other agencies. It is true there is not a process, but we are
    not aware of any specific cases where there was concern by
    other agencies that the State Department ignored.
        Senator Akaka. It seems as though there either needs to be
    a process or we cannot let that fall between the cracks and
    disappear. Mr. Payne, the reports note that Commerce should
    fully implement 1996 NSC guidance on referring commodity
    classifications to state and Defense which could involve
    possible munitions items and that there should be more
    transparency in dual-use classifications, which should perhaps
    be open for all agencies to review. How many technical
    personnel, it could be engineers or whatever they are, are on
    State's Defense Trade Council, DTC's, political and military
    affairs staff, excluding any detailed personnel from the armed
    services? How many technical personnel are there?
        Mr. Payne. I believe, currently, there are 16 licensing
    officers on the DTC staff.
        Senator Akaka. How many armed services personnel are
    detailed to both DTC and PM?
        Mr. Payne. I am told four.
        Senator Akaka. If State DTC and PM do not have technical
    personnel on its staff, my question is, how can it perform
    commodity classifications under the Commerce control list,
    which is more complex than the U.S. munitions list?
        Mr. Payne. I think the main concern the State Department
    has in wanting to see more of those commodity classification
    applications is that it would be able to spot those items that
    are not appropriately classified. For example, had that
    information in the Hughes case come to State, it would have
    objected to that information and Commerce's decision. I do not
    know how much additional technical capability State would need
    to review licenses, but State has only seen 21 of those
    classifications over the last number of years and there are
    something like 2,000-plus each year. State would just like to
    have access to more of those so that it could express an
    opinion on the appropriateness of the decision being made.
        It is true, State already suffers from a shortage of people
    and an inability to really perform the current responsibilities
    that it has, but we discussed earlier that there is a plan in
    motion to provide additional funding and to more than double
    the size of the staff in the DTC area.
        Senator Akaka. Mr. Snider, all of the IGs determined that
    our export license analysis will be better served if we have
    data on the cumulative effect of technology transfers. Do you
    believe the CIA is the appropriate organization with the U.S.
    Government to perform that function?
        Mr. Snider. I am not certain the CIA necessarily has all
    the answers here. They certainly have a lot of information. It
    seems to me that, certainly, we are not looking at cumulative
    effect solely in terms of what licenses have been issued in the
    past and that sort of thing. We take into account lots of other
    factors in terms of what we know about what the country is
    producing indigenously, for example, what they are getting from
    third countries. There are factors that need to be taken into
    account, it seems to me, in the export licensing process but
    are not necessarily limited to cumulative analysis of end users
    and license applications. So I think intelligence has a
    critical part to play here in informing the export license
    process even beyond simply reporting on end users and
    intermediaries.
        Senator Akaka. The Commerce IG's report states that CIA's
    Nonproliferation Center is not fully engaged in the license
    process because it only receives about 45 percent of dual-use
    cases. Further, NPC only reviews applications for items
    controlled for proliferation reasons and not for national
    security for other foreign policy reasons.
        Do you believe that the NPC could provide meaningful input
    on these types of applications and should it review a broader
    scope of dual-use licenses?
        Mr. Snider. Well, let me respond this way, Senator. The
    dual-use applications are referred to NPC pursuant to an
    agreement, an MOU, between Commerce and the CIA that provides
    basically that applications will be referred to NPC that have
    some sort of potential implication for proliferation concerns.
    That is the business of NPC. That is what its analysts do and
    what they analyze.
        Whether they can make a meaningful contribution in terms of
    analyzing the national security implications of other kinds of
    technology or goods or services, I rather doubt. That is not to
    say the agency itself could not provide analysis on these other
    topics, but I am not sure the NPC would be the correct place to
    do it.
        Again, I think this is something that needs to be discussed
    between the Department of Commerce and the agency management to
    come up with a common understanding where we can play a useful
    role, if we are not fulfilling that role already.
        Senator Akaka. Thank you. I just want to touch on something
    that the Chairman raised about the issue of encryption. That is
    to anyone that would answer this. Is it not true that
    encryption software exports are still tightly controlled and
    that this is still an issue of debate in the software industry?
        Mr. Frazier. The answer is yes. I mean, one of the things I
    see here even in my notes, that this is something that the
    National Security Agency is very much interested in. We know it
    is a hot issue at the Department of Commerce. So I think there
    is a debate. It has not been decided. There is a business
    concern that has been raised, a trade issue that has been
    raised. There are security issues that have been raised. I know
    the Justice Department has weighed into it. So the answer is
    definitely, yes, it is an issue that is being debated that
    needs more discussion and it will be interesting to see when it
    is resolved.
