Export Controls
Department of Commerce Controls over Transfers of Technology to Foreign Nationals Need Improvement Gao ID: GAO-02-972 September 6, 2002To protect its national security and foreign policy interests, the United States controls exports of civilian technologies that have military uses. U.S. firms may be required to obtain a license from the Department of Commerce before exporting these "dual-use" technologies from the United States to many other countries, including countries of concern. Since Commerce regulations also deem domestic transfers of controlled dual-use technologies to citizens of these countries to be exports, Commerce may require firms that employ foreign nationals working with these technologies in this country to obtain "deemed" export licenses. The firms should, in many cases, hold a deemed export license, and the foreign nationals should have an appropriate visa classification, such as an H-1B specialized employment classification. Commerce issues deemed export licenses to firms that employ or sponsor foreign nationals after consulting the Departments of Defense, State, and Energy. Deemed export licenses are generally valid for 2 years and comprise almost 10 percent of all export licenses approved by Commerce. In fiscal year 2001, Commerce approved 822 deemed export license applications and rejected 3. Most of the approved 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, Commerce staff do not regularly visit forms to determine whether these conditions are being implemented because of competing priorities, resource constraints, and inherent difficulties in enforcing several conditions.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-02-972, Export Controls: Department of Commerce Controls over Transfers of Technology to Foreign Nationals Need Improvement
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Report to the Chairman, Subcommittee on National Security, Veterans
Affairs, and International Relations, Committee on Government Reform,
House of Representatives:
September 2002:
Export Controls:
Department of Commerce Controls over Transfers of Technology to Foreign
Nationals Need Improvement:
GAO-02-972:
Highlights:
September 2002:
EXPORT CONTROLS:
Department of Commerce Controls over Transfers of Technology to Foreign
Nationals Need Improvement:
Highlights of GAO-02-972, a report to the Chairman of the Subcommittee
on National Security, Veterans Affairs, and International Relations;
Committee on Government Reform; House of Representatives.
Why GAO Did This Study:
Countries that pose national security concerns to the United States
could upgrade their military forces with U.S. civilian technologies.
The Department of Commerce deems certain domestic transfers of such
technologies to foreign nationals to be exports. U.S. firms may be
required to obtain a ’deemed export“ license before they may transfer
technology to foreign national employees. GAO was asked to assess
Commerce efforts to ensure that firms (1) apply for these licenses when
required to do so and (2) comply with security conditions in the
licenses.
What GAO Found:
Vulnerabilities in the Department of Commerce‘s deemed export control
system could help China and other countries of concern improve their
military capabilities. GAO found two key weaknesses.
· To detect foreign nationals potentially subject to deemed export
licensing, Commerce annually screens tens of thousands of overseas visa
applications selected by Department of State visa officials. However,
GAO found that this screening process does not include thousands of
immigration change-of-status applications from foreign nationals
already
in the United States who may seek work in U.S. high tech firms.
· Because it rejects very few deemed export license applications,
Commerce relies on security conditions in the licenses to help ensure
that
foreign nationals do not obtain unauthorized access to controlled
technologies. These conditions are jointly developed by Commerce, the
Department of Defense, and other agencies involved in the licensing
process.
However, GAO found that Commerce does not have an effective monitoring
program in place to determine whether firms comply with these
conditions.
These weaknesses call for a reexamination of the current approach to
controlling foreign national access to technology in the United States.
Figure: China and 7 Other Countries of Concern Accounted for Most of
the 822
Deemed Export Licenses that the Department of Commerce Approved in
Fiscal
Year 2001.
[See PDF for image]
[End of figure]
What GAO Recommends:
The Secretary of Commerce should:
² use all existing U.S. immigration data to identify foreign nationals
who could be subject to deemed export licensing requirements and:
² work with the departments of Defense, State, and Energy to develop a
risk-based program for monitoring compliance with deemed export
licenses.
Although Commerce asserted that it has an effective monitoring system,
it stated that it would explore the practicality of GAO‘s
recommendations. The Department of Defense concurred with GAO‘s
recommendations.
This is a test for developing highlights for a GAO report. The full
report, including GAO‘s objectives, scope, methodology, and analysis is
available at www.gao.gov/cgi-bin/getrpt?GAO-02-972. For additional
information about the report, contact Joseph Christoff (202 512-8979).
To provide comments on this test highlights, contact Keith Fultz (202-
512-3200) or email HighlightsTest@gao.gov.
Contents:
Letter:
Results in Brief:
Background:
Export Licensing and Visa Regulations Impose Requirements on Foreign
Nationals Working in the United States:
Commerce Approves Most Deemed Export License Applications:
Commerce‘s Efforts to Detect Unlicensed Deemed Exports Do Not Use All
Available Sources of Data:
Commerce Does Not Ensure Compliance with License
Conditions:
Conclusions:
Recommendations:
Agency Comments:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Commerce:
GAO Comments:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contact and Staff Acknowledgements:
GAO Contact:
GAO Acknowledgments:
Figures:
Figure 1: Processes for Obtaining an H-1B Visa Overseas and for
Changing
Immigration Status to H-1B in the United States:
Figure 2: Deemed Export Licenses Approved by Country in Fiscal Year
2001:
Figure 3: Technologies Listed in Deemed Export Licenses Approved in
Fiscal Year 2001:
Abbreviations:
DOD: Department of Defense:
INS: Immigration and Naturalization Service:
Letter:
September 6, 2002:
The Honorable Christopher Shays
Chairman
Subcommittee on National Security, Veterans Affairs,
and International Relations
Committee on Government Reform
House of Representatives:
Dear Mr. Chairman:
To protect its national security and foreign policy interests, the
United States controls exports of certain civilian technologies that
have military uses. U.S. firms may be required to obtain a license from
the Department of Commerce before exporting these ’dual-use“
technologies from the United States to many other countries, including
countries of concern.[Footnote 1] Commerce regulations also deem
domestic transfers of controlled dual-use technologies to citizens of
these countries to be exports. As a result, Commerce may require firms
that employ foreign nationals working with these technologies in this
country to obtain ’deemed“ export licenses. Foreign nationals in the
United States must also conform to U.S. visa and immigration
regulations.
