Export Controls
Improvements Needed to Prevent Unauthorized Technology Releases to Foreign Nationals in the United States Gao ID: GAO-11-354 February 2, 2011Countries posing national security concerns to the U.S. could upgrade their military forces with certain technologies having civilian and military (dual-use) applications. The Department of Commerce (Commerce) may require employers to obtain a "deemed export" license before they can transfer these technologies to foreign nationals in the U.S. The State Department also requires foreign nationals to obtain specialty occupation visas to work in the U.S. in occupations such as engineering, computers, and biotechnology. GAO was asked to examine the risk that foreign nationals in the U.S. may gain unauthorized access to controlled technologies, and the extent to which Commerce and other agencies implemented recommended changes to the deemed export licensing process and enforcement system. GAO analyzed licensing and visa data from Commerce and Homeland Security, respectively; reviewed reports; and met with law enforcement agencies, companies, and universities in Boston, Los Angeles, and San Francisco.
Four factors together may indicate the risk that foreign nationals could gain unauthorized access to controlled dual-use technology. First, according to unclassified intelligence reports and law enforcement officials, foreign businessmen, scientists, engineers, and others have gained unauthorized access in the United States to controlled dual-use technologies. Second, during fiscal years 2004 through 2009, Commerce suspended the export privileges of three violators and fined 14 U.S. companies about $2.3 million for allowing foreign nationals unauthorized access to controlled technologies. Third, Commerce's screening of overseas visa applications for potential unlicensed deemed exports dropped from 54,000 in fiscal year 2001 to 150 in fiscal year 2009. Fourth, from fiscal years 2004 to 2009, the United States issued about 1.05 million specialty occupation visas in high-technology fields to foreign nationals from 13 countries of concern to work in the United States, while Commerce issued deemed export licenses authorizing transfers of technology to about 3,200 foreign nationals from these countries. Commerce and Immigration and Customs Enforcement (ICE) have not implemented prior recommended changes to the deemed export licensing process involving outreach, and Commerce has taken action to clarify a regulatory definition, but confusion may remain. As a result, employers may not be aware of deemed export licensing requirements and obtaining the licenses required. GAO and other audit organizations made two key recommendations to correct weaknesses in the deemed export licensing process. The first recommended that Commerce develop an approach or plan to better inform employers about requirements to apply for deemed export licenses. However, Commerce still lacks an approach or plan to provide such information, particularly to small and mid-size companies. The second recommended that Commerce eliminate confusion by modifying the regulatory definition that is part of determining when foreign nationals can access controlled technologies in fundamental research without triggering the deemed export licensing requirement. In response, Commerce clarified the definition but may not have eliminated the confusion, as shown by uncertainty within Commerce over the definition, which resulted in a misunderstanding with a U.S. agency. Based on guidance from Commerce, the agency applied for 37 deemed export licenses, which Commerce processed over a 17-month period before advising the agency that it no longer needed to apply for such licenses. Commerce has not implemented GAO's and others' recommendations to the export enforcement system involving monitoring license compliance and using immigration data for deemed export enforcement. Commerce has not created a program to monitor security conditions in licenses or used existing immigration data to enforce deemed export regulations. Commerce, ICE, and the Federal Bureau of Investigation have also not implemented recommendations to improve coordination on export control investigations, including those of foreign nationals subject to deemed export controls. Commerce should (1) assess issuance of specialty occupation visas covered by deemed export license applications and (2) report to Congress on how it will implement prior deemed export recommendations as part of the export control reform process. Commerce agreed with the first recommendation, but did not comment on reporting to Congress.
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: Joseph A. Christoff Team: Government Accountability Office: International Affairs and Trade Phone: (202) 512-8979GAO-11-354, Export Controls: Improvements Needed to Prevent Unauthorized Technology Releases to Foreign Nationals in the United States
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
February 2011:
Export Controls:
Improvements Needed to Prevent Unauthorized Technology Releases to
Foreign Nationals in the United States:
GAO-11-354:
GAO Highlights:
Highlights of GAO-11-354, a report to congressional requesters.
Why GAO Did This Study:
Countries posing national security concerns to the U.S. could upgrade
their military forces with certain technologies having civilian and
military (dual-use) applications. The Department of Commerce
(Commerce) may require employers to obtain a ’deemed export“ license
before they can transfer these technologies to foreign nationals in
the U.S. The State Department also requires foreign nationals to
obtain specialty occupation visas to work in the U.S. in occupations
such as engineering, computers, and biotechnology. GAO was asked to
examine the risk that foreign nationals in the U.S. may gain
unauthorized access to controlled technologies, and the extent to
which Commerce and other agencies implemented recommended changes to
the deemed export licensing process and enforcement system. GAO
analyzed licensing and visa data from Commerce and Homeland Security,
respectively; reviewed reports; and met with law enforcement agencies,
companies, and universities in Boston, Los Angeles, and San Francisco.
What GAO Found:
Four factors together may indicate the risk that foreign nationals
could gain unauthorized access to controlled dual-use technology.
First, according to unclassified intelligence reports and law
enforcement officials, foreign businessmen, scientists, engineers, and
others have gained unauthorized access in the United States to
controlled dual-use technologies. Second, during fiscal years 2004
through 2009, Commerce suspended the export privileges of three
violators and fined 14 U.S. companies about $2.3 million for allowing
foreign nationals unauthorized access to controlled technologies.
Third, Commerce‘s screening of overseas visa applications for
potential unlicensed deemed exports dropped from 54,000 in fiscal year
2001 to 150 in fiscal year 2009. Fourth, from fiscal years 2004 to
2009, the United States issued about 1.05 million specialty occupation
visas in high-technology fields to foreign nationals from 13 countries
of concern to work in the United States, while Commerce issued deemed
export licenses authorizing transfers of technology to about 3,200
foreign nationals from these countries.
Commerce and Immigration and Customs Enforcement (ICE) have not
implemented prior recommended changes to the deemed export licensing
process involving outreach, and Commerce has taken action to clarify a
regulatory definition, but confusion may remain. As a result,
employers may not be aware of deemed export licensing requirements and
obtaining the licenses required. GAO and other audit organizations
made two key recommendations to correct weaknesses in the deemed
export licensing process. The first recommended that Commerce develop
an approach or plan to better inform employers about requirements to
apply for deemed export licenses. However, Commerce still lacks an
approach or plan to provide such information, particularly to small
and mid-size companies. The second recommended that Commerce eliminate
confusion by modifying the regulatory definition that is part of
determining when foreign nationals can access controlled technologies
in fundamental research without triggering the deemed export licensing
requirement. In response, Commerce clarified the definition but may
not have eliminated the confusion, as shown by uncertainty within
Commerce over the definition, which resulted in a misunderstanding
with a U.S. agency. Based on guidance from Commerce, the agency
applied for 37 deemed export licenses, which Commerce processed over a
17-month period before advising the agency that it no longer needed to
apply for such licenses.
Commerce has not implemented GAO‘s and others‘ recommendations to the
export enforcement system involving monitoring license compliance and
using immigration data for deemed export enforcement. Commerce has not
created a program to monitor security conditions in licenses or used
existing immigration data to enforce deemed export regulations.
Commerce, ICE, and the Federal Bureau of Investigation have also not
implemented recommendations to improve coordination on export control
investigations, including those of foreign nationals subject to deemed
export controls.
What GAO Recommends:
Commerce should (1) assess issuance of specialty occupation visas
covered by deemed export license applications and (2) report to
Congress on how it will implement prior deemed export recommendations
as part of the export control reform process. Commerce agreed with the
first recommendation, but did not comment on reporting to Congress.
View [hyperlink, http://www.gao.gov/products/GAO-11-354] or key
components. For more information, contact Joseph A. Christoff at (202)
512-8979 or christoffj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Foreign Nationals from Countries of Concern Have Gained Unauthorized
Access to Controlled Technologies in the United States:
Commerce and ICE Have Not Implemented Recommended Changes to the
Deemed Export Licensing Process Involving Outreach, and Commerce Has
Taken Actions to Clarify a Regulatory Definition but Confusion May
Remain:
Commerce and Other Agencies Have Not Implemented Recommended Changes
to Improve Enforcement of Deemed Exports:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comparison of Numbers of Foreign Nationals from 13
Countries of Concern to Foreign Nationals from the Same Countries
Covered by Deemed Export Licenses, Fiscal Years 2004 to 2009:
Appendix III: Summary of Outreach Activities of Commerce and ICE:
Appendix IV: Draft of DHS's Changes to the Form I-129 "Petition for
Nonimmigrant Worker:"
Appendix V: Comments from the Department of Commerce:
Appendix VI: Comments from the Federal Bureau of Investigation:
Appendix VII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Comparison of Numbers of Foreign Nationals from 13 Countries
of Concern with Specialty Occupation Visas in Four Occupational Fields
to Numbers of Foreign Nationals from the Same Countries Covered by
Deemed Export Licenses, Fiscal Years 2004 to 2009:
Table 2: Summary of Outreach Efforts by Commerce and ICE, Fiscal Years
2004-2009:
Figures:
Figure 1: Comparison of the Number of Foreign Nationals from Countries
of Concern Approved to Receive Specialty Occupation Visas to Those
Covered by Deemed Export Licenses, Fiscal Years 2004-2009:
Figure 2: Percentage of Foreign Nationals Covered by Deemed Export
Licenses from the Four Principal Countries of Concern, as well as
Other Countries, Fiscal Years 2004-2009:
Figure 3: Composition of Technologies Listed in Deemed Export Licenses
Approved in Fiscal Years 2004 through 2009:
Figure 4: Revisions to USCIS Form I-129 That Address Deemed Export
Concerns:
Abbreviations:
CCL: Commerce Control List:
Commerce: Department of Commerce:
DEAC: Deemed Export Advisory Committee:
DHS: Department of Homeland Security:
DOD: Department of Defense:
DTSA: Defense Technology Security Administration:
EAR: Export Administration Regulations:
FBI: Federal Bureau of Investigation:
ICE: U.S. Immigration and Customs Enforcement:
IG: Inspector General:
NEECN: National Export Enforcement Coordination Network:
NIH: National Institutes of Health:
ONCIX: Office of National Counterintelligence Executive:
USCIS: U.S. Citizenship and Immigration Service:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
February 2, 2011:
The Honorable Joseph Barton:
Chairman Emeritus:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Michael C. Burgess:
House of Representatives:
Countries posing national security concerns to the United States could
upgrade their military forces with controlled dual-use U.S.
technologies--technologies that have both civilian and military uses.
To protect its national security and foreign policy interests, the
United States controls the export of dual-use technologies having both
civilian and military uses to certain countries of concern.[Footnote
1] For this purpose, the Department of Commerce (Commerce) may require
exporters of these goods to obtain an export license; similarly,
Commerce regulations also deem certain transfers of controlled
technology or source code to foreign nationals in the United States to
be exports, requiring companies, universities, and agencies in some
instances to obtain a "deemed export" license before they can transfer
these technologies to foreign nationals.[Footnote 2] According to the
2007 report of the Deemed Export Advisory Committee (DEAC), which was
formed to review deemed export policy, deemed export controls can
significantly strengthen national security by preventing foreign
governments or terrorists from acquiring cutting-edge civilian
technologies for military use. However, deemed export controls can
have an adverse effect on U.S. industry and academia by imposing added
costs not faced by overseas competitors.[Footnote 3] The executive
branch is currently considering reforms to the U.S. export control
regime in an Export Control Reform Initiative that would also affect
deemed export licensing and enforcement. For instance, in August 2009
the President created an interagency task force to examine proposed
export control reforms, and in November 2010, signed an executive
order establishing an Export Enforcement Coordination Center to
coordinate and strengthen the U.S. government's export enforcement
efforts, including for deemed exports.[Footnote 4]
In prior reports, we identified numerous weaknesses in the deemed
export control system that could allow the unauthorized transfer of
controlled technologies to foreign nationals in the United States. We
also made several recommendations designed to prevent the unauthorized
transfer of such technologies. For instance, in 2002, we reported that
Commerce did not have a program to monitor compliance with the license
security conditions imposed on almost all of the deemed export
licenses approved.[Footnote 5] We recommended that Commerce work with
the Departments of Defense (DOD), State, and Energy to develop a risk-
based program to monitor compliance with deemed export licensing
security conditions. We also found that Commerce did not screen
thousands of immigration applications from foreign nationals in the
United States who may seek work in U.S. high-technology industries. We
recommended that Commerce use all existing U.S. immigration data to
identify foreign nationals who could be subject to deemed export
licensing requirements. Since our 2002 report, the Commerce and the
Department of Homeland Security (DHS) Inspector Generals (IG), GAO,
and other auditing organizations have issued several additional
reports that discuss in full or in part the deemed export control
system.[Footnote 6]
In response to your request, we have updated our 2002 report on deemed
exports, examining (1) the risk that foreign nationals in the United
States may gain unauthorized access to controlled dual-use
technologies, (2) the extent to which Commerce and other agencies have
implemented recommended changes to the deemed export licensing
process, and (3) the extent to which Commerce and other agencies have
implemented recommended changes to the deemed export enforcement
system.
