Export Controls: Improvements to Commerce's Dual-Use System
Needed to Ensure Protection of U.S. Interests in the Post-9/11
Environment (26-JUN-06, GAO-06-638).
In regulating exports of dual-use items, which have both
commercial and military applications, the Department of
Commerce's Bureau of Industry and Security (BIS) seeks to allow
U.S. companies to compete globally while minimizing the risk of
items falling into the wrong hands. In so doing, BIS faces the
challenge of weighing U.S. national security and economic
interests, which at times can be divergent or even competing. In
light of the September 2001 terror attacks, GAO was asked to
examine BIS's dual-use export control system. In response, GAO is
reporting on BIS's (1) evaluations of and changes to the system,
(2) screening of export license applications against its
watchlist, and (3) actions to correct weaknesses previously
identified by GAO.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-638
ACCNO: A55943
TITLE: Export Controls: Improvements to Commerce's Dual-Use
System Needed to Ensure Protection of U.S. Interests in the
Post-9/11 Environment
DATE: 06/26/2006
SUBJECT: Dual-use technologies
Export regulation
Licenses
Systems evaluation
Technology transfer
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GAO-06-638
* Results in Brief
* Background
* BIS Has Not Systematically Evaluated the Dual-Use Export Con
* BIS's Assessment of the Dual-Use Export Control System Has B
* Omissions and Weaknesses Undermine BIS's Screening of Applic
* BIS's Watchlist Is Incomplete
* BIS's Process Does Not Ensure That All Parties Are Screened
* BIS Has Not Corrected Some Weaknesses Identified In Prior GA
* Conclusions
* Recommendations for Executive Action
* Agency Comments and Our Evaluation
* Scope and Methodology
* GAO Comments
* GAO Contacts
* Staff Acknowledgments
* GAO's Mission
* Obtaining Copies of GAO Reports and Testimony
* Order by Mail or Phone
* To Report Fraud, Waste, and Abuse in Federal Programs
* Congressional Relations
* Public Affairs
Report to the Chairman, Committee on International Relations, House of
Representatives
United States Government Accountability Office
GAO
June 2006
EXPORT CONTROLS
Improvements to Commerce's Dual-Use System Needed to Ensure Protection of
U.S. Interests in the Post-9/11 Environment
GAO-06-638
Contents
Letter 1
Results in Brief 3
Background 4
BIS Has Not Systematically Evaluated the Dual-Use Export Control System to
Ensure Its Effectiveness and Efficiency 8
Omissions and Weaknesses Undermine BIS's Screening of Applications against
the Watchlist 12
BIS Has Not Corrected Some Weaknesses Identified In Prior GAO Reports 15
Conclusions 16
Recommendations for Executive Action 17
Agency Comments and Our Evaluation 18
Scope and Methodology 20
Appendix I Trends in Dual-Use Export Licensing 23
Appendix II Prior GAO Reports on the Dual-Use Export Control System and
the Status of Recommendations (Fiscal Years 2001-2004) 31
Appendix III Comments from the Department of Commerce 41
GAO Comments 67
Appendix IV GAO Contact and Staff Acknowledgments 73
Related GAO Products 74
Tables
Table 1: Changes in Top Five Countries of Destination for Approved and
Rejected License Applications, Fiscal Years 1998 and 2005 27
Figures
Figure 1: Overview of BIS's Export Licensing Process and Time Frames 6
Figure 2: Total Number of Dual-Use License Applications Processed, Fiscal
Years 1998 to 2005 23
Figure 3: Percent of Applications Referred to Other Agencies, Fiscal Years
1998 to 2001 and 2002 to 2005 24
Figure 4: Percent of Applications Approved, Returned without Action, and
Rejected, Fiscal Years 1998 to 2001 and 2002 to 2005 25
Figure 5: Median Processing Times for License Applications, Fiscal Years
1998 to 2005 26
Figure 6: Median Processing Times for Referred and Nonreferred License
Applications, Fiscal Years 1998 to 2005 28
Figure 7: Number of Commodity Classifications Processed by BIS, Fiscal
Years 1998 to 2005 29
Figure 8: Median Processing Times for Commodity Classifications, Fiscal
Years 1998 to 2005 30
Abbreviations
BIS Bureau of Industry and Security CIA Central Intelligence Agency EAA
Export Administration Act EAR Export Administration Regulations MTCR
Missile Technology Control Regime OMB Office of Management and Budget PSV
Postshipment Verification UAV Unmanned Aerial Vehicle
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separately.
United States Government Accountability Office
Washington, DC 20548
June 26, 2006
The Honorable Henry J. Hyde Chairman Committee on International Relations
House of Representatives
Dear Mr. Chairman:
Each year companies in the United States export billions of dollars worth
of dual-use items that have both commercial and military applications. For
example, dual-use materials can be incorporated into golf clubs but can
also help missiles evade radar detection. The Department of Commerce's
Bureau of Industry and Security (BIS) is responsible for regulating the
export of thousands of dual-use items. In so doing, BIS faces the
challenge of weighing U.S. national security, foreign policy, and economic
interests, which at times are divergent or even competing, to achieve an
appropriate balance that allows U.S. companies to compete globally while
minimizing the risk that exported items could be used against U.S.
interests. This challenge has been heightened by shifts in the security
and economic environment since the late 1970s, when the current statutory
framework for dual-use export controls was put in place. Perhaps most
notably, in the aftermath of the September 2001 terror attacks, the
threats facing the United States have been redefined. Also, over the
decades, trade in rapidly advancing technologies has increased as the
economy has become more globalized.
BIS administers the dual-use export control system through the
requirements contained in the Export Administration Regulations (EAR).1
Under these regulations, exporters are to either obtain prior government
authorization in the form of a license from BIS or determine that a
license is not needed before exporting dual-use items.2 Multiple factors
govern whether an exporter needs a license, including the item to be
exported and the country of ultimate destination. Within the dual-use
export control system, BIS heads an interagency process for reviewing
export license applications. The decision to approve an application is
based, in part, on how the exported item is to be used and who plans to
use it. During the license application review process, BIS screens
applications against its own watchlist of individuals and companies to
identify applications involving parties that are either ineligible or
warrant additional scrutiny to minimize the risk of dual-use items being
used against U.S. interests.
115 C.F.R. S:S: 730-774.
2BIS controls exports of dual-use commodities, software, and technology,
which are collectively referred to as "items" in this report.
In light of the September 2001 terror attacks, you requested that we
examine BIS's dual-use export control system and whether BIS has made
changes to the system. In response, we (1) assessed whether BIS has
evaluated the dual-use export control system and made changes to the
system, (2) evaluated BIS's screening of export license applications
against its watchlist, and (3) determined the extent to which BIS has
taken corrective actions in response to weaknesses previously identified
by GAO.
In assessing BIS's evaluations of the system's effectiveness and
efficiency, we compared BIS's annual reports, performance plans, and
budget submissions with performance management and internal control
standards.3 Through discussions with BIS officials and reviews of
regulatory notices, we identified evaluations conducted by BIS and
resulting changes to the system after the events of September 2001. We
also analyzed data on export license applications, which we determined to
be sufficiently reliable for our purposes. To evaluate BIS's watchlist
screening process, we compared BIS's watchlist with government documents
to assess the list's completeness, reviewed BIS's internal guidance for
adding parties to the watchlist and screening applications, and discussed
with BIS officials reasons parties were not included on the list and BIS's
screening process. To determine what actions BIS has taken during the last
5 years in response to previously identified weaknesses, we reviewed
regulatory changes and information provided by BIS and other agency
officials. We performed our review from July 2005 through May 2006 in
accordance with generally accepted government auditing standards.
3For additional information regarding GAO's work on improving government
performance, see GAO, Executive Guide: Effectively Implementing the
Government Performance and Results Act , GAO/GGD-96-118 (Washington,
D.C.:, June 1996); GAO, Managing for Results: Enhancing Agency Use of
Performance Information for Management Decision Making, GAO-05-927
(Washington, D.C.: Sept. 9, 2005); and GAO, Standards for Internal Control
in the Federal Government, GAO/AIMD-00-21 .3.1 (Washington, D.C.: November
1999).
Results in Brief
BIS has not systematically evaluated the dual-use export control system to
determine whether it is achieving its goal of protecting U.S. national
security and economic interests. In managing the dual-use export control
system, BIS has not comprehensively analyzed available data to determine
what dual-use items have actually been exported. Further, BIS has not
established performance measures to assess how effectively the system is
achieving its goal, as called for under government performance management
standards. Instead it relies on limited measures of efficiency to
determine whether its goal is being achieved. Specifically, BIS measures
the timeliness of the initial steps in the license application review
process and has reported meeting its licensing time frames. However, BIS
does not measure the efficiency of other aspects of the system, such as
commodity classifications4 that represent a significant part of its
workload. Absent systematic evaluations, BIS relies on intelligence
reports and anecdotal information to gauge how the system is operating.
After the events of September 2001, senior BIS officials told us they
conducted an ad hoc review of the system and determined that no
fundamental changes were needed. The officials, however, identified the
review as the impetus for some regulatory adjustments, such as increased
restrictions on exports related to chemical and biological agents. We were
unable to assess the sufficiency of the review or resulting changes
because BIS did not document how it conducted the review or reached its
conclusions.
The effectiveness of BIS's watchlist screening process is questionable.
BIS has not ensured that certain parties of concern appear on its list of
approximately 50,000 names and that all parties on license applications
are screened. We found that the BIS watchlist does not include 147 parties
that have committed export control violations or are known terrorists,
which are reasons cited by BIS for adding parties to its watchlist. Of
these, five are barred by BIS from exporting dual-use items. These
omissions in the watchlist are attributable to a lack of specific criteria
as to who should be on the watchlist and BIS's lack of regular reviews to
determine whether parties are missing from the list. Further, a technical
limitation in BIS's computer system results in some parties on license
applications not being screened against the watchlist. We identified at
least 1,187 license applications with parties that would not have been
automatically screened against the watchlist over the last 8 years. Though
aware of the screening limitation, BIS officials have not conducted their
own analyses to determine the extent of the problem.
4If an exporter has determined that the item it wishes to export is
Commerce-controlled, but is uncertain of export licensing requirements,
the exporter can request a commodity classification determination from
BIS. For additional information on the commodity classification process,
see GAO, Export Controls: Processes for Determining Proper Control of
Defense-Related Items Need Improvement, GAO-02-996 (Washington, D.C.:
Sept. 20, 2002).
While BIS has implemented several GAO recommendations made over the last 5
years, it has not implemented others. BIS has not addressed
recommendations related to ensuring that export controls on sensitive
items protect U.S. interests and are consistent with U.S. law. For
example, BIS has not taken recommended steps to ensure that items are
properly classified to guard against the improper export of
defense-related items.
We are making four recommendations to the Secretary of Commerce to use
available data and develop performance measures in consultation with other
agencies to systematically evaluate the effectiveness and efficiency of
the dual-use export control system in achieving the goal of protecting
U.S. interests. We are making three additional recommendations to the
Secretary of Commerce to correct omissions in the watchlist and weaknesses
in the screening process. We are also recommending that the Secretary of
Commerce take action to address our prior unimplemented recommendations.
