Defense Trade
Arms Export Control System in the Post-9/11 Environment Gao ID: GAO-05-234 February 16, 2005The U.S. government controls arms exports by U.S. companies to ensure that such exports are consistent with national security and foreign policy interests. There have been various efforts to change the arms export control system, which is overseen by the State Department. One effort was the Defense Trade Security Initiative of 2000, which was intended to facilitate defense trade with allies in the post-Cold War environment. Given the September 2001 terror attacks, the U.S. government has had to reevaluate whether existing policies support national security and foreign policy goals. In light of the September 2001 attacks, GAO was asked to review several aspects of the arms export control system. Specifically, GAO is providing information on (1) changes in the arms export control system since September 2001 and overall trends in arms export licensing, (2) extent of implementation of or revision to initiatives designed to streamline arms export licensing, and (3) extent of coordination on these initiatives between State and arms export enforcement agencies, as well as enforcement efforts.
Since the September 2001 terror attacks, the arms export control system has not undergone fundamental changes. While the system essentially remains unchanged, new trends have emerged in the processing of arms export cases. The median processing time for export license applications and related cases began increasing in fiscal year 2003. State and Defense, which reviews export licenses, have continued to implement through regulations and guidance several initiatives primarily designed to streamline the processing of arms export licenses. According to State officials, they have not evaluated the effects of these initiatives on the export control system or revised the initiatives. However, applications processed under these initiatives have generally not been processed within the time frames established by State and Defense. For example, applications for Operation Iraqi Freedom are to be processed in 4 days if they require interagency review, but the median processing time for these applications in the first 7 months of fiscal year 2004 was 22 days. Also, exporters have not widely used several of these initiatives. State has sought limited coordination with the agencies responsible for enforcing U.S. arms export laws--the Departments of Homeland Security and Justice--regarding the initiatives designed to streamline arms export licensing. The only exceptions have been regarding proposed export licensing exemptions. Enforcement officials have raised concerns regarding licensing exemptions, including difficulties in enforcing the proper use of exemptions and the increased risk of diversion. According to enforcement officials, they face a number of challenges associated with arms export enforcement efforts, such as limited resources to conduct inspections and investigations and other difficulties in obtaining a criminal conviction for export violations.
GAO-05-234, Defense Trade: Arms Export Control System in the Post-9/11 Environment
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Report to the Chairman, Committee on International Relations, House of
Representatives:
United States Government Accountability Office:
GAO:
February 2005:
Defense Trade:
Arms Export Control System in the Post-9/11 Environment:
GAO-05-234:
GAO Highlights:
Highlights of GAO-05-234, a report to the Chairman, Committee on
International Relations, House of Representatives:
Why GAO Did This Study:
The U.S. government controls arms exports by U.S. companies to ensure
that such exports are consistent with national security and foreign
policy interests. There have been various efforts to change the arms
export control system, which is overseen by the State Department. One
effort was the Defense Trade Security Initiative of 2000, which was
intended to facilitate defense trade with allies in the post-Cold War
environment. Given the September 2001 terror attacks, the U.S.
government has had to reevaluate whether existing policies support
national security and foreign policy goals.
In light of the September 2001 attacks, GAO was asked to review several
aspects of the arms export control system. Specifically, GAO is
providing information on (1) changes in the arms export control system
since September 2001 and overall trends in arms export licensing, (2)
extent of implementation of or revision to initiatives designed to
streamline arms export licensing, and (3) extent of coordination on
these initiatives between State and arms export enforcement agencies,
as well as enforcement efforts.
What GAO Found:
Since the September 2001 terror attacks, the arms export control system
has not undergone fundamental changes. While the system essentially
remains unchanged, new trends have emerged in the processing of arms
export cases. The median processing time for export license
applications and related cases began increasing in fiscal year 2003.
Median Processing Times for Arms Export Cases:
[See PDF for image]
[End of figure]
State and Defense, which reviews export licenses, have continued to
implement through regulations and guidance several initiatives
primarily designed to streamline the processing of arms export
licenses. According to State officials, they have not evaluated the
effects of these initiatives on the export control system or revised
the initiatives. However, applications processed under these
initiatives have generally not been processed within the time frames
established by State and Defense. For example, applications for
Operation Iraqi Freedom are to be processed in 4 days if they require
interagency review, but the median processing time for these
applications in the first 7 months of fiscal year 2004 was 22 days.
Also, exporters have not widely used several of these initiatives.
State has sought limited coordination with the agencies responsible for
enforcing U.S. arms export laws--the Departments of Homeland Security
and Justice--regarding the initiatives designed to streamline arms
export licensing. The only exceptions have been regarding proposed
export licensing exemptions. Enforcement officials have raised concerns
regarding licensing exemptions, including difficulties in enforcing the
proper use of exemptions and the increased risk of diversion. According
to enforcement officials, they face a number of challenges associated
with arms export enforcement efforts, such as limited resources to
conduct inspections and investigations and other difficulties in
obtaining a criminal conviction for export violations.
What GAO Recommends:
GAO is not making recommendations in this report. State disagreed with
information contained in the report, while the Departments of Defense
and Homeland Security generally agreed with the report.
www.gao.gov/cgi-bin/getrpt?GAO-05-234.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Schinasi at
(202) 512-4841 or schinasik@gao.gov.
[End of section]
Contents:
Letter:
Summary:
Agency Comments and Our Evaluation:
Appendix I: GAO Briefing Slides:
State, Commerce, and Defense: Workload, Staffing, and Budget for Fiscal
Year 2003:
DDTC Staffing Levels:
Number of Cases Reviewed by DDTC and Median Processing Times:
State's Explanation for Increased Processing Times:
Final Actions for License Applications:
Electronic Licensing: D-Trade:
Arms Export Investigations, Arrests, Indictments, and Convictions:
State's Administrative Enforcement: Blue Lantern:
State's Administrative Enforcement: Voluntary Disclosures:
State's Administrative Enforcement: Penalties Imposed in Administrative
Cases:
Appendix II: Scope and Methodology:
Appendix III: Comments from the Department of State:
Appendix IV: Comments from the Department of Defense:
Appendix V: Comments from the Department of Homeland Security:
Appendix VI: GAO Contacts and Staff Acknowledgments:
Related GAO Products:
Abbreviations:
AECA: Arms Export Control Act:
AES: Automated Export System:
BIS: Bureau of Industry and Security:
CBP: U.S. Customs and Border Protection:
CIA: Central Intelligence Agency:
DCI: Defense Capabilities Initiative:
DDTC: Directorate of Defense Trade Controls:
DTSA: Defense Technology Security Administration:
DTSI: Defense Trade Security Initiative:
FTE: full-time equivalent:
GPA: Global Project Authorization:
ICE: U.S. Immigration and Customs Enforcement:
JSF: Joint Strike Fighter:
NATO: North Atlantic Treaty Organization:
OEF: Operation Enduring Freedom:
OIF: Operation Iraqi Freedom:
United States Government Accountability Office:
Washington, DC 20548:
February 16, 2005:
The Honorable Henry J. Hyde:
Chairman:
Committee on International Relations:
House of Representatives:
Dear Mr. Chairman:
Exports of arms[Footnote 1] by U.S. companies are controlled by the
U.S. government to help ensure that such exports are consistent with
U.S. national security and foreign policy interests. The Department of
State oversees arms export controls and has responsibility for
licensing arms exports. Over the years, there have been various efforts
to change the arms export control system. One such effort was the
Defense Trade Security Initiative (DTSI) of 2000,[Footnote 2] which was
characterized as the first major post-Cold War adjustment to the arms
export control system and an effort to facilitate defense trade with
our allies. Given the terror attacks of September 11, 2001, the U.S.
government has had to reevaluate whether existing policies support
national security and foreign policy goals.
In light of the events of September 11, 2001, you requested that we
assess several aspects of the arms export control system. In November
2004, we briefed your staff on the results of our work to date. This
report provides that briefing with updates and expanded explanations
(see app. I). Specifically, we are furnishing information on (1)
changes in the arms export control system since the September 2001
terror attacks and overall trends in arms export licensing, (2) extent
of implementation of or revision to initiatives designed to streamline
arms export licensing, and (3) extent of coordination regarding these
initiatives between State and arms export enforcement agencies, as well
as enforcement efforts.
To determine changes in the export control system and the status of
initiatives, we interviewed State and Department of Defense officials,
as well as reviewed applicable laws, regulations, and other guidance.
We also analyzed State export license application data covering October
1, 1998, through April 30, 2004, to identify trends in licensing and
evaluate the implementation of initiatives. To assess the reliability
of the data, we compared randomly selected license application files to
the information in State's licensing database. While we identified
inaccuracies in the database, we determined that the data are
sufficiently reliable for the purposes of this report. To determine the
extent of coordination between State and enforcement agencies, we
interviewed officials and obtained supporting documents from the
Department of Justice, the Department of Homeland Security's U.S.
Customs and Border Protection and U.S. Immigration and Customs
Enforcement, State, and Defense. We also obtained and analyzed data
from Homeland Security and State regarding enforcement actions. See
appendix II for a more detailed discussion of our scope and
methodology. We conducted our work from April 2004 through January 2005
in accordance with generally accepted government auditing standards.
Summary:
The arms export control system has not undergone fundamental changes
since the September 2001 terror attacks. State has not made significant
changes to its arms export control regulations or proposed statutory
changes in response to the terror attacks. According to a senior State
official, such changes were not needed because the system was already
designed to counter the threats that emerged after September 2001.
While the system itself remains basically unchanged, new trends have
emerged in the processing of arms export cases.[Footnote 3] Median
processing times[Footnote 4] for all arms export cases declined between
fiscal years 1999 and 2002, but began increasing in fiscal year 2003
with this upward trend continuing into the first 7 months of fiscal
year 2004. A senior State official informed us that median processing
times increased in fiscal year 2004 when State licensing officers
resumed fulfilling the requirement to screen all parties listed on
export license applications against the department's watchlist of
entities of concern. While the resources State devoted to arms export
controls have generally increased since fiscal year 2000, the
department has transferred some of its licensing resources to other
functions. For example, between fiscal years 2003 and 2005, five
licensing officer positions were transferred to policy and management
functions.
State and Defense[Footnote 5] have continued to implement, through
regulation and guidance, initiatives primarily designed to streamline
and expedite the processing of arms export license applications.
According to State officials, they have not evaluated the effects of
the initiatives on the export control system or revised these
initiatives, stating that DTSI and related initiatives remain relevant
in the aftermath of September 2001. However, license applications
processed under the various initiatives have generally not been
processed within the time frames established by State and Defense. For
example, the departments established an expedited process for reviewing
license applications in support of Operation Iraqi Freedom with the
goals of processing nonstaffed applications within 2 days or, if they
are staffed for interagency review, within 4 days. However, in the
first 7 months of fiscal year 2004, the median processing times were 7
days for nonstaffed Operation Iraqi Freedom applications and 22 days
for staffed applications. Further, several initiatives have not been
widely used by exporters. For example, exporters have only submitted
three applications for the comprehensive export authorizations to
provide advance approval for a range of exports associated with
transnational defense efforts.
State has sought limited coordination with the agencies responsible for
enforcing U.S. arms export laws--Homeland Security and Justice--
regarding initiatives designed to streamline arms export licensing.
According to Homeland Security and Justice officials, they have only
been consulted on how proposed export licensing exemptions might affect
enforcement efforts. These officials told us that export licensing
exemptions increase the risk of diversion and complicate enforcement
efforts. According to enforcement officials, they face a number of
challenges associated with arms export enforcement including limited
resources to conduct inspections and investigations and other
difficulties in obtaining a criminal conviction for export violations.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, State criticized the
report for not reflecting various arms export control-related
initiatives that the department, in its words, has "successfully
undertaken." State acknowledged increased license application
processing times, but cited several activities that it has taken to
ensure that defense exports further foreign policy and national
security objectives. Additionally, State characterized statements in
our report as inaccurate or misleading. Specifically, State contends
that our report implies significant changes to the arms export control
regulations should have been made following the September 2001 terror
attacks and that the department has been indifferent to those attacks.
