Defense Trade: Arms Export Control System in the Post-9/11	 
Environment (16-FEB-05, GAO-05-234).				 
                                                                 
The U.S. government controls arms exports by U.S. companies to	 
ensure that such exports are consistent with national security	 
and foreign policy interests. There have been various efforts to 
change the arms export control system, which is overseen by the  
State Department. One effort was the Defense Trade Security	 
Initiative of 2000, which was intended to facilitate defense	 
trade with allies in the post-Cold War environment. Given the	 
September 2001 terror attacks, the U.S. government has had to	 
reevaluate whether existing policies support national security	 
and foreign policy goals. In light of the September 2001 attacks,
GAO was asked to review several aspects of the arms export	 
control system. Specifically, GAO is providing information on (1)
changes in the arms export control system since September 2001	 
and overall trends in arms export licensing, (2) extent of	 
implementation of or revision to initiatives designed to	 
streamline arms export licensing, and (3) extent of coordination 
on these initiatives between State and arms export enforcement	 
agencies, as well as enforcement efforts.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-234 					        
    ACCNO:   A17836						        
  TITLE:     Defense Trade: Arms Export Control System in the	      
Post-9/11 Environment						 
     DATE:   02/16/2005 
  SUBJECT:   Arms control agreements				 
	     Defense industry					 
	     National preparedness				 
	     Export regulation					 
	     Exporting						 
	     Foreign military sales policies			 
	     Foreign trade policies				 
	     Interagency relations				 
	     International trade				 
	     International trade regulation			 
	     Licenses						 
	     National defense operations			 
	     Performance measures				 
	     Systems evaluation 				 
	     Trade regulation					 
	     Homeland security					 
	     DOD Defense Trade Security Initiative		 
	     DOD Operation Iraqi Freedom			 
	     Operation Enduring Freedom 			 

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GAO-05-234

United States Government Accountability Office

GAO	Report to the Chairman, Committee on International Relations, House of
Representatives

February 2005

DEFENSE TRADE

             Arms Export Control System in the Post9/11 Environment

                                       a

GAO-05-234

[IMG]

February 2005

DEFENSE TRADE

Arms Export Control System in the Post9/11 Environment

                                 What GAO Found

Since the September 2001 terror attacks, the arms export control system
has not undergone fundamental changes. While the system essentially
remains unchanged, new trends have emerged in the processing of arms
export cases. The median processing time for export license applications
and related cases began increasing in fiscal year 2003.

Median Processing Times for Arms Export Cases Days

                                  9/11 Attacks

1999 2000 2001 2002 2003 2004 (through 4/30)

Fiscal year

Source: GAO analysis of State data.

State and Defense, which reviews export licenses, have continued to
implement through regulations and guidance several initiatives primarily
designed to streamline the processing of arms export licenses. According
to State officials, they have not evaluated the effects of these
initiatives on the export control system or revised the initiatives.
However, applications processed under these initiatives have generally not
been processed within the time frames established by State and Defense.
For example, applications for Operation Iraqi Freedom are to be processed
in 4 days if they require interagency review, but the median processing
time for these applications in the first 7 months of fiscal year 2004 was
22 days. Also, exporters have not widely used several of these
initiatives.

State has sought limited coordination with the agencies responsible for
enforcing U.S. arms export laws-the Departments of Homeland Security and
Justice-regarding the initiatives designed to streamline arms export
licensing. The only exceptions have been regarding proposed export
licensing exemptions. Enforcement officials have raised concerns regarding
licensing exemptions, including difficulties in enforcing the proper use
of exemptions and the increased risk of diversion. According to
enforcement officials, they face a number of challenges associated with
arms export enforcement efforts, such as limited resources to conduct
inspections and investigations and other difficulties in obtaining a
criminal conviction for export violations.

                 United States Government Accountability Office

Contents EUR

Letter 1EUR

Summary 2 EURAgency Comments and Our Evaluation 4 EUR

Appendix I GAO Briefing Slides 7 EUR

State, Commerce, and Defense: Workload, Staffing, and Budget for

Fiscal Year 2003 14 EURDDTC Staffing Levels 17 EURNumber of Cases Reviewed
by DDTC and Median Processing EUR

Times 20 EURState's Explanation for Increased Processing Times 22 EURFinal
Actions for License Applications 24 EURElectronic Licensing: D-Trade 37
EURArms Export Investigations, Arrests, Indictments, and Convictions 57
EURState's Administrative Enforcement: Blue Lantern 59 EURState's
Administrative Enforcement: Voluntary Disclosures 61 EURState's
Administrative Enforcement: Penalties Imposed in EUR

Administrative Cases 63 EUR

Appendix II Scope and Methodology

Appendix III Comments from the Department of State

Appendix IV Comments from the Department of Defense

Appendix V	Comments from the Department of Homeland
Security 86 EUR

Appendix VI GAO Contacts and Staff Acknowledgments 88 EUR

                          Related GAO Products 89 EUR

Abbreviations

AECA Arms Export Control Act EURAES Automated Export SystemEURBIS Bureau
of Industry and SecurityEURCBP U.S. Customs and Border Protection EURCIA
Central Intelligence Agency EURDCI Defense Capabilities Initiative EURDDTC
Directorate of Defense Trade Controls EURDTSA Defense Technology Security
AdministrationEURDTSI Defense Trade Security Initiative EURFTE full-time
equivalent EURGPA Global Project AuthorizationEURICE U.S. Immigration and
Customs Enforcement EURJSF Joint Strike Fighter EURNATO North Atlantic
Treaty Organization EUROEF Operation Enduring FreedomEUROIF Operation
Iraqi FreedomEUR

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office Washington, DC 20548

February 16, 2005 EUR

The Honorable Henry J. Hyde EURChairman EURCommittee on International
Relations EURHouse of Representatives EUR

Dear Mr. Chairman: EUR

Exports of arms1 by U.S. companies are controlled by the U.S. government
EURto help ensure that such exports are consistent with U.S. national
securityEURand foreign policy interests. The Department of State oversees
arms EURexport controls and has responsibility for licensing arms exports.
Over the EURyears, there have been various efforts to change the arms
export controlEURsystem. One such effort was the Defense Trade Security
Initiative (DTSI)EURof 2000,2 which was characterized as the first major
post-Cold War EURadjustment to the arms export control system and an
effort to facilitateEURdefense trade with our allies. Given the terror
attacks of September 11, EUR2001, the U.S. government has had to
reevaluate whether existing policies EURsupport national security and
foreign policy goals.EUR

In light of the events of September 11, 2001, you requested that we assess
EURseveral aspects of the arms export control system. In November 2004, we
EURbriefed your staff on the results of our work to date. This report
provides EURthat briefing with updates and expanded explanations (see app.
I). EURSpecifically, we are furnishing information on (1) changes in the
arms EURexport control system since the September 2001 terror attacks and
overallEURtrends in arms export licensing, (2) extent of implementation of
orEURrevision to initiatives designed to streamline arms export licensing,
and EUR(3) extent of coordination regarding these initiatives between
State and EURarms export enforcement agencies, as well as enforcement
efforts. EUR

To determine changes in the export control system and the status
ofEURinitiatives, we interviewed State and Department of Defense
officials, asEUR

1 For the purposes of this report, "arms" refers to defense articles and
services as specified in 22 U.S.C. 2778.

2 For additional information on DTSI, see GAO, Defense Trade: Analysis of
Support for Recent Initiatives, GAO/NSIAD-00-191 (Washington, D.C.: Aug.
31, 2000).