To address these objectives, we examined applicable laws and
directives and obtained fiscal year 2004-2009 data from Commerce's
export licensing database system. We also obtained fiscal year 2004-
2009 data from a DHS database that documents specialty occupation visa
trends.[Footnote 7] We chose these time frames due to concerns about
the reliability of data produced before fiscal year 2004. Based on
GAO's and others' reports and interviews with agency officials, we
determined that the data were sufficiently reliable for our use. For
the purposes of this report, we selected four broad "specialty
occupation" employee fields: engineering, computers, the physical
sciences, and the life sciences, which generally correspond to
employees working with technologies on the Commerce Control List
(CCL). We chose these fields and not others such as the social
sciences because they include some of the most technologically
advanced occupational fields such as aeronautical engineering. We also
based our decision to include these fields on unclassified
intelligence and law enforcement reports, as well as deemed export
data. We quantified the number of foreign nationals approved for
specialty occupation visas from 13 countries of concern using DHS
immigration data. We reviewed Commerce, DHS, and interagency IG
reports, and other reports. In Washington, D.C., we met with officials
of the agencies responsible for reviewing license applications--the
departments of Commerce, Defense, State, and Energy--as well as the
agencies that outreach to companies, universities, and agencies and
enforce deemed export licensing conditions and regulations--Commerce,
DHS (the U.S. Immigration and Customs Enforcement (ICE)), and the
Department of Justice (principally the Federal Bureau of Investigation
(FBI)). We also met with officials of DHS's U.S. Citizenship and
Immigration Service (USCIS) to discuss a change to their Form I-129
that would require employers to acknowledge deemed export licensing
requirements. In addition, we met with officials of law enforcement
agencies in Washington, D.C.; Boston; Los Angeles; and San Francisco,
as well as representatives of 33 associations, companies,
universities, nonprofits, and agencies in these cities. We selected
the nonprobability sample based in part on an analysis of Commerce's
fourth quarter fiscal year 2007 and fiscal year 2008 deemed export
outreach plan.
We conducted this performance audit from July 2009 to January 2011 in
accordance with generally accepted government auditing standards.
These standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. Appendix I
provides a more detailed description of our objectives, scope, and
methodology.
Results in Brief:
Four factors--intelligence and law enforcement sources; fines and
suspensions for deemed export violations; a reduced number of overseas
visa applications that Commerce screens; and a large number of foreign
nationals in the United States with specialty occupation visas in high-
technology fields that may have required an export license--together
may indicate the continuing risk that foreign nationals could gain
unauthorized access to controlled technology.[Footnote 8] First,
foreign businessmen, scientists, engineers, and academics from
countries of concern have gained unauthorized access to controlled
dual-use technologies in the United States, according to intelligence
and law enforcement sources. Second, from fiscal years 2004 to 2009,
Commerce fined 14 U.S. companies about $2.3 million for making
unauthorized transfers of controlled technologies to foreign nationals
from 25 countries. Commerce also suspended the export privileges of
one company and two individuals for 20 years each. The majority of the
enforcement actions involved foreign nationals from three countries.
Third, Commerce officials stated that they screened 150 visa
applications from U.S. posts overseas in fiscal year 2009 to identify
potential unlicensed deemed exports--fewer than the 54,000 visa
applications screened in fiscal year 2001--because of a change in
procedures that is more reactive, focusing on leads and intelligence
information, rather than proactive screening. Finally, we found that
while USCIS approved a large number of foreign nationals for specialty
occupation visas from 2004 to 2009, Commerce issued deemed export
licenses authorizing the transfer of technology to a smaller number of
foreign nationals during the same period. The U.S. government
addressed shortages of U.S.-born engineers and scientists by approving
specialty occupation visas in occupational fields including
engineering, computers, electronics, and the biological sciences to
approximately 1.05 million foreign nationals from 13 countries of
concern. From fiscal years 2004 to 2009, Commerce issued deemed export
licenses authorizing the release of technology to 3,178 foreign
nationals from the same 13 countries. However, not all foreign
nationals with H-1B specialty occupation visas are required to apply
for deemed export licenses.
Commerce and ICE have not implemented recommended changes to the
deemed export licensing process involving outreach, and Commerce has
taken action to clarify a regulatory definition, but confusion may
remain. As a result, employers may be obtaining deemed export licenses
for transfer of technology to fewer foreign nationals than should be
the case. GAO and other audit organizations previously made two key
recommendations to correct weaknesses in the deemed export licensing
process.[Footnote 9] The first recommendation focused on providing
better outreach, such as Commerce developing an approach or outreach
plan to inform companies, universities, and agencies that employ
foreign nationals of deemed export control requirements so they would
apply for deemed export licenses when required. While Commerce has
incorporated information on deemed export requirements in its training
materials, it continues to lack an approach or outreach plan to
provide information on deemed export licensing requirements,
particularly to small-and mid-size companies, many of which employ
foreign nationals but may not be familiar with the requirements. Such
an outreach plan would have annual goals and identify priority
industries, U.S. agencies, and academic institutions that are not
currently applying for export licenses for the release of controlled
technology to foreign nationals in the United States. According to
Commerce and company representatives, such outreach would be
particularly useful to the growing biotechnology sector. The second
recommendation advised Commerce to modify the regulatory definition of
"use" set forth in the Export Administration Regulations (EAR), which
determines when technology to use controlled commodities can be
released without triggering a deemed export licensing requirement.
After reviewing the issue, including public comments on the
recommendation, Commerce has not modified this definition, but has
taken actions to clarify it. However, as shown by uncertainty within
Commerce over the definition of "use" technology that resulted in a
misunderstanding with the National Institutes of Health (NIH),
Commerce's clarification may not have eliminated the confusion. Based
on guidance from Commerce on the definition, NIH applied for 37 deemed
export licenses, which Commerce processed over a 17-month period
before advising NIH that it no longer needed to apply for such
licenses, though the definition itself remained the same.
Commerce has not implemented recommendations that we and others made
involving monitoring compliance with deemed export licensing
conditions and using immigration data to improve deemed export
enforcement, while Commerce, ICE, and FBI have not implemented
recommendations to improve coordination, as described below:
* Commerce continues to lack a compliance program to monitor security
conditions on deemed export licenses, even though our 2002 and the
Commerce IG's 2004 reports recommended that it establish one.[Footnote
10] A compliance program should involve on-site inspections of
facilities to determine whether the license holder is complying with
specific license conditions. In particular, all potential points of
access to the controlled technology should be reviewed for appropriate
safeguards, and a technology control plan to prevent foreign nationals
from accessing controlled technologies should be implemented to ensure
compliance with license conditions, according to the Commerce IG. The
security conditions are imposed to help prevent foreign nationals from
obtaining unlicensed access to controlled technologies and are
attached to almost all of the deemed export licenses approved. In
fiscal year 2006, Commerce established a program to monitor licensing
conditions, but discontinued it after fiscal year 2007, citing
competing priorities and budget constraints.
* Commerce does not use all existing DHS immigration data to detect
firms that should have applied for deemed export licenses. In 2002, we
recommended that Commerce use all existing immigration data, including
data from change-of-status applications, to identify foreign nationals
who could be subject to deemed export licensing regulations. In
response to our recommendation, Commerce and DHS have begun discussing
how to share these data, but have not finalized arrangements. DHS
announced proposed changes to its primary immigration form in February
2010 that would make it easier for Commerce, ICE, and FBI to use
immigration data for deemed export enforcement.
* Commerce, ICE, and FBI have not resolved weaknesses in the
coordination of their overall export enforcement activities,
notwithstanding our recommendations in 2006, which could impact deemed
export enforcement.[Footnote 11] For example, Commerce, ICE, and FBI
have not created new written agreements or updated existing ones
between and among these agencies to assign clear roles and
responsibilities among the agencies as we recommended. According to
Commerce, ICE, and FBI officials, the lack of such agreements has in
some cases led to a duplication of efforts and ineffective sharing of
investigative information, although they cited no specific cases
involving deemed exports.
To better direct its efforts to detect possible unauthorized deemed
exports and conduct outreach, we are recommending that the Secretary
of Commerce, in consultation with the U.S. Attorney General and the
Secretary of Homeland Security, assess the extent to which foreign
nationals from countries of concern who were issued specialty
occupation visas also should have been covered by deemed export
licenses and use the results to identify vulnerabilities in the deemed
export control system, target and inform employers about deemed export
licensing requirements, and incorporate immigration data into its
enforcement screening activities. In addition, to ensure that Commerce
more fully addresses the deficiencies identified in this and prior
reports, as part of the export control reform process, we are
recommending that the Secretary of Commerce report to Congress on the
steps being taken to implement past GAO and Commerce IG
recommendations.
Commerce agreed with our first recommendation and stated that it would
review prior GAO and IG recommendations as part of the ongoing Export
Control Reform process. However, Commerce did not specifically agree
or disagree with our recommendation to report to the Congress on the
steps being taken to implement past GAO and Commerce IG
recommendations. We believe this recommendation remains valid because
resolving the deficiencies identified repeatedly since 2002 could be
critical to the success of any export control initiative. Responding
for the Attorney General, the FBI stated that it has conducted deemed
export outreach to small-to-medium size biotechnology companies
through several venues, including strategic task forces,
counterintelligence working groups, conferences and other initiatives
in coordination with the U.S. intelligence community and federal law
enforcement agencies, including ICE and Commerce. FBI also stated that
through participation at the National Export Enforcement Coordination
Network (NEECN) and other arenas, FBI, ICE, and Commerce have worked
to resolve coordination of export enforcement activities. In our
report we discuss the role of the NEECN, which ICE established to
coordinate export control investigations, but note that ICE officials
told us that the NEECN primarily focuses on investigations involving
exports of goods, rather than deemed exports. Commerce's and FBI's
written comments are contained in appendices V and VI. Commerce, FBI,
and DHS also provided technical comments, which we have incorporated
as appropriate.
Background:
Under the Export Administration Act of 1979, as amended,[Footnote 12]
and the implementing EAR,[Footnote 13] companies, universities, and
agencies may be required to obtain an export license before releasing
controlled dual-use technology or source code subject to the EAR
[Footnote 14] to a foreign national who is not a permanent resident of
the United States or a member of certain groups of protected
individuals such as asylum holders.[Footnote 15] Pursuant to the EAR,
a transfer of technology within the United States to such a foreign
national is deemed to be an export to his or her home country.
[Footnote 16] To determine whether a license is required, the employer
or university researcher needs to (1) determine whether technologies
under consideration for release to certain foreign nationals are on
the CCL, (2) determine whether a license is required to export the
technology to the home country of the foreign national, and (3)
determine whether any license exceptions apply.[Footnote 17] If it is
determined that a licensing requirement applies, the employer must
obtain a deemed export license before releasing controlled
technologies to foreign nationals.[Footnote 18] "Release" may include
opportunities to review written materials or discussions about
controlled technologies. Violators may face administrative or criminal
penalties, including fines, denial of export privileges, and
imprisonment.[Footnote 19] The EAR generally does not cover
information that arises during, or results from, fundamental research.
[Footnote 20] As a result, information that falls within the scope of
the EAR's "fundamental research" provision does not require a license
for release to a foreign national. However, authorization may be
required if technology that is controlled (typically, on the CCL) is
transferred to a foreign national during the course of undertaking
fundamental research.[Footnote 21]
Commerce reviews and issues export and deemed export licenses, in
consultation with other agencies, and enforces the EAR. Within
Commerce's Bureau of Industry and Security, Export Administration
reviews license applications, issues licenses, and provides
information or outreach to companies, universities, and agencies that
employ foreign nationals about deemed export licensing requirements
principally through its own seminars and conferences, as well as
seminars and conferences sponsored by other organizations.[Footnote
22] Commerce intends for such information to inform and help exporters
comply with export control requirements. Commerce's Office of Export
Enforcement also provides outreach about deemed export licensing rules
and regulations as part of its investigative efforts, often in
meetings with representatives of companies, universities, agencies,
and relevant associations.
To work in the United States, foreign nationals and their employers
must also comply with U.S. visa regulations for nonimmigrants wanting
to work and study in the United States. Many foreign nationals who are
not permanent residents in the United States that seek work here apply
for H-1B specialty occupation 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. A
foreign national overseas may obtain an H-1B visa from State, if USCIS
determines that an employer may employ the foreign national as a
temporary worker. USCIS is the agency within DHS that oversees lawful
immigration to the United States. A foreign national already in the
United States may also have his or her immigration status changed to H-
1B by USCIS. For example, an employer seeking to hire a foreign
student who has graduated from a U.S. college or university could
petition USCIS to change the foreign national's immigration status
from student to H-1B.
Executive Order 12981,[Footnote 23] as amended, governs the
interagency licensing review process for all dual-use exports.
Pursuant to this order, other agencies provide recommendations to
Commerce in the review of all export license applications, including
deemed export license applications, as follows:
* State's Bureau of International Security and Nonproliferation
reviews the deemed export license applications that Commerce refers to
it for proliferation concerns and makes recommendations on whether
these licenses should be approved, approved with conditions, or
denied. In addition, State's Bureau of Consular Affairs shares with
Commerce and DOD certain information obtained from some foreign
nationals during the visa application process.[Footnote 24]
* DOD, principally the Defense Technology Security Administration
(DTSA), reviews and evaluates deemed export licenses for technical,
policy, and intelligence concerns, referring some licenses to the
Army, Navy, and Air Force for additional study. In addition, DTSA
refers some deemed export licenses to the Defense Intelligence Agency
for information on foreign nationals from certain countries.
* The Department of Energy reviews deemed export license applications
that Commerce refers to it involving nuclear uses and nuclear end
users, as well as other technologies, and makes recommendations on
whether these license applications should be approved, approved with
conditions, or denied. Energy principally relies on its network of 20
national laboratories to conduct its review.
* FBI conducts checks of its records on behalf of Commerce when
requested.