Further, State questioned the need for coordination with law
enforcement agencies beyond the coordination that occurred regarding
the proposed exemptions. Finally, the department concluded that our
evaluation of the initiative to expedite Operation Enduring Freedom
applications included cases not identified as such by State and,
therefore, did not receive expedited processing. State's comments are
reprinted in appendix III, along with our evaluation of them.
We disagree with State's characterization of our report. We identified
numerous arms export control initiatives, including those cited by
State as being ignored, and evaluated those initiatives for which data
were available. As we reported, license applications processed under
the various initiatives have generally not been processed within the
time frames established by State, and several initiatives have not been
widely used by exporters. We are, therefore, uncertain of the basis for
State's assertion that it has successfully undertaken initiatives,
particularly since State has not evaluated the initiatives' effects on
the arms export control system and has not provided data supporting its
contention. Our report does not imply that changes should have been
made following the September 11, 2001, terror attacks. Rather, it
clearly states what has or has not occurred in terms of changes to the
arms export control system since those attacks. During the course of
the audit, senior State officials confirmed that State has not offered
legislative proposals to change the arms export control system or made
major revisions to its export control regulations in response to
September 2001 attacks. Further, our report cites a senior State
official's explanation as to why State did not think such changes were
needed. Regarding State's coordination with law enforcement agencies,
our report accurately describes the extent of coordination and provides
State's explanation as to why it limited coordination to the exemption-
related initiatives. Finally, State's conclusion about our analyses of
Operation Enduring Freedom applications is inaccurate. As explained in
our scope and methodology, we used unique identifiers entered into
State's licensing database to identify applications processed under
various initiatives, including the Operation Enduring Freedom
initiative. Thus, information in this report regarding the number of
Operation Enduring Freedom applications and their associated processing
times is based on our analyses of applications identified by State as
Operation Enduring Freedom.
In its written comments on a draft of this report, Defense stated it
generally agreed with the report. Based on an analysis of its own
licensing data, Defense stated that its median processing times were
lower than those presented in our report. Defense explained that the
differences between its median processing times and ours can be
attributed, in part, to a lag between when State decides to refer cases
and when Defense begins its review. Additionally, Defense noted
discrepancies with how State identified cases related to Operations
Enduring Freedom and Iraqi Freedom for special processing when staffed
to Defense. According to Defense, in some instances, State staffed
cases to Defense for special processing, but those cases were not coded
as Operations Enduring Freedom or Iraqi Freedom in State's database. In
other instances, cases were coded in State's database as Operations
Enduring Freedom or Iraqi Freedom, but were not processed in an
expedited manner by either State or Defense. Finally, Defense indicated
that State did not rigorously screen cases before staffing them to
Defense for special processing under the Operations Enduring Freedom
and Iraqi Freedom initiatives. According to Defense, State identified
cases for special processing even though they did not involve material
for U.S. forces and coalition partners engaged in operations. Defense's
comments are reprinted in appendix IV, along with our evaluation of
them.
Processing times presented in our report are based on our analyses of
State's licensing data for both staffed and nonstaffed cases--as
acknowledged by Defense. Because we did not analyze Defense's data nor
assess its reliability, we cannot verify the accuracy of the data
presented in Defense's comments. We already acknowledged Defense's
explanation regarding a lag between when State decided to staff cases
and when Defense began its review. However, regardless of the reasons
for delays, transit times add to the overall time it takes for an
exporter to be provided with a final determination. Additionally,
information contained in the report regarding the number of
applications related to Operations Enduring Freedom and Iraqi Freedom
staffed to Defense and their associated processing times is based on
our analyses of applications identified by State as related to the two
operations. We cannot validate the discrepancies Defense identified
regarding these applications as we did not review Defense's files or
assess their accuracy or completeness. However, based on comments from
both State and Defense, it appears that there is a lack of agreement
and consistency as to which applications should be processed under the
initiatives for Operations Enduring Freedom and Iraqi Freedom.
In written comments on a draft of this report, Homeland Security
expressed appreciation for GAO's work related to enforcement
challenges. Homeland Security also clarified information previously
provided to GAO and made technical comments, which we have incorporated
into our report. Additionally, the department elaborated on U.S.
Customs and Border Protection's participation in the arms export
control system. Homeland Security's comments are reprinted in appendix
V.
Justice also reviewed a draft of this report and had no comments.
As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution of it
until 30 days from the date of this letter. We will then provide copies
of this report to the Ranking Member of the House International
Relations Committee; the House Armed Services Committee; the House
Committee on Government Reform; the Senate Armed Services Committee;
the Senate Foreign Relations Committee; and the Senate Governmental
Affairs Committee. We also will provide copies to the Secretaries of
Commerce, Defense, Homeland Security, and State; the Attorney General;
the Director, Office of Management and Budget; and the Assistant to the
President for National Security Affairs. In addition, this report will
be made available at no charge on the GAO Web site at http://
www.gao.gov.
If you or your staff have questions concerning this report, please
contact me at (202) 512-4841. Others making key contributions to this
report are listed in appendix VI.
Sincerely yours,
Signed by:
Katherine V. Schinasi:
Managing Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: GAO Briefing Slides:
Briefing to the House International Relations Committee:
November 17, 2004:
The Arms Export Control System In the Post-9/11 Environment:
Briefing Objectives:
Provide an overview of:
* Changes in the arms export control system since the September 11,
2001 terror attacks (9/11) and overall trends in arms export licensing.
* Extent of implementation of or revision to initiatives designed to
streamline and expedite arms export licensing.
* Extent of coordination regarding these initiatives between State and
arms export enforcement agencies, as well as enforcement efforts.
Background:
Arms Export Control Act (AECA) (22 U.S.C. 2751 et. seq.) provides
statutory authority for the control of defense articles and services
(arms).
State Department Directorate of Defense Trade Controls (DDTC):
* Has been delegated the authority to regulate arms exports.
* Administers the arms export licensing system.
* Established in January 2003 as the successor organization to the
Office of Defense Trade Controls.
Defense Department Defense Technology Security Administration (DTSA):
* Represents Defense on export control issues.
* Provides technical and national security reviews of and coordinates
Defense's position on export license applications referred (staffed) by
DDTC.
* Homeland Security Department Bureaus of Customs and Border Protection
(CBP) and Immigration and Customs Enforcement (ICE) enforce the AECA
and related regulations through inspections at ports and
investigations.
* Justice Department U.S. Attorneys' Offices prosecute suspected
violations of the AECA with headquarters support from the Criminal
Division's Counterespionage Section.
Arms Export Control System:
Status of the Arms Export Control System Since 9/11:
A year after the 9/11 terror attacks, the White House announced the
initiation of a "comprehensive assessment of the effectiveness of U.S.
defense trade policies, to identify changes necessary to ensure that
those policies continue to support U.S. national security and foreign
policy goals."
The assessment was to include a review of the arms export control
system, as well as an evaluation of the Defense Trade Security
Initiative (DTSI), which was announced in 2000 and consisted of 17
measures intended to streamline processing of arms export license
applications and increase mutual security with our allies.
Since the 9/11 attacks, DDTC has not:
* offered legislative proposals to change the arms export system in
response to the events of 9/11 or:
* made major revisions to its export control regulations.
Per a senior State official, DDTC did not need to change its objectives
after 9/11 because it was already concerned with safeguarding U.S.
technology. Instead, it rededicated itself to the pre-9/11 objectives
of:
* preventing U.S. technologies from falling into dangerous hands and:
* ensuring allies have the arms needed to fight alongside U.S. forces.
Since 9/11, DDTC along with DTSA have continued to implement DTSI and
introduce other initiatives generally designed to streamline the export
control system. While DDTC officials said they reviewed the status of
implementation, they have not evaluated DTSI's effect on the export
control system or made changes to the DTSI measures. They stated DTSI
and its objectives remain relevant in the post-9/11 environment.
Table 1: State, Commerce, and Defense - Workload, Staffing, and Budget
for Fiscal Year 2003:
[See PDF for image]
Sources: GAO analysis of State, Defense, and Commerce budget documents
and reports and State data; and Defense officials.
[a] Of the $14.04 million, $2.86 million came from registration fees
paid by arms manufacturers and exporters. Under the AECA, manufacturers
and exporters of items controlled by State must register with State and
pay the associated registration fee, which, as of December 8, 2004, is
$1,750 per year (69 FR 70888, Dec. 8, 2004).
[b] Cases reviewed by DTSA include cases that were referred by either
DDTC or BIS more than once for additional consideration.
[End of table]
State, Commerce, and Defense: Workload, Staffing, and Budget for Fiscal
Year 2003:
The U.S. export control system for defense-related items and
technologies is primarily divided between two regulatory regimes. One,
managed by State's DDTC, controls the export of arms. The other,
managed by the Commerce Department's Bureau of Industry and Security
(BIS), controls exports of dual-use items that have military and
commercial applications. DTSA, which represents Defense on export
control issues, provides support to both regulatory regimes. This
support includes assisting State and Commerce in determining which
items will be controlled and reviewing export license applications
submitted to either department.
In fiscal year 2003, DDTC reviewed almost 55,000 cases. These cases
included applications for the permanent export of arms, the temporary
export and import of arms, and agreements between U.S. industry and
foreign entities to provide technical assistance or manufacturing
capability, as well as requests for amendments to existing licenses and
jurisdiction determinations.[Footnote 6] By comparison, BIS
reported[Footnote 7] that it reviewed almost 12,500 dual-use
applications in fiscal year 2003--less than a quarter of the cases
reviewed by DDTC. Most of the cases reviewed by DTSA were referred by
DDTC.
DDTC, which is overseen by the Deputy Assistant Secretary of State for
Defense Trade, was authorized 71 staff positions in fiscal year 2003 to
carry out its arms export licensing, compliance, and other functions.
Of these positions, 65 were filled. Under the direction of the Under
Secretary of Commerce for Industry and Security, BIS had almost 300
more employees carrying out its principal activities, including dual-
use licensing and enforcement efforts.[Footnote 8] DTSA, which is
overseen by the Deputy Under Secretary of Defense for Technology
Security Policy and Counter-proliferation, had a staff of 163, most of
whom supported DDTC and BIS's efforts. Thirty-one DTSA personnel
monitored space launch and space systems and were not involved in the
review of license applications.
Arms Export Control System:
DDTC Funding and Staffing:
The Foreign Relations Authorization Act, Fiscal Year 2003 (P.L. 107-
228) authorized $10 million to be available in fiscal year 2003 for
DDTC salaries and expenses, with an additional $4 million to be
available for modernizing DDTC's information management systems in
fiscal year 2003.
* When asked, DDTC officials and DDTC's budget director indicated that
they were not familiar with this authorization language.
P.L. 107-228 also directed the Secretary of State to assign a
sufficient number of license review officers to ensure that the average
weekly caseload for each officer does not routinely exceed 40 cases.
* DDTC officials stated that they do not track the average weekly
caseload and, therefore, do not know if they are in compliance with the
act. Nevertheless, the officials stated they regard the 40 cases per
week average as a target.
Arms Export Control System:
Table 2: DDTC Staffing Levels:
[See PDF for image]
Source: State officials.
[End of table]
DDTC Staffing Levels:
DDTC's 71 authorized full-time equivalents (FTE)[Footnote 9] are
divided between licensing officers, compliance officers, and other
staff, including policy, management, and support staff. DDTC's
licensing officers are responsible for reviewing license applications
and making determinations as to whether those applications should be
approved. The number of authorized licensing officers increased from
fiscal year 2000 through 2003, but then decreased in fiscal years 2004
and 2005. Similarly, the number of licensing officers positions filled
at the start of each fiscal year increased through fiscal year 2003,
but has since decreased. Compliance officers carry out a range of
functions to help ensure exporter compliance, including addressing
disclosures of possible violations, assisting Justice in prosecuting
criminal violations, and managing DDTC's end-use monitoring program.
The number of authorized compliance officers remained fairly consistent
over the 6-year period, with the number of positions filled increasing
through fiscal year 2004 and then decreasing at the start of fiscal
year 2005.