  Summary

well as reviewed applicable laws, regulations, and other guidance. We also
analyzed State export license application data covering October 1, 1998,
through April 30, 2004, to identify trends in licensing and evaluate the
implementation of initiatives. To assess the reliability of the data, we
compared randomly selected license application files to the information in
State's licensing database. While we identified inaccuracies in the
database, we determined that the data are sufficiently reliable for the
purposes of this report. To determine the extent of coordination between
State and enforcement agencies, we interviewed officials and obtained
supporting documents from the Department of Justice, the Department of
Homeland Security's U.S. Customs and Border Protection and U.S.
Immigration and Customs Enforcement, State, and Defense. We also obtained
and analyzed data from Homeland Security and State regarding enforcement
actions. See appendix II for a more detailed discussion of our scope and
methodology. We conducted our work from April 2004 through January 2005 in
accordance with generally accepted government auditing standards.

The arms export control system has not undergone fundamental changes since
the September 2001 terror attacks. State has not made significant changes
to its arms export control regulations or proposed statutory changes in
response to the terror attacks. According to a senior State official, such
changes were not needed because the system was already designed to counter
the threats that emerged after September 2001. While the system itself
remains basically unchanged, new trends have emerged in the processing of
arms export cases.3 Median processing times4 for all arms export cases
declined between fiscal years 1999 and 2002, but began increasing in
fiscal year 2003 with this upward trend continuing into the first 7 months
of fiscal year 2004. A senior State official informed us that median
processing times increased in fiscal year 2004 when State licensing
officers resumed fulfilling the requirement to screen all parties listed
on export license applications against the department's watchlist of
entities

3 Cases include applications for the permanent export of arms, the
temporary export and import of arms, and agreements between U.S. industry
and foreign entities to provide technical assistance or manufacturing
capability, as well as requests for amendments to existing licenses and
jurisdiction determinations.

4 The median processing time is the point at which 50 percent of the cases
took more time and 50 percent less time. We are reporting the median
processing time because the average or mean processing time can be
significantly affected by a small number of cases that had much longer
review times than the majority of cases.

of concern. While the resources State devoted to arms export controls have
generally increased since fiscal year 2000, the department has transferred
some of its licensing resources to other functions. For example, between
fiscal years 2003 and 2005, five licensing officer positions were
transferred to policy and management functions.

State and Defense5 have continued to implement, through regulation and
guidance, initiatives primarily designed to streamline and expedite the
processing of arms export license applications. According to State
officials, they have not evaluated the effects of the initiatives on the
export control system or revised these initiatives, stating that DTSI and
related initiatives remain relevant in the aftermath of September 2001.
However, license applications processed under the various initiatives have
generally not been processed within the time frames established by State
and Defense. For example, the departments established an expedited process
for reviewing license applications in support of Operation Iraqi Freedom
with the goals of processing nonstaffed applications within 2 days or, if
they are staffed for interagency review, within 4 days. However, in the
first 7 months of fiscal year 2004, the median processing times were 7
days for nonstaffed Operation Iraqi Freedom applications and 22 days for
staffed applications. Further, several initiatives have not been widely
used by exporters. For example, exporters have only submitted three
applications for the comprehensive export authorizations to provide
advance approval for a range of exports associated with transnational
defense efforts.

State has sought limited coordination with the agencies responsible for
enforcing U.S. arms export laws-Homeland Security and Justice- regarding
initiatives designed to streamline arms export licensing. According to
Homeland Security and Justice officials, they have only been consulted on
how proposed export licensing exemptions might affect enforcement efforts.
These officials told us that export licensing exemptions increase the risk
of diversion and complicate enforcement efforts. According to enforcement
officials, they face a number of challenges associated with arms export
enforcement including limited resources to conduct inspections and
investigations and other difficulties in obtaining a criminal conviction
for export violations.

5 State refers, or staffs, a portion of the cases it processes to Defense
for technical and national security reviews.

  Agency Comments EURand Our Evaluation EUR

In written comments on a draft of this report, State criticized the report
for not reflecting various arms export control-related initiatives that
the department, in its words, has "successfully undertaken." State
acknowledged increased license application processing times, but cited
several activities that it has taken to ensure that defense exports
further foreign policy and national security objectives. Additionally,
State characterized statements in our report as inaccurate or misleading.
Specifically, State contends that our report implies significant changes
to the arms export control regulations should have been made following the
September 2001 terror attacks and that the department has been indifferent
to those attacks. Further, State questioned the need for coordination with
law enforcement agencies beyond the coordination that occurred regarding
the proposed exemptions. Finally, the department concluded that our
evaluation of the initiative to expedite Operation Enduring Freedom
applications included cases not identified as such by State and,
therefore, did not receive expedited processing. State's comments are
reprinted in appendix III, along with our evaluation of them.

We disagree with State's characterization of our report. We identified
numerous arms export control initiatives, including those cited by State
as being ignored, and evaluated those initiatives for which data were
available. As we reported, license applications processed under the
various initiatives have generally not been processed within the time
frames established by State, and several initiatives have not been widely
used by exporters. We are, therefore, uncertain of the basis for State's
assertion that it has successfully undertaken initiatives, particularly
since State has not evaluated the initiatives' effects on the arms export
control system and has not provided data supporting its contention. Our
report does not imply that changes should have been made following the
September 11, 2001, terror attacks. Rather, it clearly states what has or
has not occurred in terms of changes to the arms export control system
since those attacks. During the course of the audit, senior State
officials confirmed that State has not offered legislative proposals to
change the arms export control system or made major revisions to its
export control regulations in response to September 2001 attacks. Further,
our report cites a senior State official's explanation as to why State did
not think such changes were needed. Regarding State's coordination with
law enforcement agencies, our report accurately describes the extent of
coordination and provides State's explanation as to why it limited
coordination to the exemption-related initiatives. Finally, State's
conclusion about our analyses of Operation Enduring Freedom applications
is inaccurate. As explained in our scope and methodology, we used unique
identifiers entered into State's licensing database to identify

applications processed under various initiatives, including the Operation
Enduring Freedom initiative. Thus, information in this report regarding
the number of Operation Enduring Freedom applications and their associated
processing times is based on our analyses of applications identified by
State as Operation Enduring Freedom.