In addition, two agencies assist with deemed export enforcement, which
includes providing investigations-related outreach:
* ICE enforces deemed export licensing regulations by conducting
criminal investigations, indicting and prosecuting potential
violators, and referring noncriminal violators to Commerce. In
addition, since fiscal year 2001, ICE has provided outreach to
companies, universities, and agencies that hire foreign nationals as
part of a program known as Project Shield America.[Footnote 25] The
focus of this program is to prevent the (1) proliferation of
controlled technology and components; (2) unlawful acquisition of
nuclear, chemical, and biological weapons; and (3) unlawful
exportation of weapon systems and classified or controlled technical
data. ICE's outreach efforts involve face-to-face discussions with
representatives of companies, universities, and agencies, as well as
discussions at seminars and conferences.
* FBI enforces deemed export license regulations by conducting
criminal investigations, indicting and prosecuting potential
violators, and referring noncriminal violators to Commerce. FBI takes
the lead in investigations involving counterintelligence and
counterterrorism. In addition, FBI provides outreach through its
Counterintelligence Strategic Partnership Program. The program entails
the use of focus groups and meetings with leading universities and
companies to raise awareness of threats and vulnerabilities involving
controlled technologies to industry and academia. FBI's outreach
efforts, like ICE's, involve face-to-face meetings as well as
discussions at seminars and conferences.
The review process for a deemed export license parallels the review
process for an application for a license to export commodities or
technologies overseas.[Footnote 26] Under the EAR's deemed export
provisions, an employer or university researcher 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 (e.g., company, university, or
agency) must submit a license application to Commerce identifying the
technology, end use, and Export Control Classification Number; the
proposed destination; and the intended end user.[Footnote 27] In the
case of deemed export license applications, employers or university
researchers 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 individual, and an
organization may also apply for more than one deemed export license
for an individual, depending on the technologies that the employer or
researcher wants to provide to the foreign national.
Foreign Nationals from Countries of Concern Have Gained Unauthorized
Access to Controlled Technologies in the United States:
Four factors--intelligence and law enforcement findings; fines and
suspensions for deemed export violations; a reduced number of overseas
visa applications that Commerce screens; and a large number of foreign
nationals with specialty occupation visas in high-technology fields--
together may indicate the continuing risk that foreign nationals could
gain unauthorized access to controlled technology. First, countries of
concern use their foreign nationals in the United States to acquire
controlled dual-use technologies for military purposes, according to
intelligence and law enforcement sources. Second, during fiscal years
2004 through 2009, Commerce fined 14 U.S. companies about $2.3 million
for the unauthorized transfer of controlled technologies to foreign
nationals from 25 countries, and applied criminal penalties to one
company and two individuals. It also suspended the export privileges
of some exporters. Third, Commerce officials stated that they screened
150 visa applications from U.S. posts overseas in fiscal year 2009 to
identify potential unlicensed deemed exports--fewer than the 54,000
visa applications screened in fiscal year 2001--because of a change in
procedures. Finally, we found that while USCIS approved specialty
occupation visas for a large number of foreign nationals from 2004 to
2009, Commerce approved deemed export licenses to cover a smaller
number of foreign nationals during the same time period.
According to Reports and Officials, Countries of Concern Use Some of
Their Citizens in the United States to Collect Controlled Dual-Use
Technologies:
According to intelligence reports and law enforcement sources, as well
as congressional testimony and law enforcement officials, a small
group of countries is responsible for most of the efforts to acquire
controlled technologies for military purposes. The countries included
in this small group are detailed in the December 2010 classified
version of this report. According to congressional testimony presented
in September 2005 by the Director of the Office of the National
Counterintelligence Executive (ONCIX),[Footnote 28] and intelligence
assessments, some countries use some of their foreign nationals as
part of organized programs to obtain controlled technologies while
working, studying in, or visiting the United States.[Footnote 29] In
addition, the Director of ONCIX also testified that the U.S.
government has limited insight into foreign intelligence operations in
the United States. The Director of ONCIX also said that much of the
intelligence collection against the U.S. technology base is carried
out by those who are employing nontraditional collection means against
the United States, rather than by known intelligence officers. As a
result, the U.S. government has little knowledge of when individuals
who ostensibly come to the United States for legitimate business
purposes might have illegitimate objectives, according to this
official.[Footnote 30]
According to the ONCIX and other assessments, the technologies most
often targeted for theft since 2002 have included aeronautics,
computers and information systems, electronics, lasers and optics,
sensors and marine technology, and unmanned aerial vehicles. In
addition, according to ONCIX's 2003 Annual Report, biotechnology has
been of particular interest.[Footnote 31] Moreover, the ONCIX has
expressed concern about emerging military technologies or commercial
breakthrough technologies that have not yet been added to the CCL
because these technologies are often hard to identify in their early
phases and are more vulnerable to loss or compromise.
Although the types of technologies involving deemed export licenses
have changed little over the past 5 years, some industry sectors have
grown and hired increasing numbers of foreign nationals. For example,
the biotechnology industry--one area that the ONCIX identified as most
often targeted by theft--has enjoyed rapid growth in both revenues and
employment over the past few years. Although the economic downturn
from 2008 to the present has generally resulted in lower levels of
hiring and investment by U.S. industry, the biotechnology sector had
previously grown at a rapid pace. According to a private sector study,
the biotechnology industry's sales and revenues increased at least 80
percent from 2002 to 2006.[Footnote 32] The number of employees
involved in biotechnology research and development in the United
States also doubled, from approximately 75,000 in 2003 to
approximately 150,000 in 2006, according to the Organization of
Economic Co-Operation and Development.[Footnote 33] The Department of
Labor's 2010-2011 edition of the Occupational Outlook Handbook
forecast that the sector will continue to experience above-average
employment growth rates of about 21 percent over the 2008-2018 period.
[Footnote 34]
Countries targeting U.S. dual-use technologies have the opportunity to
send their foreign nationals to work in the United States because the
United States has shortages of qualified workers. Sixty-five percent
of U.S. manufacturers report experiencing shortages of qualified
employees, particularly of engineers and scientists, according to the
2007 report of the DEAC. About 18 percent of U.S. manufacturers report
serious shortages and 47 percent report moderate shortages.[Footnote
35] As the DEAC reported in 2007, many of these positions could be
filled by foreign nationals with H-1B specialty occupation visas.
Penalties on Companies Show That Some Foreign Nationals from Countries
of Concern Gained Unauthorized Access to Controlled Technologies:
Information obtained from analysis of Commerce investigations closed
during fiscal years 2004 through 2009 provides evidence that some
foreign nationals have gained unauthorized access to controlled dual-
use technologies. These foreign nationals were predominantly from
three countries of concern. Of the 16 dual-use deemed export
enforcement investigations resulting in penalties, such as fines or
suspension of trading privileges, 9 involved nationals of one country,
as did all 3 investigations that concerned criminal violations of law
involving the unauthorized release of technology. For example,
Commerce levied fines of $517,000 and suspended the export privileges
of one company and two individuals for 20 years each in criminal cases
for releasing CCL technology to nationals of one country without a
license. Commerce also levied the largest fine for a deemed export
case--$560,000--against another company for releasing technical data
to a national from the same country without authorization.
Commerce No Longer Screens Many Overseas Visa Applications:
We reported in 2002 that Commerce screened visa applications submitted
overseas; however, Commerce officials stated that they now screen few
overseas visa applications.[Footnote 36] In fiscal year 2001, Commerce
screened about 54,000 visa applications submitted to overseas posts,
referring about 160 potential cases to Commerce's field offices for
further limited follow up and review. Pursuant to Commerce guidance in
2001, agency analysts screened State visas by using 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. By contrast, in fiscal year
2009, Commerce screened only 150 visa applications submitted overseas,
referring just 1 to a Commerce field office for further review.
Commerce officials stated that the agency reviewed thousands fewer
overseas visa applications in fiscal year 2009 as compared to fiscal
year 2001 because of a change in its procedures. The new procedures
are more reactive because they focus on leads and intelligence
information rather than proactive screening. According to these
officials, the resulting change in procedures has led to better
investigations; however, Commerce officials did not provide
documentation to show how investigations were better. In technical
comments provided on a draft of this report in November 2010, Commerce
stated that a methodology that does not involve the review of every
visa application does in fact constitute a proactive and effective
approach. Commerce also stated that it would not be sound practice,
with limited resources, to perform data reviews en masse of State's
large database of visa cases, which could result in an overwhelming
amount of data and unfocused research. However, we affirm our
characterization that the new procedures are more reactive, as they
rely on Commerce receiving leads or information, rather than
proactively and routinely reviewing a portion of the database.
Immigration and Licensing Data Suggest a Pool of Risk That Commerce
Has Not Assessed:
Based on analysis of DHS and Commerce data from fiscal years 2004
through 2009, we found that USCIS approved approximately 1.05 million
foreign nationals from 13 countries of concern for specialty
occupation visas, and Commerce approved deemed export licenses
authorizing release of technology to approximately 3,200 foreign
nationals from the same countries of concern (see figure 1).[Footnote
37] This, combined with the other factors already described--
intelligence and law enforcement sources; fines and suspensions for
deemed export violations; and the reduced number of overseas visa
applications that Commerce screens--could indicate a continuing risk
of foreign nationals gaining unauthorized access to controlled
technology. In particular, our analysis of DHS and Commerce data
focused on companies, universities, and agencies hiring foreign
nationals to work in such areas as computer technology and the
biological sciences. Figure 1 compares the number of foreign nationals
from 13 countries of concern who worked in certain high-technology
specialty occupations to the number of foreign nationals from the same
countries who were covered by deemed export licenses for each fiscal
year from 2004 through 2009. It also shows the total numbers of
specialty occupation visas and deemed export licenses authorizing
release of technology to foreign nationals from the same countries of
concern over the period of fiscal years 2004 through 2009. The figure
also shows that while the number of deemed export licenses approved to
cover foreign nationals from these countries of concern peaked in
fiscal year 2004 at 655 and was lower in subsequent years, the number
of foreign nationals approved to receive H-1B specialty occupation
visas increased until fiscal year 2007 to 204,095, then declined in
fiscal year 2009 to 142,758.
Figure 1: Comparison of the Number of Foreign Nationals from Countries
of Concern Approved to Receive Specialty Occupation Visas to Those
Covered by Deemed Export Licenses, Fiscal Years 2004-2009:
[Refer to PDF for image: vertical bar graph]
Fiscal year: 2004;
Number of foreign nationals for whom deemed export licenses were
approved: 655;
Number of H1-B visas approved for certain high technology fields:
165,804.
Fiscal year: 2005;
Number of foreign nationals for whom deemed export licenses were
approved: 375;
Number of H1-B visas approved for certain high technology fields:
156,969.
Fiscal year: 2006;
Number of foreign nationals for whom deemed export licenses were
approved: 452;
Number of H1-B visas approved for certain high technology fields:
185,243.
Fiscal year: 2007;
Number of foreign nationals for whom deemed export licenses were
approved: 556;
Number of H1-B visas approved for certain high technology fields:
204,095.
Fiscal year: 2008;
Number of foreign nationals for whom deemed export licenses were
approved: 572;
Number of H1-B visas approved for certain high technology fields:
193,821.
Fiscal year: 2009;
Number of foreign nationals for whom deemed export licenses were
approved: 568;
Number of H1-B visas approved for certain high technology fields:
142,758.
Fiscal year: Total;
Number of foreign nationals for whom deemed export licenses were
approved: 3,200;
Number of H1-B visas approved for certain high technology fields:
1,048,700.
Sources: GAO analysis of Commerce and State data.
[End of figure]
To address the serious shortage of qualified engineers and scientists,
during fiscal years 2004 to 2009, the United States approved
approximately 1.7 million foreign nationals to work in the United
States in certain high-technology occupational fields such as
engineering, computers, the biological sciences, and the physical
sciences. This number includes about 1.05 million specialty occupation
visas that the United States approved for foreign nationals from 13
countries of concern.
By comparing the overall number of foreign nationals from countries of
concern receiving specialty occupation visas to work in high-
technology occupations with the number of deemed export licenses
issued, we found that Commerce issued deemed export licenses covering
a relatively smaller number of foreign nationals from countries of
concern. However, there is no requirement that a foreign national who
holds a specialty occupation visa also be covered by a deemed export
license. Furthermore, transfer of technology to multiple foreign
nationals can be covered by a single deemed export license.[Footnote
38] From fiscal years 2004 through 2009, Commerce approved deemed
export licenses authorizing transfers of technology or source code to
3,178 foreign nationals of certain countries of concern.[Footnote 39]
Our comparison of USCIS and Commerce data showed specialty occupation
visas for approximately 818,000 foreign nationals from one country or
about 78 percent of the approximately 1.05 million total H-1Bs
approved during this time period, compared to deemed export licenses
authorizing release of technology or source code to 444 foreign
nationals from the same country. We found specialty occupation visas
for approximately 149,000 foreign nationals from a second country
compared to deemed export licenses authorizing transfer of technology
or source code to 2,184 foreign nationals from the same country.
Appendix II shows the number of foreign nationals approved by USCIS to
receive certain high-technology H-1B specialty occupation visas from
the 13 countries of concern that we selected as part of this review
and the number of foreign nationals from the same countries that
Commerce approved for deemed export licenses.