        Senator Akaka. I thank you for the responses. Mr. Chairman,
    you did accept my full statement, but in that statement, I am
    again asking and strongly recommend that these agencies report
    to us in 6 to 9 months rather than more than that.
        Chairman Thompson. I think that is a very good suggestion.
    Thank you very much.
        Let us move to the training issue again, because I have a
    hard time imagining bringing in these new licensing officers,
    especially in some of these sensitive areas--defense, for
    example--and not having any formal training period for them.
    They rely upon on-the-job training and mentoring. If that is
    not a way to keep total control of your new employees, I do not
    know what is, because that mentoring is going to reflect and
    the on-the-job training whatever the mentality of the people
    who are providing the mentoring. You might say the same thing
    with the formal job training, but I do not think so.
        The thing that strikes me is that in the Federal law, Title
    5, Section 4103, Mr. Mancuso, you point out with regard to
    question 8, the head of each agency shall establish, operate,
    maintain, and evaluate a program or programs and a plan or
    plans for training agency employees. The Department of Defense
    training policy, the directive carrying that policy out
    requires ``heads of DOD components to plan, program, and budget
    for training programs to meet employees' development needs,''
    etc. You checked with the Army and they have none. The Navy,
    they have none. The Air Force, they have none. The Joint
    Chiefs, they have none. Nor does DTRA, which does the
    technology assessments.
        I would hate to think how someone would go over there and
    become a licensing officer and have to make a technology
    assessment for some kind of a component with nuclear
    ramifications without any real training. I guess I would do
    what they do for a while, anyway, and I would just kind of do
    what I was told. But they are not following the law.
        I was struck with what these licensing officers are
    required to do. Mr. Frazier, I think it was in your report that
    you said that the operating manual being used by licensing
    officers at the time of our review included a small section
    entitled ``case analysis guidance,'' which outlined eight
    points that must be addressed as part of the licensing officer
    analysis of an export license application and be included in
    the initial referral comments.
        So before you can refer it, he has to consider: (1) export
    control classification. I am going to abridge some of this.
        (2) background statement highlighting licensing history
    involving the applicant. Well, of course, we know we do not
    check with Customs or Treasury to find out the licensing
    history of the applicant. Information about this might come in
    over the transom, but that is one source we do not look at. The
    officer must also consider previous working group
    consultations, issues of interest, any precedent-setting
    aspects of the proposed transaction.
        (3) the licensing officer has to consider the
    characterization of the end user, including type and
    relationship with the applicant, if any, such as a bank or a
    motel or a U.S. subsidiary.
        The licensing officer, (4) has to consider the number of
    end users and the reasonableness of the end use. This is what
    he has got to do within 9 days, is it not, Mr. Frazier?
        Mr. Frazier. Yes, sir.
        Chairman Thompson. (5)--we are not through yet--reason for
    not referring to an agency.
        (6) the licensing officer's written recommendation.
        (7) statements as to whether or not conditions are
    appropriate, and if so, identification of the specific
    conditions of the Department of Commerce.
        (8) the licensing officer's name, telephone number,
    facsimile number.
        All these things this licensing officer has to do and there
    is no classroom training, and there is no plan, there is no
    program. There is no real training--all, I would submit, in
    clear violation of the regulations and directives of the
    Department. I think you all point out the need to standardize a
    training program.
        Yes, you are able to go to some of these people and ask
    them, well, do you get sufficient training, and few of them are
    going to say, ``No, we are basically flying blind here and do
    not know what we are doing.'' They did not report that. They
    basically feel like they are doing a pretty good job and they
    are up to it and all that, which you might expect.
        But accompany this with the further findings that you had
    with regard to the pressure. Of course, you did not find many
    instances or many people who said much about that. There were
    some instances in the Department of Defense, but you could not
    really tell because there is generally no paper trail. You
    could not tell the extent of it, as I understand it, but you
    did get some instances of what was called indirect pressure.
    Some of these employees, and I assume licensing officers are
    included--if I am not right, you can point that out--said that
    they felt that promotions, bonuses, getting to travel, and
    things like that were at stake in terms of the extent to which
    they went along with the program management policy.
        As I say, you accompany that with the fact that these
    people are not getting the training that is responsive to what
    they need and I think the picture emerges fairly clearly as to
    where the process heavily leans. In all these disputes and all
    these turn-downs, the people raising the question are always
    objecting to the license and the Department of Commerce is
    always overruling in favor of approving the license. That is
    what I've seen in all these samples, and if I am wrong, you can
    tell me. But that is what the dynamics are.
        You have these agencies, at least in the beginning, anyway,
    who will say no but the weight and the burden--considering the