In commenting on a draft of this report, the Commerce Department did not
address our recommendations and disagreed with the report's findings and
characterizations of the dual-use export control system. The Departments
of Defense, Energy, and State had no comments on the draft report. After
considering the Commerce Department's comments, we stand by our findings
and recommendations.
Background
In regulating dual-use exports, the Commerce Department's BIS faces the
challenge of weighing various U.S. interests, which can be divergent or
even competing, so U.S. companies can compete globally while minimizing
the risk of controlled dual-use items falling into the wrong hands. Under
the authority granted in the Export Administration Act (EAA),5 BIS
administers the EAR that require exporters to either obtain a license from
BIS or determine government authorization is not needed before exporting
controlled items. Even when a license is not required, exporters are
required to adhere to the provisions of the EAR when exporting controlled
dual-use items. Whether an export license is required depends on multiple
factors including the
550 U.S.C. App. S:S: 2401-2420. The EAA is not permanent legislation.
Authority granted under the act lapsed in August 2001. However, Executive
Order 13222, Continuation of Export Control Regulations, which was issued
in August 2001 under the authority provided by the International Emergency
Economic Powers Act (50 U.S.C. S: 1702), continues the controls
established under the act and the implementing EAR.
o item being exported,
o country of ultimate destination,
o individual parties involved in the export,
o parties' involvement in proliferation activities, and
o planned end use of the item.
Dual-use items specified in the EAR's Commerce Control List are controlled
for a variety of reasons, including restricting exports that could
significantly enhance a country's military potential, preventing exports
to countries that sponsor terrorism, and limiting the proliferation of
chemical, biological, and nuclear weapons and their delivery systems. The
U.S. government controls many of these items under its commitments to
multilateral export control regimes, which are voluntary agreements among
supplier countries that seek to restrict trade in sensitive technologies
to peaceful purposes.6
For those exports requiring a license, Executive Order 129817 governs the
dual-use license application review process and establishes time frames
for each step in the review process (see fig. 1).
6The four principal export control regimes are the Australia Group, which
focuses on trade in chemical and biological items; the Missile Technology
Control Regime; the Nuclear Suppliers Group; and the Wassenaar
Arrangement, which focuses on trade in conventional weapons and related
dual-use items. The United States is a member of all four regimes. For
additional information on the multilateral regimes, see GAO,
Nonproliferation: Strategy Needed to Strengthen Multilateral Export
Control Regimes, GAO-03-43 (Washington, D.C.: Oct. 25, 2002).
7Exec. Order No. 12,981, 15 C.F.R. S: 750.4.
Figure 1: Overview of BIS's Export Licensing Process and Time Frames
Note: Under the executive order, the entire license application review
process-including escalation-is to be completed within 90 days, unless an
agency appeals the decision to the President who is not given a time
limit. However, few applications are escalated through the interagency
dispute resolution process. For example, in fiscal year 2005, of the
almost 17,000 applications processed by BIS, only 143 were escalated and
none reached the President for final resolution.
One of the first steps in the license application review process is the
screening of parties on the application, such as the planned exporter or
end user, against BIS's internal watchlist to identify ineligible parties
or parties that warrant closer scrutiny. Neither the EAA nor the EAR
provide specific criteria as to which parties are to be included on the
watchlist. However, under the EAR, BIS may deny export privileges to
persons convicted of export violations, and the watchlist serves as a
mechanism for identifying parties that have been denied exporting
privileges. This screening process can also serve as a tool for
identifying proposed end users sanctioned for terrorist activities and,
therefore, ineligible to receive certain dual-use items. BIS has the
discretion to add other parties to the watchlist. A match between the
watchlist and a party on an application does not necessarily mean that the
application will be denied, but it can trigger additional scrutiny by BIS
officials, including BIS enforcement officials, during the license
application review process.
While BIS is responsible for administering the dual-use export control
system and licensing dual-use exports, other federal agencies play active
roles. As provided for under Executive Order 12981, the Departments of
Defense, Energy, and State have the authority to review any export license
applications submitted to BIS.8 These departments specify through
delegations of authority to BIS the categories of applications that they
want to review based, for example, on the item to be exported. License
applications can also be referred to the Central Intelligence Agency (CIA)
for review. After reviewing an application, the agencies are to provide
the BIS licensing officer with a recommendation to approve or deny the
application.9 In addition to reviewing license applications, the Defense,
Energy, and State Departments are also involved in the regulatory process.
Before changes are made to the EAR and the Commerce Control List, such as
the addition of an item to the list, proposals are reviewed through an
interagency review process. BIS is responsible for issuing the regulatory
changes related to dual-use exports.
For fiscal year 2005, BIS had a budget of $67.5 million, of which $33.9
million was for the administration of the export control system.10 Of the
414 positions at BIS in fiscal year 2005, 48 were licensing officers.
These officers are responsible for developing the Commerce Department
position as to whether an application should be approved and responding to
exporter requests for commodity classifications as well as performing
other duties related to administering the dual-use export control system.
8Executive Order 12981 also provides that BIS may refer applications to
other departments or agencies as appropriate. For example, license
applications involving encryption technology are referred to the
Department of Justice.
9If agencies do not provide their recommendations within 30 days after the
application is referred by BIS to them, it is deemed that they concur with
BIS's recommendation. While the CIA reviews applications, it does not
provide recommendations on whether they should be approved or denied.
10In addition to administering the dual-use export control system, BIS is
responsible for enforcing dual-use export control regulations and law,
along with the Departments of Homeland Security and Justice. BIS is also
responsible for 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.
BIS Has Not Systematically Evaluated the Dual-Use Export Control System to
Ensure Its Effectiveness and Efficiency
BIS has not systematically evaluated the overall effectiveness and
efficiency of the system to determine whether its stated goal of
protecting U.S. national security and economic interests is being
achieved. Specifically, it has not comprehensively analyzed key data on
actual dual-use exports, including unlicensed exports that represent the
majority of exports subject to its controls. Further, contrary to what is
called for under government management standards, BIS has not established
performance measures to assess how effectively the system is protecting
U.S. interests in the existing security and economic environment. While
BIS has established some measures related to the system's efficiency,
those measures focus on narrow aspects of the licensing process. BIS
officials also rely on intelligence reports and meetings with industry
officials to provide insight into how the system is operating. After the
events of September 2001, BIS conducted an ad hoc review of the system to
determine if changes were needed. According to BIS officials, no
fundamental changes to the system were needed, but they cited the review
as the basis for some adjustments-primarily related to controls on
chemical and biological agents. However, because BIS did not document its
review, we could not assess the sufficiency of the review and the
resulting changes.
BIS's Assessment of the Dual-Use Export Control System Has Been Limited
In managing the dual-use export control system, BIS has not conducted
comprehensive analyses of available data on items under its control that
have been exported. 11 According to BIS officials, they recently began
conducting limited analyses of export data to evaluate the potential
effects of proposed regulatory changes on U.S. industry. While BIS is
cognizant of dual-use exports authorized through the license application
review process, it has not analyzed export data to determine the extent to
which approved licenses resulted in actual exports. BIS also does not
routinely analyze data on the items and destinations for unlicensed
exports, which represent the majority of exports subject to BIS's
controls.
BIS has not established measures to assess whether it is effectively
achieving its goal of protecting national security and economic interests.
Under the performance management framework established by the Government
Performance and Results Act of 1993,12 federal agencies are to develop
objective performance measures for assessing how well they are achieving
their goals over time. These measures should focus on an agency's outcomes
as opposed to its processes. BIS's lack of effectiveness measures was
noted in a 2005 review by the Office of Management and Budget (OMB). In
response to OMB's review, BIS indicated plans for developing measures to
assess the system's effects on national security and economic interests in
consultation with the other agencies involved in the export control
system. BIS officials informed us that their attempt to devise
effectiveness measures did not succeed due to a lack of cooperation and
that they opted not to independently pursue the development of
effectiveness measures.
11Data on actual licensed and unlicensed dual-use exports are maintained
by the Commerce Department's Bureau of the Census. The Census Bureau
collects data on U.S. foreign trade under the authority provided in 13
U.S.C. S:S: 301-307.
Without measures of effectiveness to assess it performance, BIS relies on
measures related to the efficiency of the dual-use export control system.
These efficiency-related measures generally focus on the first steps in
the license application review process-how long it takes to review a
license application internally and refer an application to another
agency.13 Over the last 3 fiscal years, BIS has reported meeting its
licensing-related time frames. However, BIS does not have
efficiency-related measures for other steps in the license application
review process, such as how quickly a license should be issued or denied
once other agencies provide their input, or for the review process as a
whole. BIS also does not evaluate the efficiency of other aspects of the
system. Most notably, it does not measure whether it is meeting the
regulatory time frame for the processing of commodity classification
requests, of which there were 5,370 in fiscal year 2005 or about 24
percent of licensing officers' workload (see app. I for additional
information on BIS's processing times).14
BIS officials acknowledged that they have not systematically evaluated the
dual-use export control system. Instead, BIS officials informed us that
they regularly review intelligence reports and meet with industry
officials to gauge how well the system is working. A senior BIS official
stated there are no anecdotal indications that the system is not
effective. The official added that "it stands to reason" that BIS's
controls have limited various parties' access to U.S. dual-use
technologies but that it is difficult to determine how controls are
affecting U.S. industry. Also, as evidence of how the system is operating,
BIS officials referred us to BIS's annual report on its foreign
policy-based controls.15 This report summarizes various regulatory changes
from the previous year and what the newly imposed controls were intended
to achieve. However, this report does not contain an assessment of the
impact these controls have had on U.S. interests. To address its lack of
evaluations, BIS officials informed us that they are in the process of
establishing an Office of Technology Evaluation. BIS is hiring analysts to
evaluate topics including how dual-use items should be controlled and how
export controls have affected industry.
12The Government Performance and Results Act of 1993, Pub. L. No. 103-62,
107 Stat. 285, was enacted to help resolve long-standing management
problems that undermine the government's effectiveness and efficiency and
provide greater accountability for results.
13BIS's other measure of efficiency addresses the amount of time BIS takes
to issue draft regulations.
14Per 15 C.F.R. S: 750.2, BIS is to complete commodity classifications
within 14 calendar days.
Absent systematic evaluations, BIS conducted an ad hoc review after the
September 2001 attacks to determine what changes, if any, needed to be
made to the system in light of the new security environment. However,
according to BIS officials, they did not produce a report or other
documentation regarding their review. Therefore, we could not assess the
validity or sufficiency of BIS's review and the resulting changes. BIS
officials told us they determined that, other than some adjustments to its
controls, no fundamental changes to the system were needed because they
already had controls and procedures in place to deny terrorists access to
dual-use technologies. Of the hundreds of regulatory changes made since
September 2001, BIS officials identified the following specific changes as
stemming from their ad hoc review
o establishing a worldwide licensing requirement for exports of
biological agents;
o changing the licensing requirement for biological agent
fermenters from fermenters larger than 100 liters to those larger
than 20 liters;
o controlling components that can be used in the manufacture of
chemical agents;
o including additional precursors for the development of chemical
agents on the Commerce Control List;
o revising licensing requirements to further restrict U.S.
persons from designing, developing, producing, stockpiling, or
using chemical or biological weapons;
o requiring licenses for exports of equipment related to the
production of chemical or biological agents to countries that are
not members of the Australia Group;16
o imposing controls on exports of unmanned aerial vehicles
capable of dispersing more than 20 liters of chemical or
biological agents; and
o adding amorphous silicon plane arrays, which can be used in
night vision or thermal imaging equipment, to the Commerce Control
List.
