Remarks by Deputy Secretary Bruce Andrews at the BIS Update Conference

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Remarks As Prepared For Delivery

U.S. Deputy Commerce Secretary Bruce Andrews

 

Thank you, Eric. Good afternoon. It's great to be here. I would like to join Eric in welcoming all of you today.

I also want to thank the entire team at the Bureau of Industry and Security (BIS) for organizing this Update Conference. It has become a must-attend event for many in our exporting community. And the reason is simple: as Secretary Pritzker said, export control reform is essential to our national security, which includes our economic security. 

To be honest, when I first joined the Department of Commerce as the Secretary's Chief of Staff, I did not have a full appreciation for the importance of BIS and its work. That changed quickly.

Around the time I started, I traveled to my home town of Syracuse to speak at an event organized by the International Trade Administration. During a roundtable with roughly 25 business leaders, I was surprised to hear them repeatedly raise the issue of the export control system.

This sentiment – this focus on export controls – was almost unanimous around the table; it was a real moment of epiphany for me. I never would have expected so many companies to raise this as one of their top issues.

From that experience, it became clear why, shortly after taking office, President Obama ordered a broad-based review of our export control system—a system that too often reflected assumptions of the Cold War era. We needed a system that addressed contemporary threats and realities. We needed a system that was more reliable and predictable so that U.S. exporters could be more reliable and predictable suppliers. We needed a system that was nuanced so that less sensitive items destined to countries and end uses of less concern could be controlled more flexibly. The Commerce Department system and regulations are designed to address all these concerns, which is why we have taken on the burden of implementing many of the reforms.

To the get to the point where we are today, a massive amount of work was needed over the course of the last five years. The Departments of Defense, State, and Commerce, supported by multiple other agencies and laboratories, reviewed every control for every military and space-related item. They had the difficult job of identifying which were the items that continued to warrant the worldwide controls of the ITAR and which were the military and space items that would still require control, but could be exported more flexibly to close allies. This was a massive exercise. And every one of the proposed changes went through multiple rounds of industry and public comment and congressional notification.

Assembling, devising, and executing this strategy has been considered one of the most difficult jobs in government. But the truth is, government can't do this job alone, which is why, at this conference and year-round, we seek out and appreciate the cooperation and participation of all of you – our nation's exporting community.

Now that the regulations are starting to come on line and grand policy plans are being put to the test in actual implementation, we need to hear from you whether they work and whether we are accomplishing the national security objectives that then-Secretary of Defense Gates set out in 2010.

Are the reforms allowing for greater interoperability with our close allies? Are the reforms reducing the incentive for foreign companies to design out or avoid U.S.-origin content or services? Are the reforms allowing the government to focus its resources on transactions of greater concern? We are looking to you to let us know whether we are failing or succeeding in each of these objectives.

Based on a review of the data since the first set of rules became effective last October, the new system seems to be working as intended. Exports of parts and components in the supply chain to our close allies are occurring more quickly and efficiently. Non-U.S. companies are more willing to buy items from U.S. companies without fear of an "ITAR taint" to what they build. The ability of companies in allied countries to engage in joint production and development projects is becoming easier. Once companies get comfortable with the new system, the paperwork and licensing burden is being reduced. Companies are able to determine more clearly when items are and are not ITAR controlled. The Administration is becoming able to spend more time investigating exports and reexports to destinations and end uses of more concern.

All told, here's the bottom line: export control reform maintains effective safeguards, brings transparency to our system, and ensures efficiency in a field of regulation that has long lacked it.

And for those aspects that are not yet as efficient as they could or should be, the heart of the reform effort includes a spirit of transparency and regular interaction with industry and national security stakeholders to continually improve and streamline the system.

As we work to make our reform initiative a source of even greater strength for the security of our country and the competitiveness of key industries, BIS and the Department of Commerce are here to help.

BIS provides a wide range of services to ensure companies can navigate the export control process easily and efficiently. Among these are: counselling; training seminars; Web-based interactive tools; compliance assistance; and, technical support to register and use the simplified network application process.

BIS has held more than 200 outreach activities to educate companies on the nuances of export control reform. Tomorrow, for example, the Bureau is hosting a large number of subject matter expert roundtables, including representatives from the Small Business Administration and Commerce's Minority Business Development Agency. I encourage you all to attend.

We know that you are investing substantial resources to make export control reform work. Many of you have reclassified thousands of parts, revised your IT control systems, and conducted thousands of hours of training for your compliance, operations, and technical teams.

We recognize that, for some, this process has resulted in a significant increase in your workload. But we firmly believe that your tactical investment will reap strategic rewards over time.

In government, we are few in number and we rely on you, the private sector, to help educate your suppliers, employees, and customers. The effort and resources you devote to this exercise are crucial to the success of our reform efforts and indeed, of the export control system generally.

At Commerce, we are committed to working side-by-side with you to educate stakeholders, keep our supplier base informed, and reach out to customers at home and abroad.

Our task is not easy. Changing mindsets is always a seemingly impossible challenge. But you have demonstrated, time and again, your capacity to reinvent yourselves, to develop new products, to market ideas and items and innovations that place all of you at the forefront of the 21st century global economy.

With your ongoing commitment, with the expertise of the businesses in this room and the know-how of our teams at BIS and the Department of Commerce, we will achieve President Obama's goal: to make America safer, to give an edge to American industry, to keep American workers strong, competitive, and prosperous.

Thank you.

Remarks by Conventional Arms Threat Reduction Director Ann K. Ganzer (as prepared), July 30, 2014

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Conventional Arms Threat Reduction Director Ann K. Ganzer

Remarks for the 2014 Update Conference, July 30, 2014

 

Good morning. On behalf of my colleagues at the U.S. Department of State, I’d like to thank Under Secretary Hirschhorn for hosting this year’s event, and for inviting me to participate in this discussion. I welcome the opportunity to highlight some of the ways we at State ISN are supporting effective export controls around the globe within the context of the Administration’s export control reform initiative.

A lot has happened since we briefed the 2013 Update Conference. As the President announced on April 28, in response to Russia’s actions in Ukraine, the Department’s Directorate of Defense Trade Controls (DDTC)  and Commerce/BIS have been denying applications for export or re-export of high technology defense articles or services to Russia that contribute to Russia’s military capabilities.  The President announced further sanctions yesterday. This situation is fluid, and our sanctions are dependent on the facts on the ground. The United States has clearly announced that it will continue to adjust its export licensing policies toward Russia, as warranted by Russia’s actions in Ukraine.

On the export control reform front, we are well into the new world of reviewing 600 series items. We continue supporting the interagency efforts to completely review all remaining ITAR categories while at the same time working to operationalize our review of 600 series exports. Since last year’s Update conference State has reviewed 3050 cases for 600 series items. We endeavor to provide consistent and timely foreign policy analysis of these transactions by working closely with other offices within State as well as the interagency. To this end we have also identified the types of cases that the Department does not need to review in order to speed up our response time to applicants. In short, if you never had a problem exporting an item when it was regulated by the ITAR, you should not be experiencing any problems or delays exporting them to the same end use and users now that they are controlled by Commerce.

As we have said before, one of the basic tenets of the President’s export control reform initiative is to honor our commitments to the multilateral export control regimes, the Australia Group (AG), the Missile Technology Control Regime (MTCR), the Nuclear Suppliers Group (NSG), and the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies (WA). Multilateral standards underpin effectiveness of national export control measures and help even the playing field for international suppliers of strategic goods and technologies. With this in mind, the State Department works with the interagency to strengthen U.S. controls and bolster export controls around the world through bilateral engagements. In addition, the U.S. works in partnership with multilateral regime members to assist other countries in developing effective national strategic trade control systems. This helps ensure that bad actors will not be able to "shop around" and obtain from elsewhere technology that is denied by the United States.

Our work with regime partners is a dynamic process that intends to account for technology innovations and proliferation trends in order to refine regime guidelines and their control lists to make continual progress in fighting proliferation.

Nuclear Suppliers Group (NSG)

The 2014 Nuclear Suppliers Group Plenary, Consultative Group, and Information Exchange and Licensing and Enforcement Experts Meetings were recently held in Buenos Aires, last month, June 23-27.  At the meeting the NSG noted its strong concerns about the nuclear programs of North Korea and Iran.  The group discussed and is looking forward to proposals from the United States for a fundamental review of the NSG Guidelines, beginning with Part 2, the Dual-Use Guidelines, and with a proposal to consider supply of uncontrolled items needed for the operational safety and security of nuclear facilities in certain non-member countries.  While concerns were raised by certain Participating Governments (PGs) about these proposals, the Group agreed to continue discussions. Consensus was reached for publication on the NSG website of the German Guide to Brokering and Transits but as a "Good Practices" national paper with a number of co-sponsors including the United States, rather than an NSG "Best Practices Guide. The Group strongly endorsed the importance of a continued vigorous outreach program, not only with non-members, but also with organizations such as the IAEA, and with the other export control regimes, building on the success of recent informal meetings and joint workshops with Wassenaar Arrangement experts.

