Remarks of
Eric L. Hirschhorn
Under Secretary for Industry and Security
U.S. Department of Commerce

Export Control Forum
Irvine, California

February 28, 2011



Good morning and welcome to BIS' Export Control Forum. Let me first thank Mike Hoffman, his staff, and the many other BIS and U.S. government colleagues who have contributed to this conference.

In President Obama, we have as forceful a top-level advocate for export control reform (ECR) as I have seen in my 30 years working in the export control field. At the President's request, Defense Secretary Gates, Secretary of State Clinton, and my boss, Secretary Locke, have directed the effort to create an export control system that is responsive to the national security, technology and commercial imperatives of the 21st Century. The Bureau of Industry and Security's (BIS) day-to-day administration of the Export Administration Regulations (EAR) needs to be considered against the backdrop of President Obama's export control reform initiative.

Last spring, Defense Secretary Gates set out the Administration's conclusion that fundamental reform is needed. "If the application of controls on key items and technologies is to have any meaning,” he said, “we need a system that dispenses with 95 percent of ‘easy’ cases and lets us concentrate our resources on the remaining 5 percent. By doing so, we will be better able to monitor and enforce controls on technology transfers with real security implications while helping to speed the provision of equipment to allies and partners who fight alongside us in coalition operations.” Moreover, he added, the current system encourages multinational companies to move research, development, and production offshore, "eroding our defense industrial base" as well as "undermining our control regimes."

This past August, the President, Secretary Locke and others discussed how the end result of addressing these critical questions would be a single control list administered by a single licensing agency operating on a single information technology platform and enforced by a single primary export enforcement coordination agency. The structural reforms require congressional action. Today, I'd like to discuss our work towards a single control list and a single IT system.

This past December, the Departments of State and Commerce issued proposed regulations to achieve two fundamental reform objectives:

  • controlling items based on transparent technical parameters, which translates in export control parlance to "positive lists" that do not overlap; and
  • separating items by tier, to focus controls on the most sensitive items while allowing for more flexible authorizations for relatively mature technologies that are more widely available.

The U.S. Munitions List

The most important aspect of control list reform may be making the USML a "positive" list. Currently, the USML controls many defense articles based on "design intent," in part because at one time, the majority of items used by the military were produced specifically for the military. Today, however, many-if not most technologies used by the military are developed and manufactured by the commercial sector.

Moreover, the design-intent nature of the USML is inconsistent with a predictable and transparent regulatory process-one where industry and government alike readily and objectively can determine what is controlled. The existing setup has fueled an increase in commodity jurisdiction disputes. This has resulted in many commercial systems being ruled subject to ITAR control or jurisdictional decisions being delayed, thereby impeding the competitiveness of U.S. items or, even worse, resulting in their being "designed out" of foreign end products.

Under the leadership of the Defense and State Departments, the Administration is addressing this problem by converting the USML to a positive list. On December 10, the Department of State issued a proposed regulation that would revise Category VII of the USML-Tanks and Military Vehicles into a positive list. This would focus the category's controls on truly significant military items, while moving less significant items-particularly parts and components that do not serve an inherently military function-to the Commerce Control List. The process for such moves, and for control on the Commerce Control List, will be described in detail early next year.

Last August, at the "other" Update, Secretary Locke displayed two functionally equivalent pivot blocks that hold wheel axle assemblies together. One is for use in the axle of a fire truck and can be exported to China without a license. The other is designed for a military vehicle and almost imperceptibly different, but export that one to China and you'll end up in jail. Control for minor items whose function isn't inherently military results in needless burdens, particularly for small- and medium-sized businesses. Ameliorating such burdens, which divert the time, energy, and resources of the Government as well as of exporters, is an important aspect of the reform effort.

Concurrently with the proposed Category VII rewrite, State requested public comment on converting the remaining USML categories into positive lists. The Department of Defense has an ambitious plan for completing its work on this review in 2011. State and Defense are working diligently on this project, and the President's vision of a reformed export control system cannot be accomplished without it.

For many of the low level, widely available items that will be transferred from the USML to the CCL, Commerce jurisdiction will provide greater flexibility and a simpler structure of controls. First, ITAR registration would be eliminated for many small and medium-sized exporters if their sole ITAR items are minor elements of defense products. Second, the change in jurisdiction should eliminate many problems associated with the "see through" rule, which make certain items manufactured offshore subject to U.S. re-export control requirements if they incorporate U.S.-origin ITAR parts and components, regardless of value or importance. Third, there would be far fewer transactions requiring United States exporters to enter into and obtain complex Manufacturing Licensing Agreements or Technical Assistance Agreement to share data and services. Finally, there could be a significant reduction in the time required to determine the jurisdiction of parts and components.

The Commerce Control List

The USML is not the only focus of the Administration's attention. The existingCCL is largely a "positive" list that describes items using objective criteria but it's not wholly so. We seek to make it sufficiently "positive," clear, and precise, so that someone who isn't an expert on U.S. export controls but understands the technical characteristics and capabilities of an item,can accurately determine its jurisdictional status and classification.