In its written comments on a draft of this report, Defense stated it
generally agreed with the report. Based on an analysis of its own
licensing data, Defense stated that its median processing times were lower
than those presented in our report. Defense explained that the differences
between its median processing times and ours can be attributed, in part,
to a lag between when State decides to refer cases and when Defense begins
its review. Additionally, Defense noted discrepancies with how State
identified cases related to Operations Enduring Freedom and Iraqi Freedom
for special processing when staffed to Defense. According to Defense, in
some instances, State staffed cases to Defense for special processing, but
those cases were not coded as Operations Enduring Freedom or Iraqi Freedom
in State's database. In other instances, cases were coded in State's
database as Operations Enduring Freedom or Iraqi Freedom, but were not
processed in an expedited manner by either State or Defense. Finally,
Defense indicated that State did not rigorously screen cases before
staffing them to Defense for special processing under the Operations
Enduring Freedom and Iraqi Freedom initiatives. According to Defense,
State identified cases for special processing even though they did not
involve material for U.S. forces and coalition partners engaged in
operations. Defense's comments are reprinted in appendix IV, along with
our evaluation of them.

Processing times presented in our report are based on our analyses of
State's licensing data for both staffed and nonstaffed cases-as
acknowledged by Defense. Because we did not analyze Defense's data nor
assess its reliability, we cannot verify the accuracy of the data
presented in Defense's comments. We already acknowledged Defense's
explanation regarding a lag between when State decided to staff cases and
when Defense began its review. However, regardless of the reasons for
delays, transit times add to the overall time it takes for an exporter to
be provided with a final determination. Additionally, information
contained in the report regarding the number of applications related to
Operations Enduring Freedom and Iraqi Freedom staffed to Defense and their
associated processing times is based on our analyses of applications
identified by State as related to the two operations. We cannot validate
the discrepancies Defense identified regarding these applications as we
did not review Defense's files or assess their accuracy or completeness.

However, based on comments from both State and Defense, it appears that
there is a lack of agreement and consistency as to which applications
should be processed under the initiatives for Operations Enduring Freedom
and Iraqi Freedom.

In written comments on a draft of this report, Homeland Security expressed
appreciation for GAO's work related to enforcement challenges. Homeland
Security also clarified information previously provided to GAO and made
technical comments, which we have incorporated into our report.
Additionally, the department elaborated on U.S. Customs and Border
Protection's participation in the arms export control system. Homeland
Security's comments are reprinted in appendix V.

Justice also reviewed a draft of this report and had no comments.

As we agreed with your office, unless you publicly announce the contents
EURof this report earlier, we plan no further distribution of it until 30
daysEURfrom the date of this letter. We will then provide copies of this
report to EURthe Ranking Member of the House International Relations
Committee; the EURHouse Armed Services Committee; the House Committee on
Government EURReform; the Senate Armed Services Committee; the Senate
Foreign EURRelations Committee; and the Senate Governmental Affairs
Committee. EURWe also will provide copies to the Secretaries of Commerce,
Defense,EURHomeland Security, and State; the Attorney General; the
Director, Office ofEURManagement and Budget; and the Assistant to the
President for National EURSecurity Affairs. In addition, this report will
be made available at noEURcharge on the GAO Web site at
http://www.gao.gov. EUR

If you or your staff have questions concerning this report, please contact
EURme at (202) 512-4841. Others making key contributions to this report
are EURlisted in appendix VI. EUR

Sincerely yours, EUR

Katherine V. SchinasiEURManaging DirectorEURAcquisition and Sourcing
ManagementEUR

                           Arms Export Control System

              Status of the Arms Export Control System Since 9/11

o 	A year after the 9/11 terror attacks, the White House announced the
initiation of a "comprehensive assessment of the effectiveness of U.S.
defense trade policies, to identify changes necessary to ensure that those
policies continue to support U.S. national security and foreign policy
goals."

o 	The assessment was to include a review of the arms export control
system, as well as an evaluation of the Defense Trade Security Initiative
(DTSI), which was announced in 2000 and consisted of 17 measures intended
to streamline processing of arms export license applications and increase
mutual security with our allies.

                                       5

                       State's DDTC Commerce's BIS       Defense's DTSA       
     Number of cases                               17,122 State cases 12,585  
        reviewed          54,736        12,443     Commerce cases 29,707      
                                                   total casesb               
Number of personnel      65           367       163 civilian and military  
Expenditures (in      $14.04a        $66.29               $26.99           
millions)                                       

  State, Commerce, and Defense: Workload, Staffing, and Budget for Fiscal Year
  2003

The U.S. export control system for defense-related items and technologies
is primarily divided between two regulatory regimes. One, managed by
State's DDTC, controls the export of arms. The other, managed by the
Commerce Department's Bureau of Industry and Security (BIS), controls
exports of dual-use items that have military and commercial applications.
DTSA, which represents Defense on export control issues, provides support
to both regulatory regimes. This support includes assisting State and
Commerce in determining which items will be controlled and reviewing
export license applications submitted to either department.

In fiscal year 2003, DDTC reviewed almost 55,000 cases. These cases
included applications for the permanent export of arms, the temporary
export and import of arms, and agreements between U.S. industry and
foreign entities to provide technical assistance or manufacturing
capability, as well as requests for amendments to existing licenses and
jurisdiction determinations.6 By comparison, BIS reported7 that it
reviewed almost 12,500 dual-use applications in fiscal year 2003-less than
a quarter of the cases reviewed by DDTC. Most of the cases reviewed by
DTSA were referred by DDTC.

DDTC, which is overseen by the Deputy Assistant Secretary of State for
Defense Trade, was authorized 71 staff positions in fiscal year 2003 to
carry out its arms export licensing, compliance, and other functions. Of
these positions, 65 were filled. Under the direction of the Under
Secretary of Commerce for Industry and Security, BIS had almost 300 more
employees carrying out its principal activities, including dual-use
licensing and enforcement efforts.8 DTSA, which is overseen by the Deputy
Under Secretary of Defense for Technology Security Policy and
Counter~proliferation, had a staff of 163, most of whom supported DDTC and
BIS's efforts. Thirty-one DTSA personnel monitored space launch and space
systems and were not involved in the review of license applications.

6 Exporters can request a jurisdiction determination when they are
uncertain which department controls exports of an item or want an item
transferred from State to Commerce jurisdiction. For additional
information on the commodity jurisdiction process, see GAO, Export
Controls: Processes for Determining Proper Control of Defense-Related
Items Need Improvement, GAO-02-996 (Washington, D.C.: Sep. 20, 2002).

7 Department of Commerce, Bureau of Industry and Security, Annual Report
Fiscal Year 2003 (Washington, D.C.: 2004).

8 BIS's other principal activities include monitoring the viability of the
defense industrial base, ensuring industry compliance with arms control
treaties, enforcing antiboycott laws, and assisting other countries in
developing effective export control systems.