Over the six fiscal years, DDTC has shifted some authorized FTEs to
policy and management. For example, between fiscal years 2003 and 2005,
the number of licensing officers authorized decreased by five
positions, while the number of authorized FTEs for DDTC management and
policy functions increased by five.
DDTC personnel are supplemented by detailees from other agencies, most
notably Defense. To assist in expediting license reviews, the Foreign
Relations Authorization Act for Fiscal Year 2003 called for Defense to
ensure that 10 military officers are continuously detailed to DDTC.
However, DDTC officials informed us that only four military officers
are currently detailed to DDTC. Additionally, contractor personnel
provide support to all of DDTC's functions. For fiscal year 2003, DDTC
officials informed us that they spent $4.3 million on contractor
support.
Table 3: Number of Cases Reviewed by DDTC and Median Processing Times:
[See PDF for image]
Source: GAO analysis of State data.
[End of table]
Figure 1: Median Processing Times for Cases:
[See PDF for image]
Source: GAO analysis of State data.
[End of figure]
Number of Cases Reviewed by DDTC and Median Processing Times:
The number of arms export cases reviewed by DDTC increased steadily
from 43,926 cases in fiscal year 1999 to 54,736 cases in fiscal year
2003, which is almost a 25 percent increase. For most of that time
period, the median processing times[Footnote 10] declined--from 26 days
in fiscal year 1999 to 13 days in fiscal year 2002. However, in fiscal
year 2003, the median processing time increased to 14 days and this
upward trend continued through the first 7 months of fiscal year 2004.
DDTC processed the majority of cases without referring--or staffing--
them to other State offices or DTSA for additional review. DDTC has
staffed about one-third of its cases for additional review. Defense
conducts technical reviews and identifies national security concerns
associated with cases, while other State offices review cases for
foreign policy, human rights, and non-proliferation concerns.
For staffed cases, the majority were referred to Defense's DTSA for
review, some of which were referred to DTSA more than once for
additional consideration. The cases referred to Defense represent a
subset of staffed cases. Thus, of the 18,608 cases that were staffed in
fiscal year 2003, 17,122 were referred to Defense. The number of cases
staffed to DTSA increased 29 percent from fiscal year 1999 to fiscal
year 2003. DTSA officials informed us that despite the increase in
workload, their resources for reviewing cases have remained constant.
The Defense median processing time reflects the number of days between
the date State referred the case to DTSA and the date DTSA provided
DDTC with its input, which for fiscal year 2003 was 29 days. DTSA
officials, however, noted that there can be a delay between the time
State decides to refer a case and the time DTSA physically receives the
case and supporting documentation for review.
Arms Export Control System:
State's Explanation for Increased Processing Times:
According to the Deputy Assistant Secretary of State for Defense Trade,
median processing times have increased primarily because licensing
officers resumed screening all parties listed on applications against
State's export licensing watchlist.
* DDTC officials explained that between June 2002 and December 2003,
not all parties listed on applications were entered into the licensing
database so they could be automatically screened against the watchlist.
* When they became aware of the situation in December 2003, DDTC
officials directed licensing officers to ensure that all parties were
entered in the database, which meant manually entering multiple parties
for some applications. According to the officials, the manual entry of
the parties resulted in increased processing times.
DDTC officials also said that cases have become more complex and
involve more sensitive technologies that take longer to review, but
acknowledged the difficulty in substantiating this view.
State's Explanation for Increased Processing Times:
State's watchlist identifies entities whose appearance on an
application should prompt closer scrutiny and, in some cases, denial of
the application. Under the AECA,[Footnote 11] State is required to
identify and deny licenses to persons convicted of violating various
laws, including certain laws related to export controls, foreign
corrupt practices, espionage, and improper communication of classified
information, as well as persons who are ineligible to receive import or
export licenses from any U.S. agencies. State may also deny licenses to
persons who have been indicted for violating these same laws or are
ineligible to contract with any U.S. agencies. In addition to
identifying individuals who meet those criteria, State's watchlist
includes individuals and companies under U.S. economic sanctions,
identified by intelligence sources as suspected or known diverters or
proliferators, or identified from negative pre-licensing or post-
shipment checks.
DDTC officials informed us that while they instituted measures to
ensure that all parties on applications are screened against the
watchlist, they have not retroactively reviewed all applications
submitted between June 2002 and December 2003, to determine if any of
the parties to those applications appear on the watchlist. As a result,
they do not know whether any applications involving parties on the
watchlist were approved. Further, DDTC officials do not know how many
applications were not screened against the watchlist.
The manual entry of parties into the licensing database does not fully
account for the increased processing times. The median processing time
for all cases began increasing in fiscal year 2003, which predates when
DDTC took action to ensure that all parties are screened against the
watchlist.
Figure 2: Final Actions for License Applications:
[See PDF for image]
Source: GAO analysis of State data.
Note: Totals do not add to 100 percent due to rounding.
[End of figure]
Final Actions for License Applications:
In its final disposition of an export license application,[Footnote 12]
DDTC essentially has four options. It can approve the application,
approve the application with provisos--conditions that limit the use of
the exported items and technologies, deny the application, or return it
without action. DDTC returns applications without action when it
determines that the applications either do not meet regulatory
requirements or do not provide adequate documentation and details.
Both prior to and after the events of September 2001, DDTC approved
more than half of the license applications without placing conditions
on the use of the items and technologies. However, the percentage of
applications approved with provisos increased after September 2001,
which coincided with an increase in the number of nonstaffed
applications approved with provisos by DDTC.
The percentage of applications returned without action has remained
constant since September 2001. Likewise, the percentage of applications
denied remained at 1 percent. Other final actions, such as an
application being lost or withdrawn by the exporter, represented less
than 1 percent.
Arms Export Initiatives:
Special License Application Processes: Operation Enduring Freedom and
Operation Iraqi Freedom:
State and Defense established an "expedited" process for reviewing
license applications in support of Operation Enduring Freedom (OEF) and
Operation Iraqi Freedom (OIF). DDTC officials informed us that the
goals are to process applications:
* within 2 days if not staffed outside of DDTC for review and:
* within 4 days if staffed outside DDTC for review.
Processing time goals for OEF and OIF-related applications have
generally not been met.
Arms Export Initiatives:
State's Explanation for Operation Enduring Freedom and Operation Iraqi
Freedom Processing Times:
* According to DDTC officials, applications for Operations Enduring
Freedom and Iraqi Freedom are their highest priority.
Officials explained that processing times exceeded the goals, in part,
because:
* the applications were frequently incomplete and:
* licensing officers kept the cases open so that applicants could
submit required information, instead of returning incomplete
applications without action.
Table 4: Operation Enduring Freedom - Number of Applications and Median
Processing Times:
[See PDF for image]
Source: GAO analysis of State data.
[End of table]
Figure 3: Operation Enduring Freedom - Median Processing Times for
License Applications:
[See PDF for image]
Source: GAO analysis of State data.
[End of figure]
Table 5: Operation Iraqi Freedom - Number of Applications and Median
Processing Times:
[See PDF for image]
Source: GAO analysis of State data.
[End of table]
Figure 4: Operation Iraqi Freedom - Median Processing Times for License
Applications:
[End of figure]
Source: GAO analysis of State data.
[End of figure]
Arms Export Initiatives:
Special License Application Processes: Defense Capabilities Initiative
and Embassy Applications:
DTSI called for the expedited review of license applications:
* determined to be in support of the North Atlantic Treaty
Organization's (NATO) Defense Capabilities Initiative (DCI) to assist
allies in increasing their military capabilities or:
* submitted by the embassies of NATO countries, Australia, or Japan for
key supplies.
DDTC established special processes for these applications-
* applications must be submitted electronically and:
* applicant must indicate that it is seeking special processing.
Goal is to review:
* DCI-related applications within 10 days (nonstaffed) or 20 days
(staffed).
* embassy applications within 10 days (nonstaffed) or 23 days
(staffed).
Median processing times for these initiatives have met the established
goals for nonstaffed applications, but have generally not met the
established goals for staffed applications.
Table 6: DCI - Number of Applications and Median Processing Times:
[See PDF for image]
Source: GAO analysis of State data.
Note: NATO's DCI was launched in April 1999 as an effort to improve the
alliance's military capabilities in terms of force mobility; logistical
support; ability to effectively engage adversaries and protect against
threats; and interoperable communications to enable forces from
different countries to work together.
[End of table]
Figure 5: DCI - Median Processing Times for License Applications:
[See PDF for image]
Source: GAO analysis of State data.
[End of figure]
Table 7: Embassy - Number of Applications and Median Processing Times:
[See PDF for image]
Source: GAO analysis of State data.
Note: Of the 425 applications processed under this initiative through
April 2004, 307 were submitted by the United Kingdom, 113 by Australia,
3 by Canada, and 1 each by the Netherlands and Romania.
[End of table]
Figure 6: Embassy - Median Processing Times for License Applications:
[See PDF for image]
Source: GAO analysis of State data.
[End of figure]
Table 8: Electronic Licensing - Number of Applications and Median
Processing Times:
[See PDF for image]
Source: GAO analysis of State data.
[End of table]
Electronic Licensing: D-Trade:
DDTC's D-Trade is a Web-based license application submission and review
system, which allows companies to electronically submit export
authorization requests and supporting documentation for review. The
system officially went on-line in January 2004. DDTC officials expected
that D-Trade would be more efficient than the existing system that
permitted electronic submissions of requests but required hardcopy
submissions of supporting documentation, which could be voluminous.
However, from January through April 2004, few applications were
submitted via D-Trade. Based on an analysis of State's data, none of
the applications processed via D-Trade during this time frame was
staffed outside of DDTC for review.
DDTC is now reporting increased use of the D-Trade system as well as
reduced median processing times. According to the DDTC website, D-Trade
processed 154 nonstaffed applications and 146 staffed applications in
November 2004. Median processing times for applications submitted via D-
Trade in November 2004 were 9 days for nonstaffed applications and 18
days for staffed applications. DDTC officials said that processing
times should improve as licensing officers and exporters become more
familiar with the D-Trade system and enhancements make the system more
user-friendly.
When D-Trade came on-line in January 2004, it accepted applications for
both permanent exports--the most common type of application DDTC
receives--and technical assistance agreements, which allow for the
export of controlled technical data. However, citing industry
complaints regarding the electronic format for submitting information,
DDTC suspended the acceptance of technical assistance agreements via D-
Trade in mid-August 2004. DDTC officials told us that the acceptance of
technical assistance agreements via D-Trade would be reinstated once
the electronic form for submitting agreements has been redesigned,
which is expected to occur by April 2005.
Arms Export Initiatives:
Electronic Licensing: Capabilities:
P.L. 107-228 section 1403 directed State to establish an electronic
system for filing and reviewing export license applications and to
ensure the system is capable of exchanging data with export control-
related information systems maintained by Commerce, Defense, Energy,
and the Central Intelligence Agency (CIA).
* According to State information technology officials, D-Trade is
technically capable of exchanging data with other systems as required
by P. L. 107-228.
- D-Trade is currently exchanging data on a daily basis with Defense's
system.
- State is waiting for final administrative approval to begin
exchanging data with Commerce's system.
- No discussions have occurred with Energy or CIA officials regarding
data exchanges with their systems.
Arms Export Initiatives:
Comprehensive Export Authorizations:
As part of DTSI, three export authorizations were created to promote
transnational defense cooperation with NATO countries, Australia,
Japan, and Sweden:
* Major Program Authorization-designed to provide a single U.S.
exporter with a comprehensive authorization for a range of export
activities, including hardware, technical data, and defense services,
at the beginning of a project.
* Major Project Authorization-designed to provide a comprehensive
authorization for a range of export activities associated with a
foreign government's commercial acquisition of defense technologies.
* Global Project Authorization (GPA)-designed to provide a
comprehensive authorization to cover all exports planned to occur under
a government- to-government international agreement for a cooperative
project.
To date, DDTC has received three applications for comprehensive
authorizations. Two of these applications have been approved:
* one major program authorization for the Eurofighter program and:
* one GPA for the Joint Strike Fighter (JSF) program.
There have been no applications for a major project authorization.