Missile Technology Control Regime (MTCR)

During the October 2013 Plenary in Rome, MTCR Partners highlighted the importance of the Regime working to address regional proliferation, adopted changes to the control list, and noted the importance of placing greater focus on intangible technology transfers, brokering and transit, and transshipment. In particular, partners had extensive discussions on the missile programs of Iran and North Korea and key procurement and technology trends related to the proliferation of Weapons of Mass Destruction (WMD) delivery systems. Partners also emphasized the importance of catch-all controls and visa vetting to impede proliferation and exchanged information on best practices in export control implementation and enforcement. In addition, the October 2013 Plenary marked the 25th anniversary of the first MTCR Plenary held in Rome in 1988. More recently, at the May 2014 MTCR’s intersessional Reinforced Point of Contact (RPOC) meeting, Partners discussed developments since the Rome Plenary and began planning for the 2014 Oslo Plenary.

Australia Group (AG)

On the Chemical and Biological Weapon, or CBW front, the Australia Group or AG continues its effort to impede the flow or supplies and technology to chemical and biological weapons programs around the world. In June 2014, the AG, held its annual plenary meeting in Paris. In the wake of the use of chemical weapons in Syria, AG members adopted a series of measures to strengthen the regime’s focus on Chemical/Biological Weapons terrorism, the implementation of ‘catch-all’ controls, and outreach to industry and academia. AG members also agreed to launch an initiative to encourage more non-member countries to adhere to the regime’s guidelines and common control lists.

The AG welcomed the progress made to rid Syria of its chemical arsenal, but also expressed concerns about lingering ambiguities about the completeness of Assad regime’s declaration to the Organization for the Prohibition of Chemical Weapons and continued reports of the use of chemical agents in the Syrian conflict.

On a more positive note, plenary participants also welcomed Mexico as the AG’s newest member.

Biological and Toxin Weapons Convention (BWC)

In the specific area of the life sciences and biotechnology, the Australia Group serves to reinforce the Biological Weapons Convention (BWC). The BWC is a short treaty, but there’s a lot packed into it. It doesn’t just outlaw the possession or development of biological weapons by states – it requires us not to transfer biological weapons or their components to others, or "in any way to assist, encourage, or induce" anyone to acquire biological weapons. And parties to the treaty are also required to take steps to "prohibit and prevent" anyone under their jurisdiction from developing or acquiring such weapons. BWC States Parties have strongly reaffirmed – most recently, just last December – the importance of effective national export control systems as a means to fulfill these obligations.

The BWC is continuing to work to develop common understandings and best practices for implementation of the BWC, including export controls, by gathering information on national implementation, and by providing targeted assistance to strengthen implementation around the world. The AG works to ensure its members fulfill their legally-binding obligations under the BWC, and the two are necessary and mutually reinforcing elements of the overall regime to stem the proliferation of biological weapons.

Wassenaar Arrangement

The Wassenaar Arrangement continues to keep pace with advances in technology and market trends. Participating States have worked to make the existing control lists more readily understood and user-friendly for licensing authorities and exporters, and to ensure the detection and denial of undesirable exports. The Arrangement continues work on a comprehensive and systematic review of the Wassenaar Lists to ensure their continued relevance.

In 2013, new export controls were agreed in a number of areas including surveillance and law enforcement/intelligence gathering tools and Internet Protocol (IP) network surveillance systems or equipment, which, under certain conditions, may be detrimental to international and regional security and stability. Participating States also further clarified existing controls in respect of inertial measurement equipment or systems and relaxed some controls such as for instrumentation tape recorders and digital computers.

Significant efforts have also been taken to promote the WA and to encourage voluntary adherence to the WA’s standards by non-WA members. The WA continues to undertake outreach in support of its aims and objectives, in particular through post-Plenary briefings, interaction with industry and bilateral dialogues with non-WA members.

Participating states in each of these consensus-based groups have voluntarily committed to observe coordinated export control guidelines and control lists. The guidelines and control lists increasingly are observed by non-member adherent countries; some of the regime lists also feature in UN Security Council Resolutions (UNSCRs) on Iran and North Korea. They are also implicitly endorsed by UNSCR 1540, which requires all UN Member States to have nonproliferation export controls to prevent the proliferation of weapons of mass destruction or their means of delivery and to prevent their acquisition by terrorist groups or other non-state actors. As a founding member and strong supporter of these regimes, the United States welcomes expanding acceptance of their multilateral export control standards.

All four regimes continue efforts to expand their outreach and dialogue with non-participating states. These efforts further the regimes’ nonproliferation objectives through technical interactions with unilateral adherents as well as pursuing greater international acceptance of the guidelines and control lists among the broader international community. At the same time, there has been strong interest by some countries to become part of the regimes.

Arms Trade Treaty (ATT)

118 countries (including the United States) have signed the Arms Trade Treaty or ATT, of which 41 have ratified, putting it near the 50 ratifications needed for its entry into force. When Secretary Kerry signed the Treaty last September, he explained what the treaty is about and why this historic treaty is in the United States’ interest. It is worth repeating his words. He said this treaty is about keeping weapons out of the hands of terrorists and rogue actors. It is about reducing the risk of illicit international transfers of conventional arms that will be used to carry out the world’s worst crimes. It is about keeping Americans safe and keeping America strong. It is about promoting international peace and global security, and about advancing important humanitarian goals.

Secretary Kerry also clearly spelled out what this treaty is not. It is not about taking away domestic freedoms. As the President has said, he strongly believes that the Second Amendment guarantees an individual’s right to bear arms. The treaty is fully consistent with the rights of U.S. citizens, including those conferred by the Second Amendment. The ATT recognizes the freedom of individuals and states to obtain, possess, and use arms for legitimate purposes. This treaty reaffirms the sovereign right of each country to decide for itself, consistent with its own constitution and legal requirements, how to deal with conventional arms exclusively within its borders.

Let me add one other thing that this treaty is not. It is not about limiting a country’s sovereign right to conduct responsible arms transfers. Indeed, the ATT is a trade regulation treaty focused exclusively on the international trade in conventional arms. It aims to create a global framework for countries’ responsible national regulation of the international transfer of conventional arms, which the treaty recognizes as a legitimate activity that supports countries’ national security and commercial interests.

The ATT will compel countries to undertake rigorous national assessments when making decisions to export weapons so that, in the future, rather than conventional arms being secreted out of warehouses and into the unknown, a government will need to have a control system in place to adequately review the request to authorize the export of such arms to another country. In this way, the Arms Trade Treaty helps establish a common international standard for regulating the international trade in conventional arms. The Arms Trade Treaty won’t change what the U.S. does on a day-to-day basis to implement effective export and import controls on conventional arms and address illicit shipments of conventional arms. Rather, it will induce other countries to come up to our standards. The goals of the ATT are important goals that are also aligned with our foreign policy and national security interests. We believe it is important for the United States to give a public endorsement of the ATT and its effectiveness so that as many other states as possible will be encouraged to sign on as well.

UN Security Council Resolution 1540

As I noted, the U.N. Security Council has adopted a number of resolutions that extend the reach of multilateral controls. Renewal of the mandate of the UNSCR 1540 Committee to 2021 marked a critical diplomatic achievement.  In extending this mandate, the U.N. Security Council requested that the Committee identify effective practices for implementing UNSCR 1540. In addition to the international practices it has already identified in its earlier reports, the 1540 Committee has begun assembling an additional set of effective practices, including on export controls, identified by the United States and other countries. The Security Council also encouraged the Committee to draw on relevant expertise, including from the private sector, so the 1540 Committee has enhanced its work with industry, especially through a series of industry-focused meetings hosted by Germany, which recognizes the crucial role of industry in developing develop effective measures to control WMD-related materials and technologies

Export Control and Related Border Security (EXBS)

The Export Control and Related Border Security, or EXBS, program is the flagship initiative of the U.S. government designed to assist other countries in developing effective national strategic trade control systems. EXBS is active in more than 60 countries worldwide and conducts more than 250 outreach and capacity building activities each year to support partner countries in developing modern legal and regulatory frameworks; effective licensing systems; greater government-to-industry outreach programs; stronger enforcement capabilities; and improved interagency and international coordination and cooperation. These efforts help partner governments fulfill their international obligations to prevent proliferation of weapons of mass destruction (WMD) and diversion of conventional arms to inappropriate end users. Partner government officials, including parliamentarians, senior executive branch officials, the judiciary, and front-line licensing and enforcement personnel take part in these capacity building efforts.