In technical comments on this report, Commerce stated that the report
should put deemed exports in the context of the proportion of all
exports to exports licensed by Commerce. Commerce concluded that the
proportion of transactions requiring a Commerce license for deemed
exports is about the right order of magnitude. It stated that the
proportion of transactions requiring a Commerce license for actual
exports--0.3 percent--is roughly the same as the proportion of high-
technology visas identified by GAO to deemed export licenses--1.05
million specialty occupation visas in high-technology fields and 3,200
deemed export licenses to foreign nationals (0.3 percent). However,
Commerce provided no rationale for why the ratio of the number of all
Commerce licenses to the number of all deemed export licenses should
be comparable--or even relevant--to the proportion of specialty
occupation visas compared to deemed export licenses. Commerce also
stated other reasons that may explain the proportionately small number
of deemed export licenses: (1) under the EAR, a technology license
exception is available for release of controlled technology to
nationals from three countries of concern, but is not reflected in
licensing data; (2) the economic downturn from 2008 to the present has
resulted in lower levels of hiring and investment by U.S. industry;
(3) there has been a significant development of high-technology
research and development offshore; and (4) the emergence of leading
foreign research and technical schools has supplied more indigenous
engineering and technology skills to foreign companies.
In addition, the officials said that employers have an incentive to
police themselves and reduce the number of opportunities for foreign
nationals to obtain sensitive technologies for use in their home
country since a loss of such proprietary information could pose a
financial risk to employers. However, Commerce Office of Enforcement
officials told us that many small-to-medium-size employers do not have
mechanisms for protecting sensitive technologies.
Our analysis of Commerce data shows that for fiscal years 2004 to
2009, foreign nationals from four countries of concern accounted for
79 percent of all the foreign nationals covered by deemed export
licenses for this period. One country alone accounted for
approximately 55 percent of the total. Figure 2 shows the percentage
of foreign nationals from the four countries that received the most
deemed export licenses during fiscal years 2004 through 2009 as well
as the percentage of foreign nationals covered by deemed export
licenses for fiscal years 2004 through 2009 from all other countries.
Figure 2: Percentage of Foreign Nationals Covered by Deemed Export
Licenses from the Four Principal Countries of Concern, as well as
Other Countries, Fiscal Years 2004-2009:
[Refer to PDF for image: pie-chart]
Country A (2184): 55%;
Country B (444): 11%;
Country C (314): 8%;
Country D (188): 5%;
Remaining countries (855): 21%.
Source: GAO analysis of Commerce deemed export licensing data.
[End of figure]
Our analysis of Commerce's deemed export licensing data for fiscal
years 2004 through 2009 showed a concentration of licenses in some of
these technologies, particularly computers and electronics, but little
change in the distribution of technologies licensed for release (see
figure 3). While our analysis identified some differences in the
percentages of deemed export licenses approved for the individual
categories of electronics and computers, the technologies of
computers, telecommunications and information security, and
electronics together comprised at least 80 percent of the deemed
export licenses issued in each fiscal year.
Figure 3: Composition of Technologies Listed in Deemed Export Licenses
Approved in Fiscal Years 2004 through 2009:
[Refer to PDF for image: stacked vertical bar graph]
Fiscal year: 2004;
Computers: 36%;
Telecommunications and information security: 27%;
Electronics: 23%;
Materials, chemicals, microorganisms, and toxins: 4%;
Materials processing: 4%;
Propulsion systems, space vehicles, and related equipment: 3%;
Navigation and avionics: 3%;
Lasers and sensors: 1%.
Fiscal year: 2005;
Computers: 25%;
Telecommunications and information security: 29%;
Electronics: 29%;
Materials, chemicals, microorganisms, and toxins: 2%;
Materials processing: 6%;
Propulsion systems, space vehicles, and related equipment: 6%;
Navigation and avionics: 2%;
Lasers and sensors: 1%.
Fiscal year: 2006;
Computers: 30%;
Telecommunications and information security: 25%;
Electronics: 23%;
Materials, chemicals, microorganisms, and toxins: 4%;
Materials processing: 9%;
Propulsion systems, space vehicles, and related equipment: 4%;
Navigation and avionics: 4%;
Lasers and sensors: 2%.
Fiscal year: 2007;
Computers: 30%;
Telecommunications and information security: 25%;
Electronics: 25%;
Materials, chemicals, microorganisms, and toxins: 9%;
Materials processing: 5%;
Propulsion systems, space vehicles, and related equipment: 4%;
Navigation and avionics: 2%;
Lasers and sensors: 0%.
Fiscal year: 2008;
Computers: 36%;
Telecommunications and information security: 26%;
Electronics: 25%;
Materials, chemicals, microorganisms, and toxins: 3%;
Materials processing: 5%;
Propulsion systems, space vehicles, and related equipment: 3%;
Navigation and avionics: 3%;
Lasers and sensors: 0%.
Fiscal year: 2009;
Computers: 30%;
Telecommunications and information security: 26%;
Electronics: 26%;
Materials, chemicals, microorganisms, and toxins: 6%;
Materials processing: 5%;
Propulsion systems, space vehicles, and related equipment: 4%;
Navigation and avionics: 2%;
Lasers and sensors: 1%.
Fiscal year: Totals;
Computers: 32%;
Telecommunications and information security: 26%;
Electronics: 25%;
Materials, chemicals, microorganisms, and toxins: 5%;
Materials processing: 6%;
Propulsion systems, space vehicles, and related equipment: 4%;
Navigation and avionics: 3%;
Lasers and sensors: 1%.
Source: GAO analysis of Commerce data.
Note: Two CCL categories--marine; and nuclear materials, facilities,
and equipment--are not listed because only one foreign national was
approved for a deemed export license in these two technology
categories.
[End of figure]
Commerce and ICE Have Not Implemented Recommended Changes to the
Deemed Export Licensing Process Involving Outreach, and Commerce Has
Taken Actions to Clarify a Regulatory Definition but Confusion May
Remain:
Commerce and ICE have not implemented recommended changes to the
deemed export licensing process involving outreach. As a result,
employers may be obtaining deemed export licenses for release of
technology to fewer foreign nationals than should be the case. GAO and
other audit organizations previously made two key recommendations to
correct weaknesses in the deemed export licensing process. The first
recommendation focused on providing better outreach to inform
companies, universities, and agencies that employ foreign nationals of
deemed export control requirements so they would apply for deemed
export licenses when required. The second recommendation advised
Commerce to modify the regulatory definition of "use" set forth in the
EAR. Commerce has taken actions to clarify this definition, but
confusion about its application may remain.
Commerce and ICE Have Not Implemented Prior Recommendations to Improve
Outreach to Companies, Universities, and Agencies:
Commerce and ICE have not implemented prior recommendations to improve
outreach to companies, universities, and U.S. agencies to address
weaknesses identified by GAO and the Commerce and DHS IGs. As a
result, employers may be obtaining deemed export licenses for transfer
of technology or source code to fewer foreign nationals than should be
the case. The Commerce IG noted in 2004 that overall export licensing
data and interviews with company officials suggested that Commerce was
doing little to raise awareness of deemed export licensing
requirements among companies and industry sectors that have not
traditionally applied for deemed export licenses. Specifically, the
Commerce IG reported that Commerce's outreach program for deemed
export controls did not include entities other than those applying for
export licenses for the release of export-controlled technology to
foreign nationals in the United States. Overall, the lack of awareness
and understanding of laws and regulations pertaining to the release of
export-controlled technology to foreign nationals in the United States
could harm national security if militarily sensitive technology is
released to unauthorized foreign nationals, according to the Commerce
IG. Similarly, in 2006, we reported that Commerce needed to improve
its efforts to provide information and outreach to companies and
universities.[Footnote 40]
In response to GAO's and the Commerce IG's recommendations that
Commerce improve outreach to companies and universities, Commerce
conducted deemed export outreach and prepared and adopted outreach
plans; however, it did not implement all of these plans. Specifically,
the Commerce IG recommended that Commerce develop written outreach
plans. We also recommended that, among other things, Commerce use
immigration, student, and other data to more precisely target outreach
activities to companies and universities based on an assessment of the
vulnerabilities of their use of controlled information, improve
interagency coordination, and conduct additional outreach. Commerce IG
recommended that Commerce's strategic outreach plan for exports of
controlled technology to foreign nationals in the United States have
annual goals and identify priority industries, federal agencies, and
academic institutions that are not currently applying for export
licenses for the release of export-controlled technology to foreign
nationals in the United States. Commerce stated that it would continue
to identify priority industries and conduct outreach to small-and
medium-sized businesses and defense contractors to educate those types
of companies about dual-use export control rules involving deemed
exports. In addition, Commerce stated that it had already targeted
outreach in the area of biotechnology by discussing export policies
and procedures with the biotechnology industry and academia, as well
as visits to U.S. government research labs, universities, small
business associations, and foreign student associations. Among other
things, to better identify emerging priority technologies for
inclusion on the CCL, Commerce established an Office of Technology
Evaluation in fiscal year 2006.
However, our analysis of Commerce's Export Administration's outreach
plans for fiscal years 2004 and 2005 found they did not include a
strategy to improve outreach, but instead listed organizations that
Export Administration decided to meet with during the year.[Footnote
41] While Commerce did prepare and adopt a strategy for outreach as
part of an enhanced deemed export initiative for the fourth quarter of
fiscal year 2007 and fiscal year 2008, according to agency officials,
it never implemented the outreach plan due to funding constraints and
eventually provided outreach to only about 11 percent of the
approximately 300 companies and universities it had originally
targeted. The strategy explicitly recognized that Commerce needed to
better inform companies in sectors of the economy that have not
traditionally applied for deemed export licenses, specifically,
biotechnology, and to use specialty occupation H-1B data and student
data to better target outreach.[Footnote 42] In addition, the deemed
export initiative included an additional $2.6 million in fiscal year
2006 to hire eight additional staff to focus on such things as
enhanced deemed export outreach. However, Commerce officials stated
that a budget cut of approximately 3 percent that occurred during
fiscal year 2007 and the departure of the three staff hired under the
deemed export initiative adversely affected the fourth quarter fiscal
year 2007 and fiscal year 2008 outreach plan. As of August 2010,
Commerce had not replaced the staff and currently has not assigned any
staff to focus exclusively on deemed export outreach. According to
Commerce Export Administration officials, they currently do not have a
national outreach plan focused on deemed exports. However, Commerce
does conduct outreach specific to deemed exports and includes the
topic of deemed exports in overall export control seminars. According
to Commerce, it began conducting seminars focused exclusively on
deemed exports in January 2006.[Footnote 43]
Similarly, Commerce's Office of Export Enforcement also conducts
outreach to inform companies, universities, and agencies about deemed
export licensing requirements, but lacks a national outreach plan,
according to Office of Export Enforcement officials. Commerce Office
of Export Enforcement officials told us that each of Commerce's nine
export enforcement field offices could develop outreach plans for
their areas of jurisdiction. However, we found that none of the three
Commerce field offices in the cities that we visited--Boston, Los
Angeles, and San Francisco--had developed such plans.
ICE has taken actions in response to the DHS IG's 2004 recommendations
that it improve its deemed export outreach, but continues to lack
written guidance for its agents on what information outreach
activities should present. The DHS IG found that ICE had not
incorporated into its outreach written guidance or a checklist for
Project Shield America that agents could refer to when selecting
export control topics to present during their outreach visits. The DHS
IG noted that without adequate guidance about export laws and
regulations, particularly those specific to deemed exports, agents
might fail to present this critical information. It recommended that
ICE implement standard operating procedures and a standardized
checklist of items as part of its Project Shield America outreach to
companies, universities, and agencies to ensure that the release of
controlled technology to foreign nationals is included in ICE
presentations. ICE concurred with this recommendation. ICE has
developed a component for deemed export outreach and investigations
known as Operation Tech Defense as part of Project Shield America.
However, since fiscal year 2004, ICE has reduced the number of
outreach activities by approximately 35 percent (from 2,322 outreach
meetings in fiscal year 2004 to 1,504 in fiscal year 2009) and, like
Commerce, lacks a national outreach plan.[Footnote 44]
FBI officials stated that its field offices also develop local
outreach plans and that FBI considers outreach on deemed exports to be
an integral part of its outreach; however, agency officials noted that
it does not have any outreach focused exclusively on deemed exports.
Although both ICE and FBI officials in Washington told us that
outreach plans are developed locally, we found that none of the ICE
and FBI field offices in the cities that we visited had developed such
plans. ICE and FBI officials in Boston, Los Angeles, and San Francisco
said that resource constraints made it difficult to prepare such plans.
We found that the Commerce IG's critique of Commerce's outreach
activities in 2004--a lack of focus on companies other than those that
were applying for licenses and a general lack of awareness of deemed
export laws and regulations among other companies--pertained to
Commerce, ICE, and FBI in the cities we visited. According to
Commerce, ICE, and FBI officials in the three cities where we
conducted field work, the three agencies tended to focus their deemed
export outreach on the same types of companies and universities--
principally larger companies, universities, and agencies that are
either defense contractors or are undertaking major defense-related
work. None could demonstrate that they have focused their attention on
the small-to-mid-size companies, such as biotechnology companies, that
officials of all three agencies told us are least likely to be aware
of deemed export licensing requirements. Commerce licensing officials,
Commerce, ICE, and FBI law enforcement officials, and representatives
of most of the 33 companies, universities, and agencies that we met
with as part of our field work stated that many small-to-mid-size
companies, particularly in quickly expanding fields such as
biotechnology, are not aware of deemed export licensing requirements.