15BIS controls some dual-use items to further U.S. foreign policy or
fulfill its international obligations. Items controlled for foreign policy
reasons include crime control and detection equipment, missile technology,
and chemical and biological agents and related equipment. Exports to
designated terrorist states and embargoed countries are also controlled
for foreign policy reasons. Pursuant to the International Emergency
Economic Powers Act (50 U.S.C. S:S: 1701-1706), the President has
authorized the system of controls established under the EAA, including
export controls maintained for foreign policy purposes that require annual
extensions made through reports to Congress.
According to BIS officials, their review did not result in changes to the
license application review process after the events of September 2001.
However, decisions by other agencies-namely the Energy Department and the
CIA-have resulted in BIS referring more license applications to them.
Specifically, in response to Energy's request, BIS began referring
applications related to missile technologies and chemical or biological
agents, in addition to the nuclear-related applications Energy was already
reviewing. Similarly, based on discussions between BIS and the CIA, the
decision was made to refer more applications to the CIA for review to
determine whether foreign parties of concern may be involved in the
proposed export (see app. I for information on BIS referral rates).
Additionally, in response to the changing security environment after
September 2001, BIS reprioritized its enforcement activities.17
Specifically, BIS enforcement officials are to give highest priority to
dual-use export control violations involving the proliferation of weapons
of mass destruction, terrorist organizations, and exports for unauthorized
military or government uses. Further, senior BIS officials noted that they
have made regulatory changes to reflect the dynamic geopolitical
environment, such as changing licensing requirements for exports to India,
Iraq, Libya, and Syria.
16There are currently 40 members of the Australia Group.
17GAO is currently conducting a separate review of export control
enforcement efforts.
Omissions and Weaknesses Undermine BIS's Screening of Applications against the
Watchlist
BIS's watchlist is intended to facilitate the identification of license
applications involving individuals and companies representing an export
control concern. However, BIS's watchlist is incomplete, as numerous
export control violators and terrorists are not included on the list.
Further, BIS's process for screening applications does not ensure that all
parties on all applications are screened against the watchlist. As a
result, the watchlist's utility in the license application review process
is undermined, which increases the risk of dual-use items falling into the
wrong hands.
BIS's Watchlist Is Incomplete
BIS's watchlist does not include certain companies, organizations, and
individuals that are known entities of export control concern and,
therefore, warrant inclusion on the watchlist. Based on our comparison of
the watchlist to publicly available U.S. government documents, including
ones available through BIS's Web site, we identified 147 parties that had
either violated U.S. export control requirements, been determined to be
suspicious end users, or committed acts of terror but were not on BIS's
watchlist. BIS officials confirmed that, at the time of our review, the
parties we identified were not on BIS's watchlist. Specifically, we
identified
o 5 export control violators that have been denied dual-use
export privileges by BIS;
o 60 companies and individuals that had committed export control
violations and were, therefore, barred by the State Department
from being involved in the export of defense items;
o 52 additional companies and individuals that have been
investigated, charged, and, in most cases, convicted of export
control violations;
o 2 overseas companies whose legitimacy as end users could not be
established by BIS; and
o 28 organizations identified by the State Department as
committing acts of terror.
The above individuals and companies we identified as not being on the BIS
watchlist include those that have exported or attempted to export weapons
to terrorist organizations, night vision technologies to embargoed
countries, and materials that can be used in biological and missile
programs. The terrorist organizations include one that has staged attacks
against U.S. and coalition forces in Afghanistan and another that has
attacked and abducted large numbers of civilians, including children.
BIS's standard for including a party on its watchlist is that the party
represents an export control concern. BIS does not have an official
definition or explanation as to what constitutes an export control
concern. As a result, the decision as to whether a party should be added
to the watchlist is left to the judgment of the BIS personnel responsible
for maintaining the watchlist. The only specific guidance BIS provides is
that parties under investigation by BIS enforcement officials must be
added to the watchlist. BIS officials told us that the reasons a company,
organization, or individual should be added to the watchlist include
previous violations of U.S. export control regulations, inability to
determine a party's legitimacy, possible support of international
terrorism, and possible involvement with missile programs of concern. The
147 parties we identified fall within these categories. In addition, BIS
officials do not regularly review the watchlist to ensure its
completeness. BIS officials said they do not conduct periodic checks as to
whether particular parties have been added to the list. They also do not
compare the BIS watchlist to other federal agencies' lists or databases
used for similar purposes to determine whether the BIS watchlist is
missing pertinent parties.
BIS officials offered several explanations for why the 147 parties were
not on the watchlist. First, they acknowledged it was an oversight on
their part not to include several of the parties on the watchlist. For
example, at least two parties were not added to the watchlist because the
BIS personnel involved thought they had been added by someone else.
Second, for some of the parties, BIS did not receive information from
another agency about export control-related investigations. However, these
parties could have been identified through publicly available reports.
Third, BIS relies on limited sources to identify parties involved in
terrorist activities. The officials explained that their primary source
for identifying terrorist organizations is the Treasury Department's
public listing of designated terrorists.18 While Treasury maintains a list
of terrorists, its list is not exhaustive and therefore, does not include
all known terrorist organizations. Finally, BIS officials noted that many
of the parties we identified were individuals and that they do not
typically add individuals to the watchlist because applications generally
contain names of companies. However, we found numerous individuals
included on the watchlist and individuals can and do appear on license
applications.
18The Treasury Department maintains a list of individuals and companies
owned or controlled by, or acting for or on behalf of, targeted countries,
such as Cuba and North Korea. It also lists individuals, groups, and
entities, such as terrorists and narcotics traffickers designated under
programs that are not country-specific. Collectively, such individuals and
companies are called "Specially Designated Nationals," whose assets are
blocked and U.S. persons are generally prohibited from dealing with them.
BIS's Process Does Not Ensure That All Parties Are Screened against the
Watchlist
BIS's process for screening applications does not ensure that all parties
are screened against the watchlist. To screen parties on applications
against the watchlist, BIS relies on a computerized process. The computer
system recognizes parties that are identified in one of five specified
fields and automatically screens the parties identified in those fields
against the watchlist. If there are multiple parties, BIS's regulations
direct the applicant to list the additional parties in the "Additional
Information" field. However, the computer system does not recognize the
parties listed in that field, which means the parties are not
automatically screened against the watchlist. While BIS officials told us
that they may identify applications involving multiple parties and
manually screen them against the watchlist, they do not have a systematic
means of identifying applications involving parties listed in the
"Additional Information" field. As a result, BIS cannot ensure that all
parties on all applications have been screened. Based on our review of
licensing data for the past 8 years, we identified at least 1,187
applications involving multiple parties that would not have been
automatically screened. BIS officials informed us that they are aware of
this limitation, but have not conducted reviews to determine the number of
applications affected.
According to BIS officials, since most applications are reviewed by other
agencies, the risk of not screening all parties is lessened. However, a
senior BIS official acknowledged that by not screening all applications
against the BIS watchlist, applications involving parties that are the
subject of BIS enforcement investigations would not be identified as that
information only resides on the BIS watchlist. Defense and State
officials, to whom most license applications are referred, stated that
they do not maintain watchlists for the screening of dual-use export
license applications and expect BIS to have already screened all parties
before referring applications to them. BIS officials informed us of their
plans to develop a new computerized screening system to ensure that all
parties on applications are screened against the watchlist. However, the
new system will not be operational for several years.
BIS Has Not Corrected Some Weaknesses Identified In Prior GAO Reports
In the years since the September 2001 terror attacks, GAO has issued a
number of reports identifying weaknesses in the dual-use export control
system. The weaknesses identified in many of the prior reports relate to
ensuring that export controls on sensitive items protect U.S. interests
and are consistent with U.S. law. Some of our recommendations to correct
those weaknesses remain unimplemented (see app. II for more detailed
information on these reports and the status of recommendations).
Among the weaknesses identified in prior GAO reports is the lack of
clarity as to which items are controlled and whether they are controlled
by the Commerce Department or the State Department. A lack of clarity as
to whether an item is Commerce-controlled or State-controlled19 increases
the risk that defense-related items will be improperly exported and U.S.
interests will be harmed as a result. In most cases, State's controls over
arms exports are more restrictive than Commerce's controls over dual-use
items. 20 For example, a State-issued license is generally required for
arms exports, whereas many dual-use items do not require licenses for
export to most destinations. Further, most arms exports to China are
prohibited, while dual-use items may be exported to China.
In 2002, we reported that BIS had improperly informed exporters through
the commodity classification process that their items were subject to
Commerce's export control requirements, when in fact the items were
subject to State's requirements.21 BIS made improper determinations
because it rarely obtained input from the Departments of State or Defense
during the commodity classification process on which department had
jurisdiction over the items in question. We recommended that the Commerce
Department, together with the Departments of State and Defense, develop
agreed-upon criteria for determining which classification requests should
be referred to the other departments, which would minimize the risk of
improper determinations. However, BIS has not implemented our
recommendation and continues to refer only a few commodity classifications
to the Departments of State and Defense. In fiscal year 2005, BIS
processed 5,370 commodity classification requests and referred only 10 to
State and Defense. Additionally, in 2001, we reported that export control
jurisdiction between the Departments of State and Commerce had not been
clearly established for almost 25 percent of the items the U.S. government
has agreed to control as part of its commitments to the multilateral
Missile Technology Control Regime.22 The two departments have yet to take
action to clarify which department has jurisdiction over these sensitive
missile technology items. As a result, the U.S. government has left the
determination of jurisdiction to the exporter, who by default can then
determine which national policy interests are to be considered and acted
upon when defense-related items are exported.
19The State Department regulates arms exports under the authority of the
Arms Export Control Act (22 U.S.C. S:S: 2751-2799aa-2).
20For additional information on the arms export control system, including
processing times for arms export license applications, see GAO, Defense
Trade: Arms Export Control Vulnerabilities and Inefficiencies in the
Post-9/11 Security Environment, GAO-05-468R (Washington, D.C.: Apr. 7,
2005) and GAO, Defense Trade: Arms Export Control System in the Post-9/11
Environment, GAO-05-234 (Washington, D.C., Feb. 16, 2005).
21GAO, Export Controls: Processes for Determining Proper Control of
Defense-Related Items Need Improvement, GAO-02-996 (Washington, D.C.:
Sept. 20, 2002)
BIS has taken actions to address other weaknesses identified in GAO
reports. For example, in response to a 2004 GAO report, BIS expanded its
licensing requirements for the export of missile technology items to
address missile proliferation by nonstate actors.23 Similarly, BIS
implemented GAO's recommendation to require exporters to inform end users
in writing of any conditions placed on licenses to help ensure that the
end users abide by those restrictions.24
Conclusions
Exports of dual-use items are important to a strong U.S. economy, but in
the wrong hands, they could pose a threat to U.S. security and foreign
policy interests. However, BIS has not demonstrated whether the dual-use
export control system is achieving its goal of protecting national
security and economic interests in the post-September 2001 environment.