According to DDTC officials, companies have disclosed 23 potential
violations of export control law/regulations related to the JSF
program, one of which involved a potential violation of the GPA. DDTC
officials explained that of the remaining 22 potential violations, 8
pre-date the October 2002 GPA, and 14 were not related to the GPA, but
that:
* two involved the disclosure of low-observable/counter low observable
technology,
* one involved the disclosure of controlled technology over a computer
network, and:
* one involved a foreign company releasing U.S. controlled technology
to a national of another country:
DDTC officials stated that to their knowledge, there have not been any
violations associated with the major program authorization for the
Eurofighter program.
Arms Export Initiatives:
Additional Initiatives Introduced by DDTC and DTSA:
Internal Realignment of DDTC and DTSA:
* DDTC officials have described their realignment efforts as a means to
focus staff work to more effectively achieve foreign policy and
national security goals and to raise the profile of DDTC within the
department.
* DTSA officials have described their reorganization efforts as a means
to better meet Defense and industry needs, provide a more technological
basis for DTSA's review of arms and dual-use exports, and ensure more
consistent treatment of similar technologies.
Night Vision and Thermal Imaging:
* Due to a Combatant Commander's concerns about night vision-related
exports, DTSA began requiring a higher level of review within DTSA and
additional end-user checks for defense and dual-use night vision-
related applications.
* For fiscal year 2003, night vision equipment accounted for 1.9
percent of the 54,736 cases processed by State's DDTC. By comparison,
thermal imaging and light intensifying cameras accounted for 23 percent
of the 12,443 cases reviewed by Commerce's BIS. * Industry Response
Team:
* DDTC effort to respond to general questions from industry regarding
basic processes and provide information on the status of applications.
Proviso Reform:
* Described by a senior DTSA official as an effort to ensure that
provisos recommended by DTSA license reviewers are applicable to the
proposed export and more appropriately applied to licenses, as well as
improve the quality and clarity of license applications.
* DDTC officials have raised concerns that the implementation of this
initiative may adversely affect compliance and enforcement efforts.
DDTC officials explained that in response to this initiative, exporters
have started including self-imposed conditions in their applications to
obtain DTSA approval. However, there could be differing interpretations
as to what these conditions mean and, therefore, what is allowable
under the license.
Top 10 Technologies:
* DTSA effort to identify emerging technologies before they become
widely available. According to a senior DTSA official, the results of
this effort have provided a basis for Defense proposals on how exports
of these emerging technologies should be controlled.
Arms Export Enforcement Coordination and Efforts:
Coordination on Initiatives:
According to Homeland Security and Justice officials, State and Defense
have sought only limited coordination regarding the implementation of
DTSI and other State and Defense initiatives. The only exceptions have
been regarding:
* the proposed extension of the country exemption and:
* the proposed aircraft and aircraft spare parts exemption.
* The Deputy Assistant Secretary of State for Defense Trade explained
that coordination was limited to the two proposed exemption initiatives
because they would fundamentally change how some arms and related
technologies are exported and would, therefore, affect enforcement
efforts.
Homeland Security and Justice officials informed us that they generally
do not favor export licensing exemptions because exemptions increase
the risk of diversion and complicate enforcement efforts. They noted,
for example,
* individuals seeking to obtain U.S. arms illicitly can establish
"front companies" overseas that obtain arms under an exemption and then
divert those items to other countries. Further, the investigation of
such diversions frequently requires lengthy undercover operations and
the assistance of officials in the country where the front company is
located.
* export violations under an exemption are difficult to prosecute
because it is hard to obtain evidence of a "willful" violation, the
legal standard in the AECA for a criminal conviction, particularly
since there is a limited "paper trail" of documents to prove a
violation.
As part of DTSI, there was a proposal to extend licensing exemptions
for exports to qualified countries. Under current arms export
regulations, many defense items can be exported to Canada without a
license.[NOTE A] State has negotiated agreements with the governments
of Australia and the United Kingdom to provide a basis for allowing the
license-free export of certain defense items to these countries, but
the exemptions have not been put into effect.
* While Homeland Security and Justice have indicated that they do not
have objections to the agreements reached with the governments of
Australia and the United Kingdom to allow for license-free exports,
department have cautioned that there are risks associated with the
implementation of these agreements.
NOTE:
[A] For additional information regarding the exemption for arms exports
to Canada, see GAO, Defense Trade: Lessons to be Learned from the
Country Export Exemption, GAO-02-63 (Washington, D.C.: Mar. 29, 2002).
In addition to the country exemptions, State has also proposed:
* creating a new regulatory exemption to allow the license-free export
of standard configurations of specific aircraft models, such as the C-
1 30 Hercules airlift airplane and the UH-1 Huey helicopter, to NATO
and other allies, such as Australia and Japan; and:
* raising the regulatory threshold from $500 to $5,000 on military
aircraft spare parts that can be exported without a license provided
that certain prerequisites are met.
In 2004, CBP's Assistant Commissioner for Field Operations wrote a
letter to State that indicated CBP would have difficulty enforcing the
proper use of the aircraft-related exemptions. Specifically, CBP warned
its officers
* would not be able to distinguish configurations eligible for the
exemption from upgraded configurations requiring licenses, which would
make targeting potential violations difficult, if not impossible; and
* lack access to the information needed to ensure that an exporter
meets the prerequisites for using the spare parts exemption.
Aircraft spare parts, even with the current export licensing
requirements, are at risk of diversion to countries that seek to
circumvent U.S. embargoes and increase the operational readiness of
their military aircraft.
Since 9/11, Homeland Security has conducted multiple criminal
investigations involving illegal exports of aircraft components.
Examples include alleged exports of:
* F-4 jet components to Israel with an unknown final destination and
* components for F-4 jets, F-5 jets, F-14 jets, and C-130 aircraft to a
British company procuring the equipment for the Iranian military.
U.S. Attorneys have secured convictions involving illegal exports of
aircraft components. Examples include guilty pleas for:
* exports of helicopter components to Iran and:
* exports of F-4 and F-5 jet components to China.
Arms Export Enforcement Coordination and Efforts:
Information Resources and Sharing:
CBP officers and ICE agents have access to:
* Automated Export System (AES), which is joint venture among multiple
federal agencies-including Commerce, Homeland Security, and State-used
by exporters to electronically provide CBP with documentation required
prior to export. By comparing the items being shipped to shipping
information provided by the exporters via AES and State-issued export
licenses, enforcement officials can identify potential export control
violations.
* While some information from a State-issued license is available
through AES, specific descriptions of the items approved for export and
other information useful for enforcement purposes are generally not
available due to AES data storage limitations.
* Automated Targeting System, which targets questionable shipments for
inspection at ports and border crossings.
Officers and agents can also obtain information, such as whether an
item requires a State-issued license or is eligible for export without
a license under an exemption, from State through the ICE-operated
Exodus Command Center.
Arms Export Enforcement Coordination and Efforts:
AES: State's Access to the System:
* DDTC recently gained access to AES, when a memorandum of
understanding outlining an information sharing arrangement between
State, CBP, and Commerce's Census Bureau was signed.
* Census provides DDTC with weekly electronic updates of AECA-related
shipments.
* Access to AES allows DDTC to know what defense items have actually
been exported, so that it can reconcile shipments with authorized
exports and help ensure exporter compliance with laws and regulations.
Arms Export Enforcement Coordination and Efforts:
AES: Notification of Shipments and Transfers:
As of October 2003, all shipments of hardware controlled under the AECA
must be reported through AES.
Transfers of technical data and defense services are not reported
through AES.
* DDTC was to have a system in place by January 2004 for exporters to
electronically notify DDTC of initial exports of technical data and
services pursuant to a license or agreement, but the implementation of
that system has been delayed. Until the electronic system is in place,
exporters are to submit letters to DDTC notifying it of initial
exports.
* DDTC does not require exporters to notify it of technical data and
defense service transfers when an exemption is claimed.
Arms Export Enforcement Coordination and Efforts:
AES: State Funding:
Under P.L. 107-228 section 1404(a), $250,000 was "authorized to be
available" for:
* providing State with full access to AES,
* ensuring that the AES is modified to meet the needs of State, and:
* providing operational support to AES.
Per DDTC officials, DDTC did not spend funds on AES improvements in
fiscal year 2003. The Census official who oversees AES confirmed that
State did not spend funds for AES operations and improvements.
Arms Export Enforcement Coordination and Efforts:
Challenges Identified by Enforcement Officials in Enforcing Arms Export
Controls Since 9/11:
Challenges identified by enforcement officials:
* Budgetary constraints:
* Limited personnel resources for CBP's outbound enforcement;
* Ability to acquire and maintain trained and experienced personnel;
* Licensing exemptions [NOTE A]:
- Place burden on CBP officers to determine if shipment is eligible to
be exported without a license;
- Require investigations of "front companies" in other countries;
- Limited documentation to ensure proper use of exemption and
investigate suspected violations:
* Legal standard of needing to prove a "willful" violation of the AECA
to secure a criminal conviction.
NOTE:
[A] For additional information regarding licensing exemptions, see GAO-
02-63.
Arms Export Enforcement Coordination and Efforts:
Customs and Border Protection: Initiatives and Resources:
No new arms export enforcement initiatives introduced by CBP in
response to the events of 9/11.
CBP has limited resources and funding for enforcement activities.
According to Homeland Security officials, relatively more resources
have been devoted to ensure that dangerous goods and individuals do not
enter the country through the 317 official ports and border crossings.
* Prior to 9/11, 400 officers were dedicated to outbound enforcement.
* Currently, 256 officers are dedicated to outbound enforcement, but
can be pulled to fulfill inbound inspection requirements as needed.
* Cancellation of courses on outbound inspections in fiscal year 2004.
Improvements in officers' ability in recent years to conduct outbound
inspections at ports and borders due to:
* AES automation enhancements and:
* regulatory requirement for information on a State-controlled shipment
to be submitted via AES prior to arriving at the port or border, which
improves targeting.
Arms Export Enforcement Coordination and Efforts:
Immigration and Customs Enforcement: Initiatives and Resources:
ICE initiatives introduced in response to the events of 9/11:
* Identification of arms export control investigations as a top
priority.
* Project Shield America to improve outreach with industry and develop
new sources of information.
* Efforts to improve cooperation with intelligence community and
participation in interagency taskforces.
Overall increase in number of agents since 9/11 with efforts underway
to expand the number with export control expertise:
* Creation of dedicated export control investigative teams in major
field offices.
* Expansion of training on conducting export control investigations in
fiscal year 2004, but courses for fiscal year 2005 cancelled for
budgetary reasons.
Table 9: Arms Seizures:
[See PDF for image]
Source: GAO analysis of CBP data and CBP officials.
[End of table]
Table 10: Arms Export Investigations, Arrests, Indictments, and
Convictions:
[See PDF for image]
Source: ICE officials.
[A] Investigations opened refers to the number of cases opened during a
particular fiscal year. A single case may involve multiple individuals
or entities, such as a corporation.
[B] Arrests refers to the number of individuals arrested during a
particular fiscal year.
[C] Indictments refer to the number of individuals and/or entities
indicted during a particular fiscal year.
[D] Convictions refer to the number of individuals and/or entities
convicted during a particular fiscal year and include guilty pleas and
pleas of nolo contendere.
[End of table]
Arms Export Investigations, Arrests, Indictments, and Convictions:
The number of investigations opened and individuals arrested by ICE
agents for suspected arms export violations has widely fluctuated over
the past 5 fiscal years. Similarly the number of individuals indicted
and convicted for arms export violations has also fluctuated from year
to year. When ICE opens an investigation in response to an alleged arms
export control violation, it may take several years for agents to build
a case and eventually make an arrest--if one is made at all. Once an
arrest is made, several years may pass before Justice brings the case
to trial and obtains a conviction. For example, an investigation opened
in 1999 may not result in an arrest until 2002. Similarly, an arrest in
2000 may not result in a conviction until 2003.
According to ICE officials, the drop in arms export-related arrests and
indictments in fiscal year 2002 may be the result of a more intensive
focus on ensuring that dangerous goods and individuals did not enter
this country in the immediate aftermath of the September 2001 attacks.