Commerce, ICE, and FBI officials attributed the lack of awareness to
the sheer number of such companies and the lack of staffing to address
these numbers. For instance, FBI officials told us that in the San
Francisco Bay Area alone there are close to 500 biotechnology
companies, most of which are small-to-mid size, and only a limited
number of Commerce, ICE, and FBI officials to provide
outreach.[Footnote 45]
In written comments on this report, the FBI stated it has conducted
deemed export outreach to small-to-mid-size biotechnology companies
through several venues, including strategic task forces,
counterintelligence working groups, conferences, and other initiatives
in coordination with the U.S. intelligence community and federal law
enforcement agencies, including ICE and Commerce. However, FBI did not
provide us with evidence of this outreach except for a single-page
document whose details about the companies that the FBI met with had
been entirely redacted. For that reason, we cannot validate the FBI's
assertion.
Appendix III provides a summary of Commerce's and ICE's outreach
seminars, conferences, meetings, discussions, and e-mails during
fiscal years 2004 through 2009. As FBI classified its outreach data,
we cannot present it in this report.
Commerce Has Taken Actions to Clarify the Regulatory Definition of
"Use" Technology but Confusion About Its Application May Remain:
In response to a Commerce IG recommendation to modify the definition
of "use" technology that determines whether a deemed export licensing
requirement is triggered, Commerce has clarified the definition.
However, as one example shows, this clarification may not have
eliminated the confusion surrounding the application of this
regulation. In March 2004, the Commerce IG stated that confusion
exists over what is meant by "use" of EAR-controlled equipment by
foreign nationals, especially in relation to fundamental
research.[Footnote 46] According to Commerce's interpretation, "use"
technology is specific information necessary to perform all six of the
following activities: installing, operating, maintaining, repairing,
overhauling, and refurbishing an item.[Footnote 47] If the technology
available to the foreign national does not meet all six of these
attributes, then it is not "use" technology for deemed export
licensing purposes. For example, if a foreign national only has access
to information that is necessary to "operate" equipment, as opposed to
information necessary for all six activities, a release of "use"
technology to the foreign national has not occurred. Consequently, the
information at issue would not be subject to the EAR and, hence, no
license requirement would apply. According to Commerce officials, the
definition is designed to allow foreign nationals conducting research
to operate controlled equipment, while at the same time preventing
these individuals from reverse-engineering the equipment. The Commerce
IG pointed out that the definition was confusing because it did not
take into account that controlled information is often transferred to
foreign nationals as part of the process of training the foreign
national to operate the machine.[Footnote 48] As evidence of the
confusion, the Commerce IG reported on differences among Commerce
senior licensing officials, multilateral export control regimes, and
DTSA in interpreting "use" as applied in the CCL and the control lists
from the four multilateral export control regimes. These differences
in interpretation are critical in determining how to implement and
enforce the deemed export provisions in the EAR, according to the
Commerce IG. For instance, while some of the university and U.S.
government officials who spoke to the Commerce IG said they believed
that "use" technology in the context of fundamental research is exempt
under the regulations, Commerce holds that "use" technology is subject
to the deemed export provisions regardless of whether the research
being conducted with that equipment is fundamental or not. The IG
reported that many university and government laboratories would need
to seek deemed export licenses for some foreign nationals working with
controlled equipment or otherwise restrict their access to such
equipment.
In response to the Commerce IG's recommendation, Commerce stated that
it would work with State and DOD to determine whether the definition
of "use" technology should be modified, and has taken actions to
clarify the definition as of May 2006. In 2005, Commerce sought public
comments prior to making any revision to the regulation, and companies
and universities raised numerous concerns about the proposed revision.
[Footnote 49] In a May 2006 Federal Register notice, Commerce
clarified that all of the activities listed in the definition of "use"
technology are required to trigger a deemed export licensing
requirement, and did not modify its definition.[Footnote 50] Commerce
stated that this clarification resolved any inconsistency suggested by
the IG report.[Footnote 51] Commerce also posted questions and answers
on its Web site to provide additional information clarifying deemed
export regulatory requirements in response to the IG report.[Footnote
52] Despite these actions taken by Commerce, the IG does not believe
that Commerce fully implemented its recommendation to modify the
definition of "use" of EAR-controlled equipment by foreign nationals.
However, as shown by uncertainty within Commerce over the definition
of "use" technology that resulted in a misunderstanding with NIH,
Commerce's clarification may not have eliminated the confusion. Based
on guidance from Commerce on the definition of "use" technology, NIH
applied for 37 deemed export licenses, which Commerce processed over a
17-month period before verbally advising NIH that it no longer needed
to apply for such licenses, though the definition itself remained the
same. A May 2007 Commerce presentation discussing Commerce's
clarification of the definition of "use" technology raised concerns
among NIH officials that they might now be subject to deemed export
licensing requirements, since they employed foreign nationals to work
in new highly secure laboratories with controlled technologies,
according to NIH officials. Prior to this presentation, NIH had
considered itself not subject to these requirements because its
research was fundamental. As a result, NIH initially requested
additional guidance from Commerce about deemed export licenses in
April 2008, according to NIH officials and documents. In response to
the NIH inquiry, Commerce said that NIH should apply for a deemed
export license, according to NIH officials. From August 2008 to
December 2009, NIH applied for 37 deemed export licenses out of
concern that it might be subject to deemed export licensing
requirements; Commerce approved 28 and returned without action 9
others. In February 2009, a Commerce e-mail to NIH raised further
concerns by requesting a letter of explanation for the presence of
foreign national scientists in NIH laboratories without appropriate
deemed export licenses during the time period when NIH had considered
itself not subject to these requirements. However, according to NIH
officials and e-mails, in December 2009, a Commerce official verbally
informed NIH that it could in fact claim the fundamental research
exemption and need apply for no further deemed export licenses, based
on the definition of "use" technology. Commerce officials said the
confusion over the NIH's employment of foreign nationals to work in
the new laboratories was solved due to a better understanding of NIH's
business process in relation to the definition of "use" technology and
fundamental research.
Commerce and Other Agencies Have Not Implemented Recommended Changes
to Improve Enforcement of Deemed Exports:
Commerce and other agencies have not implemented recommendations that
we and the Commerce IG made to improve the enforcement of deemed
exports. First, notwithstanding our 2002 and the Commerce IG's 2004
recommendations for Commerce to establish a program to monitor
companies', universities', and agencies' compliance with deemed export
license security conditions, Commerce continues to lack such a
program. Second, in its efforts to detect unlicensed deemed exports,
Commerce does not use all existing DHS immigration data,
notwithstanding our 2002 recommendation that it make more use of such
data. Finally, notwithstanding our 2006 report recommendation to
enhance coordination, Commerce, ICE, and FBI continue to lack written
agreements defining the current roles and responsibilities among
agencies. Officials said that deemed export enforcement coordination
continues to be a challenge after the creation of interagency export
enforcement task forces and networks.
Commerce Continues to Lack a Program to Monitor Compliance with
License Security Conditions:
Commerce continues to lack a monitoring system to ensure companies',
universities', and agencies' compliance with security conditions in
deemed export licenses. Officials at Commerce's enforcement field
offices in Boston, Los Angeles, and San Francisco stated that Commerce
does not currently have a program to monitor compliance with firms'
deemed export license security conditions--notwithstanding our 2002
and the Commerce IG's 2004 recommendation to create such a program.
In 2002, we reported that Commerce did not have a program to monitor
compliance with the license security conditions imposed on almost all
deemed export licenses approved.[Footnote 53] We recommended that
Commerce work with DOD, State, and Energy to develop a risk-based
program to monitor compliance with deemed export licensing security
conditions. In response, Commerce asserted it had an effective
monitoring system but stated it would explore the practicality of our
recommendation.[Footnote 54]
The Commerce IG has also reported that Commerce lacks a monitoring
system to ensure compliance with security conditions in deemed export
licenses. In 2004, the Commerce IG reported that Commerce was not
performing on-site inspections or reviews to ensure compliance with
export laws and regulations related to controls over the release of
export-controlled technology to foreign nationals in the United
States. The IG stated that the lack of compliance, monitoring, and
adequate policies could degrade the integrity of the interagency
licensing process. The Commerce IG further reported that because
Commerce was not performing on-site inspections or reviews of entities
holding an export license for the release of export-controlled
technology to foreign nationals to ensure compliance with license
conditions, license holders were not held accountable for complying
with license conditions. Commerce informed the IG that it was not
monitoring compliance with any deemed export licenses because it did
not have the resources to do so. As a result, the IG concluded that
the same companies were continually receiving export licenses for the
release of export-controlled technology to foreign nationals
regardless of whether they complied with previous license conditions.
The IG recommended that Commerce develop a compliance program to
effectively evaluate deemed export license holders' compliance with
license conditions. In response to the IG's recommendation, Commerce
stated that it would establish a pilot program to determine compliance
with deemed export license conditions.
In fiscal year 2006 Commerce established a program to monitor
licensing conditions, but discontinued it after fiscal year 2007.
Commerce officials cited competing priorities and budget constraints
as factors that resulted in the discontinuation of this program.
DOD officials told us in 2002 that deemed export licenses need these
security conditions to mitigate the risk to U.S. national security of
releasing controlled dual-use technology to certain foreign nationals.
DOD officials repeated this assertion to us in August 2010. Commerce
uses several of these security conditions to limit the level of
technology for transfer to foreign nationals who may be in employment
or academic settings in which an entity might require deemed export
licenses for release of controlled technology to the foreign national.
For example, security conditions might bar foreign nationals from (1)
unmonitored use of high-performance computers, (2) involvement in the
design of computers that exceed a specified performance limit, and (3)
accessing technical data on advanced microprocessors or certain types
of lithography equipment. DOD officials said that security conditions
are critical to DOD's willingness to recommend approval for many
deemed export license applications during the interagency deemed
export license review process.
Although Commerce lacks a monitoring system to ensure this compliance,
it includes language in many deemed export licenses requiring
applicants to develop procedures for ensuring compliance with such
security conditions in approved licenses and to provide copies of
these procedures to Commerce. These instructions specify that Commerce
"will monitor [security conditions] to ensure that the applicant's
compliance is effective."[Footnote 55]
Commerce Does Not Use All Existing DHS Immigration Data to Detect
Potential Unlicensed Deemed Exports:
Notwithstanding our 2002 recommendation, Commerce does not screen all
DHS immigration data--H-1B change-of-status visa applications
submitted domestically--to identify foreign nationals who may be
engaging in release of technology or source code that requires a
deemed export license. During fiscal years 2004 through 2009, about
361,000 foreign nationals applied for a change of status to an H-1B
visa within the United States. Our 2002 report found that Commerce did
not screen thousands of Immigration and Naturalization Service (whose
function processing applications for immigration benefits was placed
within USCIS) immigration applications from foreign nationals already
in the United States. We recommended that Commerce use these
immigration data to identify foreign nationals who could be engaging
in a transfer of technology or source code requiring a deemed export
license. Concurring with this recommendation, Commerce consulted DHS,
which suggested the establishment of a referral process so that any
changes in visa status potentially requiring deemed export licenses
are forwarded to Commerce for review. The DHS IG reported in 2004 that
DHS was not providing information to Commerce that could support its
efforts to identify and investigate potential violations related to
the release of export-controlled technology to foreign nationals. As a
result, information from thousands of change-of-status visa
applications filed domestically with USCIS was not reviewed to
generate investigative leads for Commerce, according to the IG. The IG
recommended that USCIS provide Commerce with access to data from
foreign nationals' approved change-of-status applications to help
identify possible investigative leads for follow up. DHS management
concurred with these recommendations.
USCIS began in early 2010 to respond to these recommendations to
screen thousands of DHS immigration change-of-status visa applications
submitted domestically by proposing a revision of the USCIS form that
employers must complete, which among other things would change a
foreign national's immigration status to H-1B specialty employment.
Commerce officials said that they have been working with USCIS to make
such data easier to analyze. As a result of this collaboration, USCIS
issued notices in the Federal Register in February and June 2010
requesting comments about a proposed change to the form employers must
complete to change a foreign national's immigration status to H-1B
specialty employment, request an extension of status, or employ a
foreign national outside the United States.[Footnote 56] This change
will require employers to acknowledge if the position for which they
want to hire a foreign national could require a deemed export license.
In August 2010, USCIS officials told us that the comment period had
ended and the revised form containing the proposed change had been
submitted to the Office of Management and Budget for review.[Footnote
57] According to USCIS, in October 2010 the Office of Management and
Budget approved the revision to the form. However, USCIS noted it is
not able to electronically track employers' responses to this new
section of the form. See appendix IV for a draft of the form change.
In addition to making it easier for Commerce to screen thousands of H-
1B change-of-status visa applications submitted domestically,
Commerce, ICE, and FBI officials said that, if implemented, the
addition of a "deemed export acknowledgement" section to the form
could make it easier to enforce deemed export control regulations by
helping to ensure that companies employing foreign nationals endeavor
to comply with the EAR. Since our 2002 report, the U.S. government
levied criminal convictions and civil penalties totaling about $2.3
million against 14 companies and two individuals for violating deemed
export regulations. Commerce, Justice, ICE, and FBI officials told us
that one reason for the low number of criminal convictions and civil
penalties is the difficulty of proving that an individual or
organization willfully intended to violate deemed export regulations.
According to Commerce, "willful intent" is a criminal standard that
only applies in the context of criminal deemed export prosecution.
According to Commerce, while a deemed export certification would
rarely provide sufficient evidence to prove that an entity willfully
intended to violate deemed export regulations, it could be used to
support a false statement charge or other violation of the EAR. This
could potentially lead to an increase in the number of successful
deemed export investigations resulting in penalties.