Without systematic evaluations, BIS cannot readily identify weaknesses in
the system and implement corrective measures that allow U.S. companies to
compete in the global marketplace while minimizing the risk to other U.S.
interests. Further, the absence of known parties of concern on the BIS
watchlist and limitations in the screening process create vulnerabilities
and are illustrative of what can happen when there is not an emphasis on
evaluating how well a system is operating and taking corrective action to
address known deficiencies. Also, the weaknesses and associated risks
identified in prior GAO reports will persist until the remaining
recommendations are implemented. Until corrective actions are taken, the
United States will continue to rely on BIS's management of the dual-use
export control system with known vulnerabilities and little assurance that
U.S. interests are being protected.
22GAO, Export Controls: Clarification of Jurisdiction for Missile
Technology Items Needed, GAO-02-120 (Washington, D.C.: Oct. 9, 2001).
23GAO, Nonproliferation: Improvements Needed to Better Control Technology
Exports for Cruise Missiles and Unmanned Aerial Vehicles, GAO-04-175
(Washington, D.C.: Jan. 23, 2004).
24GAO, Export Controls: Post-Shipment Verification Provides Limited
Assurance That Dual-Use Items Are Being Properly Used, GAO-04-357
(Washington, D.C.: Jan. 12, 2004).
Recommendations for Executive Action
To ensure that the dual-use export control system is effective as well as
efficient in protecting U.S. interests, we recommend that the Secretary of
Commerce direct the Under Secretary for Industry and Security to take the
following four actions
o identify and obtain data needed to evaluate the system;
o review existing measures of efficiency to determine their
appropriateness and develop measures that address commodity
classifications;
o develop, in consultation with other agencies that participate
in the system, measures of effectiveness that provide an objective
basis for assessing whether progress is being made in achieving
the goal of protecting U.S. interests; and
o implement a plan for conducting regular assessments of the
dual-use export control system to identify weaknesses in the
system and corrective actions.
To ensure that BIS has a process that effectively identifies parties of
concern during the export license application review process, we recommend
that the Secretary of Commerce direct the Under Secretary for Industry and
Security to take the following three actions
o develop criteria for determining which parties should be on the
watchlist;
o implement regular reviews of the watchlist to help ensure its
completeness; and
o establish interim measures for screening all parties until the
planned upgrade of the computerized screening system eliminates
current technical limitations.
To mitigate the risks identified in prior GAO reports related to the
dual-use export control system, we recommend that the Secretary of
Commerce direct the Under Secretary for Industry and Security to report to
Congress on the status of GAO recommendations, the reasons why
recommendations have not been implemented, and what other actions, if any,
are being taken to address the identified weaknesses.
Agency Comments and Our Evaluation
We provided a draft of this report to the Departments of Commerce,
Defense, and State. In its comments on the draft, the Commerce Department
did not respond to any of our recommendations and disagreed with our
findings and characterizations of the U.S. dual-use export control system
following the September 2001 terror attacks. The Departments of Defense
and State had no comments on the draft report. The Energy Department
declined the opportunity to review and comment on the draft report.
In introducing its overall comments, the Commerce Department raises
concerns regarding the report's scope. Commerce states that we expanded
the initial scope of our audit from narrowly looking at BIS's response to
the September 2001 terror attacks to the three issues we address in our
report. In fact, the scope of our audit has remained the same. To examine
BIS's dual-use export control system and whether changes to the system
were made, we focused on three specific issues related to how well the
system is operating in the post-September 2001 environment. Based on our
examination of these issues, we concluded that there are vulnerabilities
in the dual-use export control system and that BIS can provide few
assurances that the system is protecting U.S. interests in the current
environment. After considering the Commerce Department's extensive
comments, our report's findings, conclusions, and resulting
recommendations remain unchanged.
In commenting on our findings, the Commerce Department states that our
report presumes BIS must develop a national security strategy to
administer the dual-use export control system. Our report does not presume
this as our recommendations address the need for BIS to develop
performance measures and conduct systematic evaluations for determining
the extent to which the system is meeting its stated goal of protecting
both national security and economic interests. The Commerce Department
further states that BIS represents the "gold standard" for its rigorous
process of defining priorities, implementing plans, and measuring success.
To support this statement, Commerce lists several actions that BIS has
taken since September 2001 and cites BIS's "Game Plan" as identifying
BIS's priorities and providing a basis for measuring BIS's performance.
However, BIS has not evaluated what effects these actions have had on U.S.
interests. Also, the "Game Plan" provided to us at the end of our review
did not contain performance measures for assessing how dual-use export
controls affect national security or economic interests. Further, OMB
determined in its 2005 Program Assessment Rating Tool that BIS lacked
measures related to its fundamental purpose. Absent performance measures
and systematic evaluations, it is unclear what the basis was for the
various actions taken by BIS, what the impact of these actions has been on
national security and economic interests, whether these actions are
sufficient to protect U.S. interests in the current environment, or how
BIS represents the gold standard.
The Commerce Department also comments that our report is misleading and
does not provide sufficient context for our findings related to BIS's
watchlist. According to Commerce, the 147 parties we identified as not
being on the list should be placed in the context of the approximately
50,000 names that are on BIS's watchlist, and no licenses were issued to
the 147 parties. Commerce's comment does not address our basic point. It
was not our intent to identify every party that should be on BIS's
watchlist. Nor did we seek to determine whether licenses were issued to
parties not on the watchlist, in part, because BIS's regulations permit
the approval of license applications involving parties on the watchlist.
Instead, the point of our finding and our related recommendations is that
BIS does not have mechanisms for ensuring a robust watchlist and screening
process. To provide additional context, we adjusted the text to reflect
the number of names on the watchlist. The Commerce Department also notes
that the watchlist is only one check during the license application review
process and that there are multiple layers and agencies involved-a fact we
address in our report. According to Commerce, the built-in redundancies in
the review process minimize the possibility of a party slipping through
the cracks. We agree that having multiple layers of review can create an
effective system of checks and balances, but only if each agency is
fulfilling its responsibilities at each stage in the review. The other
agencies involved in the process clearly expect BIS to have a robust
watchlist screening process. BIS's stated reliance on others to compensate
for weaknesses in its watchlist creates gaps in the review process and,
therefore, undermines the ability of the system to effectively protect
U.S. interests. While the Commerce Department cites some measures BIS has
taken recently to refine the watchlist, these measures do not address the
weaknesses created by the lack of criteria and reviews of who should be on
the watchlist or the technical limitations that result in some parties not
being screened against the watchlist.
Regarding its implementation of GAO's prior recommendations, the Commerce
Department states that BIS has met most of the recommendations and
maintains that none of the outstanding recommendations puts BIS's mission
at risk. We disagree since BIS has not implemented recommendations that
address the most basic aspects of the export control system. Specifically,
BIS's failure to implement recommendations that would provide for clear,
transparent decisions about export control jurisdiction increases the risk
that sensitive defense-related items will be improperly exported and that
some exporters will be placed at a competitive disadvantage-undermining
BIS's goal of protecting national security and economic interests.
The Commerce Department also provided technical comments, which we
incorporated into our report as appropriate. Commerce's comments are
reprinted in appendix III, along with our supplemental responses.
Scope and Methodology
To assess BIS's evaluations of the dual-use export control system's
efficiency and effectiveness after the events of September 2001, we
compared BIS's annual reports, performance plans, and budget submissions
with performance management and internal control standards. These
standards call for federal agencies to develop results-oriented goals,
measure progress toward achieving those goals, and have procedures that
provide reasonable assurances about the agency's effectiveness and
efficiency. We also spoke with senior BIS officials to identify
evaluations they conducted of the system, particularly those conducted
after the 2001 terror attacks, and discussed how those evaluations were
conducted. To identify changes made to the system, we interviewed BIS
officials and reviewed BIS regulatory notices issued since September 2001.
Additionally, we interviewed officials from the CIA and the Departments of
Defense, Energy, and State to determine changes to the system based on
their participation in the dual-use licensing and regulatory processes. We
also examined existing data on the system. Specifically, we analyzed data
from BIS's Export Control Automated Support System on applications and
commodity classification requests closed between fiscal years 1998 and
2005. To assess data reliability, we performed electronic testing of
relevant data elements, interviewed knowledgeable agency officials, and
reviewed system documentation. We determined the data were sufficiently
reliable for the purposes of our review.
In examining the BIS watchlist, we reviewed BIS's internal guidance for
adding parties to the watchlist and discussed with BIS officials the
various sources and reasons they use to add parties to the watchlist.
Using the reasons they identified, we compared BIS's watchlist, dated
January 2006, to documents publicly available through U.S. government Web
sites to assess the list's completeness. These documents included BIS's
Denied Persons List, Unverified List, and Major Cases List;25 the State
Department's Debarred Parties List and Patterns of Global Terrorism
report;26 and the Homeland Security Department's fact sheet on arms and
strategic technologies investigations.27 We confirmed with BIS officials
that the parties we identified were not on the watchlist and discussed
reasons they were excluded. We also discussed BIS's process for screening
applications with BIS officials and reviewed BIS's internal guidance.
To determine the status of GAO's prior recommendations to correct
weaknesses in the system, we identified reports issued between fiscal
years 2001 and 2005 regarding the dual-use export control system and their
recommendations. We reviewed BIS's regulatory notices to determine whether
BIS made regulatory changes in response to GAO's recommendations. We also
followed up on the status of recommendations through interviews with
Commerce, Defense, and State officials and reviews of supporting
documentation they provided.
We requested data for fiscal years 2004 and 2005 on actual exports of
dual-use items from the Bureau of the Census. As discussed with your
staff, we requested the data in October 2005 and did not receive the data
in time for inclusion in this report after multiple attempts to obtain the
data. The delays from Census prevented us from reporting on actual
dual-use exports as planned.
As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of it until 30 days
from the date of this letter. We will then send copies of this report to
interested congressional committees as well as the Secretaries of
Commerce, Defense, Energy, and State; the Director, Central Intelligence
Agency; the Director, Office of Management and Budget; and the Assistant
to the President for National Security Affairs. In addition, this report
will be made available at no charge on the GAO Web site at
http://www.gao.gov .
25The Denied Persons List identifies parties that have been denied
exporting privileges by BIS. The Unverified List identifies parties in
foreign countries that were parties in past transactions for which a
prelicense check or a postshipment verification could not be conducted for
reasons outside the control of the U.S. government. The Major Cases List
highlights BIS enforcement activities.
26The Debarred List identifies parties that have been convicted of
violating or conspiracy to violate the Arms Export Control Act and,
therefore, denied exporting privileges by the State Department. The
Patterns on Global Terrorism report, which was last issued in 2003,
identifies terrorist organizations and groups that have committed acts of
terrorism in the United States and other countries.
27The Homeland Security Department, which enforces both arms and dual-use
export control laws, maintains a listing of its major export control
investigations.
Please contact me at (202) 512-4841 or [email protected] if you or
your staff have any questions concerning this report. Contact points for
our Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix IV.
Sincerely yours,
Ann Calvaresi-Barr Director Acquisition and Sourcing Management
Appendix I: Trends in Dual-Use Export Licensing
The number of dual-use export license applications processed by the
Department of Commerce's Bureau of Industry and Security (BIS) has
increased over the last several years. These applications were generally
for the export of items in the following categories: materials, chemicals,
microorganisms, and toxins; nuclear materials, facilities and equipment
and miscellaneous items; telecommunications and information security; and
other items subject to BIS's controls but not specified on the Commerce
Control List.28 As shown in figure 2, from fiscal years 1998 through 2005,
the number of applications processed increased by over 50 percent.