In response to your request that we examine controls over deemed
exports, we (1) identified the licensing and visa requirements that
should be met for a foreign national to work with controlled technology
in the United States, (2) determined the number and nature of licenses
approved by Commerce in fiscal year 2001, (3) assessed Commerce‘s
efforts to ensure that firms are applying for deemed export licenses as
required, and (4) evaluated Commerce‘s efforts to ensure that firms
comply with the deemed export licenses they receive. To address these
objectives, we reviewed laws and procedures governing deemed export
licensing and visa issuance, analyzed deemed export licensing records
contained in Commerce‘s export licensing database, and compared data
obtained from the Immigration and Naturalization Service to that used
by Commerce to detect unlicensed deemed exports. We also interviewed
Commerce officials in Washington, D.C. and at its enforcement field
offices; the Immigration and Naturalization Service; the Department of
State; the Department of Defense, including the Defense Intelligence
Agency; and selected private firms that have received deemed export
licenses or that employ foreign nationals. Our scope and methodology
are described in greater detail in appendix I.
Results in Brief:
To work with controlled dual-use technologies in the United States,
foreign nationals and the firms that employ or sponsor them must comply
with U.S. export control and visa regulations. The firms should, in
many cases, hold a deemed export license and the foreign nationals
should have an appropriate visa classification, such as an H-1B
specialized employment classification. Commerce issues deemed export
licenses to firms that employ or sponsor foreign nationals after
consulting the departments of Defense, State, and Energy. Deemed export
licenses are generally valid for 2 years and comprise almost 10 percent
of all export licenses approved by Commerce. An H-1B classification
allows a U.S. employer to fill a specialty occupation with a foreign
worker. The Department of State issues H-1B visas to foreign nationals
residing outside the United States, while the Immigration and
Naturalization Service (INS) approves requests from foreign nationals
in the United States to change their immigration status to H-1B.
In fiscal year 2001, Commerce approved 822 deemed export license
applications and rejected 3. Most of the approved licenses allowed
foreign nationals from countries of concern to work with advanced
computer, electronic, or telecommunication and information security
technologies in the United States. China accounted for 73 percent of
licenses approved in fiscal year 2001. Russia, Iran, India, Syria,
Israel, Iraq, and Pakistan accounted for another 14 percent,
collectively. Not all domestic transfers of controlled technology to
foreign nationals require a license. For example, certain types of
dual-use technology and software may be provided to foreign nationals
from India, Pakistan, and Israel without a license. Also, research that
will be disseminated publicly is exempt from export controls.
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, we
identified two shortcomings in these efforts. First, Commerce did not
screen thousands of H-1B change-of-status applications submitted
domestically to INS for foreign nationals already in the United States.
We found that in fiscal year 2001 about 15,000 individuals from
countries of concern changed their immigration status to obtain jobs
that could have involved controlled technology. Second, 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. As a
result of these shortcomings, Commerce may be missing opportunities to
detect firms that should have applied for deemed export licenses.
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,
Commerce 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. For example, they asserted that their staff (1) does not
have the technical expertise to determine if a foreign national has
helped design semiconductors that exceed a certain technology threshold
and (2) cannot monitor intangible technology transfers, such as those
that may occur in a foreign national‘s conversations with fellow
employees. Department of Defense (DOD) officials asserted that these
conditions are critical to DOD‘s willingness to accept many deemed
export license applications.
In this report, we recommend that the Secretary of Commerce use
available INS data to identify foreign nationals potentially subject to
deemed export licensing requirements. We also recommend that the
Secretary of Commerce--in consultation with the Secretaries of Defense,
State, and Energy--establish a risk-based program to monitor compliance
with deemed export license conditions that draws upon the full range of
technical expertise available to the Secretary. If the secretaries
conclude that enforcement of certain security conditions is not
practical, we recommend that they jointly develop conditions that are
enforceable or devise alternative methods to ensure that deemed exports
do not place U.S. national security interests at risk.
In commenting on a draft of this report, DOD stated that it concurred
with our recommendations. Commerce stated that it would consult with
other departments on the practicality of implementing the
recommendations. Commerce stated that it would contact INS to explore
ways of referring to Commerce H-1B change-of-status applications
involving employment that might result in access to sensitive
technology. In response to a recommendation in our draft report,
Commerce also stated that it would establish a new database by the end
of calendar year 2002 that will allow its analysts to check on the
status of their field office referrals.
Commerce also said that it is developing a more extensive monitoring
program for firms that have been issued deemed export licenses,
although it disagreed with our assessment that it currently lacks an
effective monitoring process. It asserted that Commerce staff monitor
the submission of required internal control plans by firms and contact
firms who fail to submit these documents. It further asserted that it
would continue to visit select firms to monitor compliance with license
conditions. We do not agree with Commerce‘s assessment of the
effectiveness of its monitoring process. Commerce‘s process is
essentially limited to administrative checks by headquarters staff to
determine whether firms have submitted required paperwork. We found no
evidence that Commerce selects and visits certain firms for the purpose
of verifying compliance with deemed export license conditions. As a
result, we believe our recommendation that Commerce establish a risk-
based program to monitor compliance is still appropriate.
Background:
Under the Export Administration Act of 1979[Footnote 2] as amended and
the implementing Export Administration Regulations, Commerce is
authorized to require firms to seek licenses for exports of dual-use
technologies that pose national security or foreign policy concerns.