Changes That Commerce, Justice, ICE, and FBI Implemented Have Not
Fully Resolved Deemed Export Enforcement Coordination Weaknesses,
According to Officials:
Changes that Commerce, Justice, ICE, and FBI have made since our 2006
report to enhance coordination among export enforcement agencies have
not fully resolved deemed export enforcement coordination weaknesses,
according to officials of these agencies in areas we visited. In order
to address overall weaknesses in export enforcement coordination, our
2006 report recommended that the enforcement agencies establish a task
force to evaluate options to improve coordination and cooperation
among export enforcement investigative agencies. These options could
include (1) creating new or updating existing operating agreements
between and among these agencies, (2) identifying and replicating best
practices for routinely collaborating on or leading investigations,
and (3) establishing a mechanism for clarifying roles and
responsibilities for individual export control cases involving foreign
counterintelligence.
Justice and ICE made changes in response to these recommendations, but
these changes have not fully resolved the coordination weaknesses,
according to Commerce, ICE, and FBI officials. According to Justice
officials, Justice began setting up Counter-Proliferation Task Forces
in several judicial districts throughout the country beginning in
2008. In addition, Justice has established a Technology Protection
Enforcement Group to improve coordination among the export enforcement
agencies at senior levels. Moreover, according to ICE, the three
agencies have collaborated with one another to improve matters related
to deemed exports as part of the interagency task force established by
the President in August 2009 to examine export control reforms.
However, officials from Commerce, ICE, and FBI said the task forces
have not fully resolved coordination challenges in part because each
agency maintains discretion over the degree of its participation in
the task forces. Moreover, outdated or absent written agreements among
agencies have not defined overlapping enforcement jurisdictions. ICE
established the National Export Enforcement Coordination Network
(NEECN) in fiscal year 2007 to coordinate investigations by DHS, law
enforcement, intelligence, and foreign officials to prevent countries
of concern from acquiring controlled technologies. Commerce, ICE, and
FBI officials told us that representatives from their agencies attend
weekly NEECN meetings where participants coordinate export control
investigations and may work to resolve conflicts among agencies.
However, ICE officials stated that NEECN primarily focuses on
investigations involving the export of goods, rather than deemed
exports.
Deemed export enforcement coordination challenges among Commerce, ICE,
and FBI stem in part from overlapping jurisdictions and the lack of
defined roles and responsibilities among these agencies.[Footnote 58]
For example, Commerce officials said that ICE does not always
coordinate with Commerce to ensure that ICE transfers cases without
criminal penalties that require additional follow up to Commerce so
that it may consider civil penalties. Commerce and DHS officials said
that coordination and collaboration among deemed export enforcement
agencies became more challenging in 2004 when the Attorney General
reiterated the FBI's role as the lead enforcement agency in all export
control cases "relating to any foreign counterintelligence matter."
[Footnote 59] Commerce and ICE officials said that coordination with
FBI can be particularly challenging because FBI often classifies
information for investigations--making it more difficult for Commerce
and ICE officials to use information originating from the FBI due to
its classification. Commerce, FBI, and ICE officials said that
coordination and cooperation continue to hinge on the relationships
between individual investigators across agencies in the absence of
current formal agreements. A 1993 agreement between Customs and
Commerce outlines the investigative responsibilities of each agency,
but it does not reflect departmental changes that occurred as a result
of the establishment of DHS in March 2003--including the creation of
ICE. In addition, ICE and FBI do not have any formal agreement for
collaboration to coordinate cases involving export control violations.
Because the enforcement agencies do not have formal agreements for
collaboration, the lack of defined roles and responsibilities persists.
Conclusions:
In 2002 we reported that the deemed export licensing system did not
provide adequate assurance that U.S. national security interests were
protected from countries that gather information on dual-use
technologies to build weapons systems. This conclusion remains
relevant today. In the 8 years since the publication of our report and
its recommendations, we and other organizations have issued additional
reports with further recommendations to strengthen the deemed export
system. Nonetheless, Commerce and other agencies have not implemented
key recommended changes. As a result, U.S. agencies acknowledge the
continued risk of releasing controlled technologies to foreign
nationals in the United States, particularly in rapidly expanding
sectors of the economy such as biotechnology. Commerce has reduced its
screening of overseas visa applications that it had used to refer to
enforcement offices to help determine if companies should have applied
for deemed export licenses and for outreach and does not screen
thousands of H-1B change-of-status visa applications submitted
domestically. The United States approved about a million foreign
nationals from 13 countries of concern to work in high-technology
occupations in the United States, while approving deemed export
licenses for a much smaller number of foreign nationals from the same
countries to work in related technologies. Although not all are
required to have deemed export licenses, the approximately 1 million
foreign nationals with specialty occupation visas from the 13
countries of concern that we identified in our work represent a pool
of risk that Commerce could use to assess the nature and scope of
compliance with deemed export requirements and to better direct
outreach and enforcement efforts. Until the scope of the risk is
assessed, it will be difficult for U.S. agencies to determine where
their outreach, monitoring, and enforcement efforts should be focused
and to know how to correct the deficiencies that we and the Inspectors
General have reported in the past. The executive branch has announced
plans to reform the export control system, including the export
licensing and enforcement systems for deemed exports. Resolving the
deficiencies identified repeatedly since 2002 could be important to
the effectiveness of any new export control reform.
Recommendations for Executive Action:
We recommend the Secretary of Commerce take the following two actions:
* To better direct its efforts to detect possible unauthorized deemed
exports and conduct outreach, in consultation with the U.S. Attorney
General and the Secretary of Homeland Security, assess the extent to
which foreign nationals from countries of concern who were issued
specialty occupation visas also should have been covered by deemed
export license applications. This assessment, using all available data
from the three agencies, might involve reviewing a sample of H-1B
specialty visas for employment in particular technologies, such as
computers, electronics, or biotechnology, to determine whether
employers of the applicants should have applied for deemed export
licenses. The Secretary should use the results of this assessment to
identify the vulnerabilities in the deemed export control system; plan
to better target and inform companies, universities, and agencies
about deemed export licensing requirements; and develop and implement
procedures for incorporating DHS immigration data into its enforcement
screening activities.
* To ensure that Commerce takes actions to more fully address the
deficiencies identified in this and prior reports as part of any
export control reform effort, report to Congress the specific steps
being taken to implement past GAO and Commerce IG recommendations in
the context of the current Export Control Reform Initiative. These
recommendations relate to (1) improving outreach; (2) implementing a
program to monitor compliance with deemed export license security
conditions; (3) screening foreign nationals who change their
immigration status in the United States for deemed export
requirements; and (4) improving coordination among the law enforcement
agencies responsible for enforcing deemed export license regulations.
Agency Comments and Our Evaluation:
We provided a draft of this report for comment to the Departments of
Commerce, State, Defense, Homeland Security, Justice, and Energy; as
well as the FBI and NIH. Commerce and FBI provided written comments,
while the Departments of State, Defense, and Energy, and NIH did not
provide comments. The Departments of Commerce and Homeland Security,
and FBI provided technical comments, which we have incorporated as
appropriate.
In its written comments, Commerce agreed with our recommendation to
assess the extent to which foreign nationals from countries of concern
who were issued specialty occupation visas also should have been
covered by deemed export licenses and use the results to identify
vulnerabilities in the deemed export control system, target and inform
employers about deemed export licensing requirements, and incorporate
immigration data into its enforcement screening activities. Commerce
also stated that it would review prior GAO and Inspectors General
recommendations as part of the ongoing Export Control Reform process.
However, Commerce did not comment on our recommendation to report to
Congress on the steps being taken to implement past GAO and Commerce
IG recommendations. We believe that this recommendation remains valid
because resolving the deficiencies in deemed export licensing and
enforcement identified repeatedly since 2002 could be critical to the
success of any export control reform initiative. Commerce's written
comments are contained in appendix V.
In its written comments, FBI stated it has conducted deemed export
outreach to small-to-midsize biotechnology companies through several
venues, including strategic task forces, counterintelligence working
groups, conferences, and other initiatives, in coordination with the
U.S. intelligence community and federal law enforcement agencies,
including ICE and Commerce. FBI also stated that through participation
in the NEECN and other arenas, FBI, ICE, and Commerce have worked to
resolve coordination of export enforcement activities. In our report,
we discuss the role of the NEECN, which ICE established to help
coordinate export control investigations, but note that ICE officials
told us that the NEECN primarily focuses on export control
investigations involving goods, rather than deemed exports. Finally,
FBI also commented on the relationship between additional attention on
deemed exports and the need for more resources for outreach and
investigation. We did not address this topic in the scope of our work.
FBI's written comments are contained in appendix VI.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to the Attorney General; the Secretaries of Commerce, Defense,
Homeland Security, and State, and other interested parties or
interested congressional committees. In addition, the report will be
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have questions about this report, please contact
me at (202) 512-8979 or at christoffj@gao.gov. 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 key contributions to
this report are listed in appendix VII.
Signed by:
Joseph A. Christoff:
Director, International Affairs and Trade:
[End of section]
Appendix I: Scope and Methodology:
To examine the risk that foreign nationals in the United States may
gain unauthorized access to controlled dual-use technologies, we
reviewed unclassified assessments discussing the methods that
countries use to illicitly obtain controlled technologies and the
technologies most at risk. These include the Annual Report to the
Congress on Foreign Economic Collection and Industrial Espionage
issued during fiscal years 2002-2008 by the Office of the National
Counterintelligence Executive. Using law enforcement data, we also
documented the total number of deemed export violations committed
during the 2002-2009 period. Not all foreign nationals approved for H-
1B visas work in occupations that could involve controlled technology.
For this reason, to estimate the risk that foreign nationals working
in high-technology fields could gain unauthorized access to controlled
technology, we selected four broad specialty occupation fields based
on an examination of the categories of technology contained in the
Export Administration Regulations (EAR) and a review of unclassified
reports detailing the types of dual-use technologies that countries
are attempting to obtain. The four broad specialty occupation fields
we selected were occupations in the computer, engineering, and
physical and biological sciences, including biotechnology. We excluded
other H-1B occupational fields such as those in the social sciences,
the arts, and modeling because these typically do not involve work in
researching or manufacturing high-technology applications. We then
quantified the number of foreign nationals approved for the specialty
occupation visas in these four broad specialty occupations from 13
countries of concern using U.S. Citizenship and Immigration Service
(USCIS) immigration data for fiscal years 2004-2009. We selected this
time period due to data reliability concerns about data produced
before fiscal year 2004.
The countries of concern whose foreign nationals we included as part
of this report were selected based on several sources. First, the EAR
groups countries into five main groups (A through E) by their level of
restrictions and concern, varying from country to country. The most
restricted destinations--those in country group E--are the embargoed
countries and those countries designated as supporting terrorist
activities. The next most restricted destinations--those in country
group D--are those for which worldwide restrictions on some products
apply, controlling items for national security, and nuclear, chemical/
biological, and missile proliferation reasons. We judgmentally
selected six countries from country group D to which Commerce applies
at least three of the four reasons for control. In addition, we
selected two additional countries of concern based on (1) intelligence
reports and discussions with U.S. law enforcement officials, (2) an
analysis of trends in deemed export enforcement cases from fiscal
years 2002 through 2009, and (3) the publicly reported associations of
one country's citizens with export enforcement cases over the past
several years. We assessed the reliability of USCIS and Commerce data
by reviewing reports discussing the limitations of these databases and
meeting with USCIS and Commerce officials responsible for managing the
databases. Based on the information obtained, we determined the data
were sufficiently reliable for our use.
To examine the extent to which Commerce and other agencies have
implemented recommended changes to the deemed export licensing
process, we reviewed the recommendations made in GAO and Commerce and
interagency Inspectors General reports issued during fiscal years 2002-
2009 as well as the report issued by the Deemed Export Advisory
Committee (DEAC). Based on the information in these reports, we
documented the concerns raised in the reports and the agency's
response. We provided Commerce with a matrix summarizing the concerns
raised and the agency's responses and obtained its views. We met with
officials of the agencies responsible for reviewing license
applications in Washington, D.C.--principally Commerce, but also the
Departments of State, Defense, and Energy--to determine how
information is shared, as well as the agencies that conduct outreach
and enforce compliance with licensing conditions and regulations--
Commerce, ICE, and FBI. We met with 33 associations, companies,
nonprofits, universities, and state government agencies to obtain
their views about the extent to which companies, universities, and
firms are familiar with deemed export license regulations. These were
judgmentally selected based on our review of Commerce's fourth quarter
fiscal year 2007 and fiscal year 2008 outreach plan, which showed that
Commerce planned to focus on biotechnology as one of several areas for
outreach and an examination of the USCIS H-1B specialty occupation
visa database.
To examine the extent to which Commerce and other agencies have
implemented recommended changes to the deemed export enforcement
system, we reviewed the recommendations contained in GAO, and Commerce
and interagency Inspectors General reports issued during fiscal years
2002-2008, as well as the report issued by the DEAC. Based on the
information in these reports, we documented the concerns raised and
the agencies' responses. We provided Commerce with a matrix
summarizing the concerns raised and the agency's responses and
obtained its views. We met with officials of the agencies responsible
for monitoring licensing conditions and enforcement deemed export
rules and regulations--principally Commerce, but also ICE and FBI. We
also met with USCIS officials to discuss a proposed change to their
Form I-129 that would require employers to acknowledge deemed export
licensing requirements. We conducted fieldwork in Washington, D.C., as
well as Boston, Los Angeles, and San Francisco. We selected these
cities for fieldwork because all three have major clusters of
biotechnology firms.