Figure 2: Total Number of Dual-Use License Applications Processed, Fiscal
Years 1998 to 2005
28The Commerce Control List is divided into 10 categories. In addition,
items subject to BIS's controls but not specified on the control list are
designated "EAR99."
Additionally, BIS has been referring a larger percentage of applications
to other agencies for their review. From fiscal year 1998 to 2005, the
total percentage of applications referred to other agencies increased from
about 85 percent to about 92 percent. As shown in figure 3, the greatest
increases were in the percent of applications referred to the Department
of Energy and the Central Intelligence Agency (CIA).
Figure 3: Percent of Applications Referred to Other Agencies, Fiscal Years
1998 to 2001 and 2002 to 2005
Note: An application can be referred to more than one agency.
After the license application review process is completed, BIS can approve
an application, return it without action, or reject it. The majority of
applications processed since fiscal year 1998 have been approved, as shown
in figure 4.
Figure 4: Percent of Applications Approved, Returned without Action, and
Rejected, Fiscal Years 1998 to 2001 and 2002 to 2005
Although the number of applications processed by BIS increased over the
last several years, the overall median processing times have remained
relatively stable and consistent with time frames established by executive
order,29 as shown in figure 5.
Figure 5: Median Processing Times for License Applications, Fiscal Years
1998 to 2005
29Exec. Order No. 12,981, 15 C.F.R. S: 750.4.
As shown in table 1, there have been changes over the years in the top
countries of destination for approved and rejected license applications.
However, applications for dual-use exports to China have consistently
represented a significant portion of BIS's licensing workload.
Table 1: Changes in Top Five Countries of Destination for Approved and
Rejected License Applications, Fiscal Years 1998 and 2005
Approved license applications Rejected license applications
Fiscal year 1998 Fiscal year 2005 Fiscal year 1998 Fiscal year 2005
Number of Number of Number of Number of
applications applications applications applications
Country approved Country approved Country rejected Country rejected
China 638 China 1,303 India 213 India 69
India 476 Japan 1,187 China 37 China 44
Russia 426 Canada 938 Israel 9 Cuba 36
Mexico 418 Taiwan 725 Pakistan 8 Syria 32
Taiwan 398 India 694 Russia 6 Pakistan 18
Source: BIS (data); GAO (analysis).
As shown in figure 6, referring applications to other agencies increases
the time it takes to process license applications. Between fiscal years
1998 and 2005, referred license applications took about 24 more days to
process than those applications that were processed solely by BIS.
Figure 6: Median Processing Times for Referred and Nonreferred License
Applications, Fiscal Years 1998 to 2005
BIS's workload related to commodity classifications has also increased in
recent years. As shown in figure 7, the number of commodity
classifications almost doubled from fiscal year 1998 to 2005.
Figure 7: Number of Commodity Classifications Processed by BIS, Fiscal
Years 1998 to 2005
BIS continues to exceed the 14-day time frame established in the Export
Administration Regulations30 for processing commodity classifications, as
shown in figure 8.
Figure 8: Median Processing Times for Commodity Classifications, Fiscal
Years 1998 to 2005
3015 C.F.R. S: 750.2
Appendix II: Prior GAO Reports on the Dual-Use Export Control System and
the Status of Recommendations (Fiscal Years 2001-2004) Appendix II: Prior
GAO Reports on the Dual-Use Export Control System and the Status of
Recommendations (Fiscal Years 2001-2004)
Export Controls: System for Controlling Exports of High Performance Computing Is
Ineffective (Dec. 18, 2000, GAO-01-10 )
Background: Exports GAO recommendations Action taken
of high performance
computers exceeding a Commerce Department The Commerce Department
defined performance has implemented our
threshold require an o in consultation with recommendation.
export license from other relevant agencies,
the Commerce convene a panel of The Defense Department
Department. As experts to has not implemented our
technological comprehensively assess recommendation.
advances in high and report to Congress on
performance computing ways of addressing the
occur, it may become shortcomings of computer
necessary to explore export controls.
other options to
maintain the U.S. Defense Department
lead in
defense-related o determine what
technology. As a step countermeasures are
in this direction, necessary, if any, to
the National Defense respond to enhancements
Authorization Act for of the military or
Fiscal Year 1998a proliferation
required the capabilities of countries
Secretary of Defense of concern derived from
to assess the both licensed and
cumulative effect of unlicensed high
U.S.-granted licenses performance computing.
for exports of
computing
technologies to
countries and
entities of concern.
It also required
information on
measures that may be
necessary to counter
the use of such
technologies by
entities of concern.
Main issues: The
current system for
controlling exports
of high performance
computers is
ineffective because
it focuses on the
performance level of
individual computers
and does not address
the linking or
"clustering" of many
lower performance
computers that can
collectively perform
at higher levels than
current export
controls allow.
However, the act does
not require an
assessment of the
cumulative effect of
exports of unlicensed
computers, such as
those that can be
clustered.
The current control
system is also
ineffective because
it uses millions of
theoretical
operations per second
as the measure to
classify and control
high performance
computers meant for
export. This measure
is not a valid means
for controlling
computing
capabilities.
Export Controls: State and Commerce Department License Review Times Are Similar
(June 1, 2001, GAO-01-528 )
Background: The U.S. GAO recommendations Action taken
defense industry and
some U.S. and allied No recommendations. Not applicable.
government officials
have expressed
concerns about the
amount of time
required to process
export license
applications.
Main issues: In
fiscal year 2000,
State's average
review time for
license applications
was 46 days while
Commerce's average
was 50 days.
Variables identified
as affecting
application
processing times
include the commodity
to be exported and
the extent of
interagency
coordination. Both
departments approved
more than 80 percent
of license
applications during
fiscal year 2000.
Export Controls: Regulatory Change Needed to Comply with Missile Technology
Licensing Requirements (May 31, 2001, GAO-01-530 )
Background: Concerned GAO recommendations Action taken
about missile
proliferation, the Commerce Department Our recommendations have
United States and not been implemented.
several major trading o revise the Export However, the Commerce
partners in 1987 Administration Department has a
created an Regulations to comply regulatory change pending
international with the MTCR export that, once implemented,
voluntary agreement, licensing requirements will require licenses for
the Missile contained in the National the export of dual-use
Technology Control Defense Authorization Act missile technologies to
Regime (MTCR), to for Fiscal Year 1991, or Canada.
control the spread of o seek a statutory
missiles and their change from Congress to
related technologies. specifically permit MTCR
Congress passed the items to be exempted from
National Defense licensing requirements.
Authorization Act for o if Commerce seeks a
Fiscal Year 1991 to statutory change, revise
fulfill the U.S. the Export Administration
government's MTCR Regulations to comply
commitments. This act with the current statute
amended the Export until such time as a
Administration Act of statutory change occurs.
1979, which regulates
the export of
dual-use items, by
requiring a license
for all exports of
controlled dual-use
missile technologies
to all countries. The
National Defense
Authorization Act
also amended the Arms
Export Control Act,
which regulates the
export of military
items, by providing
the State Department
the discretion to
require licenses or
provide licensing
exemptions for
missile technology
exports.
Main issues: The
State Department's
regulations require
licenses for the
exports of missile
technology items to
all
countries-including
Canada, which is
consistent with the
National Defense
Authorization Act.
However, the Commerce
Department's export
regulations are not
consistent with the
act as they do not
require licenses for
the export of
controlled missile
equipment and
technology to Canada.
Export Controls: Clarification of Jurisdiction for Missile Technology Items
Needed (Oct. 9, 2001, GAO-02-120 )
Background: The GAO recommendations Action taken
United States has
committed to work Commerce and State The Departments of
with other countries Departments Commerce and State have
through the MTCR to not implemented our
control the export of o jointly review the recommendations despite
missile-related listing of items included initially agreeing to do
items. The regime is on the MTCR list, so.
a voluntary agreement determine the appropriate
among member jurisdiction for those
countries to limit items, and revise their
missile proliferation respective export control
and consists of lists to ensure that
common export policy proposed exports of
guidelines and a list regime items are subject
of items to be to the appropriate review
controlled. In 1990, process.
Congress amended
existing export
control statutes to
strengthen
missile-related
export controls
consistent with U.S.
commitments to the
regime. Under the
amended statutes, the
Commerce Department
is required to place
regime items that are
dual-use on its list
of controlled items.
All other regime
items are to appear
on the State
Department's list of
controlled items.
Main issues: The
Departments of
Commerce and State
have not clearly
determined which
department has
jurisdiction over
almost 25 percent of
the items that the
U.S. government
agreed to control as
part of its regime
commitments. The lack
of clarity as to
which department has
jurisdiction over
some regime items may
lead an exporter to
seek a Commerce
license for a
militarily sensitive
item controlled by
the State.
Conversely, an
exporter could seek a
State license for a
Commerce-controlled
item. Either way,
exporters are left to
decide which
department should
review their exports
of missile items and,
by default, which
policy interests are
to be considered in
the license review
process.
Export Controls: Issues to Consider in Authorizing a New Export Administration
Act (Feb. 28, 2002, GAO-02-468T )
Export Controls: Department of Commerce Controls over Transfers of Technology to
Foreign Nationals Need Improvement (Sept. 6, 2002, GAO-02-972 )
Background: To work with GAO recommendation Action taken
controlled dual-use
technologies in the Commerce Department Our
United States, foreign recommendations
nationals and the firms o use available Immigration and have been
that employ them must Naturalization Service data to implemented.
comply with U.S. export identify foreign nationals
control and visa potentially subject to deemed
regulations. U.S. firms export licensing requirements.
may be required to o establish, with the Defense,
obtain what is known as Energy, and State Departments, a
a deemed export license risk-based program to monitor
from the Commerce compliance with deemed export
Department before license conditions. If the
transferring controlled departments conclude that
technologies to foreign certain security conditions are
nationals in the United impractical to enforce, they
States. Commerce issues should jointly develop
deemed export licenses conditions or alternatives to
after consulting with ensure that deemed exports do
the Defense, Energy, and not place U.S. national security
State Departments. In interests at risk.
addition, foreign
nationals who are
employed by U.S. firms
should have an
appropriate visa
classification, such as
an H-1B specialized
employment
classification. H-1B
visas to foreign
nationals residing
outside of the United
States are issued by the
State Department, while
the Immigration and
Naturalization Servicec
approves requests from
foreign nationals in the
United States to change
their immigration status
to H-1B.
Main Issues: In fiscal
year 2001, Commerce
approved 822 deemed
export license
applications and
rejected 3. Most of the
approved deemed export
licenses allowed foreign
nationals from countries
of concern to work with
advanced computer,
electronic, or
telecommunication and
information security
technologies in the
United States. To better
direct its efforts to
detect possible
unlicensed deemed
exports, in fiscal year
2001 Commerce screened
thousands of
applications for H-1B
and other types of visas
submitted by foreign
nationals overseas. From
these applications, it
developed 160 potential
cases for follow-up by
enforcement staff in the
field. However, Commerce
did not screen thousands
of H-1B change-of-status
applications submitted
domestically to the
Immigration and
Naturalization Service
for foreign nationals
already in the United
States. In addition,
Commerce could not
readily track the
disposition of the 160
cases referred to field
offices for follow-up
because it lacks a
system for doing so.
