Good morning and welcome. As the leading federal official responsible for enforcing the laws and regulations governing the export of U.S.-origin dual-use goods and technology at the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), I am always very happy to be able to speak with industry about export enforcement and the importance of compliance.
We will do so today, and it is wonderful that so many of you are here and interested in this important topic – our registration capped-out at nearly 250 persons, and went into wait-list mode. We have a very interesting program and very important information to share with you throughout the day.
The title of our program today is “How Good Companies Can Get into Trouble: Export Compliance and Corporate Integrity.” What brings us here for this seminar is the trouble that the MTS Systems Corporation of Eden Prairie, Minnesota got into with Export Enforcement at BIS.
Overview of MTS Systems Corporation
According to its website, MTS Systems, among other things, is a “leading global supplier of test systems and industrial position sensors.” At the end of fiscal year 2007, MTS had 1,618 employees and revenue of $421 million. MTS’s website says it is also “committed to helping customers around the world make better products for tomorrow.”
Doing business around the world is a great milestone for any company, and is also important to the U.S. economy. However, it brings with it added responsibilities that are critical to protecting our national security, foreign policy and economic interests. That is especially true when your business involves exporting sensitive materials to foreign destinations.
What Went Wrong?
Despite MTS’s impressive business profile, something went terribly wrong there. As a result of an investigation conducted by the Special Agents in our Office of Export Enforcement’s Chicago Field Office, earlier this year, MTS was prosecuted by the U.S. Attorney’s Office for the District of Minnesota. The charges stem from MTS’s efforts to export more than $3 million in U.S. - origin goods to India that had nuclear end uses. MTS pled guilty to two federal offenses in U.S. District Court in Minneapolis. Both offenses involve intentional falsehood on the part of MTS in connection its efforts to export to India.
At sentencing, the federal judge imposed, among other things, substantial criminal fine of $400,000. The judge also imposed a period of two years’ corporate probation upon MTS, and ordered it to implement a model export compliance program. In addition, the judge ordered MTS to spend up to $25,000 to sponsor an export compliance seminar. That is what brings us here today.
MTS also agreed to settle the administrative charges that would be brought against it by BIS as a result of these events. MTS agreed to pay a significant administrative penalty. As the Assistant Secretary for Export Enforcement, I approve the charging and settlement of our administrative cases. The administrative penalty for MTS was $400,000. At the moment, that administrative penalty is tied for first place with one other, as the highest that BIS has imposed so far during this fiscal year.
How Did This Happen?
How did this happen? That is what you have come here to find out. We will spend our time over the course of the day learning the answer to that question. We will also spend time learning how to avoid having this happen. So I want to leave the exploration of those matters for our subsequent speakers.
By contrast, what I want to spend my brief time this morning discussing with you is what happens to companies and individuals who fail to comply with our export control laws – and why. Before I do so, however, I should acknowledge that MTS is not alone.
Overview of Another Company – Valtex International
Today, you will also hear about another company that got into trouble – Valtex International, of Palo Alto, CA. It was also prosecuted by the U.S. Attorney’s Office here in Minnesota, as the result of a joint investigation conducted by the Special Agents in our Office of Export Enforcement’s Chicago Field Office and our San Jose Field Office. Valtex pled guilty to criminal charges, related to its efforts to illegally export to the People’s Republic of China (PRC) sensitive dual use goods that have missile applications.
Valtex was sentenced to pay a $250,000 criminal fine and was placed on five years’ probation. The company’s president – who was also its founder and owner – pled guilty to making false statements. He was sentenced to pay a criminal fine and to serve a term of probation, during which time he was prohibited from engaging in any international business.
Valtex and its president settled administrative charges with BIS stemming from this conduct by agreeing to pay administrative penalties. BIS denied Valtex and its president’s export privileges to the PRC for five years and Valtex also agreed to implement an export management system.
MTS and Valtex: Examples of the Adverse Consequences of Export Violations
MTS and Valtex were both very serious cases that involved the imposition of criminal fines, as well as administrative penalties. As you can see from the Valtex case, company executives are also subject to criminal charges and administrative penalties for export violations.
Denial Orders are another sanction that can be imposed by BIS for export violations. They have been compared to “death sentences” for companies in that export. Denial Orders can prohibit companies from exporting any U.S. - origin goods and technology for a specified period of time – often for years.