                           Arms Export Control System

                         Table 2: DDTC Staffing Levels

                                                     Fiscal year
                                          2000  2001  2002  2003  2004  2005  
Total FTEs authorized                   65    71    71    71    71    71   
          Total positions filled           40    47    59    65    65    66   
Licensing officer FTEs authorized       33    36    35    37    34    32   
    Licensing officer positions filled     16    21    30    35    31    31   
    Compliance officer FTEs authorized     14    16    16    16    17    16   
    Compliance officer positions filled    8     10    12    13    15    14   

                            Source: State officials.

                                       9

  DDTC Staffing Levels

DDTC's 71 authorized full-time equivalents (FTE)9 are divided between
licensing officers, compliance officers, and other staff, including
policy, management, and support staff. DDTC's licensing officers are
responsible for reviewing license applications and making determinations
as to whether those applications should be approved. The number of
authorized licensing officers increased from fiscal year 2000 through
2003, but then decreased in fiscal years 2004 and 2005. Similarly, the
number of licensing officers positions filled at the start of each fiscal
year increased through fiscal year 2003, but has since decreased.
Compliance officers carry out a range of functions to help ensure exporter
compliance, including addressing disclosures of possible violations,
assisting Justice in prosecuting criminal violations, and managing DDTC's
end-use monitoring program. The number of authorized compliance officers
remained fairly consistent over the 6-year period, with the number of
positions filled increasing through fiscal year 2004 and then decreasing
at the start of fiscal year 2005.

Over the six fiscal years, DDTC has shifted some authorized FTEs to policy
and management. For example, between fiscal years 2003 and 2005, the
number of licensing officers authorized decreased by five positions, while
the number of authorized FTEs for DDTC management and policy functions
increased by five.

DDTC personnel are supplemented by detailees from other agencies, most
notably Defense. To assist in expediting license reviews, the Foreign
Relations Authorization Act for Fiscal Year 2003 called for Defense to
ensure that 10 military officers are continuously detailed to DDTC.
However, DDTC officials informed us that only four military officers are
currently detailed to DDTC. Additionally, contractor personnel provide
support to all of DDTC's functions. For fiscal year 2003, DDTC officials
informed us that they spent $4.3 million on contractor support.

9 FTE is a measure of federal civilian employment. One FTE is equal to 1
work-year of 2,080 hours.

                           Arms Export Control System

Table 3: Number of Cases Reviewed by DDTC and Median Processing Times

                                           Fiscal year
                      1999    2000    2001    2002    2003    2004 (through   
                                                                  4/30)       
      All     Cases  43,926  45,994  50,078  50,403  54,736       33,211      
              Median 26 days 25 days 15 days 13 days 14 days          17 days 
Nonstaffed Cases  29,054  30,470  34,525  33,948  36,128       22,288      
              Median 14 days 15 days 10 days 8 days  8 days           11 days 
    Staffed   Cases  14,872  15,524  15,553  16,455  18,608       10,923      
              Median 77 days 69 days 58 days 52 days 49 days          51 days 
      Defense Cases  13,240  14,475  14,543  15,336  17,122       9,900       
              Median 39 days 29 days 28 days 29 days 29 days     27 days      

                      Source: GAO analysis of State data.

                                       10

  Number of Cases Reviewed by DDTC and Median Processing Times

The number of arms export cases reviewed by DDTC increased steadily from
43,926 cases in fiscal year 1999 to 54,736 cases in fiscal year 2003,
which is almost a 25 percent increase. For most of that time period, the
median processing times10 declined-from 26 days in fiscal year 1999 to 13
days in fiscal year 2002. However, in fiscal year 2003, the median
processing time increased to 14 days and this upward trend continued
through the first 7 months of fiscal year 2004.

DDTC processed the majority of cases without referring-or staffing- them
to other State offices or DTSA for additional review. DDTC has staffed
about one-third of its cases for additional review. Defense conducts
technical reviews and identifies national security concerns associated
with cases, while other State offices review cases for foreign policy,
human rights, and non-proliferation concerns.

For staffed cases, the majority were referred to Defense's DTSA for
review, some of which were referred to DTSA more than once for additional
consideration. The cases referred to Defense represent a subset of staffed
cases. Thus, of the 18,608 cases that were staffed in fiscal year 2003,
17,122 were referred to Defense. The number of cases staffed to DTSA
increased 29 percent from fiscal year 1999 to fiscal year 2003. DTSA
officials informed us that despite the increase in workload, their
resources for reviewing cases have remained constant. The Defense median
processing time reflects the number of days between the date State
referred the case to DTSA and the date DTSA provided DDTC with its input,
which for fiscal year 2003 was 29 days. DTSA officials, however, noted
that there can be a delay between the time State decides to refer a case
and the time DTSA physically receives the case and supporting
documentation for review.

10 The median processing time is the point at which 50 percent of the
cases took more time and 50 percent less time. We are reporting the median
processing time because the average or mean processing time can be
significantly affected by a small number of cases that had much longer
review times than the majority of cases.

  State's Explanation for Increased Processing Times

State's watchlist identifies entities whose appearance on an application
should prompt closer scrutiny and, in some cases, denial of the
application. Under the AECA,11 State is required to identify and deny
licenses to persons convicted of violating various laws, including certain
laws related to export controls, foreign corrupt practices, espionage, and
improper communication of classified information, as well as persons who
are ineligible to receive import or export licenses from any U.S.
agencies. State may also deny licenses to persons who have been indicted
for violating these same laws or are ineligible to contract with any U.S.
agencies. In addition to identifying individuals who meet those criteria,
State's watchlist includes individuals and companies under U.S. economic
sanctions, identified by intelligence sources as suspected or known
diverters or proliferators, or identified from negative pre-licensing or
post~shipment checks.

DDTC officials informed us that while they instituted measures to ensure
that all parties on applications are screened against the watchlist, they
have not retroactively reviewed all applications submitted between June
2002 and December 2003, to determine if any of the parties to those
applications appear on the watchlist. As a result, they do not know
whether any applications involving parties on the watchlist were approved.
Further, DDTC officials do not know how many applications were not
screened against the watchlist.

The manual entry of parties into the licensing database does not fully
account for the increased processing times. The median processing time for
all cases began increasing in fiscal year 2003, which predates when DDTC
took action to ensure that all parties are screened against the watchlist.

11 22 U.S.C. 2778.

  Final Actions for License Applications

In its final disposition of an export license application,12 DDTC
essentially has four options. It can approve the application, approve the
application with provisos-conditions that limit the use of the exported
items and technologies, deny the application, or return it without action.
DDTC returns applications without action when it determines that the
applications either do not meet regulatory requirements or do not provide
adequate documentation and details.

Both prior to and after the events of September 2001, DDTC approved more
than half of the license applications without placing conditions on the
use of the items and technologies. However, the percentage of applications
approved with provisos increased after September 2001, which coincided
with an increase in the number of nonstaffed applications approved with
provisos by DDTC.

The percentage of applications returned without action has remained
constant since September 2001. Likewise, the percentage of applications
denied remained at 1 percent. Other final actions, such as an application
being lost or withdrawn by the exporter, represented less than 1 percent.