We conducted this performance audit from July 2009 to February 2011 in
accordance with generally accepted auditing standards. These standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings
and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Comparison of Numbers of Foreign Nationals from 13
Countries of Concern to Foreign Nationals from the Same Countries
Covered by Deemed Export Licenses, Fiscal Years 2004 to 2009:
During fiscal years 2004 to 2009, a total of approximately 1.05
million foreign nationals from 13 countries identified by Commerce and
other sources as countries of proliferation or other concerns were
approved to work in the United States in specialty occupations that
included computers, electronics, engineering, and biotechnology. Of
the approximately 1.05 million, about 94 percent were foreign
nationals from four countries. By comparison, foreign nationals from
the same four countries accounted for 98 percent of the foreign
nationals from the countries of concern covered by deemed export
licenses during this period. Table 1 compares the number of foreign
nationals approved to receive H-1B specialty occupation visas during
fiscal years 2004 through 2009 from the 13 countries of concern we
selected to the number of foreign nationals from the same countries
covered by deemed export licenses. Appendix I provides an explanation
of how we selected these countries.
Table 1: Comparison of Numbers of Foreign Nationals from 13 Countries
of Concern with Specialty Occupation Visas in Four Occupational Fields
to Numbers of Foreign Nationals from the Same Countries Covered by
Deemed Export Licenses, Fiscal Years 2004 to 2009:
Country: A;
Number of foreign nationals: 148,998;
Number of foreign nationals covered by deemed export licenses: 2,184.
Country: B;
Number of foreign nationals: 818,468;
Number of foreign nationals covered by deemed export licenses: 444.
Country: C;
Number of foreign nationals: 14,300;
Number of foreign nationals covered by deemed export licenses: 314.
Country: D;
Number of foreign nationals: 5,772;
Number of foreign nationals covered by deemed export licenses: 188.
Country: E;
Number of foreign nationals: 25,014;
Number of foreign nationals covered by deemed export licenses: 14.
Country: F;
Number of foreign nationals: 22,755;
Number of foreign nationals covered by deemed export licenses: 14.
Country: G;
Number of foreign nationals: 9,609;
Number of foreign nationals covered by deemed export licenses: 9.
Country: H;
Number of foreign nationals: 2,453;
Number of foreign nationals covered by deemed export licenses: 6.
Country: I;
Number of foreign nationals: 188;
Number of foreign nationals covered by deemed export licenses: 2.
Country: J;
Number of foreign nationals: 49;
Number of foreign nationals covered by deemed export licenses: 2.
Country: K;
Number of foreign nationals: 813;
Number of foreign nationals covered by deemed export licenses: 1.
Country: L;
Number of foreign nationals: 249;
Number of foreign nationals covered by deemed export licenses: 0.
Country: M;
Number of foreign nationals: 22;
Number of foreign nationals covered by deemed export licenses: 0.
Country: Total;
Number of foreign nationals: 1,048,690;
Number of foreign nationals covered by deemed export licenses: 3,178.
Source: GAO analysis of USCIS and Commerce data.
[End of table]
[End of section]
Appendix III: Summary of Outreach Activities of Commerce and ICE:
Commerce provides educational information and outreach about deemed
export rules and regulations to companies, universities, and agencies
in three ways. Commerce's Export Administration provides educational
outreach primarily through export control seminars and conferences,
some of which were general in nature and some of which exclusively
focus on deemed exports. Commerce-sponsored general export control
seminars and conferences have a module that addresses deemed exports.
Commerce has also made increasing use of its Internet Web site, which
features training modules and Webinars, some of which focus on deemed
exports. Commerce's Export Administration also participates in
seminars and conferences sponsored by other private and public sector
organizations. In addition, Commerce's Office of Export Enforcement
provides investigative-related outreach through meetings with
associations and companies. As part of this outreach, in fiscal year
2005 Commerce's Office of Export Enforcement began its Project
Guardian program to focus on outreach to companies and universities
conducting research or manufacturing specific goods and technologies
that illicit proliferation networks seek to acquire. Commerce Office
of Export Enforcement officials told us that each of Commerce's nine
export enforcement field offices could develop outreach plans for
their areas of jurisdiction; however, we found that none of the three
Commerce field offices in the cities that we visited--Boston, Los
Angeles, and San Francisco--had developed such plans. All three cities
are important in the development of cutting edge commercial
technology--for instance, Boston and San Francisco have major
concentrations of biotechnology companies.
ICE and FBI also provide investigative-related outreach to
associations, companies, and universities through association-
sponsored seminars and meetings with university and company officials.
Table 2 summarizes the two agencies' export control outreach efforts.
Table 2: Summary of Outreach Efforts by Commerce and ICE, Fiscal Years
2004-2009:
Agency: Commerce Export Administration;
Type of outreach: Educational;
Number of general export control outreaches: About 300 Commerce-
sponsored conferences and seminars reaching about 25,000 people.
Commerce also participated in about 200 conferences and seminars
sponsored by other organizations reaching about 12,000 people;
Outreaches specific to deemed exports: About 600, including in-person
presentations, e-mails, and phone conversations.
Agency: Commerce Office of Export Enforcement;
Type of outreach: Investigative;
Number of general export control outreaches: About 3,500;
Outreaches specific to deemed exports: About 50.
Agency: ICE;
Type of outreach: Investigative;
Number of general export control outreaches: About 9,500;
Outreaches specific to deemed exports: None. However, according to ICE
officials, the agency incorporates materials on deemed exports as part
of its outreach efforts.
Source: GAO analysis of Commerce and ICE data.
Note: The FBI also provided outreach data; however, because the data
provided were classified, we did not include them in this report.
[End of table]
[End of section]
Appendix IV: Draft of DHS's Changes to the Form I-129 "Petition for
Nonimmigrant Worker:"
In fiscal year 2002, we recommended that Commerce use all existing
U.S. immigration data to identify foreign nationals who could be
subject to deemed export licensing requirements. Commerce agreed with
the recommendation and officials told us that they have been working
with USCIS to make such data easier to analyze.[Footnote 60] As a
result of this collaboration, USCIS issued notices in the Federal
Register in February and June 2010 requesting comments about a
proposed change to the Form I-129 employers must complete to enable
foreign nationals to apply for new employment, extend their status, or
change a foreign national's immigration status to H-1B specialty
employment or other status. This change would require employers to
acknowledge if the position for which they want to hire a foreign
national could require a deemed export license. The revised form
contains two parts: One provides instructions on how to fill out the
form, and the other contains the form itself. Figure 4 contains the
revised form, which according to USCIS, was approved by the Office of
Management and Budget in October 2010.[Footnote 61]
Figure 4: Revisions to USCIS Form I-129 That Address Deemed Export
Concerns Appendix V: Comments from the Department of Commerce:
[Refer to PDF for image: illustration]
Certification Pertaining to the Release of Controlled Technology or
Technical Data to Foreign Persons in the United States:
U.S. Export Controls on Release of Controlled Technology or Technical
Data to Foreign Persons. The Export Administration Regulations (EAR)
(15 CFR Parts 770-774) and the International Traffic in Arms
Regulations (ITAR) (22 CFR Parts 120-130) require U.S. persons to seek
and receive authorization from the U.S. Government before releasing to
foreign persons in the United States controlled technology or
technical data. Under both the EAR and the ITAR, release of controlled
technology or technical data to foreign persons in the United States--
even by an employer--is deemed to be an export to that person's
country or countries of nationality. One implication of this rule is
that a U.S. company must seek and receive a license from the U.S.
Government before it releases controlled technology or technical data
to its nonimmigrant workers employed as H-IB, L-I or O-IA
beneficiaries.
Requirement to Certify Compliance with U.S. Export Control
Regulations. The U.S. Government requires each company or other entity
to certify that it has reviewed the EAR and ITAR and determined
whether it will require a U.S. Government export license to release
controlled technology or technical data to the beneficiary. If an
export license is required, then the company or other entity must
further certify that it will not release or otherwise provide access
to controlled technology or technical data to the beneficiary until it
has received from the U.S. Government the required authorization to do
so. The petitioner must indicate whether or not a license is required
on Page 5, Part 6 of Form 1-129.
Application:
Part 6. Certification Regarding the Release of Controlled Technology
or Technical Data to Foreign Persons in the United States:
(For H-lB, H-lB1 Chile/Singapore, L-l, and O-lA petitions only. This
section of the form is not required for all other classifications. See
Page 3 of the Instructions before completing this section.)
Check Box 1 or Box 2 as appropriate:
With respect to the technology or technical data the petitioner will
release or otherwise provide access to the beneficiary, the petitioner
certifies that it has reviewed the Export Administration Regulations
(EAR) and the International Traffic in Arms Regulations (ITAR) and has
determined that:
1. A license is not required from either U.S. Department of Commerce
or the U.S. Department of State to release such technology or
technical data to the foreign person; or;
2. A license is required from the U.S. Department of Commerce and/or
the U.S. Department of State to release such technology or technical
data to the beneficiary and the petitioner will prevent access to the
controlled technology or technical data by the beneficiary until and
unless the petitioner has received the required license or other
authorization to release it to the beneficiary.
Source: U.S. Citizenship and Immigration Service.
[End of figure]
[End of section]
Appendix V: Comments from the Department of Commerce:
United States Department Of Commerce:
Under Secretary for Industry and Security:
Washington, D.C. 20230:
November 9, 2010:
Mr. Joseph Christoff:
Director, International Affairs and Trade:
Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Christoff:
Thank you for the opportunity to comment on the draft Government
Accountability Office (GAO) report entitled "Export Controls:
Improvements Needed to Prevent Unauthorized Technology Transfers to
Foreign Nationals in the United States (11-70)."
The Department of Commerce concurs with the first recommendation and
will review the prior recommendations in the ongoing Export Control
Reform process. The Department also has attached technical comments on
the report.
If you need further assistance, please contact Mark Crace of the
Office of Administration. Mr. Crace may be reached at (202) 482-8093
or via e-mail at mcrace@bis.doc.gov.
Sincerely,
Signed by:
Eric L. Hirschhorn:
[End of section]
Appendix VI: Comments from the Federal Bureau of Investigation:
U.S. Department of Justice:
Federal Bureau of Investigation:
Washington, D.C. 20530-0001:
November 23, 2010:
Mr. Joseph Christoff:
Director, International Affairs and Trade:
Government Accountability Office:
441 G St., NW:
Washington, DC 20548:
Dear Mr. Christoff:
Thank you for the opportunity to review the draft Government
Accountability Office (GAO) report entitled, Export Controls:
Improvements Needed to Prevent Unauthorized Technology Transfers to
Foreign Nationals in the United States (hereinafter, "Report"). In an
effort to ensure the Federal Bureau of Investigation's (FBI)
involvement in the area of deemed exports is accurately represented in
the Report. I have attached our previously submitted factual accuracy
comments For your direct consideration and review.
In addition, the FBI has previously identified to the GAO many areas
of the Report which contain classified information. As discussed with
your auditing team, the identification of vulnerabilities or specific
areas of investigative focus most be redacted due to national security
matters.
As noted in our earlier comments, the FBI enforces deemed export
license regulations by conducting criminal investigations as well as
taking the lead in investigations involving counterintelligence and
counterterrorism. The FBI has conducted outreach to small-to-mid-size
companies in the biotechnology industry to foster awareness deemed
exports pose. Specifically, the FBI has engaged biotechnology
companies through several venues, including strategic task forces,
counterintelligence working groups, conferences, and other
initiatives. The FBI has also coordinated this outreach with the
United States Intelligence Community and federal law enforcement
agencies, including Immigration and Customs Enforcement (ICE) and
Department of Commerce (DOC), Office of Export Enforcement on these
outreach programs. Through participation at the National Export
Enforcement Coordination Network (NEECN) and other arenas, the DOC,
ICE, and the FBI have worked to resolve coordination of export
enforcement activities.
As duly noted in your Report, in order to ensure that deemed exports
receive additional attention, law enforcement agencies need to receive
more resources, particularly for the areas of outreach and
investigations.
Thank you for your efforts, and should you have any additional
questions please do not hesitate to contact me or my office.
Sincerely,
Signed by:
C. Frank Figliuzzi:
Deputy Assistant Director:
Counterintelligence Division:
Attachment:
Unclassified when separated from Classified attachment.
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Joseph A. Christoff, (202) 512-8979 or christoffj@gao.gov:
Staff Acknowledgments:
In addition to the individual contact named above, Jeff Phillips
(Assistant Director), José M. Peña III, James E. Lloyd III, and Debbie
Chung made key contributions to this report. Technical assistance was
provided by Jena Sinkfield, Martin De Alteriis, Etana Finkler, Erin
Godtland, Grace Lui, Kara Marshall, Amanda Miller, John Neumann, Nina
Pfeiffer, Minette Richardson, Ellery Scott, and Pierre Toureille.
[End of section]
Footnotes:
[1] For the purposes of this report, we selected 13 countries of
concern. We based this selection on several criteria, including (1)
Commerce regulations that group countries by their level of
restrictions and concern; (2) unclassified intelligence reports and
discussions with U.S. law enforcement officials; (3) the ranking of
countries by the number of deemed export enforcement cases from fiscal
years 2002 through 2009; and (4) the publicly reported associations of
some countries' citizens with export enforcement cases over the past
several years. Appendix I more fully explains how we selected these
countries. The names of the countries of concern, while provided in a
classified report, are omitted here.
