It is a pleasure to be here at today’s meeting of the Industry Coalition on Technology Transfers (ICOTT). Organizations such as yours serve as a great resource for industry and for government. You help educate members of industry and keep them up-to-date on developments. Doing so is very valuable because it helps foster compliance, which is the first line of defense in protecting our national security.
We have what we believe is a very special and timely presentation for you today. This afternoon, we will discuss with you the Bureau of Industry and Security’s (BIS) enforcement priorities, the need to renew the Export Administration Act (EAA), boycotting trends, and the recent trip taken by members of our Office of Antiboycott Compliance (OAC) to the Middle East.
Export Enforcement’s Mission and Priorities at BIS
Let me begin by discussing our enforcement priorities. Many geopolitical changes have taken place since the 1980s, when our respective organizations emerged. The collapse of Soviet communism, the 9/11 attacks, the rise of radical Islamic terrorism, as well as the need to counter the illicit efforts of proliferation networks and rogue states are all challenges to which Export Enforcement at BIS must respond – and we have done so.
Our Office of Export Enforcement (OEE) has nine offices of Special Agents around the country. Our Special Agents concentrate a substantial part of their active investigative efforts – indeed at least 75 percent – on three priorities: countering WMD proliferation, terrorism and terrorist-support, and unauthorized military end-use. Eighty percent of the criminal convictions we obtained in the last fiscal year and 91 percent of the Final Orders in our administrative cases were in those three priority areas. Our Special Agents describe their mission as “Keeping the most sensitive goods and technology out of the most dangerous hands.”
Technology Transfers and
the Department of Justice’s Export Enforcement Initiative
Globalization is another force that has significantly affected international trade. Various technological advancements, including the rise of the Internet and the widespread use of other electronic communications also play an important role in commerce today. Although much of the resulting impact from these developments is beneficial, a number of challenges have also emerged.
The ease with which illicit technology transfers now can take place is one such challenge. Technical “know-how” can now be sent around the globe by merely pushing a button on a desktop computer. Rooms full of technical documents can now be transported across borders on a thumb-drive.
The same technology that companies transfer for commercial reasons can damage our national interests should it fall into the wrong hands. In his March 19, 2008 speech at the Pentagon on the global war on terror, President Bush urged that we remain vigilant. He reminded us that on 9/11, “19 armed men with box cutters killed nearly 3,000 people … on our soil” and that following the attack “more than one million Americans lost work, lost their jobs.”
Accordingly, protecting intangible technology – with which attacks could be perpetrated that are much more devastating than those on 9/11 – is very important. Those of us at BIS, along with other federal law enforcement agencies, recently stepped up our efforts to combat illegal exports and technology transfers through the Department of Justice’s (DoJ) Export Enforcement Initiative. The Initiative, which will focus greater prosecutorial resources on export control violations, was launched by former Assistant Attorney General for National Security Kenneth L. Wainstein, who recently became the Assistant to the President for Homeland Security and Counterterrorism.
At the launch of DoJ’s Initiative, then-Assistant Attorney General Wainstein said, “Foreign states and terrorist organizations are actively seeking to acquire U.S. data, technological knowledge and equipment that will advance their military capacity, their weapons systems and even their weapons of mass destruction programs. Many have targeted our government, industries and universities as sources of these materials.” He went on to say, “This initiative is a coordinated campaign to keep sensitive U.S. technology from falling into the wrong hands and from being used against our allies, against our troops overseas or against Americans at home.”
Keeping U.S. technology in the right hands furthers our global technological leadership. It also keeps technology out of the hands of those who would use it to deny freedom and prosperity to us and our allies. We know that we can count on industry to continue helping us in that regard, by complying with the export control laws.
A Law Enforcement-Focused EAA Renewal is Critical
A number of steps recently have been taken to strengthen our export controls. The next major step should be the passage of a law enforcement-focused renewal of the Export Administration Act by the Congress. Let me discuss with you some of the more significant law enforcement matters that need to be addressed in an EAA renewal. To put that discussion into context, consider the following scenario, which is one that we commonly face in dealing with those who are trying to evade our export control laws.
Imagine that there are several parties working together to violate the export control laws in a classic conspiracy. Their goal is to export sensitive U.S. goods and technology to an end-user in a state-sponsor of terror. Some of the conspirators are located here in the U.S. Others are located in several different countries around the world.
These conspirators take great pains to conceal the illicit nature of their activities. They use several methods to do so, including establishing a front company in another country that enjoys a more favorable licensing relationship with the U.S. The front company orders goods from the U.S., and then unlawfully diverts them to the ultimate end-user in the state-sponsor of terror. To conduct these export transactions, the conspirators regularly use electronic communications, including the Internet. Finally, significant sums of money exchange hands as the illegal transactions take place.
With that as our backdrop, let’s discuss the law enforcement tools that BIS’s Special Agents need today in order to effectively investigate this scenario and bring the violators to justice.