12 License applications include applications for the permanent export of
arms, the temporary export and import of arms, agreements between U.S.
industry and foreign entities to provide technical assistance or
manufacturing capability, and amendments to existing licenses.

                            Arms Export Initiatives

  State's Explanation for Operation Enduring Freedom and Operation Iraqi
  Freedom Processing Times

o 	According to DDTC officials, applications for Operations Enduring
Freedom and Iraqi Freedom are their highest priority.

o 	Officials explained that processing times exceeded the goals, in part,
because

o  the applications were frequently incomplete and

o 	licensing officers kept the cases open so that applicants could submit
required information, instead of returning incomplete applications without
action.

                                       15

                                                     Fiscal year
                                          2002     2003   2004 (through 4/30) 
                          Applications     94      182            64          
Nonstaffed 2-day goal     Median      2 days   6 days        8 days        
                          Applications     70      116            30          
     Staffed 4-day goal      Median     12 days  14 days        11 days       
          Defense         Applications     76      116            20          
                             Median      5 days   7 days        6 days        

                                                            Fiscal year
                                                        2003    2004 (through 
                                                                    4/30)     
                                     Applications        14          66       
Staffed 4-day goal Nonstaffed  Applications Median 13 6 days   25 7 days   
         2-day goal Defense       Median Applications 7 days 8   22 days 18   
                                        Median        1.5 days     6 days     

  Electronic Licensing: D-Trade

DDTC's D-Trade is a Web-based license application submission and review
system, which allows companies to electronically submit export
authorization requests and supporting documentation for review. The system
officially went on-line in January 2004. DDTC officials expected that
D-Trade would be more efficient than the existing system that permitted
electronic submissions of requests but required hardcopy submissions of
supporting documentation, which could be voluminous. However, from January
through April 2004, few applications were submitted via D-Trade. Based on
an analysis of State's data, none of the applications processed via
D-Trade during this time frame was staffed outside of DDTC for review.

DDTC is now reporting increased use of the D-Trade system as well as
reduced median processing times. According to the DDTC website, D-Trade
processed 154 nonstaffed applications and 146 staffed applications in
November 2004. Median processing times for applications submitted via
D-Trade in November 2004 were 9 days for nonstaffed applications and 18
days for staffed applications. DDTC officials said that processing times
should improve as licensing officers and exporters become more familiar
with the D-Trade system and enhancements make the system more
user~friendly.

When D-Trade came on-line in January 2004, it accepted applications for
both permanent exports-the most common type of application DDTC
receives-and technical assistance agreements, which allow for the export
of controlled technical data. However, citing industry complaints
regarding the electronic format for submitting information, DDTC suspended
the acceptance of technical assistance agreements via D-Trade in
mid-August 2004. DDTC officials told us that the acceptance of technical
assistance agreements via D-Trade would be reinstated once the electronic
form for submitting agreements has been redesigned, which is expected to
occur by April 2005.

                            Arms Export Initiatives

                       Electronic Licensing: Capabilities

o 	P.L. 107-228 section 1403 directed State to establish an electronic
system for filing and reviewing export license applications and to ensure
the system is capable of exchanging data with export control-related
information systems maintained by Commerce, Defense, Energy, and the
Central Intelligence Agency (CIA).

o 	According to State information technology officials, D-Trade is
technically capable of exchanging data with other systems as required by
P.L. 107-228.

o 	D-Trade is currently exchanging data on a daily basis with Defense's
system.

o 	State is waiting for final administrative approval to begin exchanging
data with Commerce's system.

o 	No discussions have occurred with Energy or CIA officials regarding
data exchanges with their systems.

                                       26

                Arms Export Enforcement Coordination and Efforts

                      Coordination on Initiatives (cont.)

o 	Aircraft spare parts, even with the current export licensing
requirements, are at risk of diversion to countries that seek to
circumvent U.S. embargoes and increase the operational readiness of their
military aircraft.

o 	Since 9/11, Homeland Security has conducted multiple criminal
investigations involving illegal exports of aircraft components. Examples
include alleged exports of

o  F-4 jet components to Israel with an unknown final destination and

o 	components for F-4 jets, F-5 jets, F-14 jets, and C-130 aircraft to a
British company procuring the equipment for the Iranian military.

o 	U.S. Attorneys have secured convictions involving illegal exports of
aircraft components. Examples include guilty pleas for

o  exports of helicopter components to Iran and

o  exports of F-4 and F-5 jet components to China.

                                       35

                Arms Export Enforcement Coordination and Efforts

                               AES: State Funding

o 	Under P.L. 107-228 section 1404(a), $250,000 was "authorized to be
available" for

o  providing State with full access to AES,

o  ensuring that the AES is modified to meet the needs of State, and

o  providing operational support to AES.

o 	Per DDTC officials, DDTC did not spend funds on AES improvements in
fiscal year 2003. The Census official who oversees AES confirmed that
State did not spend funds for AES operations and improvements.

                                       39

Arms Export Enforcement Coordination and Efforts

  Customs and Border Protection: Initiatives and Resources

o 	No new arms export enforcement initiatives introduced by CBP in
response to the events of 9/11.

o 	CBP has limited resources and funding for enforcement activities.
According to Homeland Security officials, relatively more resources have
been devoted to ensure that dangerous goods and individuals do not enter
the country through the 317 official ports and border crossings.

o  Prior to 9/11, 400 officers were dedicated to outbound enforcement.

o 	Currently, 256 officers are dedicated to outbound enforcement, but can
be pulled to fulfill inbound inspection requirements as needed.

o  Cancellation of courses on outbound inspections in fiscal year 2004

o 	Improvements in officers' ability in recent years to conduct outbound
inspections at ports and borders due to

o  AES automation enhancements and

o 	regulatory requirement for information on a State-controlled shipment
to be submitted via AES prior to arriving at the port or border, which
improves targeting.

41

                                           Fiscal year
                          2001          2002          2003          2004      
       Number of          661            663           665           923      
       seizures                                                 
Total value of    $83.72 million $65.85        $105.79       $136.00       
seizures                         million       million       million       

  Arms Export Investigations, Arrests, Indictments, and Convictions

The number of investigations opened and individuals arrested by ICE agents
for suspected arms export violations has widely fluctuated over the past 5
fiscal years. Similarly the number of individuals indicted and convicted
for arms export violations has also fluctuated from year to year. When ICE
opens an investigation in response to an alleged arms export control
violation, it may take several years for agents to build a case and
eventually make an arrest-if one is made at all. Once an arrest is made,
several years may pass before Justice brings the case to trial and obtains
a conviction. For example, an investigation opened in 1999 may not result
in an arrest until 2002. Similarly, an arrest in 2000 may not result in a
conviction until 2003.