In addition, there are significant secondary adverse consequences that result from export violations. In today’s hyper-competitive business environment, it is crucial for companies and their executives to enjoy good reputations. That cause is not advanced when, as in the MTS and Valtex cases, your senior executives appear in open court in these proceedings on behalf of the company – or on behalf of themselves – before a federal judge. These proceedings can be very stressful. Indeed, in the Valtex case, the president passed out in open court. As a part of MTS’s sentence, the judge ordered it to send letters to its shareholders, appropriate for publication, acknowledging the operative facts and reflecting the resolution of the case.
Broader negative publicity often accompanies export violations, and is also not helpful to business reputations. For example, the various United States Attorneys’ Offices around the country issue press releases in these cases, which they also post to their websites. BIS does the same for the administrative penalties we issue. Press releases were issued by the U.S. Attorney’s Office in Minnesota and by BIS in the MTS and Valtex cases. BIS also posts its administrative charging letters and supporting documents on the web. We are required to make those documents available to the public under the Freedom of Information Act (FOIA).
In addition, your company’s case might be featured in Export Enforcement’s publication, Don’t Let This Happen to You, which is a summary of our major cases over the years. It is posted on our website and we also distribute hardcopies at our outreaches during the year. Valtex had earned its place in Don’t Let This Happen to You after its cases were resolved. As I speak, we are in the annual revision process for Don’t Let This Happen to You. MTS has earned its way into the upcoming edition, which is due out soon.
The Importance of Compliance
Let me make one thing clear: As law enforcement officials, we are not gleeful when MTS, Valtex International, or any other company or individual get themselves into trouble. Indeed, throughout the year, Export Enforcement conducts a significant amount of industry outreach throughout the country. We do so in order to educate the public about the export control laws and help ensure that these things do not happen.
I have said many times that compliance with export controls is the first line of self-defense in protecting our national security. Today, you will hear more about the importance of compliance from our panelists. Those of us in government need industry as our full-fledged partners in compliance, so that together, we can protect our national security. By working together, we can ensure a level playing field for all. And by working together to suppress illegitimate trade, we will foster legitimate trade.
The Purposes of Penalties
We have heard about the significant penalties and sanctions levied as a result of enforcement actions against MTS and Valtex. Make no mistake about it: Those who remain unmoved by the joint interest that the government and industry share in protecting our national security – or by patriotism or by good corporate and individual citizenship – must be encouraged through other means to obey the law. If the government does not do so, we will leave considerable gaps in the bulwark that protects our national security, which would be unacceptable and dangerous.
Contrary to what some may believe, those of us in Export Enforcement at BIS do not enjoy imposing penalties. We do not enjoy having an adversarial relationship with any member of industry. The extensive outreach that those of us in Export Enforcement conduct every year to foster compliance should be sufficient to disprove any such notion.
All levels of our organization conduct outreach – I do so, as does Deputy Assistant Secretary for Export Enforcement, Kevin Delli-Colli, who will speak to you today. Our Office Directors also do so. Indeed, Ned Weant, the Director of our Office of Antiboycott Compliance, will speak to you today. The Special Agents in Charge of our eight field offices conduct outreach, as well as the Special Agents who investigate these cases. We do so throughout the country. So, those of us in enforcement are not counting the notches on our belts, nor do we take great comfort from the dollars that our penalties put into the federal treasury.
But if we must bring enforcement actions in order to protect our national security, we will not shrink from doing so. Indeed, as the MTS and Valtex cases demonstrate, we will do so with vigor and with every tool at our disposal. We will execute search warrants at your companies and homes, we will make arrests, we will issue subpoenas, and the like. We will not allow those who are willing to make a quick profit today by trading recklessly, negligently and even criminally, to endanger the safety of future generations.
All of us – in Export Enforcement, in other parts of BIS, and in industry – must think about the purposes of penalties in a clear-headed manner. We must acknowledge that they serve important purposes in the real world. First and foremost, we cannot treat law-breakers and those who are law-abiding alike. Doing so only makes a mockery of those who obey the law.
We cannot be naïve. Penalties are a method of reaching those who, despite their claims to the contrary, cannot be reached effectively through other means. Yes, they may say all the right things. The problem is that they don’t do any of them. Our outreach efforts do not move them. Our appeals to their good corporate citizenship fall on deaf ears – and so do our appeals to their executives to be good individual citizens. Perhaps most stunning is that our appeals to their patriotism also fall on deaf ears, even in today’s post-9/11 world.