To arrest these conspirators and search for evidence of their violations, our Special Agents need the statutory authorities that allow them to do so. Such statutory authorities should be permanent. There is no reason for our Special Agents’ legal authorities – which involve preventing and deterring violations, and bringing violators to justice – should sunset in the future with the regulatory provisions of the EAA.
Our Special Agents need explicit authority to conduct foreign investigations in order to follow the trail of evidence wherever it leads, including to the other countries where the conspirators are located. Accordingly, an EAA renewal should make it clear that BIS’s Special Agents have the authority to pursue evidence of export crimes around the globe, in partnership with their U.S. and foreign law enforcement colleagues.
Giving our Special Agents the same undercover authority as other federal agents who have similar missions will allow them to engage in a variety of activities, including financial transactions. They will be able to penetrate the higher levels of proliferation networks as a result.
These conspirators are using electronic communications and telecommunications to formulate and execute their illegal plans. To stay abreast of and have access to the inner-workings of this conspiracy in real-time, our Special Agents need wiretap authority under the EAA and the International Emergency Economic Powers Act (IEEPA). That will allow us to capture compelling evidence of the conspirators’ knowledge and intent that can be presented to a jury.
Finally, we need greater penalties in order to deter potential violators. The penalties must be of such severity that the potential punishment becomes an unacceptable risk to those who are contemplating export violations. Such penalties will also provide more effective deterrence by narrowing the gap between the possible profit and the consequences imposed upon violators. Achieving deterrence in export enforcement cases is important, because there may be no second chance if terrorists launch a WMD attack on U.S. soil. Increased penalties will also provide the incentive for violators to cooperate with law enforcement in investigating and prosecuting co-conspirators.
A law enforcement-focused renewal of the EAA, such as that in the Administration-backed bill introduced by Senator Dodd last year as S. 2000, the Export Enforcement Act of 2007, will correct these long-standing issues. It will allow our Special Agents to carry out their mission with the greater efficiency and productivity that national security investigations deserve. We hope that bill will pass before this Congress expires later this year.
We have a fourth priority in Export Enforcement, which is antiboycott compliance. Our Office of Antiboycott Compliance (OAC) works to ensure that U.S. businesses comply with the antiboycott provisions of the Export Administration Regulations (EAR). We also bring enforcement actions to enforce those regulations, as appropriate.
You may have heard or assumed that boycotts that violate the EAR are no longer of concern. Although there has been great progress, regrettably, they continue to be a trap for the unwary and in some instances an impediment to trade between the U.S. and certain Middle East countries. We would like to give you a brief background of U.S. antiboycott laws and discuss their objectives. We will also discuss the present status of the Arab League boycott of Israel, as well as impressions from the trip recently taken to the Middle East by Ned Weant and Fred Davidson, who is the Assistant Director for Policy in OAC.
The Antiboycott Laws - Background and Objectives
Although the antiboycott laws apply to all boycotts that are unsanctioned by the U.S., the impetus for these laws was the Arab League boycott of Israel. The origins of that boycott predate the formation of Israel in 1948. When the Arab League was formed in 1945, one of its first resolutions called for a boycott of “Zionist goods.”
In the mid-1970s, the U.S. adopted two laws that seek to counteract the participation of U.S. firms in other nations’ economic boycotts or embargoes. These “antiboycott” laws are the Ribicoff Amendment to the 1979 Tax Reform act, found in Section 999 of the IRS Code, and the 1977 amendments to the EAA. The antiboycott provisions of the EAR, promulgated by Section 8 of the EAA, are found at 15 CFR 760. Practitioners who need information concerning tax matters should contact the Treasury Department’s Office of General Counsel.
The antiboycott laws were adopted to encourage or require U.S. firms to refuse to participate in foreign boycotts that the U.S. does not sanction. They have the effect of preventing U.S. businesses from being used to implement the foreign policies of other nations that run counter to U.S. policy. The scope of the EAR is established in § 8 of the EAA.
Section 8 applies to the activities of “U.S. persons” in the “interstate or foreign commerce of the Untied States.” The definition of “U.S. persons” includes individuals and companies located in the United States and their foreign affiliates. These persons are subject to the law when their activities relate to the sale, purchase, or transfer of goods, services, or technology between the U.S. and a foreign country.
The EAA prohibits certain types of activities, including:
None of the activities prohibited by the EAA can be a violation of the antiboycott provisions of the EAR unless taken with “intent to comply with, further, or support an unsanctioned foreign boycott.” Thus, before a U.S. person can violate the regulations, a boycott imposed by a foreign country must be in effect and directed toward a country friendly to the U.S.
Consumer and Societal Boycotts
Boycotts instituted by individuals or groups that are not motivated by support for boycotts imposed by foreign governments do not fall within the purview of the antiboycott regulations. Thus, the April 2005 efforts by an established U.S. religious group urging Caterpillar Inc. shareholders to sell their interest in the company because Caterpillar sold products to the Israeli army for the use in the Palestinian territory were not violations of the EAR. This type of company-specific consumer boycott did not amount to prohibited activity under the antiboycott regulations because it did not involve a boycott by a foreign country.