    standard of proof that apparently is being required--is in
    favor of granting the export license. Anybody can jump in here
    at any time, with the remote possibility that somebody might
    disagree with what I say.
        Mr. Frazier. Let me jump in on the training issue.
        Chairman Thompson. Yes.
        Mr. Frazier. One of the points, I think, that you point out
    is the importance of training. Unfortunately, too often in
    government agencies, training is one of the first things that
    is cut. Too often, the people who are very busy doing their
    jobs do not have the time to get away for training. At least,
    that is the thinking of too many managers.
        What we know is that as we try and improve this process,
    there should be a formalized training program that is in place,
    that we should be able to cross-train people with various
    agencies. I ought to be able to send someone from Commerce over
    to the Defense Department so that they can work on a brief
    internship, for example, to understand better what goes on,
    have people from the Defense Department come over.
        One of the things that is happening in the Department of
    Commerce, one division has a very good training program that
    they have instituted for their new licensing officers. We are
    encouraging BXA to replicate that, if you will, because we can
    see in looking at those individuals, when they have a formal
    training program, that it is a better situation. It enables
    them to do their job better.
        We have come up with many recommendations and ideas as to
    some of the things that can be put in place, checklists,
    examples, things that will make it easier, if you will, for the
    licensing officers to reach a decision. You just elaborated on
    the eight or so requirements that they have to deal with. I
    mean, there can be checklists that would, in fact, help them.
    There are some that exist. They need to be improved.
        Training will make a big difference, because I think it
    will make sure that everybody is singing from the same song
    sheet, if you will. And at the same time, I think that to the
    extent that the other agencies understand what we are doing, to
    the extent that we understand what they are doing, it just has
    to improve the process. Something definitely should happen.
        Chairman Thompson. I think that is absolutely right and I
    appreciate the clear recognition on behalf of all of you with
    regard to that. Not only is it the law, but it just stands to
    reason. People of varying levels of experience, I suppose, have
    to make determinations about end users. People did not come
    into the world knowing about practices of these various
    countries and all the complexities and arrangements that we
    were talking about earlier with regard to how they disguise
    what they are doing. We have also learned that some people do
    not always do exactly what they promise to us that they will do
    and that they are deceptive.
        Mr. Frazier. And it changes daily. The fact that something
    was handled one way this week, it will not necessarily be the
    same next month.
        Chairman Thompson. And we are constantly learning about how
    vulnerable we are to being wed to the old world kind of
    counter-espionage practices that we have, where we were set up
    and designed to counter things that no longer exist, the Soviet
    Union, for example. Now, we have different kinds of threats
    from different kinds of countries and entities that work in
    different ways and it is not easy to recognize warning signs so
    that you can bring the CIA into it. If they never see it, I
    think it was your point earlier, then they are not going to be
    able to do their thing, either.
        Mr. Frazier. Mr. Chairman, one of the other points that you
    rightly raise is the question of resources. For example, to do
    one post-shipment verification to a place in the Soviet Union
    may cost about $6,000. That is a resource issue. Someone that
    has a limited budget has to weigh that. Do you spend the $6,000
    to take that trip to the Soviet Union or do you save that for
    training, do you save that for other trips? Those are the kinds
    of decisions that ultimately have to be made.
        Chairman Thompson. Or is it just too expensive to ship a
    supercomputer to them under those circumstances?
        Mr. Frazier. That is the other issue.
        Chairman Thompson. Thank you for that. On the technology
    and information systems, this is another thing that it looks to
    me like we could make a lot of progress on. Mr. Mancuso, you
    talk about the DOD system, FORDTIS, is that the acronym for it?
        Mr. Mancuso. That is correct, Mr. Chairman.
        Chairman Thompson. Basically, explain what it is, and maybe
    each of you might want to take a crack at that. Everybody seems
    to have their own database. There is some access, that you have
    one with another, but not total. Now, we learn that some of
    your departments are modernizing, but without talking to each
    other, so you do not know whether or not it is all going to fit
    together. We saw that with the Internal Revenue Service. That
    is part of the problem the IRS has. You have a bunch of great
    stovepipes, systems totally unrelated to each other and that
    cannot talk to each other. Is that where we are headed here if
    we are not careful? What do we have and what do we need, Mr.
    Mancuso?
        Mr. Mancuso. Well, basically, what we have is a system that
    is supposed to be a comprehensive reference database and it is
    supposed to track all of the goods, munitions, services, and
    technology.
        Chairman Thompson. When you say ``we'', are you talking
    about Defense now?
        Mr. Mancuso. ``We,'' meaning the Department of Defense are
    supposed to be doing that, and in many ways, FORDTIS does
    exactly that. On the other hand, it lacks certain controls and
    it also is not as easily accessible and relational to other