Such technologies could be used by countries of concern to upgrade
their military capabilities. The Commerce Control List identifies
technologies that must be licensed before they can be exported to
specific countries, including technologies associated with certain
nuclear materials, facilities, and equipment; chemicals,
’microorganisms“ and toxins; materials processing; electronics;
computers; telecommunications and information security; lasers and
sensors; navigation and avionics; marine systems; and propulsion
systems and space vehicles. Violators may face administrative or
criminal penalties, including fines, denial of export privileges, and
imprisonment.[Footnote 3] The act defines exports to include transfers
of technology within the United States to (1) affiliates of controlled
countries or (2) persons with the knowledge or intent to transfer the
technology to unauthorized parties.[Footnote 4] According to Commerce
regulations, a transfer of technology within the United States to a
foreign national who is not a permanent resident of the United States
is deemed to be an export.[Footnote 5] Such a ’deemed export“ may occur
when a foreign national visits or works in the United States and
accesses controlled dual-use technology. Access can include
opportunities to review written materials or discussions about
controlled technologies.
In 2000, Commerce‘s Inspector General concluded that compliance with
deemed export licensing regulations appeared lax.[Footnote 6] The
Inspector General pointed out that the number of foreign workers
authorized to enter the United States using certain specialty
employment visas was far larger than the number of deemed export
license applications received by Commerce in fiscal year 1999.
Export Licensing and Visa Regulations Impose Requirements on Foreign
Nationals Working in the United States:
To work with controlled dual-use technology in the United States,
foreign nationals and the firms that employ or sponsor them must comply
with U.S. export control and visa regulations. Commerce, in
consultation with other departments, is responsible for issuing deemed
export licenses to firms that employ or host foreign nationals. While
the Department of State is responsible for issuing visas to foreign
nationals outside the United States, INS is responsible for approving
requests from foreign nationals in the United States seeking to change
their immigration status.
Deemed Export Licensing Regulations Govern a Foreign National‘s Access
to Controlled Technology:
The review process for a deemed export license application parallels
the review process for an application for a license to export
commodities or technologies overseas. Under U.S. export control
regulations, a firm is required to seek a deemed export license if the
export of the technology to the foreign national‘s country of
citizenship would require a license. If a license is required, the
exporter must submit a license application to Commerce identifying the
technology, the reason it is controlled, the proposed destination, and
the intended end user. In the case of deemed export license
applications, firms must also provide the foreign national‘s resume,
visa type, and a list of his or her publications. An application for a
deemed export license may list more than one foreign national.
Under Executive Order 12981, the departments of State, Defense, and
Energy have the authority to review license applications (unless they
decline) to help Commerce determine whether a license would be in the
best interests of the United States. Based on their review, an
application may be rejected, approved, approved with conditions, or
returned without action. Commerce officials stated that they consider
evidence of the foreign national‘s intent to remain in the United
States in assessing deemed export license applications. For example,
they asserted that they consider the presence of family members in the
United States or a stated intention to apply for permanent residency in
the United States as a factor in granting a license. Deemed export
licenses are generally valid for 2 years. Almost 10 percent of all
export licenses approved by Commerce authorize deemed exports.
Visa and Immigration Process Managed by the Department of State and the
Immigration and Naturalization Service:
The U.S. government requires foreign nationals from most countries to
obtain visas before entering the country. Requirements for obtaining a
visa vary, depending on the purpose of the trip and the nationality of
the person seeking the visa. Typically, a foreign national begins the
process by submitting a visa application to the Department of State,
generally through a U.S. overseas post. The application requires, among
other items, information regarding his or her nationality, education,
employment history, purpose of visit, and if seeking employment, the
sponsor. The Department of State is responsible for determining the
applicant‘s eligibility and issuing the visa. State personnel at U.S.
embassies and consulates overseas may interview applicants to determine
their eligibility to enter the United States. According to the
Department of State, in fiscal year 2001, it adjudicated 10.6 million
nonimmigrant visa applications at 196 posts and issued 7.6 million
visas.
Many foreign nationals seeking to work in the United States apply for
H-1B specialty employment visas. An H-1B visa allows a U.S. employer to
temporarily fill specialty occupations (such as those requiring
electrical or software engineers) with foreign workers.[Footnote 7] A
foreign national overseas may obtain an H-1B visa from the Department
of State, if INS determines that an employer may import the foreign
national as a temporary worker (see fig. 1). A foreign national already
in the United States may have his or her immigration status changed to
H-1B by INS. For example, an employer seeking to hire a foreign student
who has graduated from a U.S. college or university could petition INS
to change the foreign national‘s immigration status from student to H-
1B. INS is solely responsible for approving and issuing such changes in
status.
Figure 1: Processes for Obtaining an H-1B Visa Overseas and for
Changing Immigration Status to H-1B in the United States:
[See PDF for image]
Source: GAO analysis of INS and Department of State information.
[End of figure]
Commerce Approves Most Deemed Export License Applications:
In fiscal year 2001, Commerce approved 822 deemed export license
applications and rejected 3.[Footnote 8] Each license authorized one or
more foreign nationals to access controlled dual-use
technology.[Footnote 9] Our analysis of Commerce‘s licensing data found
that most licenses approved in fiscal year 2001 involved countries of
concern.[Footnote 10] As shown in figure 2, China accounted for 73
percent of licenses approved in fiscal year 2001. Seven other countries
of concern--Russia, Iran, India, Syria, Israel, Iraq, and Pakistan--
accounted for another 14 percent. The remaining 13 percent involved 29
other countries, including the United Kingdom, Germany, Bulgaria,
Romania, and Ukraine.
Figure 2: Deemed Export Licenses Approved by Country in Fiscal Year
2001:
[See PDF for image]
Source: GAO analysis of Commerce data.
[End of figure]
[See PDF for image]
[End of figure]
About 90 percent of the licenses approved in fiscal year 2001
authorized foreign nationals to work with advanced electronics,
computer, or telecommunications and information security technologies
(see fig. 3).[Footnote 11] Electronics technologies constituted the
largest single share at 46 percent. Telecommunications and information
security technologies accounted for another 24 percent. Computer
technologies were included in 20 percent of the licenses approved.
Figure 3: Technologies Listed in Deemed Export Licenses Approved in
Fiscal Year 2001:
[See PDF for image]
Source: GAO analysis of Commerce data.