Public input to establish clear and objective control lists is important. The U.S. Government lacks perfect knowledge on a number of the items likely to be affected by the ECR exercise. To this end, in December BIS sought public comment on CCL entries for the purpose of ensuring that such entries are clear and based on objective facts, parameters, characteristics, and technical thresholds that are recognized and employed worldwide. This work, including public input, is needed to achieve clarity, and to avoid items from being subject to both lists unless there are specific parameters that distinguish USML or CCL control. The notice also sought information on the foreign availability of CCL items to assist the U.S. Government in further differentiation of controls by tier.

The Parallel-Tiered Control Lists

The second element of the reform exercise involves converting the USML and CCL into parallel constructed, three-tiered lists that allow the U.S. Government to focus control on the most sensitive items while establishing cascading controls on more mature and widely available items.

To implement this tiered construct, the U.S. Government has developed control list criteria:

1) Tier I items are weapons of mass destruction or are almost exclusively available from the United States that provide a critical military or intelligence advantage. These are what Secretary Gates has termed our "crown jewels."

2) Tier 2 items are almost exclusively available from regime partners or adherents and provide a substantial military or intelligence advantage, or make a substantial contribution to the indigenous development, production, use, or enhancement of a Tier 1 or Tier 2 item. These are what the U.S. Government has termed "precious metals."

3) Tier 3 items are more broadly available and provide a significant military or intelligence advantage or make a significant contribution to the indigenous development, production, use, or enhancement of a Tier 1, 2, or 3 item, or are other items controlled for national security, foreign policy, or human rights reasons.

The Government would then apply licensing policies associated with the tiers.

Licensing Policy

On December 9, BIS published the proposed rule far License Exception Strategic Trade Authorization, or STA. STA would allow the export, reexport, and in-country transfer of specified items. It could be used only where Commerce Control List-specified license requirements would apply. There are two key elements of the proposal:

• For exports of most items on the Commerce Control List that do not require a license for statutory reasons, exports would be authorized to a group of 37 countries under the proposed license exception.

• For certain other countries, Wassenaar Arrangement "Basic List" items would be eligible for export under this exception.

The STA proposal represents the first step in implementing the President's goal of eliminating easy cases so that we can focus the Government's limited resources on items and on end users requiring greater scrutiny.

STA's reduced license requirements would be accompanied by safeguards in the form of higher walls to ensure that items are not re-exported outside eligible countries without U.S. authorization. As proposed, the safeguards would include requiring that exporters and re-exporters notify the purchaser of the safeguard requirement applicable to the license exception. Additionally, the foreign end user would have to certify its understanding and willingness to comply with such conditions. These conditions would establish a knowledge standard that is necessary to prevent potential misuse of the license exception. To ensure an understanding of STA, the Bureau has started reaching out to U.S. companies that may benefit from the license exception.

It is estimated that the proposed license exception STA has the potential to eliminate approximately 3000 individual licenses.

Related Export Control Issues

An important part of the higher wall is the new consolidated end-user screening list. The new list reduces drastically the time and cost burdens associated with having to review up to ten separate lists to screen transaction parties. The new consolidated electronic screening list includes more than 24,000 entities. Most important, exporters now can screen parties in a cost efficient manner from an up-to-date list. This should help prevent inadvertently exporting to an ITAR-debarred party, a specially designated national, a denied person, or an entity on our Entity List. The consolidated file can be downloaded from the Export Control Reform website at

We are working on several other initiatives to produce a more streamlined, user-friendly system. This includes developing a single license application form that the Departments of Commerce, State, and Treasury will use and harmonizing definitions of key terms such as “technology" across the spectrum of export control and sanctions regulations.

As part of the ECR initiative, the U.S. Government hopes to clarify the meaning of the term "specially designed" as used in the CCLand the USML. We are working on harmonizing a number of definitions but "specially designed" is a priority given the frequency with which the term is used in the two control lists and the importance of adequately defining the term in order to develop two "positive" lists. The regulatory initiative to clarify the meaning of the term "specially designed" is progressing. Weintend to publish a proposed rule on this subject as one of the next regulatory initiatives to come out of the ECR.

Compliance and Enforcement

License efficiencies and outreach efforts are not the entire story. Enforcement activities have a high priority in the reform program in at least three important respects. First, in November, the President signed an executive order to enhance coordination among export control enforcement agencies. The order mandates an Export Enforcement Coordination Center comprising representatives from BIS, the FederalBureau of Investigation, Immigration and Customs Enforcement, the Intelligence Community, and military security agencies. Agencies will share information and leverage their resources to enhance compliance with export control laws and regulations.

Second, BIS will continue to make use of specific compliance tools to prevent the unauthorized export of technologies to end users of concern. We use the Entity List to target specific compliance concerns rather than apply a broader, less sharply focused set of tools. This allows BIS to use temporary denial orders, as well as additions to the Entity List, to focus attention on those who may violate our laws. The use of the Entity List has been particularly successful because the business impact of being singled out on this list will result in companies modifying their behavior or going out of business.