Businesses seek to avoid the adverse impact of consumer boycotts. In doing so, however, they must take care not to run afoul of the antiboycott provisions of the EAR. In 2000, a U.S. manufacturer sought to combat a boycott of one of its products in Arab markets. The product was a laundry detergent brand-named “Ariel.” It was boycotted due to a perception that it was linked to then-Israeli Prime Minster Ariel Sharon. The company countered the boycott through advertisements that underscored the company’s long presence in the Middle East and by redesigning the product logo so that it was no longer reminiscent of the Israeli six-pointed star. Although this strategy did not violate the antiboycott regulations, a U.S. company facing this situation that chooses to distance itself from mislabeling by saying, “Our product is not made in Israel” may commit a violation of the EAR if its response is made with the intent to comply with an unsanctioned foreign boycott, such as the one imposed by the Arab League.
“Company-specific” consumer boycotts, such as the one discussed above, were compared to a newer form of boycott – “societal boycotts” – in Rethinking Consumer Boycotts, MITSloan Management Review, Summer 2006, Richard Ettenson, N. Craig Smith, Jill Klein, and Andrew John. The authors explain that consumer boycotts traditionally have been prompted in response to explicit corporate activity or strategy, such as labor practices in the developing world. Societal boycotts, however, have been provoked by geographic and political events with which targeted companies have little, if any, connection. To counter societal boycotts, Rethinking Consumer Boycotts proposes that companies may have to “decouple” their products from the cause of the boycott. Among the specific strategies suggested is “downplaying” the country in which the product is manufactured. This technique is further developed in Battling Boycotts by Saleh AlShebil, Abdul A. Rasheed, and Hussam Al-Shammari in the April 28 – 29, 2007 Wall Street Journal. The authors present a strategy designed to assist businesses affected by consumer boycotts, and also suggest that businesses targeted by societal boycotts promote a connection to the local community and de-emphasize their worldwide character.
The EAA requires U.S. persons to report quarterly any requests they have received to take any action to comply with, further, or support an unsanctioned foreign boycott. These reports are to be filed quarterly on form BIS 621-P.
Trends in Boycott Activity
The bar chart below compares prohibited boycott requests reported to OAC in 2006 (lighter bar) to those reported in 2007 (darker bar). Kuwait, Bahrain, and Saudi Arabia are among the countries with decreased numbers of prohibited requests reported during this period; the UAE, Oman, and Libya are among the countries that have increased numbers.
Middle East Trip Report
Last month, the OAC Compliance Assessment Team, which was comprised of OAC Director Ned Weant, OAC Assistant Director for Policy Fred Davidson, and a representative from the State Departmentís Office of the Near East, traveled to the U.A.E., Kuwait and Oman. This was the fourth in a series of annual trips designed to encourage government officials and private sector representatives in boycotting countries to eliminate boycott-related terms and conditions from commercial documentation and develop guidelines to ensure that such documentation complies with U.S. law. In addition, the teams meet, whenever possible, with U.S. Embassy and Foreign Commercial Service officials to explain the U.S. antiboycott regulations, with an emphasis on how U.S. firms can conduct business in the region without violating those regulations.
This yearís visit to the U.A.E. began with a meeting at the Ministry of Economy, where we expressed our concern about the increase in boycott-related requests coming from the U.A.E. to U.S. businesses. Specifically, the BIS team brought to the attention of ministry officials certain language in requests for bids sent by two U.A.E. government-owned entities to U.S. companies. U.S. businesses could not agree to the proposed language without violating the antiboycott laws. Ministry officials commented that the U.A.E. entities involved had been contacted and have agreed to remove the prohibited boycott language from their tender request documents.
While in the U.A.E., Ned Weant participated in a joint presentation to the American Business Council of Abu Dhabi on export controls and sanctions. Other participants included officials from the Department of Treasuryís Office of Foreign Assets Control (OFAC), BISís Office of Export Enforcement (OEE), and the Department of Homeland Securityís Immigration Customs Enforcement (ICE). This was a unique opportunity for OACís Ned Weant to address a group of U.S. businesses operating in the region regarding their antiboycott compliance concerns.
In Kuwait, the team met with the Director General of Kuwaiti Customs, who assured us that his agency has worked diligently to eliminate all aspects of this impediment to free trade. This would be a significant development: It would mean that Kuwait would no longer blacklist companies just because they do business in Israel. Additionally, the team met with officials from the Kuwaiti Chamber of Commerce and Industry and provided clarification on technical language relating to boycott issues.
The teamís visit to Oman began with a meeting with officials from the Ministry of Foreign Affairs and the Ministry of Commerce and Industry. During this discussion we offered alternative language for use in Omani contracts with U.S. companies. Our proposed language is consistent with both Omani law and antiboycott provisions of the EAR. The Omanis indicated they would consider our suggestion and refer it to their legal counsel.
It has been a pleasure speaking with you this afternoon about our compliance and enforcement at BIS. We thank you once again for your compliance with the export control laws. We appreciate your partnership as we work together to keep our country safe and prosperous.