[End of figure]
The most common country-technology combination for deemed export
licenses involved China and electronics technologies. About 44 percent
of all licenses approved in fiscal year 2001 authorized citizens of
China to work with electronics technologies, including semiconductor
technology.[Footnote 12]
Not all domestic transfers of technology to foreign nationals require a
deemed export license. For example, one exception allows technology and
software controlled only for national security purposes to be accessed
without a license by foreign nationals from countries of concern such
as India, Pakistan, and Israel.[Footnote 13] Under this exception, a
firm employing an Indian software engineer would not need a deemed
export license to allow him or her access to controlled dual-use
technology. The exception does not apply to technology and software
that are also controlled for other reasons, such as antiterrorism or
nuclear nonproliferation. Also, foreign nationals who engage in
research that is or will be publicly available are exempted from export
controls. For example, a U.S. university would not need a deemed export
license to allow a Chinese graduate student to engage in technological
research if the results of that research are to be published in a
professional journal. A U.S. firm that hired the same Chinese national
to engage in proprietary research to develop a new commercial product
would not qualify for this exception.
Commerce‘s Efforts to Detect Unlicensed Deemed Exports Do Not Use All
Available Sources of Data:
To better direct its efforts to detect possible unlicensed deemed
exports, Commerce screens applications for H-1B and other types of
visas submitted overseas and develops potential cases for enforcement
staff in the field. However, it does not screen H-1B change-of-status
applications submitted domestically to INS for foreign nationals
already in the United States. Also, Commerce cannot readily track the
disposition of potential cases referred to the field.
Commerce Screens Visa Data from the Department of State but Does Not
Screen Potentially Useful INS Data:
To identify potential unlicensed deemed exports and opportunities to
educate firms about deemed export licensing requirements, Commerce
screens visa applications it receives from U.S. posts
overseas.[Footnote 14] In fiscal year 2001, Commerce analysts reviewed
about 54,000 such applications for various visa types.[Footnote 15]
According to Commerce guidance, the analysts consulted Commerce‘s
enforcement database, DOD comments on rejected license applications,
and other sources of information to detect linkages between foreign
entities of concern and visa applicants.
Commerce does not screen data on foreign nationals already in the
United States who change their immigration status to H-1B specialty
employment. Commerce and INS officials stated that Commerce does not
obtain information on foreign nationals who seek a change in
immigration status. INS has data available on foreign nationals who
change their status to H-1B. Our analysis of INS‘s H-1B data indicates
that during fiscal year 2001 at least 15,000 foreign nationals from
countries of concern potentially subject to deemed export licensing
requirements changed their immigration status to H-1B specialty
employment.[Footnote 16] Our estimation of 15,000 individuals only
includes foreign nationals who sought H-1B status for employment
related to science and technology. It does not include other
nonsensitive H-1B fields, such as fashion modeling, architecture, and
accounting.
Commerce Analysts Cannot Assess the Impact of Their Screening Efforts:
In fiscal year 2001, Commerce analysts screened about 54,000 visa
applications received from overseas posts. Their efforts resulted in
the referral of 160 potential cases to Commerce‘s eight enforcement
field offices. Commerce staff stated that field offices conduct some
limited follow-up enforcement and outreach activities in response to
such referrals. These activities include meetings with firms and
individuals to determine if the firms should have applied for a deemed
export license.[Footnote 17] Commerce enforcement officials could not
provide us with complete information regarding the disposition of these
160 potential cases.[Footnote 18] Commerce does not have a mechanism
for its field enforcement staff to report the results of their reviews
of these cases back to headquarters. As a result, its analysts in
headquarters cannot determine if their screening methods are effective
in targeting potential deemed export cases. Commerce plans to install a
new computerized database by the end of 2002 that would correct this
problem by allowing headquarters staff to track the disposition of
cases referred to field enforcement staff.
Commerce Does Not Ensure Compliance with License Conditions:
Commerce does not determine whether firms comply with license
conditions intended to limit transfers of controlled dual-use
technology to foreign nationals. Commerce officials stated that
ensuring such compliance is a low priority and that they cannot readily
enforce conditions included in licenses.
Deemed Export Licenses Are Generally Approved with Security Conditions:
Almost all deemed export licenses include security conditions.
According to DOD officials, these conditions are needed to mitigate the
risk to U.S. national security posed by providing controlled dual-use
technology to a foreign national. These officials stated that the
conditions are crucial to DOD‘s willingness to agree to many deemed
export license applications. Without these conditions, DOD would
recommend that Commerce reject many deemed export license applications.
Commerce uses several of these conditions to limit the level of
technology to which foreign nationals may be exposed. For example,
standard conditions bar foreign nationals from:
* unmonitored use of high-performance computers,
* involvement in the design of computers that exceed a specified
performance limit,
* accessing technical data on advanced microprocessors[Footnote 19] or
certain types of lithography equipment,[Footnote 20] or:
* accessing classified data or munitions data licensed by the
Department of State.
The licensing conditions were first formulated in 1997 by an
interagency group that included representatives of the departments of
Commerce, Defense, State, and Energy. The departments of Commerce and
Defense currently maintain updated lists of 12 standard conditions for
deemed exports involving (1) semiconductors (electronics) and computers
and (2) telecommunications. According to Commerce officials, the
departments may add conditions or adjust the standard conditions to
accommodate specific circumstances.
A firm may also be required to monitor the immigration status of the
foreign employee and to document whether the foreign national leaves
the firm before becoming a permanent resident of the United States. The
firm is also required to develop security procedures for ensuring
compliance with conditions in the approved license and to provide
copies of these procedures to Commerce.
Other executive branch agencies rely on Commerce to ensure that firms
comply with these conditions. DOD‘s copy of the standard license
conditions specifies that Commerce ’will monitor [these conditions] to
ensure that the applicant‘s compliance is effective.“ Identical
language is included in many deemed export licenses. Officials from the
departments of Defense and State stated that they presumed that
Commerce is acting to ensure compliance with the security conditions.