EXBS continues to be a valuable tool in pursuing U.S. nonproliferation objectives. This type of engagement and cooperation provides us with obvious security benefits while at the same time preserving our economic competitiveness by ensuring that U.S. exporters are not held to a stricter level of controls than their foreign competitors.

As countries seek to develop their high-tech industrial sectors and expand their ports and transportation networks, EXBS engagement helps give us and our allies greater confidence that controlled items will not be diverted or re-exported for unauthorized uses. EXBS engagement combines outreach to existing and emerging suppliers with capacity-building for major transshipment hubs in order to help address global supply chain security.

I would like to close by reiterating that the regimes and treaties I’ve discussed this morning continue to be dynamic. Every year changes to the control lists and guidelines based on ever-changing and advancing technology and proliferation trends are debated, negotiated, and agreed upon. Every year changes in the regime control lists, lead to updates of export control regulations not only in the United States, but around the world as well. Multilateral export controls must be continually improved, so that national security concerns are balanced with economic considerations. Finally, the treaties and United Nations Security Council Resolutions we discussed demonstrate a growing acceptance by the international community of the role of export control in addressing shared concerns.

The U.S. export control reform effort has helped us to better focus our attention on transactions that merit higher scrutiny while continuing to carry out our international commitments and obligations. In the end US export control rules is, and will continue to be, recognized as the "gold standard" and our actions will be dictated by national security and foreign policy objectives.

Thank you.

Remarks of Kevin J. Wolf Assistant Secretary of Commerce for Export Administration July 29, 2014

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U.S. Department of Commerce

Bureau of Industry and Security

Update 2014 Conference -- Washington, D.C.

Remarks of

Kevin J. Wolf

Assistant Secretary of Commerce for Export Administration

July 29, 2014

Kevin Wolf_update

Thank you Eric. It is still an honor to work for and with you. You’re a terrific leader, public servant, and friend. And, better yet, you are making a difference. We’ve worked together on a daily and usually hourly basis for nearly five years now, and I continue to be amazed and amused that you still have in your head relevant anecdotes to cleanly sum up or shed light on whatever the issue of the hour is. They are mostly from the 1970s, but they are still germane.

Last year I spoke about the 5 Stages of Export Control Reform Acceptance. I hope none of you is still in the denial stage. As Eric well described, the reform is happening. It will continue to happen. When the Administration said five years ago that it was going to reform the system, it was serious. It is not an academic exercise. Indeed, as of June 2014, the dollar value of 600 series license applications has exceeded $7 billion. Commerce license exceptions have been used 11,000 times for exports of 600 series items to allied countries. The rate of growth in the usage of License Exception STA is exponential as more companies get used to it and its requirements. In addition, there have been nearly 3000 exports of 600 series items to Canada. The other top destinations for 600 series exports, by the way, are the United Kingdom, Japan, South Korea, and Mexico. And all this information pertains only to the new categories that have come on line. These numbers will certainly grow as grandfathered State Department approvals begin to expire and other categories, particularly satellites and military electronics, become effective at the end of this year.

For those of you in the second stage – anger – and thus angry that "reform" didn’t mean that we would just completely decontrol your product. Get over it. As Eric described, this isn’t a decontrol exercise and isn’t a regulatory game with arbitrary regulations and burdens just to mess with you. There are serious national security and foreign policy reasons for controlling items that, regardless of sophistication, have been specially designed for military applications. All we’re saying with the defense trade side of the reform effort is that most such items do not always require the worldwide licensing and other ITAR requirements that are warranted for the most sensitive military items.

I know some of you are still in the third stage -- panic. We get it. We know that learning the new system, the new definitions, the new controls, the new exceptions, and the new options is a lot of hard work for everyone. Thank you. But based on all the public comments and all our interactions with companies large and small, we are confident that, once you get over the hump of learning the new rules, they will accomplish our national security goals and regulatory efficiency goals.

May of you are in the 4th stage – bargaining. You are working with us to see the contours of the new regulations relative to your product. Great. Keep it up. We look forward to working with you and answering all your questions. For those you trying to see how much you can get away with, we’re on to you. Just stick to words written.

The rest of you are in the acceptance stage. The system is working. You are engaged in trade, including joint development and production activities, with regular customers in closely aligned countries far more efficiently than was the case last year. The time you spent on getting ready for the new system has driven a new sense and awareness of export compliance through your companies, which, of course, furthers the objectives of the export control system. In the course of putting our grand ideas and new regulations into practice, you are identifying various things that would help the overall goal even more. Great. Please keep spotting and letting us know your thoughts. We have already published several clarification rules and FAQs to respond to your ideas.

When thinking of the reform effort, we often speak of the status of the list review effort. That is appropriate, of course, because almost all control issues flow from the scope and meaning of what is on the control lists and the work of revising the lists has been a massive interagency effort. My earlier point about the regular need to tweak and revise the regulations and the system is, however, one of the real victories of the reform effort. So, don’t think about the reform effort exclusively as something where there is a finish line and then the regulations and the procedures stop changing. Think about the reform effort as instilling in the Administration a culture of regularly thinking about and then actually making the changes that are needed to the system in order to accomplish the core mission, which is, again, for various national security, foreign policy and other reasons, identifying and controlling the specific items, technologies, software, and services that warrant government review before being exported or reexported to specific end uses, end users, and destinations. If something no longer warrants such controls because of changes in technologies, for example, then it should come off the list. If something new presents issues from a national security or foreign policy perspective, which includes human rights concerns, then the regulations need to be revised to address it. For export controls to accomplish their mission without imposing more of a regulatory burden than necessary, they, thus, need to be dynamic. This is where you -- those focused on export control compliance -- come in and why we are delighted that you are with us for the next three days at our Update conference. You will listen to us. We will listen to you. Together we will keep working to make this an ever more perfect export control system.

Another victory of the reform effort is that we are getting to a system where exporters -- and reexporters -- can really believe the regulations. When I was an export control attorney, I’d usually give two types of advice – what the law said and what the lore was. We have not gotten rid of all lore yet, but we’re moving in that direction. In particular, if something is on the USML, it’s ITAR controlled. If it’s not, then it’s not. If something is on the CCL, then you need to check for licensing obligations beyond the general prohibitions pertaining to end uses and end users. If not, then you don’t.

Over the course of the next three days, you will be hearing many weedy details from me and the others here about the reform in defense trade, and also trade in satellite and other dual-use and controlled commercial items. By the way, the rumors are true – for any export control topic, I really do have a three minute version, a thirty minute version, three hour version, and a three day version. Yes, there are lots of words in the new regulations, but the concepts for the new controls are actually quite simple. So, here is the three minute version of the main part of ECR.

If the item you’re exporting is described on the new USML, it is still ITAR controlled. If your technology, software, or service directly relates to something that is on the new USML, then it remains ITAR controlled. If your item is not described on the USML, then it and the technology, software, and services directly related to it are also not ITAR controlled. Remember, the ITAR doesn’t include as many catch-all controls for unspecified parts and components as it once did, so do not just assume your part or component is still ITAR controlled because it is for a military end item.

If your item (or related technology or software) is not described on the USML, then you check the relevant 600 series entry on the CCL. If it is a part or component listed there or if it is otherwise specially designed for something in the 600 series entry or the corresponding USML category, then it is subject to the 600 series controls. Similarly, for those in the satellite business, if your item is not listed in the new USML Category XV, then it will (effective November 10th) not be ITAR controlled. If it’s listed in the new satellite 9x515 ECCNs on the CCL, then it will be controlled there.

The significance of this new jurisdictional and classification system is that we’ve essentially divided the world up in to three groups with respect to 600 series and satellite items subject to the EAR – the group of 36 NATO and other close allies, the group of countries subject to arms embargoes, and all other countries. If you are engaging in trade with known companies or with the governments in the group of 36, there are several license exceptions for most 600 series and satellite items that you can use. With some advance planning and compliance-related work with the companies, your trade in these items can become incredibly efficient. If you are working with new companies or other companies or governments in other countries, then you will generally still need a license, but, once you get used to the Commerce system, getting it will involve fewer overall regulatory and paperwork burdens. If you are engaging or want to engage in unauthorized defense trade, directly or indirectly, with countries subject to arms embargoes, then that is just as illegal today under the EAR as it was before the reform effort with the ITAR. Indeed, one of the ultimate goals of the reform effort is to allow us to focus more of our attention on investigating, stopping, and prosecuting illegal trade with such countries. Again, there are lots of details, but that is the three minute version.