    databases that we may, in fact, be very much interested in.
        We focused, in this case, on who can make changes in
    FORDTIS and who is responsible for updates and are those
    updates being made. What we found is that some of the problems
    with the system were actually planned, not as problems, but
    there was a rationale given as to why, for instance,
    supervisors could overwrite the positions of their licensing
    officers without any concurrent policy that would require some
    documentation in the system as to what the initial position was
    and the fact that it had been changed, etc.
        We also found that, in looking long range, in tracking
    through end-use verification, etc., that frequently, there were
    not the updates to the system that would be needed and would be
    beneficial for future reviews. So in a few instances, we found
    that the final Defense position recorded differed when we
    looked at the Commerce system, and vice versa.
        Basically, what we have is a usable system that needs some
    work. We have made some suggestions to management as to what
    improvements could be made and suggested the importance of
    being able to relate clearly to the State Department and
    Commerce and others.
        Chairman Thompson. Commerce is one of those departments
    that is attempting to modernize their system somewhat, as I
    understand it.
        Mr. Frazier, you might take us through what happens. An
    application comes in. How does the system work now? What do you
    need to be able to call on within Commerce? What kind of
    information do you need? What do you rely upon? I assume that
    if Defense is brought in, then they look to their own systems.
    Do they need to be able to use yours or vice versa? What is the
    set-up now and what should it be, do you think? Do you happen
    to have a chart?
        Mr. Frazier. There is a chart that Jennifer has put up that
    is on the entire process. But since you are primarily
    interested in the systems, our system at Commerce is called the
    ECASS system and that system is working. The problem is that,
    as I pointed out, that system was developed in 1984. It would
    be the same thing if you had a computer from 1984. It would
    still work. I mean, it is probably a 286 and it would still
    work, but it surely would leave you in the dark ages in many
    respects. There is so much information that is available that
    if we had an updated system, that the licensing officers would
    have right at their fingertips.
        They could have information from a classified system, and
    that is an issue that we have to, I think, collectively agree,
    in terms of whether that information that would come from the
    CIA, for example, should be readily available to the licensing
    officers. It would have to be a classified system and that
    would have to be something that would have to be approved at
    the appropriate levels.
        Chairman Thompson. Is that not one of the problems that you
    have now even with regard to an unclassified situation, and
    that is licensing officers not really having access to what is
    there?
        Mr. Frazier. That is probably the number one problem. For
    example, the current system, it is working. That is what we
    point out in the report. However, it is not user friendly. So
    if while you are doing your research to answer those eight or
    nine questions on determining what should happen to a license,
    you need to stop and write a letter or something, you have to
    get out of that system. It is not user friendly. You cannot
    cross-link it with other systems that exist in the Department.
        We are aware that the Department has requested a little
    over $2 million to begin to upgrade that system. That would be
    an investment that would be well worth the money. I think it
    would pay for itself in weeks, if not minutes. That is how
    important I think that this actually is.
        This system can be the lifeblood, if you will, of the
    licensing process in terms of improving it. Information is the
    key here. As we try and encourage the other referral agencies
    to give us more information, that information should be in the
    system so that we can always deal with the questions that you
    raise, like an audit trail, so we can always have a history as
    to what has transpired on every case, that people have a record
    of really what happened. If somebody raises a question, that
    should be a part of the permanent record.
        Chairman Thompson. That could even help on the cumulative
    effect issue, could it not?
        Mr. Frazier. That is exactly it. I think when we talk about
    the cumulative effect, we are talking about information, and
    that is what cumulative effect means, getting information from
    as many sources as possible. Clearly, the CIA has a major role,
    the State Department, Energy, all of the referral agencies, but
    other sources, too. We need to get the information pulled
    together in such a way that we can deal with the cumulative
    issues. It is all about having a system. We have the technology
    readily available, again, and it is a relatively small
    investment from where I sit.
        Chairman Thompson. What about the issue of DOD and DOC both
    trying to modernize without integrating much?
        Mr. Frazier. The first thing we are saying, we probably
    have in here--I am looking at it--we have in excess of 30
    specific issues that any changes to the ECASS system should
    address. But the most important recommendation that we have is
    that the system be developed in concert with the Defense
    Department and the other referral agencies. It would be
    foolhardy if these systems cannot talk with one another, cannot
    interact with one another, including the Treasury system and
    others. So that is the number one recommendation that we have.
    We think this should not be done in isolation. It is something
    that surely should be coordinated amongst the referral
    agencies.
        Chairman Thompson. That is something we can talk to OMB