Commerce Does Not Monitor Compliance with License Conditions:
Commerce does not have an effective monitoring system in place to
ensure compliance with key deemed export license conditions, such as a
program of regular visits to firms.[Footnote 21] Staff at the
department‘s enforcement field offices stated that they rarely visit
firms to ensure compliance with deemed export license conditions. In
addition, officials at the private sector firms we visited confirmed
that Commerce officials rarely conduct on-site verifications of their
compliance with licensing conditions. Commerce officials agreed that
they do not have an effective monitoring system in place and that their
compliance efforts are limited to checking if firms have submitted
their security procedures to the department.
Commerce officials stated that they consider ensuring compliance with
deemed licensing conditions to be a relatively low priority for their
resources compared to other demands, including activities to combat
terrorism. They stated that the export licensing system is based on the
assumption that firms are honest. These officials also asserted that
almost all of the foreign nationals covered by deemed export licenses
have indicated that they plan to remain in the United States, although
they could not provide us with data on repatriations to support this
assertion. Commerce officials also stated that prosecutors are
reluctant to pursue criminal cases based on technical violations of
license conditions. However, they acknowledged that Commerce could use
the results of on-site visits as the basis for imposing administrative
sanctions and denying future license applications.[Footnote 22]
Commerce officials also asserted that some conditions are not readily
enforceable. They maintained that some involve highly technical matters
that do not fall within the training provided to Commerce enforcement
personnel. For example, Commerce officials stated that enforcement
staff would be unable to determine whether the feature size of a
semiconductor is smaller than the micron limit specified in one license
condition. Similarly, Commerce officials asserted that enforcement
personnel would be unable to verify compliance with conditions that
proscribe intangible transfers of technology, such as conversations
between foreign nationals and their coworkers.
Conclusions:
Commerce‘s deemed export licensing system does not provide adequate
assurance that U.S. national security interests are properly protected.
Key vulnerabilities in the licensing process could help countries of
concern advance their military capabilities by obtaining sensitive
dual-use technology. Because Commerce does not review all relevant visa
and immigration data, it may overlook foreign nationals potentially
subject to deemed export licensing requirements. Because Commerce
rejects very few deemed export license applications, executive branch
agencies must therefore rely on security conditions to help ensure that
the licenses approved--more than 90 percent of which involve China and
other countries of concern--do not allow foreign nationals unauthorized
access to controlled technologies. However, Commerce does not have a
monitoring process in place to ensure compliance, thus undermining the
value of the conditions. These weaknesses call for a reexamination of
the current approach to limiting foreign national access to controlled
technology in the United States.
Recommendations:
We recommend that the Secretary of Commerce work with INS to use all
existing U.S. government data in its efforts to identify all foreign
nationals potentially subject to deemed export licensing requirements.
We also recommend that the Secretary of Commerce--in consultation with
the Secretaries of Defense, State, and Energy--establish a risk-based
program to monitor compliance with deemed export license conditions. In
doing so, the Secretary of Commerce should draw upon the full range of
technical expertise available to him, including that within the
department or elsewhere in the federal government. If the secretaries
of these agencies conclude that certain security conditions are
impractical to enforce, we recommend that they jointly develop
enforceable conditions or alternative methods to ensure that deemed
exports do not place U.S. national security interests at risk while
promoting U.S. commercial interests.
Agency Comments:
We provided a draft of this report to the Secretaries of Commerce,
Defense, and State, and to the INS Commissioner for their review and
comment. We received written comments from the departments of Commerce
and Defense that are reprinted in appendixes II and III.[Footnote 23]
DOD concurred with our recommendations, and Commerce said it would
consult with other relevant departments on the practicality of
implementing our recommendations. More specifically, Commerce stated
that it would contact INS to discuss the possibility of establishing a
procedure for referring to Commerce H-1B change-of-status applications
involving employment that might result in access to sensitive
technology. It also stated that it is in the process of developing a
more extensive monitoring program for firms that have been issued
deemed export licenses. Commerce said it is currently impossible to
fully monitor all of the conditions placed on these licenses and agreed
that more realistic conditions need to be developed. It also said that
it has initiated an interagency dialogue to develop a new set of
standard conditions for deemed export licenses. In response to a
recommendation in the draft report, Commerce stated that its new
Investigation Management System would establish a system for tracking
referrals to its enforcement field offices once it becomes operational
at the end of calendar year 2002. It subsequently provided us with
documentation on the new tracking system.
However, Commerce disagreed with our assessment that it lacks an
effective monitoring process. It stated that Commerce staff monitor the
submission of required internal control plans by firms and contact
firms who fail to submit these documents. Commerce also stated that it
would continue to visit select firms to monitor compliance with license
conditions. In addition, it stated that the vast majority of
individuals applying for H-1B visas would not be employed in jobs that
would give them access to technology controlled under U.S. export
control laws. Commerce stated that INS regulations permit the issuance
of H-1B visas to foreign nationals seeking employment in such fields as
fashion modeling, architecture, and accounting. It said that the
likelihood of foreign nationals working in such fields requiring deemed
export licenses is remote. Given Commerce‘s limited resources, and the
large number of H-1B applications filed annually, it questioned whether
it was feasible for Commerce analysts to perform a second comprehensive
review (in addition to INS‘s own review) of each such INS file.
We disagree with Commerce‘s assertions regarding the effectiveness of
its monitoring process. As noted in our report, Commerce‘s monitoring
process is essentially limited to administrative checks by headquarters
staff to determine whether firms have submitted required paperwork. We
found no evidence that it selects and visits certain firms to verify
compliance with deemed export license conditions. As a result, our
recommendation that Commerce develop a risk-based program to monitor
compliance is still appropriate.
We agree with Commerce‘s concern that it should not review immigration
change-of-status applications of foreign nationals who are seeking
employment in fields that are unlikely to involve controlled
technology. Anticipating such concerns, we had specifically targeted
technology-related occupations--and excluded nonsensitive fields, such
as modeling, architecture, and accounting--in developing our estimate
of 15,000 foreign nationals. We have included language in this report
describing how we developed this estimate.