However, with the passage of time, ICE became increasingly concerned
with the defense-related items leaving this country and the threat they
could pose. The officials explained that this prompted ICE to focus its
attention on illegal arms exports and increase its agents' knowledge
and skills as they relate to arms export investigations, which has
resulted in increased arrests, indictments, and convictions. The
officials also attributed the increases to leads obtained through its
industry outreach program--Project Shield America--and the intelligence
community.
In addition to investigations by ICE, the Attorney General clarified
the Federal Bureau of Investigation's (FBI) jurisdiction in November
2004 to specify that it has the lead in investigating potential AECA
violations relating to foreign counterintelligence matters.[Footnote
13] While the table does not include FBI investigations, Justice
officials informed us that the FBI has initiated a number of AECA-
related investigations. ICE officials informed us that there has been
some initial uncertainty regarding which agency will have the lead in
investigating potential AECA violations, but Homeland Security and
Justice officials have been working together to resolve jurisdictional
issues.
Table 11: State's Administrative Enforcement - Blue Lantern Program:
[See PDF for image]
Source: State annual reports.
[End of table]
State's Administrative Enforcement: Blue Lantern:
State's end-use monitoring program, known as Blue Lantern, consists of
pre-license and post-shipment verification checks of the parties to and
the end-use of defense exports. From fiscal year 1999 through 2004, the
number of end-use monitoring checks performed under the Blue Lantern
program remained relatively constant, averaging about 400 checks per
year. One exception to this average occurred in fiscal year 2000 when
State targeted higher value exports in its Blue Lantern checks, which
resulted in only 218 checks for the year.
Blue Lantern checks may result in unfavorable determinations by State
based on evidence uncovered during the checks, such as illegitimate end-
users or the possible diversion of defense exports. Unfavorable
determinations result in the denial of a license or are turned over for
investigation by law enforcement and compliance entities. According to
State's fiscal year 2003 end-use monitoring report, 49 percent of the
76 unfavorable determinations involved firearms and ammunition. Also,
unfavorable determinations involving aircraft spare parts increased
from 18 percent in fiscal year 2002 to 24 percent in fiscal year 2003.
Table 12: State's Administrative Enforcement - Voluntary Disclosures:
[See PDF for image]
Source: State compliance officials.
[End of table]
State's Administrative Enforcement: Voluntary Disclosures:
Voluntary disclosures are disclosures to DDTC by companies or
individuals that believe they may have violated the AECA, arms export
control regulations, or terms of a license. Upon reviewing the
circumstances of the disclosure, DDTC may take administrative action
against the responsible party or refer the matter to Justice for
appropriate action.
According to DDTC officials, the increase in disclosures from fiscal
year 1999 through 2004 was due to increased industry education and
outreach efforts on the part of DDTC to encourage companies to self-
report export control violations. These officials explained that the
submission of voluntary disclosures is an indication of a robust
compliance effort on the part of industry. Further, voluntary
disclosures may be considered a mitigating factor in determining what
administrative penalties, if any, should be imposed upon a company.
Table 13: State's Administrative Enforcement - Penalties Imposed in
Administrative Cases:
[See PDF for image]
Source: GAO analysis of State's administrative settlement agreements.
[A] One settlement was a joint criminal and administrative settlement
with a total penalty amount of $25 million. Of the $25 million, $5
million was a civil administrative penalty paid to State and is
included in the table. Two million of the civil administrative penalty
was suspended, provided that the company applied the funds toward
compliance efforts. In addition to the $5 million civil administrative
penalty, there was a $20 million penalty paid to the U.S. Customs
Service (now part of Homeland Security) and that amount is not
reflected in the table.
[End of table]
[End of slide presentation]
State's Administrative Enforcement: Penalties Imposed in Administrative
Cases:
State can pursue administrative penalties against companies for
violations of the AECA. These administrative penalties can consist of
debarment from participation in defense exports and/or civil penalties
in the form of monetary damages. In some cases, State has suspended a
portion of the civil penalty, provided the funds are invested in a
company's export compliance program. For example, in calendar year
2003, there were five settlements for AECA violations resulting in
$43.48 million in administrative penalties. However, $16.5 million of
that amount was suspended on the condition that companies invest the
money in their compliance efforts.
According to DDTC compliance officials, when a portion of an
administrative penalty is suspended, the company is required to provide
DDTC with an accounting of how those funds were spent. DDTC officials
then review the information provided to ensure that funds were spent in
accordance with the settlement agreement. However, DDTC does not
conduct a formal financial audit to verify the information provided.
These officials also informed us that Defense auditors previously found
that some companies have attempted to bill Defense for the required
improvements to their compliance programs. After learning of this, DDTC
compliance officials met with company officials to address the issue.
According to DDTC compliance officials, all but one of the companies
have agreed that the U.S. government should not pay for the compliance
penalties imposed as part of the settlement agreements and to change
their billing practices. Additionally, DDTC compliance officials have
included standard language in settlement documents to explicitly
preclude such charges in the future.
Five of the 13 settlements imposed in 2000 through 2004 involved
satellite-related exports. However, the majority of administrative
penalties imposed in those years were associated with the satellite-
related settlements. For example, all $26.1 million of the
administrative penalties in 2002 was for satellite-related settlements.
[End of section]
Appendix II: Scope and Methodology:
To identify changes to the arms export system since September 11, 2001,
we interviewed officials at the State Department's Directorate of
Defense Trade Controls (DDTC) and the Defense Department's Defense
Technology Security Administration (DTSA). We also reviewed the Arms
Export Control Act;[Footnote 14] the International Traffic in Arms
Regulations;[Footnote 15] the Foreign Relations Authorization Act,
Fiscal Year 2003;[Footnote 16] and other relevant agency guidance,
policies, and documents including those related to each agency's budget
and staffing levels. To assess overall trends in arms export licensing,
we analyzed DDTC's export license application data covering October 1,
1998 through April 30, 2004. The data were extracted by DDTC officials
based on the final action date for each case. We analyzed the data to
determine trends in processing times and license application final
actions. The processing time represents the number of calendar days
between the receipt of a case and the final action date entered into
State's database. Defense's processing time represents the number of
calendar days between the date State decided to refer the case to DTSA
and the date DTSA provided its recommendation for final action. Median
processing times rather than average (mean) processing times are
reported because average values can be significantly affected by a
small number of cases that had much longer review times than the
majority of cases. Our analysis did not include licenses that were
approved and then subsequently suspended or revoked during this period.
To evaluate the implementation of initiatives designed to streamline
and expedite the arms export licensing process, we reviewed State and
Defense-issued guidance and consulted with State and Defense officials
to identify the initiatives and their goals. We then analyzed State
export license application data for October 1, 1998 through April 30,
2004 to determine the number of license applications received for each
initiative and associated processing times, which we then compared to
the processing time goals established by State and Defense. State
assigned unique identifiers to each initiative, which we used to
identify applications processed under each initiative.
State has not assessed the reliability of its license application
database nor does it have a data dictionary explaining its data, which
prompted us to assess the reliability of the database for the purposes
of this report. We randomly selected 98 license applications from our
data set that were stored on-site at State and then compared the
original hardcopy application files to the corresponding information in
the database. The data in the application database matched the
information in the original hardcopy files for 89 percent of the fields
we checked. Therefore, we are 95 percent certain that the accuracy rate
of the fields we checked is between 87 percent and 90 percent, which we
have determined to be sufficiently reliable for the purposes of this
report. Our reliability assessment was designed to measure whether data
used in our analyses matched information in State's files and did not
include every field in the database. Our results may not be
generalizable to the entire database or to all uses of the data within
the database. Additionally, we discussed key elements of the database
with State officials to ensure that we accurately interpreted the data.
Because we had partial data for fiscal year 2004, we cannot provide
median processing times for the entire fiscal year. However, based on
our review of monthly median processing times posted on DDTC's website
for the last 5 months of fiscal year 2004, the upward trend in median
processing times continued through the remainder of the fiscal year.
While the data presented on DDTC's website for the last 5 months of
fiscal year 2004 were not included in our data reliability assessment,
the monthly median processing times on DDTC's website for the first 7
months of fiscal year 2004 correspond with our analyses of that time
period.
To determine the extent of coordination between State and enforcement
agencies regarding the implementation of initiatives, we interviewed
officials and obtained supporting documents from the Justice Department
and the Homeland Security Department's U.S. Customs and Border
Protection (CBP) and U.S. Immigration and Customs Enforcement (ICE). We
also discussed coordination efforts with Defense and State officials.
To identify enforcement challenges, we interviewed CBP, ICE, and
Justice officials. We also met with CBP officials responsible for
export enforcement at two ports in Maryland and Virginia to obtain
their perspectives. Additionally, we obtained and analyzed data from
Homeland Security and State regarding enforcement actions such as the
number of arms export control investigations opened and administrative
penalties.
[End of section]
Appendix III: Comments from the Department of State:
Note: GAO's comments supplementing those in the report's text appear at
the end of this appendix.
United States Department of State:
Assistant Secretary and Chief Financial Officer:
Washington, D.C.20520:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N. W.
Washington, D.C. 20548-0001:
JAN 31 2005:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report, "DEFENSE
TRADE: Arms Export Control System in the Post-9/11 Environment," GAO
Job Code 120333.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact
Michael Dixon, Director, Bureau of Political and Military Affairs,
Office of the Defense Trade Controls, at (202) 663-2798.
Sincerely,
Signed by:
Christopher B. Burnham:
cc: GAO - Johanna Ayers;
PM - Lincoln Bloomfield;
State/OIG - Mark Duda:
Department of State Comments on Draft GAO Report DEFENSE TRADE: Arms
Export Control System in the Post-9/11 Environment (GAO 05-234, GAO
Code 120333):
The Department of State (DOS) thanks the Government Accountability
Office (GAO) for the opportunity to respond to their draft report,
Defense Trade: Arms Export Control System in the Post-9/11 Environment.
In general, the draft report fails to reflect the strong initiatives,
ranging from organizational realignment to electronic processing to
strengthened enforcement efforts, that the Department has successfully
undertaken in reshaping the defense export controls function.
While we agree there have been some increase in export license
processing timelines, we firmly believe the background activity behind
them (e.g., renewed emphasis on training of all officers, assurance
that licensing review is thorough, review of business process rules,
increased referral to outside offices and agencies to address
increasingly complex cases) has reinforced the ability of the
Directorate of Defense Trade Controls (DDTC) to carry out its multi-
faceted mission and to ensure that defense export transactions are, in
fact and in accordance with U.S. law, carried out in furtherance of
foreign policy and national security objectives.
Moreover, many of the statements in the draft report are inaccurate or
misleading. We address them as follows:
* "State has not made significant changes to its arms export control
regulations or proposed statutory changes in response to the terrorist
attacks" (cover page and subsequently in the report, e.g., on p. 2).
This statement would seem to indicate that some "significant changes"
to the arms export control regulations should have occurred and does
not make clear that "significant changes" were not needed to respond to
or to address terrorist attacks. We believe that the GAO might well
have reported that, "The arms export control system operated by State
has adequate means in terms of statutory and regulatory authority to
address terrorist attacks in a post-9/11 environment." Instead, as
drafted, the statement implies that the State Department has been
indifferent to the terrorist attacks of 9/11 /O1. In fact, the defense
trade control system was, prior to 9/11/01, and remains an effective
instrument in keeping U.S. defense technology out of the hands of our
enemies while ensuring that our allies and coalition partners have
access to the U.S. defense technology they need to fight alongside our
forces. As stated in the State Department report to the United Nations
made in accordance with relevant sanctions (UNSC Resolutions 1390 and
1455), "the U.S. munitions export control regime is designed to deny
adversaries and parties whose interests are inimical to those of the
U.S. access to U.S.-origin defense equipment and technology ... As a
matter of long-standing policy, rooted in law, the U.S. strictly
regulates exports and re-exports of defense items and technologies to
protect its national interests and those interests in peace and
security of the broader international community. In addition to seeking
technical support and national security assessments from DOD, the State
Department relies on extensive interagency cooperation and coordination
to perform the arms export control function..."