[2] The Export Administration Regulations (EAR), 15 C.F.R. § 730-774,
define technology as specific information necessary for the
"development," "production," or "use" of a product. 15 C.F.R. § 772.1.
The technologies controlled for export are generally contained in the
Commerce Control List (CCL), Supplement 1 to Part 774,and fall into 10
categories including computers, chemical and biological substances,
electronics, and materials processing. An example of a technology that
is controlled and on the CCL involves certain fermenters used for
growing bacteria and fungi in laboratories. These can be used in the
development of vaccines and medical treatments but are controlled
because they can also be used to create dangerous toxins for
biological warfare.
[3] According to the DEAC, the United States is the only nation that
implements a deemed export control system and participates in
multilateral export control regimes. Other nations depend largely on
their visa processes, intelligence information, and commercial
intellectual property controls rather than a formal deemed export
licensing system.
[4] Executive Order 13558, 75 Fed. Reg. 69,573 (Nov. 9, 2010).
[5] See for instance GAO, Export Controls: Department of Commerce
Controls over Transfers of Technology to Foreign Nationals Need
Improvement, [hyperlink, http://www.gao.gov/products/GAO-02-972]
(Washington, D.C.: Sept. 6, 2002).
[6] GAO, Export Controls: Agencies Should Assess Vulnerabilities and
Improve Guidance for Protecting Export-Controlled Information at
Companies, [hyperlink, http://www.gao.gov/products/GAO-07-69]
(Washington, D.C.: Dec. 5, 2006); Export Controls: Agencies Should
Assess Vulnerabilities and Improve Guidance for Protecting Export-
Controlled Information at Universities, [hyperlink,
http://www.gao.gov/products/GAO-07-70] (Washington, D.C.: Dec. 5,
2006); and Export Controls: Challenges Exist in Enforcement of an
Inherently Complex System, [hyperlink,
http://www.gao.gov/products/GAO-07-265] (Washington, D.C.: Dec. 20,
2006).
[7] A U.S. employer may temporarily hire a foreign national in a
specialty occupation or as a fashion model of distinguished merit and
ability by applying for an H-1B specialty occupation visa, which in
general requires the theoretical and practical application of a body
of specialized knowledge. This includes a bachelor's degree or the
equivalent in fields such as the sciences, medicine and health care,
education, or biotechnology.
[8] To estimate the risk that foreign nationals working in high-
technology fields could gain access to controlled technology, we
selected four broad specialty occupations based on an examination of
the categories of technology contained in the CCL and a review of
unclassified reports detailing the types of dual-use technologies that
countries are attempting to obtain. The four broad specialty
occupation fields were computers, engineering, the physical sciences,
and the biological sciences, including biotechnology. We excluded
other H-1B occupational fields such as those in the social sciences.
We then quantified the number of foreign nationals from 13 countries
of concern working in these specialty occupation fields. We selected
these 13 countries based on our analysis of the Export Administration
Regulations, which groups countries by their level of restrictions, as
well as intelligence reports, discussions with law enforcement
officials, and the publicly reported associations of some countries'
citizens with export enforcement cases over the past several years.
Appendix I more fully details our methodology. We identified the names
of these countries in our classified report.
[9] The other audit organizations were the Commerce IG and the DHS IG.
[10] [hyperlink, http://www.gao.gov/products/GAO-02-972]; U.S.
Department of Commerce/Office of Inspector General, Deemed Export
Controls May Not Stop the Transfer of Sensitive Technology to Foreign
Nationals in the U.S., Final Inspection Report No. IPE-16176
(Washington, D.C.: Mar. 31, 2004); Offices of the Inspectors General
of the Departments of Commerce, Defense, Energy, Homeland Security and
State, and the Central Intelligence Agency, Interagency Review of
Foreign National Access to Export-Controlled Technology in the United
States, Report No. D-2004-062 (Washington, D.C., Apr. 16, 2004).
[11] [hyperlink, http://www.gao.gov/products/GAO-07-265].
[12] 50 U.S.C. App. §§ 2401-2420. The Export Administration Act of
1979, as amended (EAA) is not permanent legislation. Since August 21,
2001, the EAA has been in lapse. However, the President has continued
the regulations in effect through Executive Order 13222 of August 17,
2001 (3 C.F.R., 2001 Comp 783 (2002)), which most recently was
extended by Presidential Notice on August 12, 2010, under the
authority provided by the International Emergency Economic Powers Act
(50 U.S.C. §§1701 et seq.). See 75 Fed. Reg. 50,681 (Aug. 12, 2010).
[13] 15 C.F.R. parts 730-780.
[14] For purposes of deemed export rules, technology and source code
that are on the CCL are of particular significance. According to
Commerce, with a few exceptions, only controlled technology and source
code listed on the CCL are subject to deemed export licensing
requirements.
[15] 15 C.F.R. § 734.2(b)(2)(ii).
[16] 15 C.F.R. § 734.2(b)(2)(ii).
[17] 15 C.F.R. § 738.4.
[18] 15 C.F.R. § 736.2.
[19] 15 C.F.R. § 764.3.
[20] The EAR describes this information as technology and software. In
addition, certain software is subject to the EAR. 15 C.F.R. §
734.3(b)(3).
[21] Revisions and Clarification of Deemed Export Related Regulatory
Requirements, 71 Fed. Reg. 30,840 (May 31, 2006).
[22] In addition, Commerce's Export Administration conducts outreach
through phone conversations, e-mails, Internet-based training modules,
and Webinars. A Webinar is a workshop or conference delivered over the
Internet.
[23] 60 Fed. Reg. 62,981 (Dec. 5, 1995).
[24] Separately, State also licenses the export of weapons and
military technology.
[25] Project Shield America assists in the prevention of export
violations. Under the program, special agents cultivate relationships
with and obtain the cooperation of U.S. companies, universities, and
research facilities involved in the manufacture, sale, or export of
U.S. strategic technology and munitions that could harm the country if
illegally exported to countries or entities of concern. ICE began
Project Shield America in fiscal year 2001, but according to ICE
officials, an outreach program also existed before fiscal year 2001.
[26] The time it takes to process an export control license can vary.
Under Executive Order 12981, license application determinations are
supposed to be resolved or referred to the President within 90 days of
the Bureau of Industry and Security having registered the completed
license application. However, Executive Order 12981 also provides that
agencies can "stop the clock" for various reasons, including to
request additional information. 60 Fed. Reg. 62,981 (Dec. 5, 1995).
[27] See 15 C.F.R. part 748. The Export Control Classification Number
(ECCN) is an alphanumeric code, e.g., 3A001, that describes a
particular item or type of item, and shows the controls placed on it.
All ECCNs are on the CCL.
[28] The ONCIX is part of the Office of the Director of National
Intelligence and is staffed by senior counterintelligence and other
specialists from across the national intelligence and security
communities. Among other things, the ONCIX develops, coordinates, and
produces annual foreign intelligence threat assessments.
[29] Sources and Methods of Foreign Nationals Engaged in Economic and
Military Espionage: Hearing before the Subcommittee on Immigration,
Border Security and Claims, of the Committee on the Judiciary, House
of Representatives, 109th Cong. (2005).
[30] Commerce officials noted that emerging technologies are examined
as part of an interagency process that involves preparing proposals to
the four multilateral export control regimes and subsequently revising
the CCL to add and delete technologies as appropriate, based on
national security and other concerns.
[31] Annual Report to Congress on Foreign Economic Collection and
Industrial Espionage--2003, Office of the National Counterintelligence
Executive, February 2004.
[32] Guide to Biotechnology 2008; Biotechnology Industry Association,
Washington, D.C.
[33] van Beuzekom, Brigitte and Arundel, Anthony; OECD Biotechnology
Statistics 2006 & OECD Biotechnology Statistics 2009, Organization for
Economic Co-operation and Development, Paris.
[34] Occupational Outlook Handbook, U.S. Bureau of Labor Statistics,
Washington, D.C. (January 2010).
[35] More recent data suggest that employers continue to rely heavily
on foreign nationals to fill specialty positions, including high-
technology positions. For instance, according to USCIS, in fiscal year
2009, approximately 214,000 H-1B visas were approved for foreign
nationals offered employment by U.S. companies, universities, and
agencies.
[36] [hyperlink, http://www.gao.gov/products/GAO-02-972].
[37] The DHS data were obtained from USCIS. We limited ourselves to
analyzing H-1B specialty occupation visa data because ICE, which
obtains student and visitor data, did not provide these data in time
for this report.
[38] A single deemed export license issued to a company may authorize
the release of controlled technology to 10 or more foreign nationals
to access controlled technology. However, Commerce data show that in
some years the number of licenses approved was greater than the number
of foreign nationals involved in the release of technology. Commerce
officials explained that in some cases companies apply for more than
one license for each foreign national because licenses tend to be
narrowly focused with respect to the type of technology approved for
release and the companies might need the foreign national to access
more than one type of technology.
[39] Commerce approved 4,101 deemed export licenses in this period
authorizing release of technology or source code to a total of 3,985
foreign nationals.
[40] [hyperlink, http://www.gao.gov/products/GAO-07-69]; [hyperlink,
http://www.gao.gov/products/GAO-07-70].
[41] We requested a copy of Commerce's fiscal year 2006 outreach plan
on at least two occasions, but Commerce did not provide a copy.
[42] In comments provided to us in November 2010, Commerce stated that
its understanding of the types of companies that attend its export
control seminars is limited because it does not collect the data
needed to distinguish between small, medium-sized, and large
companies. It further noted that it has published a Notice of Inquiry
in the Federal Register requesting input on the impact of export
controls on small and medium-sized enterprises.
[43] Commerce also began offering Webinars focusing on deemed exports
as early as August 2007.
[44] ICE statistics show that the number of outreaches dropped
significantly from about 2,300 in fiscal year 2004 to about 1,600 in
fiscal year 2005 and have averaged about 1,450 outreaches per year.
[45] Commerce and ICE officials provided us with the number of staff
in their San Francisco Bay Area offices that are dedicated full time
to export control activities; however, FBI officials told us they
could not provide the number of staff dedicated full time to export
control activities because they do not track the information in this
manner.
[46] National Security Decision Directive 189 defines fundamental
research as basic and applied research in science and engineering, the
results of which ordinarily are published and shared broadly within
the scientific community. Examples include work on nuclear
engineering, lasers, sensors, ceramics, radars, and virology. The EAR
states that certain technology and software that arise during or
result from fundamental research, the results of which are intended to
be published, are not subject to deemed export licensing requirements.
[47] 15 C.F.R. 772.1 and "Questions and Answers to Supplement
Clarification of Deemed Export Related Regulatory Requirements" at
[hyperlink,
http://www.bis.doc.gov/deemedexports/deemedexportssupplementqa.html],
last visited September 30, 2010.
[48] The DEAC also noted that the definition of "use" for a deemed
export license appeared not to withstand the test of logical
consistency, since the definition could allow two individuals working
in collusion to perform enough functions to gain full knowledge of all
six activities without triggering a requirement for a deemed export
license. Commerce officials noted in technical comments provided to us
in November 2010 that such a circumstance could constitute an evasion
of the EAR and evasion would be a prosecutable violation of the EAR.
[49] Revision and Clarification of Deemed Export Related Regulatory
Requirements, 70 Fed. Reg. 15,607 (Mar. 28, 2005).
[50] 71 Fed. Reg. 30,840.
[51] Id.
[52] [hyperlink,
http://www.bis.doc.gov/deemedexports/deemedexportssupplementqa.html].
[53] [hyperlink, http://www.gao.gov/products/GAO-02-972].
[54] We disagreed with Commerce's assertion because its monitoring
system then consisted of conducting administrative checks to ensure
that firms were submitting the correct paperwork.
[55] Department of Commerce, Bureau of Industry and Security,
"Guidelines for Preparing Export License Applications Involving
Foreign Nationals."
[56] Agency Information Collection Activities: Form I-129, Revision of
an Existing Information Collection; Comment Request, 75 Fed. Reg.
6,212 (Feb. 8, 2010); and Agency Information Collection Activities:
Form I-129, Revision of an Existing Information Collection; Comment
Request, 75 Fed. Reg. 37,822 (June 30, 2010). According to USCIS,
other nonimmigrant visa categories will also be required to file the
deemed export certification.
[57] Under the Paperwork Reduction Act of 1980 (Pub. L. No. 96-511, 94
Stat 2812 ) the Office of Management and Budget is required to review
all proposed changes in government forms that could result in an added
collection burden on the public.
[58] According to FBI, it has been designated to take charge of
investigative work in matters relating to espionage, sabotage,
subversive activities, and related matters, including investigating
any potential violations of the Arms Export Control Act, the Export
Administration Act, the Trading with the Enemy Act, or the
International Emergency Economic Powers Act, relating to any foreign
counterintelligence matter.
[59] Delegations of Authority; Federal Bureau of Investigation, 69
Fed. Reg. 65,542 (Nov. 15, 2004).
[60] GAO, Export Controls: Department of Commerce Controls over
Transfers of Technology to Foreign Nationals Need Improvement,
[hyperlink, http://www.gao.gov/products/GAO-02-972] (Washington, D.C.:
Sept. 6, 2002).
[61] Under the Paperwork Reduction Act of 1980 (Pub. L. No. 96-511, 94
Stat 2812), the Office of Management and Budget is required to review
all proposed changes in government forms that could result in an added
collection burden on the public.
[End of section]
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