Commerce attaches
security conditions to
almost all licenses to
mitigate the risk of
providing foreign
nationals with
controlled dual-use
technologies. However,
according to senior
Commerce officials,
their staff do not
regularly visit firms to
determine whether these
conditions are being
implemented because of
competing priorities,
resource constraints,
and inherent
difficulties in
enforcing several
conditions.
Export Controls: Processes for Determining Proper Control of Defense-Related
Items Need Improvement (Sept. 20, 2002, GAO-02-996 )
Background: Companies GAO recommendations Action taken
seeking to export
defense-related items Commerce Department With a limited
are responsible for exception, our
determining whether o promptly review existing recommendations
those items are guidance and develop criteria have not been
regulated by the with concurrence from the State implemented. In
Commerce Department or and Defense Departments for responding to our
the State Department and referring commodity report, the State
what the applicable classification requests to those Department
export requirements are. departments. indicated it
If in doubt about o work with State to develop partially agreed
whether an item is procedures for referring with our
Commerce or requests that are returned to recommendations,
State-controlled or when companies because the items are while the
requesting a change in controlled by State or because Departments of
jurisdiction, an they require a commodity Commerce and
exporter may request a jurisdiction review. Defense agreed to
commodity jurisdiction implement our
determination from Commerce, Defense and State recommendations.
State. State, which Departments
consults with Commerce o Commerce and
and Defense, is the only o revise interagency guidance Defense have
department authorized to to incorporate any changes to added staff to
change export control the referral process and time assist with
jurisdiction. If an frames for making decisions. their
exporter knows an item o assess the resources needed respective
is Commerce-controlled to make jurisdiction processes.
but is uncertain of the recommendations and
export requirements, the determinations within
exporter can request a established time frames and
commodity classification reallocate them as appropriate.
from Commerce. Commerce
may refer classification
requests to State and
Defense to confirm that
an item is
Commerce-controlled.
Main issues: The
Commerce Department has
improperly classified
some State-controlled
items as
Commerce-controlled
because it rarely
obtains input from
Defense and State before
making commodity
classification
determinations. As a
result, the U.S.
government faces an
increased risk that
defense items will be
exported without the
proper level of
government review and
control to protect
national interests.
Also, Commerce has not
adhered to regulatory
time frames for
processing
classification requests.
In its implementation of
the commodity
jurisdiction process,
the State Department has
not adhered to
established time frames,
which may discourage
companies from
requesting jurisdiction
determinations. State
has also been unable to
issue determinations for
some items because of
interagency disputes
occurring outside the
process.
Nonproliferation: Strategy Needed to Strengthen Multilateral Export Control
Regimes (Oct. 25, 2002, GAO-03-43 )
Background: Multilateral GAO recommendations Action taken
export control regimes
are a key policy State Department The State
instrument in the Department has not
overall U.S. strategy to o as the U.S. government's implemented our
combat the proliferation representative to the recommendations.
of weapons of mass multilateral regimes, establish
destruction. They are a strategy to strengthen these
consensus-based, regimes. This strategy should
voluntary arrangements include ways for regime members
of supplier countries to
that produce
technologies useful in o improve
developing weapons of information-sharing,
mass destruction or o implement regime
conventional weapons. changes to their export
The regimes aim to controls more
restrict trade in these consistently, and
technologies to prevent o identify
proliferation. The four organizational changes
principal regimes are that could help reform
the Australia Group, regime activities.
which controls chemical
and biological weapons o ensure that the United States
proliferation; the MTCR; reports all license application
the Nuclear Suppliers denials to regimes.
Group; and the Wassenaar o establish criteria to assess
Arrangement, which the effectiveness of the
controls conventional regimes.
weapons and dual-use
items and technologies.
All four regimes expect
members to report
denials of export
licenses for controlled
dual-use items, which
provides members with
more complete
information for
reviewing questionable
export license
applications. The United
States is a member of
all four regimes.
Main issues: Weaknesses
impede the ability of
the multilateral export
control regimes to
achieve their
nonproliferation goals.
Regimes often lack even
basic information that
would allow them to
assess whether their
actions are having their
intended results. The
regimes cannot
effectively limit or
monitor efforts by
countries of concern to
acquire sensitive
technology without more
complete and timely
reporting of licensing
information and without
information on when and
how members adopt and
implement agreed-upon
export controls. For
example, GAO confirmed
that the U.S. government
had not reported its
denial of 27 export
licenses between 1996
and 2002 for items
controlled by the
Australia Group. Several
obstacles limit the
options available to the
U.S. government in
strengthening the
effectiveness of
multilateral export
control regimes. The
requirement to achieve
consensus in each regime
allows even one member
to block action in
adopting needed reforms.
Because the regimes are
voluntary in nature,
they cannot enforce
members' compliance with
regime commitments. For
example, Russia exported
nuclear fuel to India in
a clear violation of its
commitments under the
Nuclear Suppliers Group,
threatening the
viability of this
regime. The regimes have
adapted to changing
threats in the past.
Their continued ability
to do so will determine
whether they remain
viable in curbing
proliferation in the
future.
Nonproliferation: Improvements Needed to Better Control Technology Exports for
Cruise Missiles and Unmanned Aerial Vehicles (Jan. 23, 2004, GAO-04-175 )
Background: Cruise GAO recommendations Action taken
missiles and unmanned
aerial vehicles (UAV) Commerce Department The Commerce
pose a growing threat to Department has
U.S. national security o assess and report to the addressed our
interests as accurate, Committee on Government Reform recommendation by
inexpensive delivery on the adequacy of the Export revising its
systems for Administration Regulations' licensing
conventional, chemical, catch-all provision to address requirement for
and biological weapons. missile proliferation by missile technology
Exports of cruise nonstate actors. This assessment exports.
missiles and military should indicate ways the
UAVs by U.S. companies provision should be modified. While the Commerce
are licensed by the Department has
State Department while Commerce, Defense and State taken some actions
government-to-government Departments to address our
sales are administered recommendations,
by the Defense o as a first step, each the others
Department. Exports of department complete a departments have
dual-use technologies comprehensive assessment of not done so.
related to cruise cruise missile, UAV, and related
missiles and UAVs are dual-use technology transfers to
licensed by the Commerce determine whether U.S. exporters
Department. and foreign end users are
complying with the conditions on
Main issues: U.S. export the transfers.
control officials find o as part of the assessment,
it increasingly each department conduct
difficult to limit or additional postshipment
track dual-use items verification visits on a sample
with cruise missile or of cruise missile and UAV
UAV-related capabilities licenses.
that can be exported
without a license. A gap
in dual-use export
control authority
enables U.S. companies
to export certain
dual-use items to
recipients that are not
associated with missile
projects or countries
listed in the
regulations, even if the
exporter knows the items
might be used to develop
cruise missiles or UAVs.
The gap results from
current "catch-all"
regulations that
restrict the sale of
unlisted dual-use items
to certain national
missile proliferation
projects or countries of
concern, but not to
nonstate actors such as
certain terrorist
organizations or
individuals. Catch-all
controls authorize the
government to require an
export license for items
that are not on control
lists but are known or
suspected of being
intended for use in a
missile or weapons of
mass destruction
program.
The Departments of
Commerce, Defense, and
State have seldom used
their end use monitoring
programs to verify
compliance with
conditions placed on the
use of cruise missile,
UAV, or related
technology exports. For
example, Commerce
conducted visits to
assess the end use of
items for about 1
percent of the 2,490
missile-related licenses
issued between fiscal
years 1998 and 2002.
Thus, the U.S.
government cannot be
confident that
recipients are
effectively safeguarding
equipment in ways that
protect U.S. national
security and
nonproliferation
interests.
Export Controls: Post-Shipment Verification Provides Limited Assurance that
Dual-Use Items Are Being Properly Used (Jan. 12, 2004, GAO-04-357 )
Background: The U.S. GAO recommendations Action taken
government's policy
regarding exports of No recommendations. Not applicable.
sensitive dual-use
technologies seeks to
balance economic,
national security,
and foreign policy
interests. The Export
Administration Act
(EAA) of 1979, as
amended, has been
extended through
executive orders and
law. Under the act,
the President has the
authority to control
and require licenses
for the export of
dual-use items, such
as nuclear, chemical,
biological, missile,
or other technologies
that may pose a
national security or
foreign policy
concern. In 2002,
there were two
different bills
before the 107th
Congress-H.R. 2581
and S. 149-that would
enact a new EAA.b
Main issues: A new
EAA should take into
consideration the
increased
globalization of
markets and an
increasing number of
foreign competitors,
rapid advances in
technologies and
products, a growing
dependence by the
U.S. military on
commercially
available dual-use
items, and heightened
threats from
terrorism and the
proliferation of
weapons of mass
destruction.
Export Controls: Rapid Advances in China's Semiconductor Industry Underscore
Need for Fundamental U.S. Policy Review (April 19, 2002, GAO-02-620 )
Background: GAO recommendations Action taken
Semiconductor
equipment and Commerce Department After initially
materials are disagreeing with
critical components o in consultation our
in everything from with the Defense and recommendations,
automobiles to State Departments, the Commerce
weapons systems. The reassess and Department has
U.S. government document U.S. export cited our
controls the export policy on recommendations
of these dual-use semiconductor as the basis for
items to sensitive manufacturing increased
destinations, such as equipment and resources so it
China. Exports of materials to China: can conduct the
semiconductor recommended
equipment and o complete analyses.
materials require a the analyses
license from Commerce needed to
Department. Other serve as a
departments, such as sound basis
Defense and State, for an
assist Commerce in updated
reviewing license policy;
applications. The o develop
United States is a new export
member of the controls, if
multilateral appropriate,
Wassenaar Arrangement or
on Export Controls alternative
for Conventional Arms means for
and Dual-Use Goods protecting
and Technologies. U.S.
security
Main issues: Since interests;
1986, China has and
narrowed the gap o
between the U.S. and communicate
Chinese semiconductor the results
manufacturing of these
technology from efforts to
approximately 7 years Congress and
to 2 years or less. U.S.
China's success in industry.
acquiring
manufacturing
technology from
abroad has improved
its semiconductor
manufacturing
facilities for more
capable weapons
systems and advanced
consumer electronics.
The multilateral
Wassenaar Arrangement
has not affected
China's ability to
obtain semiconductor
manufacturing
equipment because the
United States is the
only member of this
voluntary arrangement
that considers
China's acquisition
of semiconductor
manufacturing
equipment a cause for
concern.
Additionally, U.S.
government policies
and practices to
control the export of
semiconductor
technology to China
are unclear and
inconsistent, leading
to uncertainty among
U.S. industry
officials about the
rationale for some
licensing decisions.
Furthermore, U.S.
agencies have not
done the analyses,
such as assessing
foreign availability
of this technology or
the cumulative
effects of such
exports on U.S.
national security
interests, necessary
to justify U.S.
policies and
practices.