According to ICE officials, the drop in arms export-related arrests and
indictments in fiscal year 2002 may be the result of a more intensive
focus on ensuring that dangerous goods and individuals did not enter this
country in the immediate aftermath of the September 2001 attacks. However,
with the passage of time, ICE became increasingly concerned with the
defense-related items leaving this country and the threat they could pose.
The officials explained that this prompted ICE to focus its attention on
illegal arms exports and increase its agents' knowledge and skills as they
relate to arms export investigations, which has resulted in increased
arrests, indictments, and convictions. The officials also attributed the
increases to leads obtained through its industry outreach program-Project
Shield America-and the intelligence community.

In addition to investigations by ICE, the Attorney General clarified the
Federal Bureau of Investigation's (FBI) jurisdiction in November 2004 to
specify that it has the lead in investigating potential AECA violations
relating to foreign counterintelligence matters.13 While the table does
not include FBI investigations, Justice officials informed us that the FBI
has initiated a number of AECA-related investigations. ICE officials
informed us that there has been some initial uncertainty regarding which
agency will have the lead in investigating potential AECA violations, but
Homeland Security and Justice officials have been working together to
resolve jurisdictional issues.

13 See 69 FR 65542 (Nov. 15, 2004).

                                                 Fiscal year
                                  1999    2000    2001    2002   2003   2004  
        Blue Lantern checks       360+     218     410    428    413    530   
    Unfavorable determinations     34      35      71      50     76     93   

  State's Administrative Enforcement: Blue Lantern

State's end-use monitoring program, known as Blue Lantern, consists of
pre-license and post-shipment verification checks of the parties to and
the end-use of defense exports. From fiscal year 1999 through 2004, the
number of end-use monitoring checks performed under the Blue Lantern
program remained relatively constant, averaging about 400 checks per year.
One exception to this average occurred in fiscal year 2000 when State
targeted higher value exports in its Blue Lantern checks, which resulted
in only 218 checks for the year.

Blue Lantern checks may result in unfavorable determinations by State
based on evidence uncovered during the checks, such as illegitimate
end~users or the possible diversion of defense exports. Unfavorable
determinations result in the denial of a license or are turned over for
investigation by law enforcement and compliance entities. According to
State's fiscal year 2003 end-use monitoring report, 49 percent of the 76
unfavorable determinations involved firearms and ammunition. Also,
unfavorable determinations involving aircraft spare parts increased from
18 percent in fiscal year 2002 to 24 percent in fiscal year 2003.

                                               Fiscal year
                               1999    2000    2001    2002    2003    2004   
     Voluntary disclosures     216      255     316     256     339     394   

  State's Administrative Enforcement: Voluntary Disclosures

Voluntary disclosures are disclosures to DDTC by companies or individuals
that believe they may have violated the AECA, arms export control
regulations, or terms of a license. Upon reviewing the circumstances of
the disclosure, DDTC may take administrative action against the
responsible party or refer the matter to Justice for appropriate action.

According to DDTC officials, the increase in disclosures from fiscal year
1999 through 2004 was due to increased industry education and outreach
efforts on the part of DDTC to encourage companies to self-report export
control violations. These officials explained that the submission of
voluntary disclosures is an indication of a robust compliance effort on
the part of industry. Further, voluntary disclosures may be considered a
mitigating factor in determining what administrative penalties, if any,
should be imposed upon a company.

  State's Administrative Enforcement: Penalties Imposed in Administrative Cases

State can pursue administrative penalties against companies for violations
of the AECA. These administrative penalties can consist of debarment from
participation in defense exports and/or civil penalties in the form of
monetary damages. In some cases, State has suspended a portion of the
civil penalty, provided the funds are invested in a company's export
compliance program. For example, in calendar year 2003, there were five
settlements for AECA violations resulting in $43.48 million in
administrative penalties. However, $16.5 million of that amount was
suspended on the condition that companies invest the money in their
compliance efforts.

According to DDTC compliance officials, when a portion of an
administrative penalty is suspended, the company is required to provide
DDTC with an accounting of how those funds were spent. DDTC officials then
review the information provided to ensure that funds were spent in
accordance with the settlement agreement. However, DDTC does not conduct a
formal financial audit to verify the information provided. These officials
also informed us that Defense auditors previously found that some
companies have attempted to bill Defense for the required improvements to
their compliance programs. After learning of this, DDTC compliance
officials met with company officials to address the issue. According to
DDTC compliance officials, all but one of the companies have agreed that
the U.S. government should not pay for the compliance penalties imposed as
part of the settlement agreements and to change their billing practices.
Additionally, DDTC compliance officials have included standard language in
settlement documents to explicitly preclude such charges in the future.

Five of the 13 settlements imposed in 2000 through 2004 involved
satellite~related exports. However, the majority of administrative
penalties imposed in those years were associated with the
satellite-related settlements. For example, all $26.1 million of the
administrative penalties in 2002 was for satellite-related settlements.

                     Appendix II: Scope and Methodology EUR

To identify changes to the arms export system since September 11, 2001, we
interviewed officials at the State Department's Directorate of Defense
Trade Controls (DDTC) and the Defense Department's Defense Technology
Security Administration (DTSA). We also reviewed the Arms Export Control
Act;14 the International Traffic in Arms Regulations;15 the Foreign
Relations Authorization Act, Fiscal Year 2003;16 and other relevant agency
guidance, policies, and documents including those related to each agency's
budget and staffing levels. To assess overall trends in arms export
licensing, we analyzed DDTC's export license application data covering
October 1, 1998 through April 30, 2004. The data were extracted by DDTC
officials based on the final action date for each case. We analyzed the
data to determine trends in processing times and license application final
actions. The processing time represents the number of calendar days
between the receipt of a case and the final action date entered into
State's database. Defense's processing time represents the number of
calendar days between the date State decided to refer the case to DTSA and
the date DTSA provided its recommendation for final action. Median
processing times rather than average (mean) processing times are reported
because average values can be significantly affected by a small number of
cases that had much longer review times than the majority of cases. Our
analysis did not include licenses that were approved and then subsequently
suspended or revoked during this period.

To evaluate the implementation of initiatives designed to streamline and
expedite the arms export licensing process, we reviewed State and
Defense-issued guidance and consulted with State and Defense officials to
identify the initiatives and their goals. We then analyzed State export
license application data for October 1, 1998 through April 30, 2004 to
determine the number of license applications received for each initiative
and associated processing times, which we then compared to the processing
time goals established by State and Defense. State assigned unique
identifiers to each initiative, which we used to identify applications
processed under each initiative.