Many of you here, I realize, are not involved in defense trade. You may be wondering how the reform effort pertains to you. It is true that changes to the controls on dual-use items have not been as dramatic as changes regarding less significant military items. This is a function of several things. First, the volume of trade in less significant military items is dramatically larger than trade in controlled dual-use items. Second, we have essentially done for less sensitive military items that which has been done for controlled dual-use items for decades – allowed for the export under license exceptions to destinations and for end uses that are not as much of a concern within the scope of our commitments to the multilateral regimes. Moreover, we created STA for use with most dual-use items several years ago – long before it was applicable to defense items. Third, most of our dual-use controls are a function of the multilateral agreements. In order to make material changes to those controls beyond the domestic exceptions that already exist, we need to work through the processes associated with each of those regimes. Thus, the significant changes for dual-use items are coming out more piecemeal and without the dramatic effect of publishing new USML categories that have not been materially revised for decades. By the way, as Eric pointed out, we are not decontrolling any item on the Wassenaar Munitions List, we are just controlling it differently.

With respect to changes on dual-use controls, we have, since the last Update conference, revised 80 ECCNs, added 11, and removed 4. We’ve revised 7 EAR definitions, added 4, and amended 14 supplements. In the Wassenaar rule that will be published this week, we revised 34 ECCNs, removed 3, and added 1. We raised the Weighted TeraFLOPS control parameter from 3 to 8 in 4A003.b and from .25 to .60 in 4D001 and 4E001. We added to 5A002 a decontrol for mobile telecommunications Radio Access Network (RAN) equipment designed for civil use. We removed the licensing requirements for exports to Mexico for NS 2 and RS 2 items. We clarified the General Technology and Software Notes. We revised, clarified, and added new controls on Microwave Monolithic Integrated Circuits. We added controls on accelerometer-based hydro-acoustic sensors because of their military utility. We added ECCN 7D005 "software" "specially designed" to decrypt Global Navigation Satellite Systems (GNSS) ranging signals designed for government use, to close a loophole in the controls that are associated with the control of receivers. There are many other changes that will be described later in detail.

As part of the ongoing effort to harmonize the ITAR and the EAR, we have, for example, revised the structure of a BIS license to make it more like those issued by DDTC. The general validity period is now four years, and now end users and ultimate consignees can ship or release items to and among each other to allow for easier collaboration and less paperwork than applying for multiple licenses for the same program. I described at last year’s Update multiple other harmonization efforts with respect to definitions used in the two sets of regulations. We are working on more such efforts with respect to the definitions of "technology," "fundamental research," "public domain," and "export." We are harmonizing and updating our support document, recordkeeping, and destination control statement requirements. We are also planning on various additional efforts to reduce other outdated aspects of the EAR, such as the Special Comprehensive License. I’d like to adopt a zero-based regulatory drafting rule that for every new word we add to the EAR we have to remove a word from another part of the EAR. Getting rid of outdated provisions will help in this effort.

There is another less quantifiable benefit to the dual-use controls that has occurred as a result of the reform effort. The agencies are working well together. Sure, we don’t always agree – and I’d be worried if we did. But the number of disagreements about what the rules actually say or what the right outcome should be are way down. The number of disputed licenses, CJ’s, CCATS, and other interagency decisions is dramatically less than it was when Eric and I arrived. This all leads to a smoother, more professional export control system, regardless of whether you necessarily like the outcome specific to your company or transaction. This is all moving us closer to one of my personal goals for the limited time I have in government, which is that the export control agencies think of themselves as part of one system, one Administration, bound by the rules, but willing and able to change those rules in a transparent, regularized process as foreign policy and national security considerations change, and as technology evolves.

Switching gears slightly, I want to address the non-US companies in the audience or who are otherwise listening. I’ve spent a significant amount of time visiting the largest non-US customers of 600 series items. I plan to do many more such visits this fall. I heard during those visits the following objections to the use of License Exception STA: 1. We don’t want to put in writing what the end use is or who the end user is because we don’t want the liability associated with providing this information to the exporter. 2. We don’t want the extra recordkeeping requirements of STA. 3. We don’t want the U.S. government to do an end use check.

As I explained, and as I think they all eventually understood and agreed to, these are not good arguments for avoiding STA. For the U.S. exporter to prepare an application, you need to provide information about the end use and the end user, and you have the same obligation to report that correctly whether it’s as part of a licensed shipment or a shipment under an exception. 2. The purpose of the recordkeeping requirements is to make sure that all the parties handling the items exported under STA are aware of the items’ control status. And these obligations are really not all that different from those associated with exports under a license. 3. We will still be conducting end use and other checks in cooperation with the local governments, and we’ll do it the same way whether the item was shipped under a license or a license exception.

I’ll close with a summary of some of the highlights of the always terrific work for each of the BIS offices. Our Office of National Security and Technology Transfer Controls, in cooperation with NOAA, has completed all the Commerce-related work that went into the re-writing of the satellite and military electronics controls. It has automated the processing of licensing determinations. It has been amazingly busy in working with the TACs and others in preparing and advocating changes to the Wassenaar regime dual use controls. And under the terrific leadership of Eileen Albanese, it continues to run a very efficient, professional, and thoughtful licensing operation.

Our Office of Exporter Services has put together another terrific Update conference and numerous other seminars around the country. They have drafted and published all the many new regulations I described earlier plus many others. They have processed hundreds of questions from the public for the weekly conference calls plus many others specific to compliance with every aspect of the EAR. OExS has also completed over 200 compliance on-site or desk reviews to confirm compliance with the EAR, some in coordination with other BIS offices, specific to both licenses exports and shipments made under license exceptions. Don’t forget to welcome the new OExS Acting Director, Karen Nies-Vogel. She will do a terrific job. You will enjoy working with her.

Our Office of Strategic Industries and Economic Security (SIES) has processed more than 5,300 600 series applications since October 15, with an average processing time of 15 days. It has conducted numerous outreach and training events with U.S. and foreign industry and foreign governments to support the implementation of Export Control Reform, including participating in major international aerospace/defense air shows in Asia and Europe. It has also launched reviews of industry’s use of STA with 600 series transactions, and has completed more than 80 reviews to date. In addition, leveraging our export control and industrial base expertise, SIES has supported the Committee on Foreign Investment in the United States’ review of the national security implications of foreign investments in the United States. It has also worked closely with the Departments of Defense and Homeland Security to administer the Defense Priorities and Allocations System (DPAS) regulation in support of national defense programs and national emergency planning. We published a proposed rule to update the DPAS regulation to reflect recent amendments to the Defense Production Act earlier this year. BIS will be publishing a final rule shortly. Thank you, Mike Vacarro, for taking the helm as the Director of this newly transformed office. You and your crew are doing great things.

The Office of Technology Evaluation (OTE) has successfully implemented needed requirements in AES for the collection of exports related to Export Control Reform. It successfully organized the training of over 200 CBP outbound officers and recorded a CBP nationwide training video on ECR. It completed the Space "Deep Dive" Survey to over 4,000 respondents and published an initial report on the impact of export controls on the space industry. It substantially contributed to the creation of the President's Executive Order on the International Trade Data System - a single window through which businesses will transmit data required by participating agencies for the importation or exportation of cargo. It established a system that targets in AES exporters non-compliant with the EAR, built a database of these exporters, and implemented a follow-up program to educate these exporters via compliance letters. Thank you, Gerry Horner, and your crew for all the great work.

As you may know, our Office of Nonproliferation and Treaty Compliance administers the industry compliance aspects of the Chemical Weapons Convention, the private sector compliance aspects of the U.S. Additional Protocol to the nuclear safeguards agreement, and participates in activities to enhance international implementation of the Biological Weapons Convention. This past year, they materially aided international efforts to verify and destroy Syria’s chemical weapons program. Foreign Policy Division licensing officers enabled the U.S. Government to provide highly sensitive protective equipment to inspectors from the Organization for the Prevention of Chemical Weapons (OPCW) and United Nations Joint Mission in Syria to enable them to perform their functions in an expeditious and safe manner. Treaty Compliance Division specialists established procedures for verifying the receipt and destruction of some of Syria’s most difficult-to-destroy chemicals at a U.S. industry facility and managed the OPCW’s verification activities at the private sector entities in the United States associated with this destruction. BIS took great pride in implementing its responsibilities efficiently and effectively during this virtually whole-of-government effort to eliminate the threat of further use of chemical weapons in Syria. Secretary of State John Kerry recently noted that the success of the interagency efforts, "took tremendous team work," and constituted, "a great accomplishment which only happened with loads of creativity, constant push and follow through." Thank you, Alex Lopes, for leading all these and all the other foreign policy and day-to-day licensing efforts of your office.