We are sending copies of this report to appropriate congressional
committees and to the Secretary of Commerce, the Secretary of Defense,
the Secretary of State, and the Commissioner of the Immigration and
Naturalization Service. Copies will be made available to others upon
request. In addition, this report will be available at no charge on the
GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me on (202) 512-8979. Another GAO contact and staff
acknowledgments are listed in appendix IV.
Sincerely,
Joseph A. Christoff, Director
International Affairs and Trade:
Signed by Joseph A. Christoff
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To describe the deemed export license process, we reviewed laws and
procedures governing export controls; attended Department of Commerce
export licensing workshops in Boise, Idaho and Los Angeles, California;
and interviewed Commerce officials. To learn about the process for
reviewing and approving visa applications overseas, we reviewed
Department of State documents that describe the process for issuing
visas and provide guidance for referring applications. We also
interviewed State officials. To understand the specialty employment (H-
1B) and change-of-status processes, we met with officials from the
Immigration and Naturalization Service (INS). They described the
process and procedures for obtaining an H-1B petition and for changing
immigration status while in the United States.
To determine the number and nature of deemed export license
applications approved by Commerce, we obtained and analyzed information
included in Commerce‘s licensing database for fiscal year 2001. The
data were extracted based on the date of final action on each license.
We analyzed the data to determine the number of applications that
Commerce approved, rejected, or returned without action. We also
determined which countries and technologies were included in the
approved applications. All of our analyses were dependent on the
reliability of Commerce‘s licensing database. We did not attempt to
independently verify the accuracy of the database or the data that it
contains.
To review Commerce‘s efforts to detect unlicensed deemed exports, we
relied on INS data on H-1B applications granted in fiscal year 2001. We
developed this data by asking INS to determine the number of changes-
of-status to H-1B that involved (1) occupational codes related to
science and technology and (2) countries of concern. We did not
independently confirm the accuracy of INS data. Although we recognize
that foreign nationals with immigration classifications other than H-1B
may be subject to the deemed export licensing requirements, we did not
attempt to incorporate other classifications into our analysis. We also
identified and interviewed 15 firms that employed foreign nationals but
did not have a deemed export license. To better understand the Commerce
program for detecting unlicensed deemed exports, we reviewed Commerce
program guidance. We also interviewed Commerce officials associated
with the review effort.
To evaluate Commerce‘s efforts to ensure compliance with approved
licenses, we obtained copies of the standard conditions from both
Commerce and the Department of Defense (DOD) and reviewed license
conditions as recorded in Commerce‘s licensing database. We also
interviewed officials of 11 firms that have received deemed export
licenses and met with Commerce licensing and enforcement officials. To
obtain detailed information on enforcement activities, we interviewed
special agents of all eight Commerce enforcement field offices. To
better understand the rationale for the conditions, we spoke with
officials at DOD and the Department of State, including analysts at the
Defense Intelligence Agency and policy officials from the Defense
Technology Security Agency.
We conducted our review from November 2001 through August 2002 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Commerce:
UNITED STATES DEPARTMENT OF COMMERCE Assistant Secretary for Export
Enforcement Washington, D.C. 20230:
August 19, 2002:
Mr. Joseph A. Christoff:
Director, International Affairs and Trade General Accounting Office
Washington, D.C. 20548:
Dear Mr. Christoff.
This is in response to your request for comments on the General
Accounting Office‘s (GAO‘s) report entitled ’Export Controls: Commerce
Department Controls Over Transfers of Technology to Foreign Nationals
Need Improvement,“ GAO Code 320090. We appreciate the opportunity to
review the draft report.
The Department of Commerce‘s comments on the draft report are enclosed,
and we will consult with other relevant Departments on the practicality
of implementing the recommendations of the GAO.
Sincerely,
Michael J. Garcia:
Signed by Michael J. Garcia:
Enclosure:
U.S. Department of Commerce Comments on the General Accounting Office
Draft Report Export Controls: Commerce Department Controls Over
Transfers of Technology to Foreign Nationals Need Improvement (GAO Code
320090):
The Department of Commerce requests that the report be revised to
reflect the following points.
1. As noted in discussions with GAO representatives, the Department of
Commerce has already initiated interagency discussions to develop a new
set of standard conditions that would attach to deemed export licenses.
As part of this effort, Commerce is reviewing conditions currently
being imposed based on a number of criteria, including difficulties in
enforcing such conditions.
2. Deemed export licenses may include many foreign nationals on a
single license, not ’one to five“ as stated in the footnote on page 10
of the draft report. In fact, a number of license applications
submitted during the time period examined by GAO covered ten or more
foreign nationals.
3. The pie chart titled ’Deemed Export Licenses Approved by Country in
Fiscal Year 2001“ is misleading. That chart groups under a single
category - ’Other countries of concern“ - seven countries that together
account for 14 percent of all deemed export licenses issued in Fiscal
Year 2001. However, these countries raise vastly different levels of
concern from a U.S. export control and national security perspective.
Some (such as Iraq) are state sponsors of terrorism; others (such as
Israel) are close U.S. allies. Two-thirds of the licenses issued to
foreign nationals from countries in this group in fact relate to
nationals from a single country - Russia - that is a U.S. partner in
international export control regimes and an ally in the war against
terrorism [Footnote 1]. Taken together, approvals for Russia (77),
Israel
(1), Pakistan (1), and India (11) - countries with which the United
States
maintains good relations - account for 11 percent of the 822 deemed
export approvals for FY 2001; approvals for Syria (3), Iraq (1), and
Iran (19) only account for 3 percent.
More generally, the chart and report suggest that most deemed export
licenses issued involved countries of concern. The report should
acknowledge that this is not surprising because U.S. export controls
are - appropriately - focused on countries of concern, and not suggest
that the majority of technology transfers in the United States involve
citizens from countries of concern. For citizens of countries in North
America, Western Europe, and other close allies, such foreign citizens
do not normally require deemed export licenses.