State has not assessed the reliability of its license application database
nor does it have a data dictionary explaining its data, which prompted us
to

14 22 U.S.C. 2751 et. seq. 15 22 CFR pts. 120-130. 16 P.L. 107-228.

assess the reliability of the database for the purposes of this report. We
randomly selected 98 license applications from our data set that were
stored on-site at State and then compared the original hardcopy
application files to the corresponding information in the database. The
data in the application database matched the information in the original
hardcopy files for 89 percent of the fields we checked. Therefore, we are
95 percent certain that the accuracy rate of the fields we checked is
between 87 percent and 90 percent, which we have determined to be
sufficiently reliable for the purposes of this report. Our reliability
assessment was designed to measure whether data used in our analyses
matched information in State's files and did not include every field in
the database. Our results may not be generalizable to the entire database
or to all uses of the data within the database. Additionally, we discussed
key elements of the database with State officials to ensure that we
accurately interpreted the data. Because we had partial data for fiscal
year 2004, we cannot provide median processing times for the entire fiscal
year. However, based on our review of monthly median processing times
posted on DDTC's website for the last 5 months of fiscal year 2004, the
upward trend in median processing times continued through the remainder of
the fiscal year. While the data presented on DDTC's website for the last 5
months of fiscal year 2004 were not included in our data reliability
assessment, the monthly median processing times on DDTC's website for the
first 7 months of fiscal year 2004 correspond with our analyses of that
time period.

To determine the extent of coordination between State and enforcement
agencies regarding the implementation of initiatives, we interviewed
officials and obtained supporting documents from the Justice Department
and the Homeland Security Department's U.S. Customs and Border Protection
(CBP) and U.S. Immigration and Customs Enforcement (ICE). We also
discussed coordination efforts with Defense and State officials. To
identify enforcement challenges, we interviewed CBP, ICE, and Justice
officials. We also met with CBP officials responsible for export
enforcement at two ports in Maryland and Virginia to obtain their
perspectives. Additionally, we obtained and analyzed data from Homeland
Security and State regarding enforcement actions such as the number of
arms export control investigations opened and administrative penalties.

Appendix III: Comments from the Department of State

Note: GAO's comments supplementing those in the report's text appear at
the end of this appendix.

                                 See comment 1.

                                 See comment 2.

                                 See comment 3.

                                 See comment 4.

See comment 5.

See comment 6.

See comment 7. Now on pp. 46-47.

Now on p. 26. See comment 8.

See comment 9.

Now on p. 15. See comment 10.

Now on p. 22.

See comment 11.

Now on p. 27. See comment 12.

  GAO Comments

1. DEGOur report identifies various arms export control initiatives
implemented by State, as well as discusses State's compliance efforts.
Initiatives identified include DTSI, expedited processing for Operations
Enduring Freedom and Iraqi Freedom applications, electronic licensing, and
organizational realignment. We evaluated those initiatives for which data
were available. As we reported, license applications processed under
various initiatives have generally not been processed within the time
frames established by State and several initiatives have not been widely
used by exporters. Senior State officials also informed us that they have
not evaluated the initiatives' effects on the arms export control system.
We are, therefore, uncertain what the basis is for State's conclusion that
it has successfully undertaken these initiatives, particularly since State
did not provide any additional data to support its contention.

2. DEGIt is not clear from existing data why carrying out activities
integral to the arms export license process would contribute to increased
processing times, particularly since State has received increased
resources over the years to carry out these activities. State suggested
that ensuring a thorough license review has contributed to increased
processing times. However, as noted in the report, processing times began
increasing during the period State was not screening all parties against
the watchlist as required by law. State also suggested that more referrals
of increasingly complex cases have contributed to increased processing
times. Yet our analyses of State's data clearly show that the relative
number of cases referred, or staffed, remained fairly constant from fiscal
year 1999 through the first 7 months of fiscal year 2004. Further, this
would not explain why processing times have increased for nonstaffed
cases. Also during the course of our audit, State officials only provided
anecdotal support for their assertion that cases have become more complex.

3. DEGOur report does not imply whether changes to the arms export control
system were needed following the September 2001 terror attacks. Rather, it
clearly states what has or has not occurred in terms of changes to the
system after the attacks. During the audit, senior State officials
acknowledged that State has not proposed statutory or regulatory changes
in response to the September 2001 attacks. Our report already includes a
senior State official's explanation of why such changes were not needed.
We also note that beyond describing what the arms export control system is
intended to do, State does not provide support for its comments regarding
the effectiveness of its arms export controls in the post-9/11
environment.

4. DEGOur report already notes that while State reviewed the status of
implementation, it did not evaluate the effects of various initiatives on
the arms export control system. Further, GAO has previously reported17
that DTSI was launched in 2000 without a demonstration of how the measures
would achieve identified goals or an analysis of existing problems. At
that time, there was little assurance that any underlying problems with
the U.S. export control system had been sufficiently analyzed to determine
what the causes of the problems were and whether the DTSI measures would
remedy any existing problems. Given this continued lack of evaluation, we
are uncertain as to the basis for State's conclusion that the initiatives
do not need to be changed in the aftermath of the September 2001 terror
attacks.

Our report refers to the White House-directed comprehensive assessment of
the effectiveness of U.S. defense trade policies, which is commonly known
as NSPD-19. However, because the NSPD-19 assessment was ongoing during the
time of our audit and its results have not been released, we were unable
to evaluate it. Further, State did not brief us on the NSPD-19 assessment
or any resulting proposals.

5. DEGDuring the course of our audit, State, Homeland Security, and
Justice officials characterized coordination with law enforcement
regarding the implementation of initiatives as limited. The only
exceptions identified were the proposed licensing exemptions. Our report
already cites State's explanation, which is consistent with that offered
in State's comments, as to why coordination was limited to the proposed
exceptions. Therefore, our report does not need to be revised.

6. DEGAs explained in our report, Homeland Security and Justice officials
generally oppose licensing exemptions because exemptions increase the risk
of diversion and complicate enforcement efforts. Our report also
acknowledges that the two departments have officially stated that they do
not object to the agreements reached with the governments of Australia and
the United Kingdom to allow for license-free exports to those countries.
However, in the letters cited in State's comments, both departments noted
that there are risks associated with the proposed exemptions.

17 See GAO, Defense Trade: Analysis of Support for Recent Initiatives,
GAO/NSAID-00-191. (Washington, D.C.: Aug. 31, 2000).

7. DEGState's comments do not address the strong concerns raised in CBP's
letter regarding the proposed aircraft-related exemptions. As we noted in
our report, CBP warned it would not be able to enforce the proper use of
the exemptions. State's comments also do not address Homeland Security and
Justice officials' general comments regarding the risks and enforcement
difficulties associated with licensing exemptions.

8. DEGDuring the course of our audit, State export licensing officials
informed us that the quality of applications submitted under this
initiative remained constant. Thus, the quality of applications does not
explain the increased processing times from fiscal year 2003 through the
first part of fiscal year 2004 for Operation Iraqi Freedom applications.

9. DEGState's comment that the number of authorized licensing officers has
consistently increased contradicts information State provided during the
course of our audit. According to the information provided by State, the
number of authorized licensing officer positions decreased from 37 in
fiscal year 2003 to 32 in fiscal year 2005. Because State did not provide
revised figures in its comments, we have no basis to change the
information contained in the report. Further, in analyzing the information
provided by State, authorized positions clearly shifted from licensing
officers to other positions within DDTC's management and policy functions.
While this may have been part of DDTC's realignment efforts, it
nevertheless has resulted in fewer authorized licensing officer positions
and coincides with a decrease in the number of licensing officer positions
filled.