Penalties Foster Compliance and Deterrence
Make no mistake about it: Penalties help encourage compliance from those who will only count dollars. Penalties help those who are only keen on doing the math and calculating a return on their investment realize that a dollar spent on compliance may save them ten dollars in penalties and fines, not to mention potential jail time.
That effect is one well-grounded in the law – it is called deterrence. To be sure, detecting, apprehending and incapacitating violators are all important. But deterrence stops people from committing violations in the first place. Doing so is important, because no law enforcement agency can be everywhere.
Deterrence is especially important when it comes to export controls in today’s post-9/11 world, which includes non-state actors and state-sponsors of terror. As President Bush said, in his Commencement Address at the Coast Guard Academy, “To strike our country, the terrorists only have to be right once; to protect our country, we have to be right 100 percent of the time.” Deterrence helps us achieve that critical goal.
Penalties Further Investigative Objectives
The report of the Commission on the Intelligence Capabilities of the United States on Weapons of Mass Destruction (WMD report) acknowledged the important role that Export Enforcement at BIS has played in protecting our national security.
The WMD Commission, recommended higher penalties for export violations. In doing so, the WMD Commission, recognized that such penalties also further law enforcement’s investigations. They provide an important impetus for those who have been apprehended to cooperate with law enforcement against their conspirators. The WMD Commission’s approach is well-recognized by the law, and it is correct. Significant penalties provide law enforcement with a very valuable tool, absent which the higher-ups in conspiracies of all types may evade justice.
BIS’s Office of Export Enforcement
Let me take this opportunity to thank Wendy Hauser, the Special Agent in Charge of our Office of Export Enforcement’s Chicago Field Office. Under her leadership, both the MTS and Valtex International cases were investigated and prosecuted, along with many others over the years. You will hear from Wendy later today, as well as Ron Orzel, the Assistant Special Agent in Charge of our Chicago Field Office. Special Agent Perry Davis, also of our Chicago Field Office, who investigated the MTS, case is here as well.
The Special Agents in our Office of Export Enforcement are doing a magnificent job. It is a distinct honor to for me to have been appointed by President Bush to work with them in keeping our nation safe and prosperous, especially during this critical period in our country’s fight against terrorism. Our Office of Export Enforcement is an elite law enforcement agency, and the only one in the nation that has dual use export enforcement as its sole mission.
Our Special Agents now focus their efforts on three areas of priority that are critical to our national security: countering weapons of mass destruction proliferation, terrorism and terror-support, and diversions of dual use goods and technology to unauthorized military end-uses. They rightly describe their mission as “Keeping the most sensitive goods and technology out of the most dangerous hands.”
The Need for a Law Enforcement - Focused EAA Renewal
For our Special Agents to do their jobs as effectively as they should be able to in today’s post 9/11 world, they need the modernized law enforcement authorities, penalties and other provisions provided for by S. 2000, The Export Enforcement Act of 2007, which has been introduced in the Congress by Senator Dodd.
Permanent Authorities – Among other things, that bill will give our Special Agents permanent law enforcement authorities that do not sunset with the rest of the Export Administration Act (EAA).
Foreign Investigative Authority – It will also give them foreign investigative authority, so that they can follow the trail of evidence wherever it leads in these export controls conspiracies, which span the globe.
Undercover Authority – We need the same undercover authority as other law enforcement agencies that share our mission, in order to interact with conspirators and fully investigate and penetrate their illicit operations.
Wiretap Authority – It will also provide them with wiretap authority for EAA and International Economic Emergency Powers Act (IEEPA) offenses, so they can gather important evidence to present to juries concerning the actual intent of export violators as they use today’s electronic communications to further their conspiracies.
Higher Penalties – The bill will also provide penalties that will help foster deterrence and other law enforcement objectives.
A law enforcement-focused renewal of the EAA is long overdue. Accordingly, we urge the Congress to pass S. 2000 promptly, and thereby strengthen our national security.
“Don’t Let This Happen to You”
Let me conclude so that we can turn to Wendy Hauser and our other speakers, who will answer in detail the questions of “how” what I have previewed for you actually happened, and why MTS, as well as Valtex International, ended up in trouble.
Once again, I welcome all of you to this conference. We look forward to giving you much food for thought. As you continue to think about what you have heard after you depart today, I hope you will keep in mind this simple admonition that I will leave you with: “Don’t Let This Happen to You.” Thank you.