There is no reason to believe that any U.S. defense items have been
used in terrorist attacks, or that our enemies have used them against
U.S. military forces or those of our coalition partners. That is
because the existing U.S. defense trade control system has been
remarkably successful in depriving our enemies of access to U.S.
defense technology.
* "... (T)hey have not evaluated the effects of these initiatives (to
streamline export licensing) on the export control system or revised
these initiatives" (cover page and subsequently in the report, e.g., on
p. 3).
As was noted during the GAO audit, a review of the DTSI initiatives was
part of the tasking of NSPD-19. That review was brief, to be sure,
because it was recognized by all concerned these initiatives were very
modest in scope (e.g., to allow build-to-print technical specifications
for DOD contracts to be shared without an export authorization) and
that they were generally applicable only to NATO countries, Japan and
Australia (although Sweden was added to some DTSI initiatives in 2001),
which are among our coalition partners and not our enemies. The DTSI
initiatives have themselves not been revised, as there has been no need
to do so. However, the Administration has sought to build upon and
expand the DTSI initiatives pursuant to the President's tasking in NSPD-
19. These additional measures have not been implemented, for reasons
known to the Congress and the GAO.
* "State has sought limited coordination with the agencies responsible
for enforcing U.S. -arms export laws - the Departments of Homeland
Security and Justice - regarding initiatives designed to streamline
arms export licensing. The only exceptions have been regarding proposed
export licensing exemptions. Enforcement officials have raised concerns
regarding licensing exemptions..." (cover page).
These statements are very misleading. While whether coordination with
law enforcement agencies has been "limited" on issues other than
exemptions is a matter of judgment, it is certainly true that only
exemptions depart from the case-by-case licensing approval and
documentation that are routinely relied upon for prosecution of
violators. One wonders, for example, what interest law enforcement
agencies would have in expedited licensing for high-priority NATO
programs or coalition partners, which are subjected to normal licensing
procedures, only with target deadlines for decisions.
Moreover, Customs and Justice were both involved in the DTSI
initiatives in the previous Administration, and the only measure on
which they took any position was the proposal to negotiate ITAR waiver
agreements with the UK and Australia. When those agreements were
finally negotiated, however, the official positions of DHS and Justice
(submitted in writing to the Chairman of the HIRC) were that there was
no objection to these agreements. Copies of this correspondence were
provided to the GAO audit team. While it may be that individual
representatives of DHS and DOJ have reservations about these exemption
agreements, it is highly misleading not to reference in this context
the official positions of the Departments of Homeland Security and
Justice.
In the matter of the proposed $5,000 license exemption for aircraft
spare parts (mentioned explicitly in the slides on pp. 41-42 of the
draft report), John C. Varonne, Assistant Commissioner of the Office of
Investigations of what was then still the U.S. Customs Service, wrote
the Director of what was still the Office of Defense Trade Controls on
May 10, 2002, that while "an exemption at the $10,000 level raises
serious concerns for Customs... we could possibly work with an increase
in the exemption to $5,000." Moreover, the acceptability of the $5,000
threshold was explicitly reaffirmed by DHS/ICE Assistant Secretary
Michael Garcia. While DHS/CBP has since taken a position that the
proposed $5,000 threshold should be lowered to $2,500 (in a letter from
Assistant Commissioner Jayson P. Ahern on July 15, 2004), this does not
reflect the seemingly categorical concerns regarding licensing
exemptions suggested on the cover page and in the slides.
Finally, regarding more recent (and as yet unimplemented) initiatives
in the context of NSPD-19, these were personally briefed to DHS and DOJ
representatives who are responsible for export control enforcement, and
they found no basis for objection to the proposed measures.
* "...(A)pplications for Operation Iraqi Freedom are to be processed in
4 days if they require interagency review, but the median processing
time for these applications in the first 7 months of fiscal year 2004
was 22 days" (cover page and subsequently in the report).
As referenced briefly in the report (slide 15, p. 24 of the report),
these delays in Iraq licenses were caused by frequently incomplete
applications, and "licensing officers kept the cases open so that
applicants could submit required information, instead of returning
incomplete applications without action." To present the data on delays
in Iraq licensing on the cover page without explaining the excellent
reason why such delays occurred gives a very misleading impression of
the responsiveness of the defense trade control system to the highest-
priority licenses we are handling. After all, our objective was to make
the U.S. defense articles available to our allies and coalition
partners as quickly as possible, not just to meet deadlines we had set
for ourselves, and this more important purpose was served by keeping
the case open while trying to correct its deficiencies.
* The report statement that, "...(T)he Department has transferred some
of its licensing resources to other functions. For example, between
fiscal years 2003 and 2005, five licensing officer positions were
transferred to policy and management functions" (p.3) is incorrect.
Authorized FTE for Licensing Officer positions have consistently
increased since a $2 million budgetary baseline plus-up in FY-1999 when
export jurisdiction over comsats reverted to the Department of State.
Some confusion that is reflected here might be traced to the 2003
realignment of the defense export controls function. Some senior
positions (GS-14 and GS-15) that had been created in accordance with
CJS Authorization provisions once appeared on staffing patterns as
licensing personnel, but the relevant Position Descriptions and
assigned duties for these personnel were of a special advisory nature
and focused on specific tasks and initiatives (e.g., CWC-and DTSI-
related activities) that are outside the immediate realm of normal arms
export licensing responsibilities. As a result of the realignment, some
of these personnel moved to the newly formed Office of Defense Trade
Controls Policy. In addition, administration of the Commodity
Jurisdiction process moved from the Licensing Office to Policy.
Notably, one of positions created as a result of the FY-1999 personnel
plus-up has been converted to an additional deputy director position in
the Licensing Office.
* "...(T)he officials stated they regard the 40 cases per week average
as a target" (Slide 8, p. 13).
In fact, as explained to the GAO auditors, 40 cases per week workload
is more than a target but a current reality. Even at a level of 60,000
cases per year, with 30 licensing officers with signature authority and
2,000 person-hours per year (40 hours, 50 workweeks), the average
workload is 40 cases per officer per week. Of course, some officers are
responsible for many more than 40 cases a week, and some many less, as
the complexity of cases differs significantly. But the average holds
true.
"Plus-Names" (p. 20) The paragraph beginning "DDTC officials informed
us..." would much more accurately reflect the watchlist review process
if modified as follows:
"DDTC officials note that omission of names from watchlist review
occurred only when there were lists of parties to the transaction in
hardcopy attachments to license application submissions. While DDTC
officials do not know how many applications had names that were not
fully screened against the watchlist, they are certain that the
majority of cases received by DDTC do not have lists of persons
attached and that even when this occurs the vast majority of the names
are those of U.S. freight forwarders regularly subject to watchlist
review by other means. DDTC officials informed us that while they
instituted measures to ensure that all parties on applications are
screened against the watchlist, they have not completed a retroactive
review of the applications submitted between June 2002 and December
2003, to determine if parties to those applications appear on the
watchlist. Based on the retroactive review that has been conducted, no
party has been identified that would have resulted in removal of that
party from a license approval or the denial of that particular license.
DDTC officials also informed us that as part of a projected spending
plan for funds to be received through the increase in defense industry
registration fees, DDTC identified the requirement for additional
contractor support for watchlist screening, to include retroactive
checks on prior submission in the period that all names were not made
subject to watchlist review. This is a priority endorsed by relevant
Department offices, but initiation of the project will depend upon how
much additional revenue will be received in the near future."
* The chart regarding Operation Enduring Freedom cases (p. 25)
indicates that median processing times are significantly off target.
In reviewing cases and statistics with the Department of Defense, we
have come to the conclusion that the list of cases reviewed by the GAO
included cases that were not identified by State as OEF cases (e.g., no
record of notification or, in a number of cases, no direct connection
to OEF) even though Coalition partners were involved. Therefore,
several of the cases that were sampled did not receive expedited
processing required of the OEF export licensing processing regime.
Again, in a number of cases, the documentation that was submitted was
incomplete (e.g., no signed contract) or important information for
consideration was not spelled out (e.g., the end-user was not clearly
identified). These cases were usually held by Licensing Officers
pending receipt or clarification of information rather than returned
without action (RWA'd) precisely because they were OEF cases. We do not
have a full analysis regarding these matters, but there is every reason
to believe that a review of truly OEF cases would result in
significantly different statistics (i.e., lower median processing
times).
GAO Comments:
Our report identifies various arms export control initiatives
implemented by State, as well as discusses State's compliance efforts.
Initiatives identified include DTSI, expedited processing for
Operations Enduring Freedom and Iraqi Freedom applications, electronic
licensing, and organizational realignment. We evaluated those
initiatives for which data were available. As we reported, license
applications processed under various initiatives have generally not
been processed within the time frames established by State and several
initiatives have not been widely used by exporters. Senior State
officials also informed us that they have not evaluated the
initiatives' effects on the arms export control system. We are,
therefore, uncertain what the basis is for State's conclusion that it
has successfully undertaken these initiatives, particularly since State
did not provide any additional data to support its contention.
It is not clear from existing data why carrying out activities integral
to the arms export license process would contribute to increased
processing times, particularly since State has received increased
resources over the years to carry out these activities. State suggested
that ensuring a thorough license review has contributed to increased
processing times. However, as noted in the report, processing times
began increasing during the period State was not screening all parties
against the watchlist as required by law. State also suggested that
more referrals of increasingly complex cases have contributed to
increased processing times. Yet our analyses of State's data clearly
show that the relative number of cases referred, or staffed, remained
fairly constant from fiscal year 1999 through the first 7 months of
fiscal year 2004. Further, this would not explain why processing times
have increased for nonstaffed cases. Also during the course of our
audit, State officials only provided anecdotal support for their
assertion that cases have become more complex.
Our report does not imply whether changes to the arms export control
system were needed following the September 2001 terror attacks. Rather,
it clearly states what has or has not occurred in terms of changes to
the system after the attacks. During the audit, senior State officials
acknowledged that State has not proposed statutory or regulatory
changes in response to the September 2001 attacks. Our report already
includes a senior State official's explanation of why such changes were
not needed. We also note that beyond describing what the arms export
control system is intended to do, State does not provide support for
its comments regarding the effectiveness of its arms export controls in
the post-9/11 environment.
Our report already notes that while State reviewed the status of
implementation, it did not evaluate the effects of various initiatives
on the arms export control system. Further, GAO has previously
reported[Footnote 17] that DTSI was launched in 2000 without a
demonstration of how the measures would achieve identified goals or an
analysis of existing problems. At that time, there was little assurance
that any underlying problems with the U.S. export control system had
been sufficiently analyzed to determine what the causes of the problems
were and whether the DTSI measures would remedy any existing problems.
Given this continued lack of evaluation, we are uncertain as to the
basis for State's conclusion that the initiatives do not need to be
changed in the aftermath of the September 2001 terror attacks.
Our report refers to the White House-directed comprehensive assessment
of the effectiveness of U.S. defense trade policies, which is commonly
known as NSPD-19. However, because the NSPD-19 assessment was ongoing
during the time of our audit and its results have not been released, we
were unable to evaluate it. Further, State did not brief us on the NSPD-
19 assessment or any resulting proposals.
During the course of our audit, State, Homeland Security, and Justice
officials characterized coordination with law enforcement regarding the
implementation of initiatives as limited. The only exceptions
identified were the proposed licensing exemptions. Our report already
cites State's explanation, which is consistent with that offered in
State's comments, as to why coordination was limited to the proposed
exceptions. Therefore, our report does not need to be revised.
As explained in our report, Homeland Security and Justice officials
generally oppose licensing exemptions because exemptions increase the
risk of diversion and complicate enforcement efforts. Our report also
acknowledges that the two departments have officially stated that they
do not object to the agreements reached with the governments of
Australia and the United Kingdom to allow for license-free exports to
those countries. However, in the letters cited in State's comments,
both departments noted that there are risks associated with the
proposed exemptions.