10. State officials repeatedly informed us that they do not track average
weekly caseloads and did not know whether they were meeting the required
weekly average of 40 cases for each licensing officer. Further, State's
comments provide a theoretical average that appears based on the number of
cases closed by licensing officers during a given year. This is not an
accurate reflection of licensing officer caseloads because it does not
include open cases being processed. For example, State officials informed
us that on June 21, 2004, there were 5,343 open cases. Given that State
had 31 licensing officers in fiscal year 2004, that averages to 172 cases
per licensing officer on that date.

11. Our report does not need to be revised because it accurately conveys
information provided to us during the course of our audit. We are
uncertain as to the basis for State's comment that the majority of cases
were screened against the watchlist given that State acknowledged it

does not know how many applications had parties that were not fully
screened against the watchlist as required by law. Also, given that State
has not completed its retroactive review of applications submitted between
June 2002 and December 2003, it is not clear how State concluded that the
vast majority of the parties to those applications were screened by other
means. Finally, in light of the risks posed by not screening all parties
against the watchlist, it is not clear why available resources have not
been dedicated to completing the retroactive review.

12. State's comment that our analyses of Operation Enduring Freedom
applications included cases not identified by State is inaccurate. As
explained in our scope and methodology, we used the unique identifiers
entered into State's licensing database to identify applications processed
under various initiatives, including the Operation Enduring Freedom
initiative. Thus, the information in the report regarding the number of
Operation Enduring Freedom applications and their associated processing
times is based on our analyses of applications coded by State. As part of
our data reliability analysis, we assessed whether information contained
in State's database matched State's hardcopy files and found it to be
reliable for the purposes of our report. It is not clear from State's
comments how or why it has since determined only certain cases coded in
its database are "truly" related to Operation Enduring Freedom. We cannot
verify State's assertion about possibly lower Operation Enduring Freedom
processing times because State did not provide us with information
regarding which cases it now considers "truly" related to Operation
Enduring Freedom. We also note that State did not conduct its own analysis
despite having all available data. Further, State's comments, along with
those provided by Defense, indicate inconsistencies in the identification
of cases for special processing. It appears that State coded cases in the
database as related to Operation Enduring Freedom, but, for reasons that
are not clear in State's comments, did not expedite the processing of
those cases.

Appendix IV: Comments from the Department of Defense

Note: GAO's comments supplementing those in the report's text appear at
the end of this appendix.

                                 Now on p. 13.

                                 See comment 1.

                                 See comment 2.

Now on p. 24. See comment 3.

Now on p. 25.

See comment 4.

                                 Now on p. 27.

                                 Now on p. 29.

Now on p. 37. See comment 5.

Now on p. 42. See comment 6.

Now on p. 43. See comment 7.

Now on p. 61.

                                 See comment 8.

                                GAO CommentsEUR

1. DEGWe have revised our report to reflect that a portion of DTSA's
resources were not involved in the review of license applications.

2. DEGAs explained in our scope and methodology, and as acknowledged by
Defense, median processing times in our report are based on our analyses
of State's licensing data. Because we did not analyze Defense's data or
assess its reliability, we cannot verify the accuracy of the data provided
in Defense's comments. However, our report acknowledges Defense's
observation regarding the lag between when State decides to refer cases
and when Defense begins its review. Regardless of the reasons for delays,
transit time contributes to the overall time it takes the government to
process a case and provide its final determination to the exporter.

3. DEGWe have clarified the report language regarding the overall increase
in the number of cases approved with provisos following the events of
September 2001.

4. DEGAs discussed in our scope and methodology and Defense's comments,
the information provided in our report regarding the number of Operation
Enduring Freedom and Operation Iraqi Freedom cases and their associated
processing times is based on our analyses of applications identified in
State's database as related to the two operations. As part of our data
reliability analysis, we assessed whether information contained in State's
database matched State's hardcopy files and found it to be reliable for
the purposes of our report. While Defense identified discrepancies between
its files and the corresponding records in State's database, we cannot
validate these discrepancies or their frequency as we did not review or
assess the accuracy or completeness of Defense's files. Nevertheless,
Defense's comments, along with those provided by State, suggest a lack of
agreement and inconsistencies in the process for identifying cases for
expedited review.

5. DEGOur report reflects information provided by State during the course
of our audit and our analysis of State's licensing database. We have
revised the report to indicate the basis for our statement that
applications processed via D-Trade during the 4-month period were not
staffed outside DDTC for review.

6. DEGThe use of the term "self-imposed conditions" is a reflection of
State's characterization of the proviso reform initiative and State's
concerns with that initiative's possible effects on enforcement efforts.
Defense's comments, along with information provided to us by State,
indicate

that there is a fundamental disagreement between the two departments
regarding the appropriate use of provisos and the ability to enforce
limitations contained in license applications.

7. We have revised our report based on Defense's comment.

8. DEGWe did not evaluate the factors that prompted companies to submit
specific disclosures. Therefore, we cannot comment on the validity of
Defense's comment and whether it is applicable to the majority of
disclosures, which were not reviewed by Defense. However, according to a
State compliance official, the number of disclosures presented in our
report only includes disclosures of potential violations voluntarily
submitted by companies and not disclosures submitted at the direction of
the U.S. government.

                                 Now on p. 14.

                                 Now on p. 57.

                                 Now on p. 59.

                        Page 86 GAO-05-234 Defense Trade

                                 Now on p. 61.

                                 Now on p. 63.

                        Page 87 GAO-05-234 Defense Trade

Appendix VI: GAO Contacts and Staff Acknowledgments

GAO Contacts DEGKatherine V. Schinasi (202) 512-4841 Anne-Marie Lasowski
(202) 512-4146

Acknowledgments DEGIn addition to those named above, Johana R. Ayers; E.
Brandon Booth; Richard K. Geiger; Arthur James, Jr.; Masha
Pastuhov-Pastein; and Lisa Simon made key contributions to this report.

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Implementation of Anti-Tamper Protection. GAO-04-302. Washington,
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Efficiency of State Department License Reviews. GAO-02-203.
Washington, D.C.: December 31, 2001.

Export Controls: Clarification of Jurisdiction for Missile Technology
Items Needed. GAO-02-120. Washington, D.C.: October 9, 2001.

Export Controls: State and Commerce Department License Review Times
are Similar. GAO-01-528. Washington, D.C.: June 1, 2001.

Defense Trade: Analysis of Support for Recent Initiatives.
GAO/NSIAD-00-191. Washington, D.C.: August 31, 2000.

Defense Trade: Status of the Department of Defense's Initiatives on
Defense Cooperation. GAO/NSIAD-00-190R. Washington, D.C.:
July 19, 2000.

Export Controls: License Screening and Compliance Procedures Need
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