Finally, a special thanks to my good friend and export control partner, Deputy Assistant Secretary Matt Borman. He is as fine a public servant as you will ever meet. He is the rock of Export Administration and the key to its success.

Thank you all for coming. We all look forward to working with you for the next three days.

 

Remarks of Eric L. Hirschhorn American Bar Association Conference on FCPA, Economic Sanctions and Export Controls October 1, 2014

Details

American Bar Association Conference on FCPA, Economic Sanctions and Export Controls

 Remarks of

Eric L. Hirschhorn

Under Secretary for Industry and Security

U.S. Department of Commerce

October 1, 2014

(As prepared for delivery)

 

Thank you Andrew, and thanks to the National Institute on International Regulation and Compliance for the invitation to address this group. I also would like to thank the Criminal Justice Section, the Criminal Justice Section's Global Anti-Corruption Committee, the Business Law Section, and the Section on International Law for hosting this conference.

The legal community plays an important role in the ongoing dialogue on Export Control Reform (ECR). Your review of proposed rules as well as your counseling of clients transitioning from State to Commerce licensing jurisdiction is instrumental to developing and effecting sound public policy that enhances U.S. national security. We appreciate the support you have provided Commerce and other national security agencies in getting the ECR rules right.

I  Export Control Reform (ECR)

Since 2010, I have been discussing the importance of ECR to the U.S. exporting community and sharing my vision of what the U.S. Government needs to accomplish to ensure the success of ECR. Although the government must make the final call on what is in our foreign policy and national security interests, our rules must be transparent and predictable so that the manufacturing and exporting community can be reliable, predictable, and successful exporters.

Why did the U.S. Government recognize the need in 2009 to undertake comprehensive reform of the export control system? The end of the Cold War changed the geopolitical landscape. The development of a multipolar world included state sponsors of terrorism as well as the rise of non-state terrorist groups and individuals.

At the same time, the commercial environment changed rapidly, with a country or group of countries no longer maintaining exclusive control over leading edge technologies, the growth of manufacturing and markets in emerging countries that could provide foreign availability of export controlled items, and the globalization of the international technology work force, which now operates on a "24/7" basis.

The focus of research and development (R&D) shifted from the military to the commercial sector. The days when the defense sector developed advanced computing and electronics such as Global Positioning Systems and spun these products off to the private sector largely came to an end. The bulk of R&D spending shifted to the private sector as the military increasingly began purchasing "commercial-off-the shelf" items, such as electronics, for integration into weapons systems. More recently, this process has been accelerated by the decline in expenditures for defense R&D. At the same time, we increasingly have found ourselves acting in coalitions that include our closest allies—countries with whom we need interoperability when it comes to defense items.

As former Secretary of Defense Robert Gates stated in his April 2010 speech about the need for reform, the post-Cold War export control system was constraining interoperability of weapons with allies and friends. Numerous and time-consuming commodity jurisdiction exercises and licensing requirements were resulting in foreign manufacturers "designing out" U.S. parts and components from major defense projects, and the U.S. defense industrial base began to decline. The export control regime was not achieving the U.S. defense policy goal of getting parts and components to our allies on a timely basis.

Four and one half years later, the U.S. Government has converted many of our export control reform objectives into concrete regulations. With few exceptions, the USML is becoming a positive list that controls only those items that provide the United States with a significant military or intelligence advantage. Militarily less sensitive items, such as parts and components, have been and continue to be transferred from the licensing jurisdiction of State to that of Commerce. We have established and implemented License Exception Strategic Trade Authorization—STA—to provide flexible and refined arrangements for trade with and among close allies. At the same time, enhanced compliance and enforcement measures create effective safeguards to deter the diversion and misuse of controlled items. We have achieved these goals by issuing transparent and predictable rules that state clearly what they cover.

The Department of State's International Traffic in Arms Regulations (ITAR) tend toward a one-size-fits-all model—one in which an F-16 aircraft and a bolt for an F-16 are subject to the same stringent licensing requirements. By contrast, the Export Administration Regulations (EAR) allow for nuanced licensing of sensitive items based on country, technology, end use, and end user.

II  Export Control Reform Accomplishments

The success of ECR is based on two fundamental principles: 1) the rules should be transparent and predictable; and 2) there must be streamlined processes and higher fences to control sensitive items appropriately while facilitating exports of less sensitive items to destinations and end users that do not pose substantial national security, proliferation, foreign policy, human rights, or similar concerns.

The U.S. Government began the USML review process in 2010. That process has resulted in the removal, as far as we could, of the basket categories that have until now accounted for about half the 85,000 licenses issued annually by the Department of State. If the U.S. Government determines that a military item does not warrant continued control on the USML, it becomes subject to the EAR and the new "600 series" controls on the Commerce Control List (CCL).

Commerce and State have published final rules covering controls on 15 categories of the USML. In April 2013, Commerce published a transition rule describing how items previously controlled under the ITAR are dealt with under the EAR.

In 2014, Commerce and State have published two major ECR rules: Satellites and Military Electronics. The May 2014 Commerce and State satellite rules transfer many items to the CCL, including commercial communications and lower performing remote sensing satellites, ground control systems, and radiation-hardened microelectronics formerly controlled in Category XV of the ITAR. Turning to military electronics, the July 2014 rules add to the CCL many electronics and related materials that previously had been controlled by Category XI of the USML.

Many of the items that have been transferred to Commerce are eligible for License Exception STA, which permits exports of certain items to 36 allied and friendly countries. STA has established a license- free zone to cover the initial export while creating new safeguards to ensure that items are not diverted outside the designated country group and authorized end users within that group.

STA provides greater flexibility and predictability, while still providing necessary safeguards. Here, as elsewhere in life, there is no such thing as free lunch. Exporters using STA, and their customers, are responsible for compliance with that license exception's requirements to ensure that the items are not reexported outside STA-eligible countries or employed for unapproved end uses within such countries.

The publication of rules covering 15 categories of the U.S. Munitions List represents milestones for ECR. We have made significant progress but our efforts are not yet complete.

The Departments of Commerce, Defense, and State are reviewing two of the more difficult categories: Category XII, which includes sensors and night vision items, and Category XIV, which includes biological toxins and related items. We need to publish these categories in proposed form, work through public comments, notify Congress of each category change, and make the changes in the revised USML and "600 series" export control classification numbers together with other necessary edits to the EAR and the ITAR.

The changes I have discussed provide exporters with a number of benefits, including:

• Vastly improved defense interoperability with coalitions, including our closest allies.

• Availability of the 25% de minimis treatment to non-embargoed destinations, which should go far toward accomplishing former Defense Secretary Gates's instruction to reduce incentives for non-U.S. companies to design out or avoid U.S.-origin content and services.

• Eligibility for certain license exceptions, notably License Exceptions STA, GOV (for certain government end users), and RPL (for replacement parts). This allows the U.S. Government to focus its scarce resources on the more sensitive licensing transactions.

III  Ensuring the successful implementation of ECR

You—the legal community—have an important role to play in ensuring that the regulated community understands and complies with our rules, including the list changes. This is significant because a more nuanced export control system means a more complex system. The price for removing certain controls is increased nuance and greater reliance upon exporters to see to compliance.

Whether you serve as in-house or outside counsel, you need to ensure that your clients understand the rules; maintain effective internal compliance programs; communicate the rules throughout their companies; and stay current with rule changes. For your part, there are several questions I recommend you ask yourselves. First, have you worked with your clients to ensure that they have developed and coordinated their internal ECR corporate planning, ranging from the training of staff, to reclassifying products? Second, have you worked with the compliance and marketing teams to encourage them—strongly—to train their supplier base and customers? If you are a U.S. subsidiary of a foreign-owned company, what regulatory training is counsel providing to its foreign parent? Finally—Trust but Verify. Have you worked with your clients to ensure that they put in place a system to monitor for errors and to take corrective action if errors occur?