Third, BIS is adjusting how we penalize those who violate U.S. export controls. In the past, BIS typically has imposed penalties on companies involved in export violations. Going forward, where a violation is the deliberate action of an individual, we will consider seeking penalties against that individual-including heavy fines, imprisonment, and the denial of export privileges-as well as against the company. The same will be true for supervisors who are complicit in deliberate violations by their subordinates.

At the same time, we recognize that even companies that have good intentions can make mistakes. We promote the submission of voluntary self-disclosures (VSDs) in these and other instances. We view VSDs, along with robust internal compliance programs, as important mitigating factors. Given the volume of exports and re-exports that are subject to the EAR-BIS processed more than 20,000 license applications during 2010-we rely on industry for the bulk of compliance. Your knowledge of your products, their end uses, and your customers makes you the front line troops in this important effort.

Information Technology System

We have a plan in place to upgrade our IT systems to make them more user-friendly for exporters and to leverage the resources and information of agencies across the U.S. Government.

One of the first steps we have taken to improve customer service through expansion of IT capabilities is to establish online registration for the SNAP-R licensing system. This allows an exporter to go on line to file and quickly obtain a personal or corporate information number that allows the exporter to file licenses and other requests. This approach also transfers to the exporter the responsibility to manage its account and add or remove persons authorized to have access to the system. This move will eliminate the manual and sometimes untimely processing of more than 6500 annual requests for access to our system. Amanda Simpson, my senior technical and IT adviser, and Ken Whaley will be speaking with you tomorrow about IT developments including online registration.


When we have implemented these actions, the Administration will have achieved what I term the three "Es":

• Greater efficiencies in terms of focusing controls and investigations on those items that are the most significant in terms of providing the United States with a military or intelligence advantage, while facilitating exports to coalition partners in order to improve our interoperability.

• Increased education to ensure that everyone subject to our regulations knows of their existence and requirements. The effort also will help exporters understand how the changes will affect their compliance responsibilities. We are also emphasizing the adoption of internal export management and compliance programs.

• The final "E" is enhanced enforcement, to ensure that exporters, re-exporters, and end users comply with our regulations and use U.S.-origin items responsibly. BIS compliance personnel evaluate exports made under license or license exception to ensure they comply with the EAR. We review EAR99 transactions as well. Our enforcement agents are increasing their presence domestically and abroad. We have new export control officers in China and Singapore, and will leverage the resources of the FBI and ICE as participants in the Export Enforcement Coordination Center. Finally, we will continue to use all the law enforcement tools at our disposal, including the Entity List and temporary denial orders, to inhibit illicit trade in controlled items.

My remarks today underscore the unprecedented commitment of the Obama Administration to export control reform. Thank you again and I look forward to hearing your feedback and ideas.


Remarks of
Daniel O. Hill
Deputy Under Secretary for Industry and Security
U.S. Department of Commerce

C5 European Forum on Export Controls
Brussels, Belgium

February 7, 2011


I. Introduction

Good afternoon. 

It’s great to be back in Brussels.  I have a lot of terrific memories coming here and working very successfully with Directors from all over the EU.  So, being here today is a fantastic opportunity for me to speak with the EU export community, face-to-face. 

Export control and industrial base issues are what I know.  It’s what I’ve spent my career pursuing.  It hasn’t always been the most head-turning member of our national security apparatus.  It hasn’t always grabbed the most headlines. 

But we’re suddenly a hot topic for a lot of people both in and outside of government.  

Since President Obama took office, we now have as forceful an advocate for far-reaching export control reform as I’ve seen in a generation.

At the President’s request, Defense Secretary Gates, Secretary of State Clinton and Secretary Locke, my boss, are spearheading the drive to create a 21st Century export control system that strengthens our national security and ensures our businesses enjoy robust trade especially with close and trusted allies.

President Obama’s focus on export control reform is as timely as it is essential. 

The world we live in, and the world all of you do business in, is changing - rapidly.

International business is more sophisticated than ever.  Globalized research, product development, and supply chains are now the norm, not the exception.  Companies increasingly have presences in Boston and Brussels, but also in Bangalore and Beijing.

But, not everything in the world has changed.  Our adversaries may have changed …. but we still face serious threats.  There’s no shortage of people who want to harm us.  We face terrorists, weapons proliferators and rogue regimes who seek to turn our technologies against us, our allies, and the troops we have serving together on foreign soil, like in Iraq and Afghanistan. 

And so our new export control system must be geared to this new reality.  It must ensure our industries’ competitiveness, and yet maintain dynamic and precise controls. 

Getting this calibration right, between security and competitiveness will maximize our economy and our safety.

President Obama gets this dynamic.  Two weeks ago, at his State of the Union address he explained our need to adapt:

“Our success in this new and changing world will require reform, responsibility, and innovation,” the President said.