    about. It seems like it is a very important issue to me. Does
    anybody else have any comments on this issue or disagreements?
        [No response.]
        Mr. Mancuso, you mentioned the fact that on some occasions,
    the Department of Defense, there were some occasions when the
    recommendations of the licensing officer were actually changed.
    In the system, in other words, a change was made, and you point
    out that there is, I suppose, legal authority to do that. You
    do not have to accept the decision of the person working for
    you.
        But beside that problem, or potential problem, the other
    problem is that there is nothing in the system to tell how many
    times that has happened or to tell what changes were made, what
    the original recommendation was, or what the override has and
    the reasons for that were. We do not have the benefit of that
    now, do we?
        Mr. Mancuso. Well, in part, we do, Senator, because the
    system allows for that information to be included, and, in
    fact, many times, that information was included and there is a
    clear trail that explains how and why a supervisor changed a
    subordinate's decision and, in fact, tracks through the rest of
    the process, as well.
        But there were also numerous occasions where a licensing
    official told us that they had documented a particular opinion,
    found later that had been changed, and the system doesn't
    reflect that it was a change. You would think common courtesy,
    if not good management, would have required that the supervisor
    alert the licensing official as to his or her intent to make a
    change and it is not there.
        Chairman Thompson. And if you were the final decision
    maker, you would assume that this was the licensing officer's
    opinion when you were making your decision. So they are being
    misled.
        Mr. Mancuso. That is correct.
        Chairman Thompson. You can understand that when there is a
    paper trail and reason, a person is willing to stand up and
    say, this is what I did and this is why I did it, that is fine.
    But changing it, not telling the licensing officer you are
    changing it, not giving any reason for it, and making it look
    like it is his recommendation, that is not done for any valid
    purpose in my opinion. What are you recommending that we do? Is
    this just a matter of putting down another policy directing
    that they quit doing that?
        Obviously, this is a technology problem, in part, is it
    not? It gets back to the problem we were just addressing:
    Having the capability of putting the information in there so
    that you can have an audit trail, so that when these satellite
    launches explode and all the politicians start asking
    questions, you can go in there and find out who did what.
        Mr. Mancuso. And that is a primary recommendation that we
    are making, that the system needs to be adjusted to accommodate
    those changes and to reflect those changes so as to ensure a
    complete audit trail, from the earliest decisions by a
    licensing officer to the final DOD and U.S. Government
    positions.
        Chairman Thompson. All right. On the end-user checks, part
    of the justification for lowering our guard, you might say, and
    allowing individual license grants, is that sometimes the
    government will say, well, OK, we are going to approve it. But
    we are going to put some additional conditions on it, but those
    conditions are no better than our ability to check up on these
    end users and check up on the exporters' adherence to the
    conditions.
        So we have a system of, first of all, pre-license checks
    and then we have a system of post-shipment verification. As I
    read your reports, it really does not look like much emphasis
    is being placed on either of these.
        Mr. Frazier. And, hopefully, those are the exceptions. That
    is when someone has to go from the United States. Most of the
    end-use checks would be performed by folks that are stationed
    overseas. But, of course, one of the real problems there is
    that they have other priorities. They have other
    responsibilities. Again, you get back to your question of
    timeliness.
        Chairman Thompson. I believe you pointed out that some of
    them told you, anyway, that export promotion takes precedence
    over the pre-license checks and the post-shipment verification.
        Mr. Frazier. That is their mission overseas.
        Chairman Thompson. That is their job.
        Mr. Frazier. That is right.
        Chairman Thompson. They just happen to be over there, so we
    want to use them, but in addition, there is the question of
    training and do they really know what they ought to be looking
    for.
        Mr. Frazier. We have raised the issue of training there,
    also. But in theory, Mr. Chairman, the folks who are overseas
    should be in the position to better identify the companies.
    They should know a little more about the individual companies
    that these things have been shipped to. So, in theory, they
    should be in a better position to do the work, because they
    live in those countries, they deal with those firms on a
    regular basis.
        Chairman Thompson. Senator Lieberman pointed out, with
    regard to China, anyway, that there certainly is hardly
    anything going on there. I wonder what reasons they give for
    not letting us verify that they are using our high-speed
    computers and sophisticated tools the way that they say that
    they are going to use them.
        Mr. Frazier. The new changes suggest that, in certain
    computers, the ones that are the most sophisticated, that
    before a license will be issued, they are to get a
    certification from the Chinese Government that a post-shipment
    verification check will, in fact, be performed, will be
    allowed. So the message there is that if you do not agree to
    this post-shipment verification, then you will not get this
    computer, and that is a recent change. Hopefully, we will be