For our part, the Bureau of Industry and Security (BIS) will continue issuing rules that make it easier for exporters, including small and medium-sized enterprises, to navigate the export control bureaucracy.

We also will continue providing comprehensive services to exporters, ranging from seminars, to online interactive tools, to weekly teleconferences, to one-on-one exporter counselling. During FY 2013, we conducted more than 200 ECR-related outreach activities, including weekly teleconferences that are conducted by Assistant Secretary Kevin Wolf and open to all.

As we continue to implement ECR, we will offer training materials, conduct webinars, and undertake related activities. We are open to continue working with ABA committees as well as other legal groups to discuss the rules. However, it is important that you continue to play a leading role in educating exporters.

BIS continues to expand its public education effort, including developing partnerships with non-profit educational groups representing defense exporters, many of which are small and medium-sized. We are committed to helping the nation's small businesses reach their commercial potential, while protecting national security.

IV  Enforcement

The enhancement of our export compliance and enforcement capabilities is critical to the success of ECR. We are coordinating interagency efforts to: maximize finite resources; train interagency enforcement colleagues on ECR; increase our visibility into foreign parties of concern; continue our layered approach to compliance; and provide more clarity to exporters on how to address red flags.

Tomorrow afternoon Kevin Kurland, Director of the BIS Office of Enforcement Analysis, will discuss in depth the evolution of Export Enforcement into a sophisticated law enforcement agency, with criminal investigators and enforcement analysts collaborating with other licensing officials to identify and act upon violations.

Briefly, as part of the ECR process over the past four years, we have created the Export Enforcement Coordination Center (E2C2) and the Information Triage Unit (ITU). The E2C2 ensures that export enforcement agencies talk to one another and share relevant information, while the ITU facilitates the review of license applications by compiling, coordinating, and reporting intelligence about foreign parties to license transactions.

License Exception STA is a prime example of the successful layered verification culture and practice that ECR has spawned. Our review of Automated Export System data, exporter and consignee records, including some on-site document reviews, shows a high degree of compliance with STA. We are continuing to review STA transactions to guard against misuse.

Export Enforcement is also working with our interagency colleagues to guard against the evolving cyber threat posed to the United States. At our July Update Conference, we hosted an interagency panel to discuss the U.S. Government's effort to help mitigate cyber risks and receive reports on exfiltrations. On August 1, we took the unprecedented step of designating a Chinese national and associated companies involved with exfiltrating export controlled technology from U.S. defense contractors. This demonstrates our commitment to protecting U.S. intellectual property as well as national security.

Finally, it is important to repeat that in our enforcement efforts, we are trying to focus on truly bad actors, not those who have a decent compliance program and corporate culture, make a mistake, and work with us to remedy the situation.

V  ECR and the Evolving Export Control World

At the outset of my remarks I described the importance of reform as the United States moved from the Cold War bipolar world to the multipolar world of today. Today, ECR is resulting in a tripartite export control world with significant benefits for two important groups of countries.

First, if you export defense parts and components or satellite items to U.S. allies and friends, the movement of items from the USML to the CCL will allow you to ship these items via license exception or the more flexible licensing mechanisms of the CCL. This will increase the efficiency, timeliness, and security of the supply chain for sales of such parts and components to the "STA 36" countries.

Second, if you expected that ECR would allow the sale of satellite items and former defense articles to countries at the other end of the spectrum—those subject to arms embargoes or controlled for anti-terrorist reasons—you will be disappointed.

Third, for trade with the rest of the world, licenses generally will be required but you will obtain the benefits and efficiencies associated with the Commerce licensing regime. Moving beyond the one-size-fits-all controls of the ITAR, your foreign customers can use the EAR for de minimis amounts of U.S. content incorporated into foreign produced end items without subjecting those items to U.S. export or reexport controls—that is, for sales to countries that are not subject to an arms embargo. This will help avoid having your defense-related items "designed out" of foreign products. 

VI  Export Control Reform Box Score

 A useful way to measure the return on the national security investment in ECR is to examine the evolving scorecard. Between October 15, 2013 and August 31st of this year, the number of Commerce-specific ECR exports related to "600 series" items exceeded 36,000 with a value of $1.2 billion. BIS's Munitions Control Division has processed more than 6,000 licenses with an average processing time of approximately 15 days.

Exporters can now use STA and other license exceptions to facilitate exports to key allies. STA has been used for more than 4,000 transactions. Exporters have also used other license exceptions, such as RPL, GOV and Temporary Exports, for an additional 10,000 transactions.

The statistics I've cited will continue to increase as additional CCL categories become eligible for "600 series" licensing treatment and/or license exceptions, and as existing State Department licenses for these items are used up or expire.

Conclusion

With your support, we have navigated the USML List Review and regulatory policy process, and we now have a strong foundation of efficient and—I hope—clear regulations. It's important that you continue to provide your clients with education and compliance support to ensure the successful implementation of the ECR initiative. Your work will go a long way towards enabling them to reap the benefits of these changes.

Thank you. I look forward to your insights and questions.

 

Keynote Speech of David W. Mills, Assistant Secretary for Export Enforcement UPDATE Conference, July 30, 2014

Details

UPDATE Conference, July 30, 2014

Good afternoon. It is a pleasure for me to speak at the 2014 BIS annual Update Conference. The Administration has accomplished a significant amount of regulatory reform over the year, the highlights of which are the transfer of certain military aircraft, vehicles, and ships and related parts and components to the Commerce Control List, and the impending transfers of satellite-related and certain military electronics items before the end of 2014. I recognize that these transfers result in short-term complexities for companies, particularly with regard to the reclassification of items, but the long-term benefit for diligent and law-abiding exporters will be significant.

In addition to the challenges to industry, the transfer of items from the ITAR to the EAR presents new enforcement challenges for the U.S. Government because of the more flexible licensing authorizations that may be available. We are addressing these challenges, in part, through what former Secretary Gates referred to as "higher walls" to secure trade that promotes interoperability with our allies, discourages the design-out of U.S.-origin items, and allows the U.S. Government to focus its resources on the most sensitive transactions. That’s where my organization comes into play.

The Role of Export Enforcement

For those new to the EAR, and even for our more experienced exporters, I think it is important to frame the context of Export Enforcement’s role at the Bureau of Industry and Security. We work to ensure that strategic trade is secured by an effective export control system based largely on multilateral control lists that deters, prevents, and redresses the diversion of dual-use and munitions items to end users and for end uses involved in the development of weapons of mass destruction and advanced conventional weapons or that support international terrorism. We want to promote secure trade that is in the national interest of the United States. To that end, our law enforcement program focuses on sensitive exports to hostile entities or those that engage in onward or inward proliferation.

Over these past 32 years, Export Enforcement at BIS has evolved into a sophisticated law enforcement agency, with criminal investigators and enforcement analysts working together with licensing officers to identify violations and redress them. Using our subject matter expertise in the area of export controls, coupled with our unique and complementary administrative enforcement tools, as well as our partners in other agencies, industry, and abroad, we have leveraged our authorities to maximize the impact we are having.

BIS maintains Special Agents at offices in 14 cities across the United States, including four locations where we have agents co-located with the Federal Bureau of Investigation. Most recently, we are assigning an agent to work out of the offices of

the Defense Criminal Investigative Service (or DCIS) in San Antonio, and we’re very proud to be working hand in hand with the Department of Defense.

BIS also has seven Special Agents assigned with the Department of Commerce’s Foreign Commercial Service to conduct end-use checks to safeguard the disposition of U.S.-origin items exported abroad. These Export Control Officers or ECOs are assigned to six strategic locations that are critical to our mission: China, the United Arab Emirates (UAE), India, Russia, Singapore, and Hong Kong. All of these ECO positions have regional responsibilities that extend their reach to an additional forty-three countries and I am pleased that all seven are presenting here at Update. Please take advantage of their

country and regional expertise to facilitate your exports to and through these destinations.

The talented personnel that BIS has cultivated is only one of our strengths. As I spoke of previously, our administrative enforcement tools are also unique. The EAR places legal responsibility on persons who have information, authority or functions relevant to carrying out transactions subject to the EAR. These persons may include exporters, freight forwarders, carriers, consignees, and other participants in an export transaction. The EAR applies not only to parties in the United States, but also to persons in foreign countries who are involved in transactions subject to the EAR. And with the President’s Export Control Reform initiative in full swing, our responsibilities are significantly increasing with the transfer of tens of thousands of military parts and components from the

ITAR to the EAR, many of which can be exported without a license subject to certain safeguards.