“Just as jobs and businesses can now race across borders, so can new threats and new challenges.  No single wall separates East and West.  No one rival superpower is aligned against us.” 

“And so.” the President continued, “We must defeat determined enemies, wherever they are, and build coalitions that cut across lines of region and race and religion.” 


II. Need for Change

This is what export control reform is about:  adapting and thriving in a world with new rules.  It’s about partnering with allies and enlisting industry to ensure sophisticated technology can be traded amongst friends, but kept away from our enemies.

The only way to move forward is to first take stock of where we are and how we arrived here. Our export control regime has not kept pace with geopolitical changes or innovations in industries.    

For instance, our current system operates under two different control lists with distinctly different approaches to identifying and controlling products. 

The Department of State administers the Munitions List, which generally includes items specifically designed for military applications, a concept as opaque as it is outdated.     

And the Commerce Department administers the Commerce Control List, or CCL, which is a far more specific list of mostly “dual use items” -- that is commercial items that could have military applications -- items like truck parts, electronic components and even computers. 

There are three primary U.S. licensing agencies – each with different procedures and different information technology systems – and scores of different regulatory definitions.

It would be hard for anyone to argue that this existing system is maximizing our security or is a model of efficiency. 

The Munitions List was created during the Cold War.  Most of the items used by the military were developed by, or solely for the military.  But times have changed.  The commercial sector alone now develops nearly two-thirds of the technologies our military uses. 

For exporters and companies with production lines spread across the globe, time they could be spending creating innovative, game-changing products to sell in different countries is instead spent navigating a confusing and time-consuming export control bureaucracy.

An equally disturbing phenomenon is that U.S. companies are sometimes being “engineered out” of collaborative foreign projects due to U.S. export control requirements.

We have heard of examples of sales contracts including provisions that explicitly bar the use of U.S.-manufactured articles because companies don’t want to have to deal with our export control system.

America puts our exporters in an untenable position when we forbid or delay them from selling a widely available item to an overseas market even when comparable foreign items face no similar restrictions from their home country.

III. Reforming the USML

And so, we’re making changes. 

Our ultimate goal is to create one list that will include every item or technology that requires control; have one agency that will administer these controls; have one enforcement coordination agency that handles every investigation of criminal violations; and run everything using one IT platform.

Achieving this goal will take time.  Nothing happens over night.  And some of these steps will require concurrence and legislation from Congress.

But make no mistake: changes are already underway.

We’re already in the midst of three far-reaching updates to how items are classified and controlled:

  • First, we’re harmonizing, as much as possible, the way the Munitions List and the Commerce Control List control items, software and technology.  Together with the Department of Defense, the Department of State is converting the Munitions List into a positive list, one not dissimilar to the CCL. 
  • Second, we’re creating a harmonized, three-tiered licensing system that will apply in the same manner to items on both the Munitions List and the CCL.
  • And third, we’re streamlining the licensing process for exporting controlled items to close allies and partners.  By doing this, our licensing agencies can spend more of their time scrutinizing exports of more sensitive items to more sensitive destinations.

These steps will make our export control system more transparent and predictable.  It will enable exporters to quickly know what can and cannot be exported, and where products can and cannot go.

And this reform is already underway.  The first step is the transformation of the State Department’s Munitions List.

In December, State published a proposed rule that turns Category VII of the Munitions List into a “positive list”.  This means that Tanks and Military Vehicles, and the parts that go into making these will no longer be classified by the traditional “design intent” standard. 

Instead, the State Department is proposing to control these items on a “positive list” that uses empirical measurements to classify an item, such as microns and horsepower, or wavelengths and hertz. 

By the end of this process we’ll have two distinct positive lists that will clearly articulate what is, and what is not controlled.  The State Department will administer one list, and Commerce will administer the other.  We will have created a so-called “bright line” separating the two lists.

In the final phase of export reform, we plan to merge the two lists into one – and we will continue to work with our colleagues on Capitol Hill to make this happen.

But even now, we’re well on our way to making this a reality. 

By early 2012, we expect the entire Munitions List will be turned into a positive list. 

Many items deemed to be militarily insignificant will move from the Munitions List to the CCL.  

Bolts, screws and blankets, for instance, which heretofore were listed on the Munitions List will now be distinguishable from items that truly have a “military utility”.  Technical specifications and functions, and not a so-called “design intent”, will soon determine which agency controls which item.

What we’ve found so far is that about 74 percent of the licensing activity for Category VII items is for parts and components which, going forward, will likely be moved to Commerce jurisdiction.

For small and medium-sized businesses, or SMEs, this change will mean big business. 

Moving military blankets and bolts onto the CCL will enable SMEs to be more competitive, and yet won’t jeopardize our national security or undermine our international commitments. 

Of course, there will be exceptions to these lists.  And where an item is found on both lists, performance parameters will distinguish between the two.   