State's comments do not address the strong concerns raised in CBP's
letter regarding the proposed aircraft-related exemptions. As we noted
in our report, CBP warned it would not be able to enforce the proper
use of the exemptions. State's comments also do not address Homeland
Security and Justice officials' general comments regarding the risks
and enforcement difficulties associated with licensing exemptions.
During the course of our audit, State export licensing officials
informed us that the quality of applications submitted under this
initiative remained constant. Thus, the quality of applications does
not explain the increased processing times from fiscal year 2003
through the first part of fiscal year 2004 for Operation Iraqi Freedom
applications.
State's comment that the number of authorized licensing officers has
consistently increased contradicts information State provided during
the course of our audit. According to the information provided by
State, the number of authorized licensing officer positions decreased
from 37 in fiscal year 2003 to 32 in fiscal year 2005. Because State
did not provide revised figures in its comments, we have no basis to
change the information contained in the report. Further, in analyzing
the information provided by State, authorized positions clearly shifted
from licensing officers to other positions within DDTC's management and
policy functions. While this may have been part of DDTC's realignment
efforts, it nevertheless has resulted in fewer authorized licensing
officer positions and coincides with a decrease in the number of
licensing officer positions filled.
State officials repeatedly informed us that they do not track average
weekly caseloads and did not know whether they were meeting the
required weekly average of 40 cases for each licensing officer.
Further, State's comments provide a theoretical average that appears
based on the number of cases closed by licensing officers during a
given year. This is not an accurate reflection of licensing officer
caseloads because it does not include open cases being processed. For
example, State officials informed us that on June 21, 2004, there were
5,343 open cases. Given that State had 31 licensing officers in fiscal
year 2004, that averages to 172 cases per licensing officer on that
date.
Our report does not need to be revised because it accurately conveys
information provided to us during the course of our audit. We are
uncertain as to the basis for State's comment that the majority of
cases were screened against the watchlist given that State acknowledged
it does not know how many applications had parties that were not fully
screened against the watchlist as required by law. Also, given that
State has not completed its retroactive review of applications
submitted between June 2002 and December 2003, it is not clear how
State concluded that the vast majority of the parties to those
applications were screened by other means. Finally, in light of the
risks posed by not screening all parties against the watchlist, it is
not clear why available resources have not been dedicated to completing
the retroactive review.
State's comment that our analyses of Operation Enduring Freedom
applications included cases not identified by State is inaccurate. As
explained in our scope and methodology, we used the unique identifiers
entered into State's licensing database to identify applications
processed under various initiatives, including the Operation Enduring
Freedom initiative. Thus, the information in the report regarding the
number of Operation Enduring Freedom applications and their associated
processing times is based on our analyses of applications coded by
State. As part of our data reliability analysis, we assessed whether
information contained in State's database matched State's hardcopy
files and found it to be reliable for the purposes of our report. It is
not clear from State's comments how or why it has since determined only
certain cases coded in its database are "truly" related to Operation
Enduring Freedom. We cannot verify State's assertion about possibly
lower Operation Enduring Freedom processing times because State did not
provide us with information regarding which cases it now considers
"truly" related to Operation Enduring Freedom. We also note that State
did not conduct its own analysis despite having all available data.
Further, State's comments, along with those provided by Defense,
indicate inconsistencies in the identification of cases for special
processing. It appears that State coded cases in the database as
related to Operation Enduring Freedom, but, for reasons that are not
clear in State's comments, did not expedite the processing of those
cases.
[End of section]
Appendix IV: Comments from the Department of Defense:
Note: GAO's comments supplementing those in the report's text appear at
the end of this appendix.
OFFICE OF THE UNDER SECRETARY OF DEFENSE:
POLICY:
2000 DEFENSE PENTAGON:
WASHINGTON, DC 20301-2000:
JAN 24 2005:
Ms. Katherine V. Schinasi:
Managing Director:
Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Ms. Schinasi:
This is the Department of Defense (DoD) response to the draft GAO
report, "Defense Trade: Arms Export Control System in the Post-9/11
Environment" (Code 120333, Report #GAO 05-234). We have reviewed the
draft and submit the attached comments.
If you have any questions regarding our inputs, please contact my point
of contact, Mr. Charles Shotwell, (703) 325-3784.
Signed by:
Lisa Bronson:
Deputy Under Secretary of Defense, Technology Security Policy and
Counterproliferation:
Attachments:
As stated:
Department of Defense (DoD) Comments on Draft GAO Report "Defense
Trade: Arms Export Control System in the Post-9/11 Environment" (Proj.
# 120333, Report #GAO 05-234):
We note that though we are in general agreement with the report, our
detailed review of the report indicates that in certain cases the data
requires further explanation. Details are provided below.
Page 11, Table 1, Workload: Figures provided for DTSA somewhat
overstate the organizational assets available for licensing. These
figures include 31 personnel assigned to the Space Directorate. This
directorate was established in 1999 solely for the purpose implementing
the space launch and space systems monitoring requirements of PL 105-
261 on a reimbursable basis. As Space Directorate's role is not
appropriated, they are prohibited from actions involving the review of
licenses (a governmental function). Thus, including them in the total
overstates the assets DTSA has available for license review. Figures
for DTSA should be adjusted as follows:
Number of Personnel: 132;
Expenditures: $520.492 (in millions).
Pg 18, Processing Times: The chart on page 16 refers to a constant
median processing time of cases referred to DOD by the Directorate of
Defense Trade Controls (DDTC) between FY 00 and FY 03; despite the
increased workload. The chart also indicates an improvement for FY 04.
Though DOD agrees with the trend.. we cannot validate the numbers. The
figures used to generate the data were based on the date DDTC "staffed"
the case to DOD. This is the date a licensing officer at DDTC makes the
decision to staff the case and does not represent the date the case is
actually transferred to DOD nor the date of receipt by DOD. Since the
processing times are based on calendar days, this "transit time" added
between one and four days to any given license; time not available for
review, but counted against, DOD.
Review of the DOD database for the same time frames revealed the
following:
[See PDF for image]
* date of creation to date released to DDTC:
[End of table]
The caveat on the table above is important. Up Until January 2004, all
cases received by DoD were received in hardcopy. From the date of
receipt to creation date, the cases were at DoD but were not available
for review pending input to DoD's database. This "creation time" does
account for some of the difference in the reported median age, but spot
checks of the data available to DoD do not support a median creation
time sufficient to make up the difference between the chart above and
the State reported figures. More importantly, with the fielding of the
USXports database, creation times can now be accurately tracked. In
November. 2004. the average time a case was reviewed by DoD, from
receipt from DDTC to position release back to DDTC, averaged just 18
days.
Pg 22, Final Actions: As written, the report gives the impression that
there is a direct correlation between the increase in the number of
cases not staffed and the increase in the number of cases approved
without provisos. Rather, this may have been coincidental impact of a
concerted effort; begun by DTSA in 2003, at Proviso Reform. This
initiative constituted analysis of provisos previously imposed,
training of reviewers and a careful screening of provisos recommended
for final positions. The goal of the initiative was to eliminate
provisos which were either duplicative of the ITAR, unenforceable by
the applicant, or redundant or not applicable to the license
application. As a consequence of this effort, DTSA has recommended
provisos on a third fewer cases and this may have contributed to the
overall drop in cases approved without provisos. Likewise, it must be
noted that provisos are correctly applied in only two circumstances:
when the application does not sufficiently describe the export or when
the export exceeds what would be in the national security interest to
approve but can be limited through the use of provisos. Likewise, since
part of proviso reform included outreach to applicants, a decline in
the application of provisos may also indicate that the quality of the
applications received from exporters is improving and there is
anecdotal evidence to support this conclusion.
Pg 23, Operation Enduring Freedom (OEF)/Operation Iraqi Freedom (OIF):
Procedures established between DDTC and DoD for special handling
required that the case be staffed to DoD by facsimile and the facsimile
cover sheet identifies the case as OEF or OIF. This eliminated the
"transit" time referred to above on routine cases and these cases were
created (inputted into the database at DoD) on a priority basis.
Discussions with the GAO indicate that the identification of the cases
used to develop the tables was based upon the "coding" of cases as OEF
or OIF by DDTC in their database. In-depth review of the cases on file
at DTSA that were handled as OEF or OIF based on facsimile requests
indicates that the cases coded as OEF or OIF in State's database
understates the number of cases actually treated as such by DoD by over
50% and includes cases that, while perhaps related to OEF or OIF based
on the end user, were not handled as such by either DDTC or DoD at the
time of processing. DoD does not have the information available on
final case disposition to do a complete review, but an update of the
tables based on the information available does alter the basic data and
suggests that the conclusions of the GAO may be overstated.
Likewise. consideration should be given to the possibility that the
logical goal of OEF and OIF expedite. to get material to US forces and
coalition partners engaged in operations, may have been more broadly
interpreted to the detriment of processing time. While the majority of
cases reviewed by DOD were for items required by forces in country or
about to deploy, a large number appear to be for exports that did not
go to that limited end use. Indications of this can by seen in the high
number of technical assistance agreements (TAAs) processed under OEF
and OIF (26 for OEF in FY 03 alone); licenses to non coalition panners
(an export of a baggage screening system to proscribed country for
example), or export licenses for "marketing." Most TAAs were for the
long term in home country support of weapons programs (these licenses
require more staffing and analysis than hardware licenses due to the
long term impact of the technology transfer); licenses to non-coalition
partners required extensive review and licenses for marketing of first
time exports, however laudable; seem to support the applicant more than
the deployed forces. Current instructions contain no limitation on use
of the expedited process; DDTC's instructions on their database merely
provide the procedures for identifying a case as OEF or OIF and leave
it to the applicant, presumably, to determine the applicability. Review
of the cases suggests that specific instructions regarding
qualification of a license for the expedited process and a more
rigorous screening of the cases was warranted before the cases were
selected for expedited handling. Such qualification and screening would
have reserved this channel to those licenses genuinely required for
support of the operations and would be in the best interests of the
USG.
Page 25, Table 4, Operation Enduring Freedom:
[See PDF for image]
[End of table]
OEF Discrepancies by FY other than case totals:
FY 02:
Two cases listed as staffed to DoD were staffed, but not identified as
OEF Expedite.
FY 03:
DoD has no record of staffing four cases. Eleven cases on the
spreadsheet were staffed to DOD for review but were not identified as
OEF Expedite. All were for OEF involved countries. One case counted was
for OIF not OEF and was counted against that program.
FY 04:
Two Cases were OIF cases and handled under that program. DOD has no
record of one case listed being staffed by DDTC. Another case appears
to be on OEF spread sheet erroneously. It is an advisory opinion for
the sale of an air defense/air traffic control radar to Iraq. One case
is for a baggage screening system to a proscribed country that was not
a coalition partner. It did come over as "anti-terrorism, expedite" but
without affirmative identification with OEF. It was treated as an OEF
case at DOD.
Page 27, Table 5:
Operation Iraqi Freedom:
[See PDF for image]
[End of table]
OIF Discrepancies other than case totals by FY:
FY03:
Two cases on the GAO list were not treated by DOD as OIF. Since both
cases were electronically transmitted; it is presumed that they were
not identified as requiring special handling as no fax had been
received. Cases were clearly OIF related. Note: Including these two
cases as OIF would make the total cases reviewed by DOD total 28 but
would not effect DOD median processing days (still 1).
FY 04:
One case was received in hardcopy in normal distribution. Export was
for Gen III image intensification tubes for tank night sights for
Italy, no record of Iraq connection with end use. Note: if this case
were included, it would raise the number of staffed cases to DOD to 37
and change the median processing days to 3 vice 2.5.
In one case, DOD has no record of staffing from DDTC. In another case,
DOD has no record of staffing from DDTC as an OEF case but was clearly
for Iraq. DOD treated this case as OIF and it is counted under that
program.
Pg 35. D-Trade and Electronic Licensing: Paragraph 1 contains a factual
inaccuracy. Electronic cases were staffed to DoD during the period
covered by this report, but the number was insignificant (52 of 2950
DSP-5s). DoD agrees that there is a "transition cost" in convening to
electronic licensing as analysts adjust to new case presentations.