4. The report states that ’Commerce does not have a monitoring process
in place to ensure compliance, thus undermining the value of the
[deemed export license] conditions.“ It is true that it is currently
impossible to fully monitor all of the conditions placed on these
licenses - by the various agencies involved in the licensing process -
and that more realistic conditions need to be developed. As noted
above, Commerce has initiated an interagency dialogue to develop a new
set of standard conditions that would attach to deemed export licenses.
However, we disagree with the suggestion that Commerce currently does
not have an effective monitoring process in place. In fact, all
approved licenses that require a company to submit internal control
program plans or other reports are monitored by Commerce Department
employees. These employees call the company when the condition has not
been met. When necessary, a second request for compliance is made in
writing. Companies that fail to respond are reported to the Office of
Export Enforcement for further investigation.
Commerce is in the process of developing a more extensive monitoring
program for firms that have been issued deemed export licenses. As the
GAO report notes, more than 800 deemed export licenses were granted in
fiscal year 2001. Given Commerce‘s limited enforcement and outreach
resources, it would not be feasible to visit all the firms that were
issued these licenses. Instead, Commerce will continue to visit select
companies to monitor compliance with license conditions.
5. As noted in the report at page 3, Commerce currently screens
information related to certain visa applications submitted by foreign
nationals seeking entry to the United States. In fact, the Department
screened approximately 54,000 such applications in fiscal year 2001.
The group of applicants reviewed by the Department of Commerce was a
small percentage of total visa applications; it consisted of
applications believed to be of highest potential concern. However,
Commerce has no role in approving visas. That responsibility rests with
the State Department and Immigration and Naturalization Service (INS).
Commerce‘s role in the visa review process is limited to reviewing such
data as a source of investigative leads related to potential violations
of the deemed export regulations.
The GAO report recommends that Commerce expand its visa review program
to include more than 15,000 applications submitted to the INS each year
by foreign nationals of countries of concern, in the United States,
seeking an adjustment to H 1 B visa status.
As a preliminary matter, we believe that the GAO report should note
that the vast majority of individuals applying for H1B visas would not
be employed in jobs that would give them access to technology
controlled under U.S. export control laws. INS regulations specify that
HlB visas may be issued to foreign nationals seeking to work in such
fields as fashion modeling, architecture, medicine and health,
education, accounting, law, theology, and the arts. The likelihood of
foreign nationals working in such fields requiring deemed export
licenses is remote.
Given Commerce‘s limited resources, and the large number of H1B
applications filed annually, it is not feasible for Commerce analysts
to perform a second comprehensive review (i.e., in addition to INS‘s
own review) of each such INS file. Moreover, reviewing applications of
foreign nationals seeking employment in non-sensitive fields would be a
less-than-optimal use of already scarce Commerce enforcement resources.
Nonetheless, Commerce will contact the INS to discuss the possibility
of a procedure for INS referring to Commerce those targeted
applications involving employment that might result in access to
sensitive technology.
6. The draft GAO report recommends that Commerce establish a tracking
system that will allow it to identify for follow-up the disposition of
visa cases referred to field offices. In fact, such an electronic
’Investigation Management System“ has been developed and will be
operational by the end of calendar year 2002.
The new system will enable visa review analysts to check on the status
of field office investigations using the case number assigned when the
analyst opened the case. This new system will include access to any
reports of interviews generated as a result of the initial lead.
Moreover, the system will contain a reporting feature that will allow
the users to generate reports on the dispositions of visa review leads.
The GAO report suggests that its personnel required additional
documentation concerning the new system. If GAO is uncomfortable with
the representations made concerning the capabilities of the new system,
we invite it to follow up with the designer and the coordinator for
enforcement prior to issuing a final GAO report.
Footnotes:
[1] Even this proportion is probably low because Russian nationals in
particular have often been grouped by certain applicants as multiple
consignees on single deemed export licenses.
[End of section]
The following are GAO‘s comments on the Department of Commerce‘s letter
dated August 19, 2002.
GAO Comments:
1. We have modified our report to reflect Commerce‘s comment. Our draft
report‘s statement that a deemed export license typically covers one to
five individuals was based on an estimate provided to us by the head of
Commerce‘s deemed export licensing unit. As noted in our draft report,
Commerce could not readily determine the total number of individuals
included in all deemed export licenses due to limitations in its
automated database.
2. We agree that the countries depicted in the chart may represent
different levels of concern from a foreign policy and national security
standpoint. However, we used the Department of State‘s guidance for
screening technology-related visa applications to develop a list of
countries of concern. According to guidance sent to all diplomatic and
consular posts, particular attention is given to cases involving
nationals of countries designated as state sponsors of terrorism--Cuba,
Libya, Iran, Iraq, North Korea, Sudan, and Syria--or a region subject
to the Nonproliferation Export Control regulations--China, India,
Israel, Pakistan, and Russia.
We have added information in this report to note Commerce‘s observation
that most deemed export licenses involve countries of concern, given
that U.S. export controls focus on such countries.
3. We do not agree that Commerce has an effective process in place to
monitor compliance with license conditions. We found Commerce‘s current
process to be inadequate for two reasons: (1) it is essentially limited
to administrative checks by headquarters staff to determine whether
firms have submitted the required paperwork; and (2) it does not
include a program for conducting on-site visits to confirm that firms
are complying with license conditions. Accordingly, we have maintained
our draft recommendation that Commerce develop a risk-based monitoring
program.
4. Our estimate of 15,000 H-1B change-of-status applications only
represents individuals seeking employment in technology-related
occupations. It does not include nonsensitive fields, such as modeling,
architecture, and accounting, as Commerce notes in its comments. We
therefore targeted our analysis to applications involving employment
that might result in access to sensitive technology that Commerce
should control through its deemed export process. We have modified the
language of our report to clarify how we developed this estimate.
5. In response to our recommendation in the draft report that Commerce
establish a system for tracking visa cases referred to the field
offices, Commerce provided us with documentation of the new case
management system‘s capabilities. Based on our review of documents
describing the case-tracking capability of the new system, we have not
included this recommendation in our final report.