Higher Wall Initiatives

Two key interagency efforts contribute to the higher fence paradigm: the Information Triage Unit housed in our Office of Enforcement Analysis and the Export Enforcement Coordination Center, or E2C2, housed at the Department of Homeland Security.

Since it went into operation in mid-2012, the ITU has evaluated foreign parties to license applications, producing more than 2,100 reports on their bona fides. It is safe to say that when the ITU gets involved with licenses for the most sensitive

transactions, the U.S. Government’s ability to evaluate the bona fides of the foreign parties is significantly improved, thereby facilitating the processing of these license applications as well as securing the integrity of our export control system.

Moreover, the ITU has provided important analysis to support Entity List nominations and to review appeals resulting from such designations. Entity List designations prohibit U.S. exports to listed parties absent U.S. Government authorization. Recent ongoing ITU activities include working with the End-User Review Committee to identify Ukrainian and Russian parties undermining stability in Ukraine, UAE parties supporting foreign terrorist organizations, and Haqqani network actors implicated in improvised explosive device incidents involving U.S. and coalition troops.

The E2C2 has been similarly effective in bringing better coordination of export enforcement investigations. Deconfliction involves law enforcement agencies exchanging information about new cases to determine if any other U.S. Government agency already has an investigation related to the same matter or possesses information that will aid in the investigation. Since its existence, the E2C2 has deconflicted over 3,100 cases, thus helping us work more effectively and efficiently with our FBI and Homeland Security colleagues.

In addition, Export Enforcement has significantly increased the consequences to companies we are not able to verify during our end-use checks by strengthening the Unverified List or UVL,

further enhancing our higher walls initiative. In December 2013, we amended the UVL to make it a more useful tool for exporters to identify foreign parties whose bona fides cannot be confirmed by the U.S. Government and instruct them how to deal with those parties. For transactions normally subject to a license exception, where a UVL party is involved, the exporter must seek a license from BIS. For all other transactions not subject to a license requirement, the exporter must obtain a statement from the UVL party certifying compliance with the EAR and agreeing to host an end-use check. That will assist BIS in determining the bona fides of the party. On June 16, 2014, we published the first set of UVL designations from China, Hong Kong, Russia, and the United Arab Emirates.

We are also continuing to work closely with our colleagues at the Directorate of Defense Trade Controls to coordinate end-use checks where EAR items, such as those under the 600 Series, are co-located with ITAR items. This will avoid duplication of resources and allow the U.S. Government to obtain a more fulsome picture of the activities of foreign parties involved with U.S. exports.

Vital Role of Industry

In the context of these initiatives, industry REMAINS the first line of defense. Industry reports of suspicious transactions have led to the identification and disruption of some of the most sophisticated and dangerous proliferation networks. Our special agents will tell you that some of our best cases start

from industry sources. Without the cooperation of industry, these bad-actors might have continued to operate unabated. I strongly encourage you to report suspicious transactions through our website or by contacting the closest Office of Export Enforcement (OEE) field office.

Last year, I discussed with you our plans to expand outreach to companies involved with the transfer of munitions items to the CCL. Since the last time I spoke to you here, OEE has conducted approximately 1,500 outreaches and tailored our outreach materials to include the new 600 Series requirements. Your knowledge and compliance with the EAR establishes a built-in warning system for Export Enforcement to be aware of suspicious actors.

Coupled with this general outreach, Export Enforcement has expanded its Guardian outreach program to industry over the past two years, where we alert companies of suspicious parties that may be seeking to obtain your items. We fully appreciate the reputational risk associated with your items being involved in illicit activities, and this advance warning system is meant to help you identify otherwise unforeseen risks in potential transactions.

Cybersecurity Initiative

In February, I announced a new area of focus -- cyber-intrusions and data exfiltration that result in your export controlled data ending up overseas. As President Obama recently stated, "the

Cyber threat is one of the most serious economic and national security challenges we face as a nation. America's economic prosperity in the 21st century will depend on cyber security."

The perpetrators of cyber-crime are varied; they include independent hackers, criminal organizations as well as state actors. Let me be clear, the theft of export-controlled information from your computer systems as a result of foreign cyber actors is a threat to U.S. national security interests and your company’s competitive lifeblood: intellectual property.

Yesterday, Export Enforcement hosted an interagency panel on "Cyber Threats to Industry." Interagency officials discussed cyber security best practices, including the new NIST Cyber Security Framework, mechanisms for reporting cyber crimes via

the FBI's iGuardian reporting portal, and DHS mitigation and response resources.

A key aspect in this regard is understanding that reporting to Export Enforcement the exfiltration of controlled technology is separate and distinct from submitting a voluntary self-disclosure (VSD). The latter involves your discovery of a violation of the EAR committed by your company. By reporting cyber thefts, you are giving us critical information that can allow BIS, working with our interagency partners, to identify these cyber-actors and bring our unique BIS tools to bear against them. I believe that cyber security, like effective export controls can only be achieved effectively with your support and partnership.

Returning to VSDs, let me continue to reinforce that the best way to ensure you’re not violating the regulations is to have a comprehensive internal compliance program (ICP) in place. A good compliance program pays for itself: it keeps you from committing a violation in the first place; and if you do slip up, it will be a mitigating factor in our analysis of the case.

An ICP ensures that all employees involved with exports understand the EAR and know that senior management is committed to compliance with the regulatory regime. Other key aspects of the ICP are knowing your customers, asking them for end-use certificates, and effectively screening them against government lists.

Let me highlight specific actions you should be taking in this regard:

1) All transactions should be screened against government lists. A consolidated list is available for free at www.export.gov/ECR.

2) All items subject to an export transaction should be classified against the Commerce Control List (or CCL) and sales persons need to understand list-based, end use, and end user controls.

3) For items subject to a license, you have an obligation to share license conditions with your customer and I highly encourage you to ensure they acknowledge their intent to comply, even where such acknowledgement is not otherwise required by BIS. Our end-use checks over the

past year have found significant non-compliance in this area.

4) For license exception transactions involving Strategic Trade Authorization (STA), ensure that you obtain the certification from your consignee before you ship in which the recipient acknowledges that it understands that any subsequent retransfer or reexport requires a similar consignee statement prior to such retransfer or reexport.

5) For export transactions with end use or end user concerns, we recommend that you obtain end use certificates and double check potential licensing requirements. Self-blinding by not inquiring about end use or not doing due diligence on an end user is not an acceptable defense.

6) Finally, for items moving through transshipment locations like Hong Kong, Singapore, and the UAE, it is important for

you to understand the foreign export control requirements of those governments in addition to those of the EAR. BIS has published a new best practice encouraging exporters to obtain a copy of their Hong Kong and UAE customers’ import licenses prior to exporting and to ensure that your customers in these three transshipment locations are aware of export control requirements for the reexport, transshipment, or transit of your item.

For Hong Kong, the absence of receipt of such an import certificate for any multilaterally-controlled item from the importer should be a red flag, as it should be with regard to certain controlled items in the UAE, like CWC chemicals and nuclear-related items. In Hong Kong, we have encountered many entities that are nothing more than

secretarial firms who simply offer a forwarding service for the reexport of your item to another country. Because of the likely difference in licensing treatment for your item to Hong Kong as compared to most other countries, such as China, extra due diligence is warranted.

General Compliance Trends

I recognize there has been some angst in the export community about the compliance philosophies of BIS versus DTC with regard to military items. Let me first say that overall, since USML items started transitioning to the CCL in October 2013, I have been impressed with the diligence of exporters to comply with the 600 series controls.

As of today, only 18 VSDs have been filed with BIS under the 600 Series. Without pre-judging the matter, however, it is my sense that we will handle the 600 Series VSDs in a manner very similar to that of DDTC and that most will result in a warning letter or no action at all, as is the case with most VSDs previously filed under the EAR.

What this issue primarily speaks to is how the two agencies handle cases under the doctrine of strict liability, which I believe to be substantially the same. But there is also a realm of cases that fall between this category - where no aggravating factors are present - and a criminal prosecution. As we become more familiar with the nature of VSDs filed under the 600 series, it is my intention, as previously stated, to issue new BIS Administrative Enforcement Guidelines modeled upon those

promulgated by the Office of Foreign Assets Control (OFAC). OFAC has a robust and comprehensive administrative enforcement program for cases involving more serious violations. Their Guidelines - premised upon the statutory criteria set forth in IEEPA, the statutory authority pursuant to which both agencies now administer and enforce their respective regulations - uses the transaction value to determine the baseline for assessing a civil penalty. The OFAC Guidelines also provide greater transparency and predictability for the exporting community, an important objective of ECR.