    able to see those numbers go up.
        Chairman Thompson. That just has to do with computers?
        Mr. Frazier. Yes, the high-performance computers.
        Chairman Thompson. The exporters also are supposed to
    report actual shipments against the license that they have, but
    I believe you found that the Bureau of Export Administration
    does not really monitor that, do they?
        Mr. Frazier. We found that BXA does do some monitoring of
    exports of HPCs and other commodities but that the level of
    monitoring is inadequate.
        Chairman Thompson. So there is a diversion issue. I mean,
    how else are you going to feel comfortable about whether or not
    something is being diverted, is that correct?
        Mr. Frazier. That is correct.
        Chairman Thompson. We talked about the audit trail
    difficulties. I think each of you saw some problems there.
    FORDTIS is insufficient.
        One of the things, for example, as you suggested, is that
    we could have more information with regard to what goes in on
    these operating committee meetings. For example, explanations
    of why decisions are made, should be more than just summaries.
    They should include what new information has been brought to
    the meeting by those who were there that should impact on the
    decision, why a department chooses not to escalate when they
    object. We do not have the benefit of that right now and we
    need it.
        Mr. Frazier. If I can add, if there is one word that I
    would like to come out of the Commerce report, that word would
    be ``transparency''. That is the message that we are advancing
    here. We have not found anything that should be hidden, and so
    let us open it up and make people able to see what is going on.
        Chairman Thompson. And transparency promotes
    accountability.
        Mr. Frazier. Yes.
        Chairman Thompson. That is what we are all striving for.
        On the monitoring programs, in general, I think the burden
    there, as DOD points out again, is going to increase, the need
    for monitoring is going to increase. But, apparently, we are
    not adequately monitoring the license conditions. We talked
    about this, of course, before. We put these conditions on
    usually, I guess, for reasons having to do with the end users,
    but we are not really monitoring whether or not those
    conditions are being carried out, are we, Mr. Mancuso?
        Mr. Mancuso. We are not.
        Chairman Thompson. All right. We have gone through all 14
    points at least once. I did not think we could get through with
    all the points I wanted to make today, but we did. This is just
    the beginning. This is an excellent piece of work and I want to
    thank all of you for what you have done and the time you have
    put in on this. Your job is not to reach subjective conclusions
    in the way that we have the luxury of doing up here. I know it
    is a fine line to walk sometimes that you have, but part of our
    job on this Committee is making sure that you are allowed to do
    your job. I think this report indicates that part is working
    reasonably well.
        I must say, I come away from this very concerned, although
    this is not to say that everything has gone wrong. We have not
    had a cause and an opportunity to look at these various
    departments the way Senator Rudman, for example, and his people
    looked at one particular department. But to me, it is clear
    that we have got some real problems and they are under the
    radar screen. They are not espionage and they will never make
    the front page of the paper, and there is not any one thing
    that really grabs you that will make the evening news.
        But when you put all this together, we come away with a
    picture that is troubling, to say the least. We are dealing
    with more and more complex issues all the time. We are asking
    more and more of these licensing officers. We are giving
    everybody less time to run the checks that they need. There is
    very little, if any, formal objective training, contrary to
    what they are required to give these people, no assessment as
    to the cumulative effect of what we are doing in this area, no
    real checks on the front end with Treasury and Customs as to
    the track record of these exporters, no real check on the back
    end as to what these people are actually doing with the dual-
    use items that we are sending them, and we have a process that
    basically is set up to make pretty sure that Commerce gets its
    way on anything that it really wants to get its way on.
        These are my conclusions. I am not asking you gentlemen to
    adopt it. It is very cleverly set up and it was highly promoted
    and very effectively done, this appeal process, but it is just
    not being used and it is ineffective and it is designed to
    discourage people within the administration from rocking the
    boat. There is also the lack of training, and at least some
    people were able to talk about the fact that there is some
    informal pressure on them, that to get along, you go along. It
    is not a good picture at all. I think that we are hurting
    ourselves with the system we have.
        Part of the problem is back here on this side of the table,
    too. Everything I have mentioned probably costs some money,
    probably not nearly as much as people in the departments say it
    does, but we have got to be able to restructure our own
    priorities and come up with the funding to do what everybody
    ought to know is necessary in terms of controlling these
    computer systems.
        With that, job well done. Thank you very much for what you
    have done. I look forward to working with you in the future to
    see if we cannot go about resolving some of these problems.
        Let us keep the record open for 1 week. We may have
    additional written questions or comments that other Members
    might want to submit to you.
        We are in recess.
        [Whereupon, at 12:45 p.m., the Committee was adjourned.]
                                A P P E N D I X