For example, all weaponized armored vehicles will be controlled on the Munitions List.  But cameras that enable the vehicle to see in the dark may be controlled on both lists.  If the camera is cryogenically cooled, for instance, it may remain on the Munitions List, if it’s not cooled in this manner, it may end up on the CCL.

IV. Tiering

So what will happen once we have these two lists sorted out? ....when every item that might need an export license is placed on one of two lists?

The next step is to implement common criteria for classifying items on both lists. 

Representatives from across the US government are currently discussing the outline that will guide this unified licensing policy.

Here’s how it will work: 

Each of the two lists will be divided up into a three-tiered structure.  This tiering will distinguish tightly controlled items from those more permissively controlled.  And each tier will take into account the item’s availability:

Think of the tiers as shelves in a cabinet:

  • The top tier – or the highest shelf – will be reserved for the most sensitive items, ones available only in the U.S., and which provide a critical military or intelligence advantage.  These will include WMD and items that can be used to make WMD – items that Secretary Gates has called “the crown jewels” of US technology; 
  • The middle tier – or a more accessible shelf – will include items that provide a substantial military or intelligence advantage, and will be products that are available almost exclusively from the U.S. and our multilateral partners and allies;
  • The lowest tier will be reserved for items that provide a significant military or intelligence advantage, and which are more broadly available. These will include items that are controlled for National Security, Foreign Policy, or human rights reasons.

These tiers will improve our national security and our competitiveness by permitting the government to adjust controls in a timely manner over a product’s life cycle. 

So, as technology that was once cutting edge becomes more commonplace and widespread, it can be controlled at a lesser level.   

V. Licensing Policies

Once all of the items are placed into a tier, a corresponding licensing policy will be assigned to ensure appropriate agency review.

  • For the top tier, a license will generally be required for all destinations;

  • Many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization;

  • And for items placed in the lowest tier, licenses for items not considered proliferation concerns will typically not be required.

Of course, we will continue to maintain robust and comprehensive sanctions against countries like Iran, North Korea and Cuba.

This new tiered licensing policy system is more than just talk among government officials – it’s about to become reality.

In December, the Commerce Department published a Proposed Rule that will make it easier for our close allies to receive many items on the Commerce Control List and for many other countries to receive certain items with limited military applications without a license.

This Strategic Trade Authorization License Exemption will authorize exports, re-exports and in-country transfers to destinations that are deemed to pose little risk of unauthorized uses.  At the same time, new safeguards will ensure that these items are not re-exported to unauthorized destinations without U.S. Government approval. 

Our EU and other European partners stand to benefit significantly from STA.  We expect more than 2,000 licenses will be eliminated to these destinations.

And, if all goes well, we hope to issue a Final Rule within weeks.

VI. Conclusion

I’d like to conclude by noting that the restructuring and harmonization of control lists and licensing policy that is already under way has been groundbreaking. 

Change is in the air.  More updates are going to happen very soon.

In the coming months, there will be many more notices in the Federal Register, and we will be conducting outreach visits to exporters in the US and end-users around the world. 

I want to again urge everyone here today to provide input so that we can make this initiative as successful as possible. 

This overhaul to our current export controls regime can only be successful if industry takes an active role in its development.

So please remember these dates:

  • The comment period for the STA License exception closes today.  So, please submit your comments as soon as possible.  If you give us comments in the next day or two, we’ll still try to consider them;
  • Comments on how to make the CCL into a more transparent and useful “positive list” are also due today;
  • And, comments on the Department of State transformation of the Munitions List into a “positive list” and on the proposed new Category VII are due tomorrow.  

We’re seeking your input.  We know we can benefit from your experience. 

Going forward, it’s critical for us to develop an export control framework that is strong enough to deter our enemies, yet flexible enough to let great minds around the globe share and develop groundbreaking innovations.

I hope all of you will help us accomplish this critical objective.

Thank you for your time, and for having me here today.  


U.S. Department of Commerce
Bureau of Industry and Security

Update 2011 Conference

Remarks of
Kevin J. Wolf
Assistant Secretary for
Export Administration

July 19, 2011


I. Thank You's

Thank you, Eric, for the kind introduction. Thank you also for your leadership of BIS with integrity, vision, and, humor. The honor of working with you and the rest of the BIS team to advance the country’s national security and economic security interests continues. For those of you in Export Administration, thank you again for your hard work, professionalism, and dedication. Special thanks go to Bernie Kritzer and Toni Jackson and your Exporter Services team for putting together yet another terrific Update conference.

Thanks to the congressional staff for attending. Our discussions on issues of common interest continue to be productive, and there will be many more. Special thanks also go out to my colleagues from the other departments involved in export controls and the other parts of BIS’s mission. The reform effort is truly an interagency effort. Although we are clearly not done, we could not have gotten as far as we have without your commitment and hard work. And speaking of commitment and hard work, I particularly want to thank the NSC’s Brian Nilsson for his terrific leadership of the Task Force and all the other work he does to work through the amazing number of issues associated with Export Control Reform.