However, the transition can be mitigated by standardizing the format of
documents submitted electronically to PDF text searchable. Also, it
must be noted that for staffed cases, any increased reviewer time would
be more than offset, as indicated by the timeliness of staffed D-Trade
cases in November 2004, by the capability of an electronic system to
eliminate the time wasted in the transit and database input of hardcopy
cases.
Page 40, Proviso Reform: The tern "self-imposed provisos" inaccurately
depicts one facet of the proviso reform effort. As discussed above,
proviso reform was initiated to insure that provisos recommended for
imposition on licenses be applicable to the export, enforceable by the
applicant and not redundant to either the ITAR or the application. The
]TAR, in 22 CFR 127.2(a) defines using any export control document
"containing a false statement, misrepresentation or material omission"
as unlawful. 22 CFR 127.2(b) defines an export control document to
include "an application for permanent export or a temporary import
license and supporting documentation." (Emphasis added) Some
applicants. rather than reviewing and modifying supporting
documentation provided in a license application, have instead chosen to
include previously imposed provisos in an attachment to the license
application or transmittal letter. DOD's reviewers evaluate the
restrictions included in this manner as part of the review process. If
it is felt that the export application adequately describes and limits
the requested export (including any the applicant explains in
attachments), provisos are not recommended. However, if the
application, including these applicant attachments, does not clearly
limit The export to the satisfaction of DOD; provisos are recommended
to ensure clarity. It is unclear to DoD, given 22 CFR 127.2; how
reliance on the applicants' own statements would adversely effect
enforcement. Likewise, it is difficult to understand why reliance on
applicant limitations presents greater compliance concerns than a
system that imposed redundant or unnecessary provisos.
Page 41, Coordination on Initiatives: The opening statement that DoD
has "sought only limited coordination" with the Department of Homeland
Security and the Department of Justice on the Defense Trade Security
Initiative and other initiatives leaves the false impression that DOD
has a role in the enforcement process. DoD's role as expressed on Page
8 is far more limited and contains no statutory requirement for
enforcement. DOD stands ready to support the Department of State in any
coordination required to support enforcement of these necessary
measures.
Page 59, Voluntary Disclosures: As with licenses, DTSA reviews only a
portion of the total number of voluntary disclosures received by DDTC.
As such, it is difficult to dispute DDTC's claim that the increase in
voluntary disclosures was a result of "a robust compliance effort on
the part of industry." It should be noted that, of the 337 cases
reviewed by DTSA in FY 03; only 11 were determined to have been
detrimental to or possibly detrimental to US national security.
Further, a significant number of the voluntary disclosures reviewed by
DoD were initiated following mergers (24) or by the direction of DDTC
(8) or after a USG office "recommended" that a "voluntary" disclosure
be submitted (2). The former suggest that the merging company submitted
the voluntary disclosure to address liability issues. the latter can
hardly be considered voluntary in the classic sense.
GAO Comments:
We have revised our report to reflect that a portion of DTSA's
resources were not involved in the review of license applications.
As explained in our scope and methodology, and as acknowledged by
Defense, median processing times in our report are based on our
analyses of State's licensing data. Because we did not analyze
Defense's data or assess its reliability, we cannot verify the accuracy
of the data provided in Defense's comments. However, our report
acknowledges Defense's observation regarding the lag between when State
decides to refer cases and when Defense begins its review. Regardless
of the reasons for delays, transit time contributes to the overall time
it takes the government to process a case and provide its final
determination to the exporter.
We have clarified the report language regarding the overall increase in
the number of cases approved with provisos following the events of
September 2001.
As discussed in our scope and methodology and Defense's comments, the
information provided in our report regarding the number of Operation
Enduring Freedom and Operation Iraqi Freedom cases and their associated
processing times is based on our analyses of applications identified in
State's database as related to the two operations. As part of our data
reliability analysis, we assessed whether information contained in
State's database matched State's hardcopy files and found it to be
reliable for the purposes of our report. While Defense identified
discrepancies between its files and the corresponding records in
State's database, we cannot validate these discrepancies or their
frequency as we did not review or assess the accuracy or completeness
of Defense's files. Nevertheless, Defense's comments, along with those
provided by State, suggest a lack of agreement and inconsistencies in
the process for identifying cases for expedited review.
Our report reflects information provided by State during the course of
our audit and our analysis of State's licensing database. We have
revised the report to indicate the basis for our statement that
applications processed via D-Trade during the 4-month period were not
staffed outside DDTC for review.
The use of the term "self-imposed conditions" is a reflection of
State's characterization of the proviso reform initiative and State's
concerns with that initiative's possible effects on enforcement
efforts. Defense's comments, along with information provided to us by
State, indicate that there is a fundamental disagreement between the
two departments regarding the appropriate use of provisos and the
ability to enforce limitations contained in license applications.
We have revised our report based on Defense's comment.
We did not evaluate the factors that prompted companies to submit
specific disclosures. Therefore, we cannot comment on the validity of
Defense's comment and whether it is applicable to the majority of
disclosures, which were not reviewed by Defense. However, according to
a State compliance official, the number of disclosures presented in our
report only includes disclosures of potential violations voluntarily
submitted by companies and not disclosures submitted at the direction
of the U.S. government.
[End of section]
Appendix V: Comments from the Department of Homeland Security:
U.S. Department or Homeland Security:
Washington, DC 20528:
February 1, 2005:
Ms. Katherine Schinasi:
Managing Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, N.W.: Washington, D.C. 20548:
Dear Ms. Schinasi:
RE: GAO-05-234, Arms Export Control System in the Post-9/11 Environment
(GAO Job Code 120333):
Thank you for the opportunity to comment on the subject draft report.
The Department of Homeland Security (DHS) appreciates the work done
related to enforcement challenges. Although the report contains no
recommendations, we are providing the following comments that may
enhance the report.
After the first paragraph on page 12, we suggest including the
following statements: "CBP is a regulatory and enforcement arm of the
export process. CBP supports the system by reviewing licenses, permits
and other requirements before items are exported, and also conducts on-
site inspections. During this process, CBP officers compare export
documentation with on-site commodities for compliance purposes.
Discrepancies are aggressively pursued. Commodities are identified,
tallied, referred for license verification, detained, seized, as
appropriate and exporters referred for investigation and prosecution,
as warranted."
Please substitute the following sentence for the one on page 55. U.S.
Immigration and Customs Enforcement officials present during the GAO
interview believe it more accurately reflects what was said.
"According to ICE officials, the drop in arms export-related arrests
and indictments in fiscal year 2002 may be the result of a more
intensive focus on ensuring that dangerous goods and individuals did
not enter the country in the immediate aftermath of the September 2001
attacks."
Please consider inserting the following statement after the first
paragraph on page 57: "CBP participated in the Blue Lantern Program
from fiscal year 1999 through April 2004 by conducting export
compliance inspections, identifying, and reporting potential violations
to State and Defense."
Insert the following statement after the first paragraph on page 59:
"CBP participated in the Voluntary Disclosures program throughout the
monitoring period (FY 1999 through April 2004) by conducting export
compliance outreach programs and training endeavors with the Department
of Commerce."
Insert the following statement after the first paragraph on page 61:
"CBP actively participated in this program throughout the monitoring
period by conducting export compliance inspections, identifying, and
reporting potential violations to the responsible agencies."
Technical comments will be provided separately.
Sincerely,
Signed by Michael McPoland for:
Steven Pecinovsky:
Acting Director:
Departmental GAO/OIG Liaison Office:
[End of section]
Appendix VI: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Katherine V. Schinasi (202) 512-4841;
Anne-Marie Lasowski (202) 512- 4146:
Acknowledgments:
In addition to those named above, Johana R. Ayers; E. Brandon Booth;
Richard K. Geiger; Arthur James, Jr.; Masha Pastuhov-Pastein; and Lisa
Simon made key contributions to this report.
[End of section]
Related GAO Products:
Nonproliferation: Further Improvements Needed in U.S. Efforts to
Counter Threats from Man-Portable Air Defense Systems. GAO-04-519.
Washington, D.C.: May 13, 2004.
Defense Acquisitions: DOD Needs to Better Support Program Managers'
Implementation of Anti-Tamper Protection. GAO-04-302. Washington, D.C.:
March 31, 2004.
Joint Strike Fighter Acquisition: Cooperative Program Needs Greater
Oversight to Ensure Goals Are Met. GAO-03-775. Washington, D.C.: July
21, 2003.
Defense Trade: Better Information Needed to Support Decisions Affecting
Proposed Weapons Transfers. GAO-03-694. Washington, D.C.: July 11,
2003:
Export Controls: Processes for Determining Proper Control of Defense-
Related Items Need Improvement. GAO-02-996. Washington, D.C.: September
20, 2002.
Defense Trade: Lessons to Be Learned from the Country Export Exemption.
GAO-02-63. Washington, D.C.: March 29, 2002.
Export Controls: Reengineering Business Processes Can Improve
Efficiency of State Department License Reviews. GAO-02-203. Washington,
D.C.: December 31, 2001.
Export Controls: Clarification of Jurisdiction for Missile Technology
Items Needed. GAO-02-120. Washington, D.C.: October 9, 2001.
Export Controls: State and Commerce Department License Review Times are
Similar. GAO-01-528. Washington, D.C.: June 1, 2001.
Defense Trade: Analysis of Support for Recent Initiatives. GAO/NSIAD-
00-191. Washington, D.C.: August 31, 2000.
Defense Trade: Status of the Department of Defense's Initiatives on
Defense Cooperation. GAO/NSIAD-00-190R. Washington, D.C.: July 19,
2000.
Export Controls: License Screening and Compliance Procedures Need
Strengthening. GAO/NSIAD-94-178. Washington, D.C.: June 14, 1994.
FOOTNOTES
[1] For the purposes of this report, "arms" refers to defense articles
and services as specified in 22 U.S.C. 2778.
[2] For additional information on DTSI, see GAO, Defense Trade:
Analysis of Support for Recent Initiatives, GAO/NSIAD-00-191
(Washington, D.C.: Aug. 31, 2000).
[3] Cases include applications for the permanent export of arms, the
temporary export and import of arms, and agreements between U.S.
industry and foreign entities to provide technical assistance or
manufacturing capability, as well as requests for amendments to
existing licenses and jurisdiction determinations.
[4] The median processing time is the point at which 50 percent of the
cases took more time and 50 percent less time. We are reporting the
median processing time because the average or mean processing time can
be significantly affected by a small number of cases that had much
longer review times than the majority of cases.
[5] State refers, or staffs, a portion of the cases it processes to
Defense for technical and national security reviews.
[6] Exporters can request a jurisdiction determination when they are
uncertain which department controls exports of an item or want an item
transferred from State to Commerce jurisdiction. For additional
information on the commodity jurisdiction process, see GAO, Export
Controls: Processes for Determining Proper Control of Defense-Related
Items Need Improvement, GAO-02-996 (Washington, D.C.: Sep. 20, 2002).
[7] Department of Commerce, Bureau of Industry and Security, Annual
Report Fiscal Year 2003 (Washington, D.C.: 2004).
[8] BIS's other principal activities include monitoring the viability
of the defense industrial base, ensuring industry compliance with arms
control treaties, enforcing antiboycott laws, and assisting other
countries in developing effective export control systems.
[9] FTE is a measure of federal civilian employment. One FTE is equal
to 1 work-year of 2,080 hours.
[10] The median processing time is the point at which 50 percent of the
cases took more time and 50 percent less time. We are reporting the
median processing time because the average or mean processing time can
be significantly affected by a small number of cases that had much
longer review times than the majority of cases.
[11] 22 U.S.C. 2778.
[12] License applications include applications for the permanent export
of arms, the temporary export and import of arms, agreements between
U.S. industry and foreign entities to provide technical assistance or
manufacturing capability, and amendments to existing licenses.
[13] See 69 FR 65542 (Nov. 15, 2004).
[14] 22 U.S.C. 2751 et. seq.
[15] 22 CFR pts. 120-130.
[16] P.L. 107-228.
[17] See GAO, Defense Trade: Analysis of Support for Recent
Initiatives, GAO/NSAID-00-191. (Washington, D.C.: Aug. 31, 2000).
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