                                  ----------

                           REFERRALS OF DUAL-USE CASES
    ------------------------------------------------------------------------
                                                                    Cases
                   Cases Referred      Cases          Cases      Referred to
          FY         to Agencies    Referred to    Referred to  and Reviewed
                         \1\        and Reviewed  and Reviewed   by the EARB
                                     by the OC     by the ACEP       \2\
    ------------------------------------------------------------------------
         1991        7,000            169             89            20
         1992       11,100            333            105             0
         1993       13,900            493            142             0
         1994        6,800            281             97             0
         1995        5,100            161             68             0
         1996        6,800            435             71             0
         1997       10,400            784             38         \3\ 1
         1998        9,100            766             34             0
    ------------------------------------------------------------------------
    \1\ Data based on date actual referral occurred.

    \2\ Export Administration Review Board.

    \3\ One case was referred to the EARB in FY 1997; however, the EARB did
      not review it.

                                   __________

                  LETTER FROM SENATOR THOMPSON TO SIX AGENCIES
                             Committee on Governmental Affairs,
                                                   U.S. Senate,
                                                Washington, DC.
                                                        August 26, 1998

    The Honorable Eleanor Hill
    Inspector General
    Department of Defense
    400 Army Navy Drive
    Arlington, VA 22202

    Mr. Gregory H. Friedman
    Acting Inspector General
    Department of Energy
    1000 Independence Avenue, S.W.
    Washington, D.C. 20585

    Mr. Richard B. Calahan
    Acting Inspector General
    Department of Treasury
    Room 2412, Main Treasury Building
    1500 Pennsylvania Avenue, N.W.
    Washington, D.C. 20220

    The Honorable Jacquelyn Williams-Bridgers
    Inspector General
    Department of State
    2201 C Street, N.W., Room 6817
    Washington, D.C. 20520

    Mr. Johnnie E. Frazier
    Acting Inspector General
    Department of Commerce
    14th St. and Constitution Ave., N.W.
    Washington, D.C. 20230

    Ms. Dawn Ellison
    Acting Inspector General
    Central Intelligence Agency
    Room 2X30 New Headquarters
    Washington, D.C. 20505

        Dear Inspectors General: In 1993, the Inspectors General of the
    Departments of Defense, State, Energy, and Commerce collaborated to
    conduct an interagency review of the export licensing processes for
    dual-use and munitions commodities. I am writing to request that you
    update and expand your work in this important area, particularly in
    light of testimony the Committee received at a June 25, 1998 hearing. I
    have included the Inspectors General of Treasury and the CIA in this
    request because the 1993 interagency report concluded that those
    agencies played major roles in the licensing process.
        On June 25th, the Committee heard from Dr. Peter Leitner, a senior
    strategic trade advisor in the Defense Technology Security
    Administration. Dr. Leitner provided an unsettling description of the
    dual-use review process. I urge you to read the hearing transcript, an
    unofficial copy of which is enclosed.\1\ His testimony raised many
    specific areas of concern, but he also recounted, drawing on his twelve
    years of experience in this area, what he views as a general breakdown
    in our licensing controls:\1\
    ---------------------------------------------------------------------------
        \1\ We request that you use the enclosed unofficial transcript for
    internal purposes only. We will forward you an official transcript once
    it is available.

            [O]ver the past six years the formal process to control exports
            of dual-use items has failed its stated mission--to safeguard
            the national security of the United States. . . . Through a
            tireless campaign, the opponents of export controls have
            managed to destroy the 16 nation Coordinating Committee on
            Export Controls, decontrol vast arrays of critical military
            technology, rewire the U.S. domestic export controls process so
            that it is structurally unsound and unable to safeguard our
            security, and erect a series of ineffectual domestic
            regulations and international working groups designed to
            project a false impression of security, deliberation and
    ---------------------------------------------------------------------------
            cooperation.