For those of you in the audience who knew me before I joined the government last year, I continue to do well, do good, serve the country, and have fun. And, yes, people still laugh at my jokes a lot more than they used to.

II. General Goals

Speaking of my life before joining the Administration, I spent almost my entire career navigating the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), Treasury’s sanctions regulations, and most of the other international trade laws and regulations. Even for a lawyer from Missouri, they are complex. And applying them to real world situations was often as much an application of lore as it was law. For small- and medium-size companies that have more limited resources and staff, compliance with the export control rules is even more daunting, thus exposing them to more transactional risks.

The results of this overly complex system are clear -- legitimate U.S. exporters are disadvantaged because of high compliance costs and the potential loss of market share because foreign customers do not want to deal with complicated U.S. rules and unnecessary collateral controls, while scofflaws are able to use our system’s flaws and complexities to skirt legitimate U.S. Government restrictions. The President’s Export Control Reform Initiative aims to address these problems head-on.

In light of this real world experience, I have had three general priorities since joining BIS. The first is to ensure aggressive compliance with the laws and regulations that we have now. The rule of law governs even during a reform effort. Second, I’ve tried address the biggest problems that exporters face on a day-to-day basis, such as unnecessary impediments on trade with close allies, becoming more reliable and predictable suppliers generally, and dealing with the (real or imagined) overlap between the U.S. Munitions List (USML) and the Commerce Control List (CCL). In the long-term, my priority is to address the compliance burden faced by exporters subject to the U.S. export control system.

To date, BIS has published two significant regulations to address overly burdensome dual-use controls. Last year I reported about the June 2010 encryption rule that streamlined some of the controls on electronic items, which also enhanced national security by getting the government the information it needs in a format it needs. And last month, BIS implemented a new license exception that facilitates exports of almost all dual-use items to allies and partners as outlined by Eric. Bill Arvin will describe this new License Exception, Strategic Trade Authorization or STA, in more detail this afternoon at his session.


A. General Comment
Most of my comments today, however, will get into the tall grass of the next step in the reform effort – the structure for how militarily less significant defense articles eventually moved from the USML will be controlled on the CCL. We published a Federal Register notice last week that describes the background, process, and the content of the plan. We also issued a fact sheet today to provide additional guidance. It is, however, such a significant and lengthy proposed rule and a novel approach to tailoring controls on defense articles consistent with our multilateral commitments and national security that I want to make sure you understand its basic elements, structure, and the background. The more you understand about what we are proposing, the better your comments on it will be. And we really want your comments. If it works and you think it achieves the President’s objectives, then let us know. If we have missed something or would create unintended consequences, then let us know that, too. If we have not drafted something clearly, send us some suggested wording for us to consider. One of the key aspects of the reform effort is making American companies more reliable and predictable exporters consistent with the national security objectives of controls. If we’re not doing that, then you’ve got to let us know.

For those who want to move from the tall grass and down into the weeds, Deputy Assistant Secretary Matt Borman will discuss more details in his presentation during the interagency panel tomorrow morning. In addition, I and my staff will get in to the roots of the topic during a question and answer session Thursday morning at 8 am in the Latrobe Room. I’ll also begin again next Wednesday the weekly open, public conference calls to answer questions about the proposed regulation.

I will then switch metaphors completely and summarize these changes and a vision for export control reform on one page through the use of an image of an iceberg.

B. Reason for the USML-CCL Rule
Why are we proposing a newly structured USML and “Commerce Munitions List” within the CCL, in addition to all other reforms? National Security. It’s that simple. As still best described by former Secretary of Defense Gates in April 2010, our national security will be strengthened if (i) our export control system allows for more interoperability with our NATO and other close allies, (ii) our industrial base is enhanced by, for example, reducing the current incentives for foreign companies to design out or avoid U.S.-origin content, and (iii) our resources are more focused on controlling or prohibiting, as needed, the items that provide at least a significant military or intelligence advantage to the United States.

The statutory foundation of the USML-CCL plan is section 38(f) of the Arms Export Control Act, which states that the “President shall periodically review the items on the U.S. Munitions List to determine what items, if any, no longer warrant export controls under [the Act].” The President and his Administration are still making such determinations, but it is certain that he will decide that a significant number of defense articles – largely less significant generic parts, components, accessories and attachments that are defense articles merely because they are specifically modified for a defense article – no longer warrant controls under the Arms Export Control Act.

These determinations will be reflected in what the Administration does not positively identify in the revised U.S. Munitions List categories it is working on now. Recall, as described in our December Federal Register notices, a “positive list” is one that uses objective parameters and descriptions of what is controlled, rather than open-ended, generic, catch-all, or design-intent based standards. The point of the effort is to be objective (in order to reduce jurisdictional disputes and confusion) and, at the same time, control on the USML only those items that provide at least a significant military or intelligence applicability that warrant the controls that the Arms Export Control Act requires. These controls, as implemented by the ITAR, include registration, worldwide licensing on a purchase order-by-purchase order basis, the application of the “see through rule” (through the absence of a de minimis exception), and mandatory retransfer and reexport approvals in all cases.