So you may expect to see a continuing robust and comprehensive administrative enforcement program at BIS involving cases where aggravating factors are present, apart from cases involving knowledge and willful conduct, whether or

not those cases arise in the context of criminal prosecutions. Such factors include inadequate compliance programs, systemic failures in those programs, harm to U.S. national security or foreign policy interests, and, I might add, improperly pronouncing our acronyms, particularly "BIS" and "EAR.""

Export Enforcement is committed to assisting legitimate exporters comply with the EAR while focusing its resources on the most egregious violations – those cases where companies and individuals are purposely skirting the rules or the exports caused harm . As Under Secretary Hirschhorn says, "Those who comply with the rules benefit from strong enforcement because lax enforcement permits violators to flourish." Let me now turn to actions we are taking to stop these violators.

ENFORCEMENT CASES

Since our conference here last year, we have had some very significant cases recently concluded across a spectrum of issues and destinations.

Weatherford International Ltd.

Our biggest civil penalty in the past year, in fact the biggest ever, was levied against Weatherford International Ltd. in Houston, Texas, and four of its subsidiaries who agreed to pay a combined $100 million for export control violations involving Iran, Syria, Cuba, and other countries. A $50 million civil penalty was imposed for the export of oil and gas equipment to Iran, Syria, and Cuba in violation of the EAR and the Iranian

Transactions and Sanctions Regulations (ITSR). BIS also alleged that Weatherford exported items controlled for nuclear non-nonproliferation reasons to Venezuela and Mexico. The Department of Justice imposed a $48 million monetary penalty on Weatherford International Ltd. pursuant to a deferred prosecution agreement entered into on November 26, 2013, and also imposed $2 million in criminal fines pursuant to guilty pleas by two of Weatherford’s subsidiaries. Weatherford agreed, as part of the settlement, to hire an unaffiliated third-party expert in U.S. export control laws to audit its compliance with respect to all exports or re-exports to Cuba, Iran, North Korea, Sudan, and Syria for calendar years 2012, 2013, and 2014. The Weatherford investigation was conducted by OEE at BIS, working closely with OFAC and the Department of Justice.

Ming Suan Zhang

On December 10, 2013, as a result of a joint investigation by OEE and HSI at the Department of Homeland Security, Ming Suan Zhang, a citizen of the People’s Republic of China, was sentenced to 57 months incarceration and a forfeiture of $1,000 for violating the International Emergency Economic Powers Act by attempting to export high-grade carbon fiber from the United States to China. This material can be used in the production of such items as ballistic missiles, unmanned aerial vehicles, and nuclear centrifuges. In this particular case, Zhang attempted to negotiate a long-term contract for massive quantities of the controlled commodity, which he asserted was to be provided to a Chinese company involved in the development of a military fighter aircraft.

Amplifier Resarch

Last year I told you about Timoth Gormley, the export control officer at Amplifier Research who was sentenced to 42 months in prison, admitting that he had: altered invoices and shipping documents to conceal the correct classification of amplifiers to be exported so that they would be shipped without the required licenses; listed false license numbers on export paperwork for defense article shipments; and lied to fellow employees about the status and existence of export licenses. On September 26, 2013, BIS denied Mr. Gormley’s export privileges for 10 years based on his conviction.

On January 17, 2014, BIS reached a settlement with Amplifier Research for a $500,000 penalty. However, BIS suspended the

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civil penalty in its entirety because of the VSD filed by Amplifier Research in 2011 detailing the actions of Gormley and its substantial cooperation in the course of this investigation. The settlement also mandates that Amplifier Research hire an expert outside of the company to conduct an audit of its compliance with export control laws, including recordkeeping. By filing the VSD, Amplifier Research avoided criminal charges (against the company itself), and the suspended fine will be waived at the end of the penalty period provided all commitments are met.

Karl Lee

Finally, on April 29, 2014, The Justice Department unsealed an indictment of Chinese proliferator Li Fangwei, a.k.a. Karl Lee

and the State Department announced a $5 million bounty for his arrest. The indictment identified Lee as a "principal contributor" to the Iranian ballistic missile program. In a coordinated U.S. Government action, BIS announced on the same day that we were adding eight Chinese companies and one Chinese individual to its Entity List for their roles in supplying Iran’s ballistic missile program and OFAC added eight of Karl Lee’s front companies to its List of Specially Designated Nationals and Blocked Persons.

These are just a few of the cases OEE agents investigated in the last year. In fiscal year 2013, BIS investigations led to the criminal convictions of 52 individuals and businesses for export violations with penalties of over $2.6 million in criminal fines, more than $18 million in forfeitures, and more than 881

months of imprisonment. In addition, we completed 63 administrative export cases, resulting in $6.1 million in civil penalties. Export Enforcement also supported the addition of 68 new parties onto the BIS Entity List.

Outlining these cases once a year at Update is important, but even more effective is companies having access to a compilation of our enforcement actions for reference and training purposes. I am pleased to report that we have just updated and republished

Don’t Let This Happen To You, which sets forth information regarding our organization, its role and authorities, and a number of cases highlighting our enforcement activities pursuant to the EAR. This revised document is now available on the BIS website. These case 31

successes demonstrate the judicious vigor with which we use our criminal and civil authorities to secure U.S. trade and enforce the Antiboycott regulations.

Office of Antiboycott Compliance

Finally, no picture of Export Enforcement is complete without reference to the Office of Antiboycott Compliance (OAC). OAC carries out its mandate through a threefold approach: counseling U.S. businesses on the substance and application of the EAR to particular transactions; monitoring the type and origin of boycott requests received by US businesses; and bringing enforcement actions and imposing penalties, where necessary. In addition to these traditional activities, OAC partners with the Office of the U.S. Trade Representative and the U.S. Department of State and U.S. Embassy officials to engage directly with Ministries, Chambers of Commerce and businesses in boycotting countries in an effort to discourage inclusion of boycott-related terms and conditions in

commercial documentation at the source, to prevent violations before they occur.

OAC may impose civil penalties against U.S. businesses for taking actions in furtherance or support of an unsanctioned foreign boycott or for failing to report the receipt of a boycott-related request. In its case against Baker Eastern, SA (Libya), for example, OAC alleged that, Baker Eastern, on twenty-two occasions, furnished to Libyan customs in Libya a Certificate of Origin, each of which contained a statement regarding compliance with the Arab Boycott of Israel, as well as two items of prohibited information: a negative certificate of origin regarding the goods, and a blacklist certification regarding the producing company. Because Baker Eastern voluntarily

disclosed these transactions to OAC and maintains an exceptional multinational compliance program, the company benefited from great weight mitigation in accordance with the Antiboycott Penalty Guidelines.

Similarly, in its case against Digi-Key Corporation, OAC alleged that the company furnished prohibited information in a negative certificate of origin which contained a statement that certain of the ordered goods were not made in Israel and, on fifty-eight occasions, failed to report receipt of a directive prohibiting any import from, or goods made in, Israel. Digi-Key likewise voluntarily disclosed these transactions to BIS and benefited from great weight mitigation in accordance with the antiboycott Penalty Guidelines.

These cases are representative of the kinds of antiboycott issues any company might confront in doing business in a boycotting country and, even more importantly, of the benefit of voluntarily disclosing fully and promptly should a company discover a violation.

OAC continues to analyze trends with respect to the origin and type of boycott-related requests received by U.S. persons in letters of credit, purchase orders, and other commercial documents. Since our last UPDATE, OAC reports that the United Arab Emirates remains the leading source, but that Iraq has moved into second place with a dramatic spike in prohibited boycott requests appearing mostly in Invitations to

Bid and patent registrations. Bangladesh and Qatar also figure prominently as sources of boycott-related requests.

Of course, if anyone has any boycott issues or concerns in a transaction, OAC is available through their Advice Line to counsel and guide you.

CONCLUSION

Successfully erecting higher fences under the President’s Export Control Reform initiative is dependent upon BIS collaborative efforts with industry, our interagency colleagues, and international partners. We are committed to its success, which ultimately safeguards U.S. national security and economic security. I recognize this is a challenge, especially in the short

term, with regard to the substantial number of changes. But attending workshops, implementing a robust ICP, and reporting unauthorized activities is the best way to protect your company’s reputation and allow Export Enforcement to protect our national security interests. It can be said that we at BIS "play defense on the Commerce Department’s export promotion team." Your help in securing America’s exports is a win-win proposition. Thank you very much for your attention today, and I wish you success with your lawful exports!