        (Hearing transcript at pp.7-8.) Although he took issue with some of
    Dr. Leitner's specific criticisms, a second hearing witness, Principal
    Deputy Assistant Secretary of Defense Franklin Miller, told the
    Committee there was room for improvement in the Department's handling
    of dual-use applications.
        Your 1993 interagency report detailed a number of problems. For
    example, you described that in nearly a quarter of sampled cases
    referred for review to Energy by Commerce, the agencies maintained
    inconsistent information in their respective databases about a given
    case, a shortcoming which ``tends to diminish the credibility of the
    licensing process.'' (Report at p. 20.) In addition, you noted that for
    dual-use licenses that required exporters to document compliance with
    certain conditions, the government received the required documentation
    in only four percent of cases sampled. The Commerce Department,
    moreover, had taken no steps to bring the 96 percent of nonfiling
    exporters into compliance. (Report at p. 3.)
        While I leave it to your judgment to determine how best to examine
    the dual-use and munitions licensing processes, I ask that in
    performing the work you address the questions that are listed below.
    Please do not treat the following list as an exhaustive one; rather, it
    is suggestive, setting forth some issues arising from the Committee's
    June 25th hearing:

               1. LPlease examine whether the current, relevant legislative
            authority contains inconsistencies or ambiguities regarding the
            licensing of dual-use and munitions commodities, and the effect
            of any such inconsistencies and ambiguities.

               2. LPlease examine whether Executive Order 12981 (1995) as
            implemented is consistent with the objectives of the Export
            Administration Act and other relevant legislative authority.

               3. LPlease determine if there is a continued lack of
            interagency accord, as stated in your 1993 interagency report
            (at page 13), regarding whether the Commerce Department is
            properly referring export license applications (including
            supporting documentation) out for review by the other agencies.

               4. LPlease determine if the interagency dispute resolution
            (or ``escalation'') process for appealing disputed license
            applications allows officials from dissenting agencies a
            meaningful opportunity to seek review of such applications, and
            assess why this process is so seldom used.

               5. LPlease review whether the current dual-use licensing
            process adequately takes account of the cumulative affect of
            technology transfers resulting from the export of munitions and
            dual-use items, and the decontrol of munitions commodities.

               6. LPlease review whether the current munitions licensing
            process adequately takes account of the cumulative affect of
            technology transfers resulting from the export of munitions and
            dual-use items, and the decontrol of munitions commodities.

               7. LPlease determine whether license applications are being
            properly referred for comment (with sufficient time for
            responsible review) to the military services, the intelligence
            community, and other relevant groups (the ``recipient groups'')
            by the Defense Department and other agencies. Please consider
            in particular numerical trends in the frequency of such
            referrals, trends in the types of applications referred, trends
            in the nature of the taskings made in connection with the
            referrals, and the perceptions of officials at the recipient
            groups.

               8. LPlease determine whether license review officials at
            each of the agencies are provided sufficient training and
            guidance relevant for reviewing license applications, and
            whether more formal training and guidance is warranted. Dr.
            Leitner noted a paucity of such training and guidance in his
            Committee testimony. (Hearing transcript at pp. 43-44).

               9. LPlease review the adequacy of the databases used in the
            licensing process, such as the Defense Department's FORDTIS,
            paying particular attention to whether such databases contain
            complete, accurate, consistent, and secure information about
            dual-use and munitions export applications.

              10. LIn his testimony, Dr. Leitner described instances where
            licensing recommendations he entered on FORDTIS were later
            changed without his consent or knowledge. (Hearing transcript
            at pp. 46-47.) Please examine those charges, and assess whether
            such problems exist at your agencies.

              11. LPlease determine whether license review officials are
            being pressured improperly by their superiors to issue or
            change specific recommendations on license applications. Dr.
            Leitner testified about one such incident that happened to him
            at DTSA. (Hearing transcript at pp. 47-50.)

              12. LPlease determine whether our government still uses
            foreign nationals to conduct either pre-license or post-
            shipment licensing activities and whether such a practice is
            advisable.

              13. LPlease determine whether the agency licensing process
            leaves a reliable audit trail for assessing licensing
            performance.

              14. LPlease describe the procedures used by agencies to
            ensure compliance with conditions placed on export licenses
            (e.g., no retransfers without U.S. consent, no replications,
            and peaceful use assurances), and assess the adequacy and
            effectiveness of such procedures.

        I appreciate your prompt attention to this important project. If
    you need assistance or have questions about the request, please contact
    Jack Cobb or Maggie Hickey of the Majority staff at (202) 224-4751.

                Sincerely,
                                          Fred Thompson
                                               Chairman

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