In other words, if there is something that is so militarily significant that we would not want it exported for ultimate end use by one of the 36 STA-eligible close ally and partner governments without a specific, individual license and all the other collateral controls imposed by the Arms Export Control Act, then it should be listed on the USML. If not, then it will generally be identified as an item to move to the CCL’s new “600 series” that I will describe in a moment.

Before the President may make any such jurisdictional changes, however, the Administration must notify Congress and wait 30 days before removing any such items from the USML. The notice must “describe the nature of any controls to be imposed on that item under any other provision of law.” Thus, another purpose of the proposed rule is to describe to Congress how items the President determines no longer warrant control under the Arms Export Control Act would be controlled by the EAR once the congressional notification process is completed and corresponding changes are made to the USML and the CCL.

C. Some Details of the USML-CCL Rule
As described in more detail in the proposed regulation, we are creating a new “600 series” set of Export Control Classification Numbers (ECCNs) to control the defense articles that move to the CCL from the USML as well as other Wassenaar munitions list items that have been subject to the CCL for nearly two decades now. The new “600 series” would be an extension of the existing series hierarchy in the CCL for items controlled by the various multilateral export control regimes. This aspect of the proposed rule reflects another theme of the effort, which is to create a structure for controlling on the CCL former defense articles while altering the basic structure of the EAR and the CCL as little as possible.

Some have asked how we can control military items on the CCL when the CCL is a “dual-use” list. The CCL was never a completely “dual-use” list because it controls some purely civilian items for foreign policy and other reasons and has controlled some purely military items for several decades that didn’t warrant AECA controls. The more precise description of the CCL is that it controls commodities, technology, software, and some services that do not warrant control by one of the other export control agencies but nonetheless warrant some degree of worldwide or other control. The creation of the “600 series” is just a significant expansion of that long-standing concept.

We will informally refer to this new “600 series” of items as the “Commerce Munitions List.” Having all such items in one series will allow for a straightforward application of a licensing policy for items that move to the CCL from the USML. It would also be a necessary intermediate step to eventually creating a single control list, which was announced by the President at last year’s Update Conference.

Exporters will classify items moving from the USML to the CCL against existing ECCN entries first. If the item does not meet one of these existing control parameters, exporters will classify their item against the “600 series.” The fourth and fifth ECCN characters of each new “600 series” would track the Wassenaar Arrangement Munitions List categories for the types of items at issue. The Wassenaar numbering structure for the last two characters would be used rather than the USML numbering structure to demonstrate the United States’ commitment to control all Wassenaar Munitions List items and facilitate multinational companies in classifying their products in the United States and abroad.

D. Licensing Policies for “600 Series” Items
The rule proposes that items in the “600 series” require a license for export or reexport to all countries except Canada, unless a license exception is available. Multilaterally controlled items moved from the USML to the CCL would retain their regime control parameters and reasons for control, even if added to an existing ECCN or added to a new “600 series” ECCN.

Each new “600 series” ECCN will have three basic parts: controls on “end items,” controls on generic “parts,” “components,” “accessories,” and “attachments” that are “specially designed” for a specific CCL or USML entry; and specific parts and components that warrant no more than AT-only controls.

All “600 series” items would be subject to a general policy of denial when destined to a country subject to a United States arms embargo. We are, in essence, transferring the prohibitions of ITAR section 126.1 in to the EAR with respect to “600 series” items. The proposed rule would also restrict the use of license exceptions to export or reexport “600 series” items to countries subject to a United States arms embargo.

E. License Exceptions for “600 series” items
For all other countries, License Exception LVS, TMP, RPL, and GOV would be generally available for “600 series” items. Other exceptions, such as APR, would not be. License Exception GOV would only be eligible for exports to one of the STA-36 countries for ultimate end use by a government of one of the 36 countries.

For “600 series” end items, however, STA is not automatically available. Applicants will need to request that it be made available for the type of end items at issue. If the Departments of Defense, State, and Commerce agree that such end items are eligible for export under STA, then BIS will publish the determination for others to rely upon.

“Specially designed” parts, components, accessories, and attachments would, however, automatically be eligible for export under STA for ultimate end use by a government of one of the STA-36 countries.

The ultimate government end use condition for the use of STA is proposed because its purpose is to facilitate interoperability among allies, not promote the commercial sale of inherently military items without U.S. Government advance knowledge and approval. From a national security perspective, we want to know who and for what purpose foreign commercial businesses are seeking to purchase munitions items.

F. Specially Designed
We have also proposed a single definition for the term “specially designed” to be used across both the EAR and the ITAR to create an objective standard for exporters and, just as importantly, prosecutors in determining whether a license is required. While touting the creation of a definition for “specially designed” may sound arcane to the casual export control observer, to those of you that live and breathe export controls on a daily basis, this definition will create a clear line for determining the eligibility of an item for export under a license or license exception. In other words, it is another example of a higher wall that we have erected to make our system more focused and enforceable.