[End of section]
Appendix III: Comments from the Department of Defense:
POLICY:
OFFICE OF THE UNDER SECRETARY OF DEFENSE 2000 DEFENSE PENTAGON
WASHINGTON, DC 20301-2000:
AUG 1 3 2002:
I-02/011336:
Mr. Joseph A. Christoff:
Director, International Affairs and Trade U.S. General Accounting
Office:
441 G Street, N.W. Washington, D.C. 20548:
Dear Mr. Christoff:
This responds to the GAO draft report, ’EXPORT CONTROLS: Commerce
Department Controls Over Transfers of Technology to Foreign Nationals
Need Improvement,“ dated August 1, 2002 (GAO Code 320090/GAO-02-972).
The Department of Defense (DoD) concurs with both GAO‘s
recommendations.
Consistent with the second recommendation, DoD reviews deemed exports
based on the technology involved, its military utility, the likelihood
of diversion, and assessment of the home country of the foreign
nationals involved. Based on such assessments, we manage the risk by
recommending denial or approval with appropriate conditions to the
license to restrict access. We use Advisory Committee on Export Policy
(ACEP) agreed baseline deemed export conditions, and in consultation
with the interagency, we conduct periodic reviews of case-specific
revisions to conditions for deemed export licenses. If license officers
cannot agree to conditions tailored within the framework of the
baseline deemed export conditions, the interagency dispute resolution
process is triggered to reach agreement.
Thank you for the opportunity to comment on this draft report.
Sincerely yours,
Bronson Deputy Under Secretary of Defense, Technology Security Policy
and Counterproliferation:
Signed by Lisa Bronson:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Steve Lord (202) 512-4379:
GAO Acknowledgments:
In addition to the individual named above, Pierre Toureille, Lynn
Cothern, Julie Hirshen, Richard Slade, and Jennifer Li Wong made key
contributions to this report.
FOOTNOTES:
[1] For this report, we have relied on Department of State guidance for
reviewing visa applications in defining China, Cuba, India, Iran, Iraq,
Israel, Libya, North Korea, Pakistan, Russia, Sudan, and Syria as
countries of concern.
[2] Although the act has expired, export regulations have been extended
through executive orders, of which Executive Order 13222 (August 17,
2001) is the most recent.
[3] Export Administration Regulations, part 764.3.
[4] 50 U.S.C. Appendix, section 2415 (5).
[5] Export Administration Regulations, part 734.2(b)(1). Part 772 of
the Export Administration Regulations defines ’technology“ as specific
information necessary for the ’development,“ ’production,“ or ’use“ of
a product. Congress is currently considering legislation that would,
among other things, (1) define an export to be the release of an item-
-i.e., any good, technology, or service--to a foreign national within
or outside the United States and (2) require the Secretary of Commerce,
in concurrence with the Secretaries of State and Defense to issue
regulations governing such exports (H.R. 2581, section 2(9)(iii) and
601(c)(3)).
[6] U.S. Department of Commerce, Office of Inspector General, Bureau of
Export Administration: Improvements Are Needed in Programs Designed to
Protect Against the Transfer of Sensitive Technologies to Countries of
Concern, IPE-12454-1, March 2000.
[7] The H-1B process is described in greater detail in H-1B Foreign
Workers: Better Controls Needed to Help Employers and Protect Workers,
GAO/HEHS-00-157, September 7, 2000.
[8] Commerce also returned 98 applications without action. In over 70
percent of these cases, Commerce informed the applicant that a license
was not required or returned a duplicate application. In the remaining
cases, the application was returned because it did not include all
needed data or the applicant requested its return.
[9] Commerce officials estimated that a single deemed export license
could include ten or more individuals. They asserted that they could
not readily determine the exact number of foreign nationals named in
the licenses because of limitations in the department‘s automated
export-licensing database.
[10] Given that U.S. export controls are focused on countries of
concern, the majority of licenses should involve such countries.
[11] A single license can include multiple technologies. As a result,
the total number of technologies authorized exceeds the total number of
approved licenses.
[12] Semiconductors include discrete items (such as transistors) and
integrated circuits comprising millions of transistors and other
conductors.
[13] Export Administration Regulations, part 740.6.
[14] To help prevent high technology information from being transferred
from the United States to countries of concern, embassy and consulate
staff may refer a visa application to Commerce for review and input if
they conclude the application meets certain criteria. Such criteria
include the involvement of a country of concern or the applicant‘s
background in engineering, physics, or other specific technical fields.
[15] State and Commerce officials asserted that their data retrieval
systems do not allow them to readily determine how many of the 54,000
applications were for H-1B visas.
[16] These individuals may not have been screened by Commerce when they
first entered the United States using another visa type. For example,
U.S. embassy and consulate officials overseas are not required to
identify undergraduate or master‘s level students for such screening.
[17] At some of the firms we visited, we observed that officials were
not fully aware of the potential need to apply for a deemed export
license.
[18] Commerce officials were able to develop limited information
regarding some of these cases in response to our requests. For example,
they identified three cases in which the screening process and
subsequent enforcement actions resulted in warning letters to firms.
[19] A microprocessor is a large-scale integrated circuit formed on a
piece of material known as a semiconductor. The sophistication of a
microprocessor is measured in terms of how small its key features are,
as measured in microns. A micron is one millionth of a meter or one
one-thousands of the width of a human hair.
[20] Lithography is a manufacturing process used to imprint circuits on
semiconductor materials.
[21] In contrast, Commerce employs on-site visits overseas to verify
that exported dual-use items are used in compliance with license
conditions. During fiscal years 1997 through 2001, the department
scheduled more than 3,500 post-shipment verification visits in more
than 90 countries, including almost 900 in China.
[22] Such penalties are provided for in Export Administration
Regulations, part 764.3(a).
[23] The Department of State declined to provide comments. INS provided
us with certain technical suggestions, which we have incorporated into
this report.
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