Export Controls: More Thorough Analysis Needed to Justify Changes in High
Performance Computer Controls (Aug. 2, 2002, GAO-02-892 )
Background: High GAO recommendations Action taken
performance computers
that operate at or No recommendations. Not applicable.
above a defined
performance
threshold, measured
in millions of
theoretical
operations per
second, require a
Commerce license for
export to particular
destinations. The
President has
periodically changed,
on the basis of
technological
advances, the
threshold above which
licenses are
required. The
National Defense
Authorization Act of
1998 requires that
the President report
to Congress the
justification for
changing the control
threshold. The report
must, at a minimum,
(1) address the
extent to which high
performance computers
with capabilities
between the
established level and
the newly proposed
level of performance
are available from
foreign countries,
(2) address all
potential uses of
military significance
to which high
performance computers
between the
established level and
the newly proposed
level could be
applied, and (3)
assess the impact of
such uses on U.S.
national security
interests.
Main issues: In
January 2002, the
President announced
that the control
threshold-above which
computers exported to
such countries as
China, India, and
Russia-would increase
from 85,000 to
190,000 millions of
theoretical
operations per
second. The report to
Congress justifying
the changes in
control thresholds
for high performance
computers was issued
in December 2001 and
focused on the
availability of such
computers. However,
the justification did
not fully address the
requirements of the
National Defense
Authorization Act of
1998. The December
2001 report did not
address several key
issues related to the
decision to raise the
threshold: (1) the
unrestricted export
of computers with
performance
capabilities between
the old and new
thresholds will allow
countries of concern
to obtain computers
they have had
difficulty
constructing on their
own, (2) the U.S.
government is unable
to monitor the end
uses of many of the
computers it exports,
and (3) the
multilateral process
used to make earlier
changes in high
performance computer
thresholds.
Background: The Commerce GAO recommendations Action taken
Department conducts
post-shipment Commerce Department Our
verification (PSV) recommendations
checks to ensure that o improve technical training have been
dual-use items arrive at for personnel conducting PSV implemented.
their intended checks to ensure they are able
destination and are used to verify compliance with
for the purposes stated license conditions.
in the export license. o ensure that personnel
To conduct PSV checks, conducting PSV checks assess
Commerce personnel visit compliance with license
foreign companies to conditions.
verify the use and o require that the exporter
location of exported inform the end user in writing
items. PSVs serve as one of the license conditions.
of the primary means of
checking whether end
users are complying with
conditions imposed by
the license. Commerce
placed conditions on
nearly all approved
licenses for exports to
countries of concern for
fiscal years 2000 to
2002.
Main issues: In fiscal
years 2000 to 2002, the
Commerce Department
approved 7,680 licenses
for dual-use exports to
countries of concern,
such as China, India,
and Russia. However, we
found that during this
time Commerce completed
PSV checks on only 428
of the dual-use licenses
it approved for
countries of concern.
We identified three key
weaknesses in the PSV
process that reduce its
effectiveness. First,
PSVs do not confirm
compliance with license
conditions because U.S.
officials often lack the
technical training
needed to assess
compliance and end users
may not be aware of the
license conditions by
which they are to abide.
Second, some countries
of concern, most notably
China, limit the U.S.
government's access to
facilities where
dual-use items are
shipped, making it
difficult to conduct a
PSV. Third, PSV results
have only a limited
impact on future
licensing decisions.
Companies receiving an
unfavorable PSV may
receive greater scrutiny
in future license
applications, but
licenses for dual-use
exports to these
companies can still be
approved. In addition,
according to Commerce
officials, past PSV
results play only a
minor role in future
enforcement actions.
Source: GAO analysis of prior work.
aPub. L. No. 105-85, S:1211, 111 Stat. 1932-34 (1997).
b Neither H.R. 2581 nor S. 149 was enacted.
cFunctions performed by the Immigration and Naturalization Service are now
divided between U.S. Citizenship and Immigration Services and U.S.
Immigration and Customs Enforcement, both of which are within the
Department of Homeland Security.
Appendix III:
Comments from the Department of Commerce
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
See comment 2.
See comment 1.
See comment 4.
See comment 3.
See comment 6.
See comment 5.
See comment 8.
See comment 7.
See comment 11.
See comment 10.
See comment 9.
See comment 13.
See comment 12.
See comment 15.
See comment 14.
See comment 18.
See comment 17.
See comment 16.
See comment 22.
See comment 21.
See comment 20.
See comment 19.
See comment 28.
See comment 27.
See comment 26.
See comment 25.
See comment 24.
See comment 23.
See comment 29.
See comment 31.
See comment 30.
See comment 32.
See comment 34.
See comment 33.
GAO Comments
1. The scope of our review has remained unchanged. We examined
BIS's dual-use export control system and whether changes were made
to the system by focusing on three specific issues related to how
well the system is operating in the post-September 2001
environment.
2. Our report is not premised on a need for BIS to
develop a national security strategy, which is
outside of BIS's mission. BIS's stated goal is the
protection of national security and economic
interests. In its comments, BIS appears to define
"national security interests" in terms of the
administration's National Security Strategy, but BIS
has not developed performance measures to evaluate or
determine whether the dual-use export control system
is supporting and furthering that strategy.
Commerce's comments also do not address what effects
the dual-use export control system has had on U.S.
economic interests.
3. The eight specific measures cited in our report
are not "samples" of steps taken by BIS. Rather, they
represent all of the changes identified by BIS
officials as a result of their ad hoc review to
determine what changes, if any, should be made to the
system after the September 2001 terror attacks.
4. Our report accurately depicts what BIS officials
told us regarding the ad hoc review they conducted in
the aftermath of the 2001 terror attacks. Given that
BIS officials did not document their review, we can
neither confirm what the review consisted of nor
determine the sufficiency of this review and the
resulting changes.
5. Our report acknowledges that BIS made adjustments
to its enforcement efforts in response to the
changing security environment. Also, GAO is currently
conducting a separate review of export control
enforcement efforts.
6. Our report identifies the specific changes BIS
officials stated were the result of their
post-September 2001 ad hoc review and acknowledges
that BIS has reprioritized its enforcement efforts
and taken other actions as a result of various
geopolitical changes. However, without performance
measures and systematic evaluations, BIS is not in a
position to readily identify weaknesses in the
dual-use export control system, implement corrective
measures, and determine whether those measures are
having the intended effects of protecting U.S.
national security and economic interests.
7. Commerce's characterization of BIS's annual
foreign policy report is misleading. BIS's annual
report summarizes export control changes and
describes what those changes were intended to
achieve. BIS's report does not contain an assessment
of the actual impact foreign policy-based controls
have had on U.S. interests.
8. Our report acknowledges that there have been over
100 amendments to the EAR since September 2001.
However, based on our review of those amendments, the
specific basis for many of these revisions is not
clear and given BIS's lack of evaluations, the impact
of these revisions is unknown. Also, it should be
noted that many of the regulatory amendments made
since September 2001 consisted of administrative
changes and technical corrections as opposed to
revisions of export requirements for dual-use items.
9. The quotes from senior BIS officials' speeches do
not address whether the dual-use export control
system is protecting U.S. interests nor do they
provide other evidence that BIS has developed
performance measures or conducted systematic
evaluations. While these speeches outline BIS's
mission and the role of export controls, the lack of
performance measures and systematic evaluations
precludes a determination as to whether that mission
and role are being successfully fulfilled. It is also
unclear how changing the bureau's name is an example
of a successful adaptation to the current
environment. Further, the increased scrutiny of
license applications was not the result of BIS's
actions as one of the quotes implies. As discussed in
our report, increases in the referral of license
applications resulted from decisions by other
agencies involved in the application review process.
10. Absent any documentation to the contrary,
particularly when BIS officials repeatedly
acknowledged that BIS had not undertaken systematic
evaluations, we stand by our finding that BIS has not
systematically evaluated the overall effectiveness
and efficiency of the dual-use export control system.
Regarding BIS's ad hoc post-September 2001 review, we
could not assess the validity and sufficiency of the
review and resulting changes due to the lack of
documentation.
11. Commerce's description of BIS's Game Plan is
misleading and inaccurate. First, BIS's mission and
priorities as summarized in the Game Plan are not
consistent with the mission and goals stated in
Commerce's official performance management documents,
such as the annual performance plan. The Game Plan
may represent BIS's thoughts for how to align
activities and priorities in the future, but it does
not depict what has been in place since the September
2001 terror attacks. Second, the Game Plan does not
contain measures of effectiveness. When we discussed
the Game Plan with BIS officials, they acknowledged
that they had not developed measures for evaluating
how well the dual-use export control system is
protecting national security and economic interests.
12. We agree that the development of measures for
determining the effectiveness of the dual-use export
system would be difficult. However, BIS's existing
performance measures, which focus on processing
times, fall far short of government management
standards since they do not provide a basis for
determining whether the system is protecting U.S.
interests.
13. Our report presents BIS's position that it was
unable to obtain assistance from other agencies to
develop performance measures for assessing the
dual-use export control system's effects on national
security and economic interests. The two examples of
performance measures provided in Commerce's comments
do not relate to BIS's administration of the export
controls system, which was the focus of our review,
but rather to BIS's export enforcement efforts and
assistance to other countries. Also, it is not clear
how these two measures would provide BIS with a basis
for determining the security and economic impact of
its controls on dual-use exports. Additionally,
Commerce's statement that BIS is assigning staff to
develop a methodology for evaluating the system's
effectiveness indicates that BIS does not yet have a
systematic evaluation process in place.
14. Our report discusses that, in the absence of
systematic evaluations, BIS officials obtain
information from industry to gauge how the dual-use
export control system is operating. However, the
collection of data from industry does not constitute
a measure or evaluation of how the dual-use export
control system is affecting U.S. economic interests.
Also, BIS officials repeatedly informed us that they
do not have measures for determining the impact of
dual-use export controls on economic interests.
15. The Office of Management and Budget determined in
its 2005 review that BIS lacked measures related to
the fundamental purpose of the dual-use export
controls system. Given this and our evaluation as
well as BIS's limited measures of efficiency and lack
of comprehensive analyses as to which items under its
control have actually been exported, BIS is not
meeting government performance management standards
and, therefore, does not represent the gold standard.
16. We examined the completeness of the watchlist and
the thoroughness of BIS's watchlist screening process
and found omissions in the list and weaknesses in the
process. Our intent was not to determine whether
licenses were approved for parties not on the
watchlist. As our report explains, a match between an
application and the watchlist does not necessarily
mean that the application will be denied but that the
application will be more closely scrutinized during
the license application review process.
17. Our report places BIS's watchlist in the context
of the larger license application review process. A
process built on multiple layers and multiple
agencies is only as strong as its weakest link. Other
agencies that participate in the license application
review process expect BIS to thoroughly screen all
parties on all applications against the watchlist
before referring applications to them. Given the
omissions we identified in the watchlist and the
weakness in the screening process, BIS's watchlist is
not serving its intended purpose of helping identify
those license applications that warrant additional
scrutiny. We identified many of the 147 parties not
on the watchlist by using the lists cited in
Commerce's comments. While BIS expects exporters to
check these publicly available lists, we found that
BIS failed to include all of the publicly-listed
parties on its watchlist. It is reasonable that BIS
would focus its licensing and enforcement efforts on
the "truly bad actors." However, given that the
watchlist is supposed to help BIS identify parties of
export control concern, BIS's ability to focus on
"bad actors" is undermined by the omissions we
identified in the watchlist.
18. The 147 parties we identified should not be
regarded as an exhaustive list of every party of
export control concern that should be on BIS's
watchlist. Our intent was not to identify all parties
but rather to evaluate the process that BIS uses to
determine which parties should be on the list.
Therefore, the 147 parties represent examples that
illustrate weaknesses in BIS's management of the
watchlist. However, to provide additional context, we
revised the text to include the number of names on
the BIS watchlist.
19. The measures listed in Commerce's comments do not
address the underlying weaknesses we identified or
our corrective recommendations.
20. Our report accurately reflects that several, but
not all, of GAO's prior recommendations regarding the
dual-use export control system have been implemented.
BIS's disagreement with the conclusions of GAO's
report on China's semiconductor industry does not
change the fact that BIS continues to cite that
report and its recommendations as justification for
requested increases in resources. However, BIS has
not implemented the report's recommendations. The
continued failure to address GAO's recommendations
regarding the commodity classification process and
export control jurisdiction places BIS's mission of
protecting national security and economic interests
at risk. Improper decisions regarding jurisdiction
and the lack of clear jurisdiction create the risk
that defense-related items will be exported without
the proper level of government review and control to
protect national interests. These weaknesses can also
result in companies seeking to export similar items
under the different controls of the Departments of
State and Commerce, which places some companies at a
competitive disadvantage.
21. As discussed in our report's scope and
methodology, we reviewed BIS's documents, such as its
performance plans, that contain BIS's official
performance measures. None of these documents
contains performance measures related to the
processing of commodity classifications. During
meetings with BIS officials, they did not identify
additional measures for evaluating the system's
effectiveness. Also, Commerce's comment is
misleading, as our report does not cite BIS
statistics on commodity classifications. Our report
contains GAO's analyses of BIS's data on commodity
classification processing times and shows that BIS
has exceeded regulatory processing time frames.
22. We are not revising the graphic because it
depicts what can occur in the license application
review process under different circumstances.
23. Text revised to further clarify the CIA's role in
the license application review process.
24. The examples provided by Commerce are limited to
BIS's analyses of licensing data. However, BIS has
not comprehensively analyzed data on actual exports,
particularly on unlicensed exports that represent the
majority of exports subject to BIS's control.
25. Our report states that Executive Order 12981
provides time frames for the entire license
application review process. However, none of BIS's
performance measures addresses the timeliness of the
entire process. Also, BIS has not reported overall
timeframes consistently in its annual reports.
26. Our draft report cited changes in BIS's licensing
policy for dual-use exports to Iraq as an
illustrative example; however, we have revised our
report to include the other countries listed in
Commerce's comments.
27. Despite Commerce's comment regarding its sources,
some of the 147 parties we identified as not being on
the watchlist appear on publicly available documents
from the State Department's Directorate of Defense
Trade Controls and the Homeland Security Department's
Immigration and Customs Enforcement.
28. We are not revising the text based on Commerce's
comment because our report accurately reflects how
the Treasury Department characterizes the list it
maintains on individuals and companies.
29. Despite Commerce's comment that it adds
individuals to its watchlist, we identified many
individuals who were not on the list but should have
been.
30. Our report explains that BIS has a regulatory
change pending that once implemented will address
this recommendation from 2001.
31. Commerce's actions regarding production equipment
for missile technology items do not resolve the lack
of clear jurisdiction between State and Commerce as
to which department controls the export of almost 25
percent of the missile technology items the U.S.
government agreed to control as part of its
commitments to the Missile Technology Control Regime.
As a result, GAO's recommendations regarding this
matter remain unimplemented.
32. See comment 20.
33. The memorandum contained in Commerce's comments
does not address GAO's recommendations that BIS
develop criteria, with the concurrence of the State
and Defense Departments, for the referral of
commodity classification requests and develop
procedures for referring other commodity
classification requests to the State Department. As a
result, GAO's recommendations regarding this matter
remain unimplemented.
34. We revised the report text to more clearly
reflect BIS's actions.
Appendix IV: GAO Contact and Staff Acknowledgments
GAO Contacts
Ann Calvaresi-Barr (202) 512-4841 or [email protected]
Staff Acknowledgments
In addition to the contact named above, Anne-Marie Lasowski, Assistant
Director; Johana R. Ayers; Lily Chin; Arthur James, Jr.; Megan Masengale;
Margaret B. McDavid; Bradley Terry; Karen Thornton; and Joseph Zamoyta
made key contributions to this report.
Related GAO Products
Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies in
the Post-9/11 Security Environment. GAO-05-468R . Washington, D.C.: April
7, 2005.
Defense Trade: Arms Export Control System in the Post-9/11Environment.
GAO-05-234 . Washington, D.C.: February 16, 2005.
Nonproliferation: Improvements Needed to Better Control Technology Exports
for Cruise Missiles and Unmanned Aerial Vehicles. GAO-04-175 . Washington,
D.C.: January 23, 2004.
Export Controls: Post-Shipment Verification Provides Limited Assurance
That Dual-Use Items Are Being Properly Used. GAO-04-357 . Washington,
D.C.: January 12, 2004.
Nonproliferation: Strategy Needed to Strengthen Multilateral Export
Control Regimes. GAO-03-43 . Washington, D.C.: October 25, 2002.
Export Controls: Processes for Determining Proper Control of
Defense-Related Items Need Improvement. GAO-02-996 . Washington, D.C.:
September 20, 2002.
Export Controls: Department of Commerce Controls over Transfers of
Technology to Foreign Nationals Need Improvement. GAO-02-972 . Washington,
D.C.: September 6, 2002.
Export Controls: More Thorough Analysis Needed to Justify Changes in High
Performance Computer Controls. GAO-02-892 . Washington, D.C.: August 2,
2002.
Export Controls: Rapid Advances in China's Semiconductor Industry
Underscore Need for Fundamental U.S. Policy Review. GAO-02-620 .
Washington, D.C.: April 19, 2002.
Export Controls: Issues to Consider in Authorizing a New Export
Administration Act. GAO-02-468T . Washington, D.C.: February 28, 2002.
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.
Export Controls: Regulatory Change Needed to Comply with Missile
Technology Licensing Requirements. GAO-01-530 . Washington, D.C.: May 31,
2001.
Export Controls: Inadequate Justification for Relaxation of Computer
Controls Demonstrates Need for Comprehensive Study. GAO-01-534T .
Washington, D.C.: March 15, 2001.
Export Controls: System for Controlling Exports of High Performance
Computing Is Ineffective. GAO-01-10 . Washington, D.C.: December 18, 2000.
Export Controls: Statutory Reporting Requirements for Computers Not Fully
Addressed. NSIAD-00-45 . Washington, D.C.: November 5, 1999.
Export Controls: Better Interagency Coordination Needed on Satellite
Exports. NSIAD-99-182 . Washington, D.C.: September 17, 1999.
Export Controls: Change in Licensing Jurisdiction for Commercial
Communications Satellites. T-NSIAD-98-222 . Washington, D.C.: September
17, 1998
Export Controls: National Security Issues and Foreign Availability for
High Performance Computer Exports. NSIAD-98-200 . Washington, D.C.:
September 16, 1998.
Export Controls: Issues Related to Commercial Communications Satellites.
T-NSIAD-98-208 . Washington, D.C.: June 10, 1998.
China: Military Imports From the United States and the European Union
Since the 1989 Embargoes. NSIAD-98-176 . Washington, D.C.: June 16, 1998.
Export Controls: Change in Export Licensing Jurisdiction for Two Sensitive
Dual-Use Items. NSIAD-97-24 . Washington, D.C.: January 14, 1997.
Export Controls: Sensitive Machine Tool Exports to China. NSIAD-97-4 .
Washington, D.C.: November 19, 1996.
Export Controls: Sale of Telecommunications Equipment to China. NSIAD-97-5
. Washington, D.C.: November 13, 1996.
(120475)
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Highlights of GAO-06-638 , a report to the Chairman, Committee on
International Relations, House of Representatives
June 2006
EXPORT CONTROLS
Improvements to Commerce's Dual-Use System Needed to Ensure Protection of
U.S. Interests in the Post-9/11 Environment
In regulating exports of dual-use items, which have both commercial and
military applications, the Department of Commerce's Bureau of Industry and
Security (BIS) seeks to allow U.S. companies to compete globally while
minimizing the risk of items falling into the wrong hands. In so doing,
BIS faces the challenge of weighing U.S. national security and economic
interests, which at times can be divergent or even competing.
In light of the September 2001 terror attacks, GAO was asked to examine
BIS's dual-use export control system. In response, GAO is reporting on
BIS's (1) evaluations of and changes to the system, (2) screening of
export license applications against its watchlist, and (3) actions to
correct weaknesses previously identified by GAO.
What GAO Recommends
GAO recommends that the Secretary of Commerce systematically evaluate the
dual-use export control system; correct omissions in BIS's watchlist and
weaknesses in the screening process; and take action to address GAO's
prior unimplemented recommendations. Commerce disagreed with the report's
findings and characterizations of its system but did not address GAO's
recommendations. GAO maintains that the report fairly represents BIS's
actions and the need for an overall evaluation framework.
Lack of systematic evaluations. Although BIS made some regulatory and
operational changes to the dual-use export control system, it has not
systematically evaluated the system to determine whether it is meeting its
stated goal of protecting U.S. national security and economic interests.
Specifically, BIS has not comprehensively analyzed available data to
determine what dual-use items have actually been exported. Further,
contrary to government management standards, BIS has not established
performance measures that would provide an objective basis for assessing
how well the system is protecting U.S. interests. Instead, BIS relies on
limited measures of efficiency that focus only on narrow aspects of the
license application review process to assess the system's performance. BIS
officials use intelligence reports and meetings with industry to gauge how
the system is operating. Absent systematic evaluations, BIS conducted an
ad hoc review of the system to determine if changes were needed after the
events of September 2001. BIS officials determined that no fundamental
changes were needed but opted to make some adjustments primarily related
to controls on chemical and biological agents. GAO was unable to assess
the sufficiency of the review and resulting changes because BIS officials
did not document their review.
Omissions in BIS's watchlist. GAO found omissions in the watchlist BIS
uses to screen export license applications. This screening, which is part
of the license application review process, is intended to identify
ineligible parties or parties warranting more scrutiny. The omissions
undermine the list's utility, which increases the risk of dual-use exports
falling into the wrong hands. GAO identified 147 parties that had violated
U.S. export control requirements, had been determined by BIS to be
suspicious end users, or had been reported by the State Department as
committing acts of terror, but these parties were not on the watchlist of
approximately 50,000 names. Reasons for the omissions include a lack of
specific criteria as to who should be on the watchlist and BIS's failure
to regularly review the list. In addition, a technical limitation in BIS's
computerized screening system results in some parties on license
applications not being automatically screened against the watchlist.
Some prior GAO recommendations left unaddressed. BIS has implemented
several but not all of GAO's recommendations for ensuring that export
controls on sensitive items protect U.S. interests. Among weaknesses
identified in prior GAO reports is the lack of clarity on whether certain
items are under BIS's control, which increases the risk of defense-related
items being improperly exported. BIS has yet to take corrective action on
this matter.
*** End of document. ***