I will answer questions about it during the open sessions I’ll conduct on Thursday on the proposed rule because, yes, it is complex upon first read, particularly because it is such a novel approach to the issue. I, however, want to summarize the purpose and structure of the proposed definition here.

As we described in December, a core element of the positive USML review exercise is to avoid using design-intent based control parameters for generic items. The Administration has nonetheless determined that it cannot completely eliminate “specially designed” as a control parameter. The term is commonly used in the multilateral export control regimes’ control lists upon which much of the CCL and USML are based. A basket category for controlling militarily less significant items “specially designed” for defense articles that move to the CCL is still necessary to achieve the larger national security objectives of the reform effort. Creating a positive list of the tens of thousands of such parts, components, accessories, and attachments that warrant some degree of control is not practicable.

Our goals for the single definition are that it:

1. Preclude multiple or overlapping controls of similar items within and across the two control lists;

2. Be capable of being easily understood and applied by exporters, regulators, prosecutors, and juries;

3. Be consistent with definitions used by the international export control regimes;

4. Not include any item specifically enumerated on either the USML or the CCL, and, in order to avoid a definitional loop, not use “specially designed” as a control criterion;

5. Be capable of excluding from control simple or multi-use parts such as springs, bolts, and rivets, and other types of items the U.S. Government determines do not warrant significant export controls;

6. Be applicable to both descriptions of end items that are “specially designed” to have particular characteristics and to parts and components that were “specially designed” for particular end items;

7. Be applicable to materials and software because they are “specially designed” to have a particular characteristic or for a particular type of end item;

8. Not increase controls on items controlled currently at lower levels; and

9. Not, merely as a result of the definition, cause historically EAR controlled items to become ITAR controlled.

A definition that we think meets all these goals is the one in the proposed regulation. BIS seeks public comments particularly on whether there would be any anticipated change in controls based on adoption of this definition. Through this proposed definition, if an item is “specially designed” today, it would continue to be “specially designed” after adoption of this definition. If it is not “specially designed” prior to adoption of the definition, it also should not, except in rare cases, become “specially designed” after adoption of this definition in a final rule. As a result, BIS strongly encourages the public to report any instances in which the proposed definition produces different results from the current definition. Such comments should describe the item and why the commenter believes that the item at issue is not now “specially designed” but would be as a result of the application of the new definition.

G. General Comments
When fully implemented, we believe that the vast majority of items on the Commerce Munitions List will be destined for the 36 countries eligible under License Exception STA, once again fulfilling Secretary Gates’ vision of facilitating exports to close allies and partners to address interoperability problems inherent in the current export control system – while still aggressively controlling such exports to other destinations, particularly the countries subject to U.S. arms embargoes.

In this regard, we are soliciting your help. My colleagues from the Department of State, with assistance from the Department of Defense, have been able to process munitions licenses in 17 days on average. When many of these items are moved to the more flexible Commerce Control List, we want to ensure that we do not create an unintended consequence of delaying the issuance of licenses based on BIS’s current average processing time of 31 days. We would appreciate the public’s input on how to ensure Commerce processes keep pace with the historical averages of the Department of State.

H. Next Steps
Our next step is to focus on rebuilding the USML categories that will have the most impact for exporters. In addition to our first test case, Category VII, we are looking at the naval vessel and aircraft categories, VI and VIII, to begin the process of populating the Commerce Munitions List. Rewriting Category XI-Military Electronics also will have a significant impact for exporters and is a priority.

Over the coming months, State and Commerce will publish complementary proposed Federal Register notices that identify what items are subject to which list. We will then notify our oversight committees on Capitol Hill and eventually publish final versions of rebuilt USML categories and newly populated “600 series” ECCNs to implement this approach.

IV. Other ECR Activities
Our principal advisory committee on export control reform, the President’s Export Council Subcommittee on Export Administration, is outlining its priorities for reform. Consistent with our view, completion of the USML-to-CCL process is expected to be its number one priority. Its other priorities also are expected to align with the Administration’s workplan for the remainder of 2011 and into 2012, including:

1. Issuance of a proposed single form applicable to the export control regulations of Commerce, State, and Treasury later this year. Of significance, this form will rely on common definitions of similar terms across the three sets of regulations to further harmonize the control lists.

2. Completion of the transition of Commerce and State onto the USXPORTS licensing platform, which will create new efficiencies for licensing officers and allow the Administration to start work on a more sophisticated industry portal for submission of export license applications. We also are working to upgrade our consolidated screening list of more than 24,000 related entities to provide additional user-friendly features and updates.

3. Completion of the effort to tier of the Commerce Control List.

V. Compliance Iceberg
Once the list work is moving toward completion, I can turn my attention to the effort of streamlining compliance burdens. I often use the analogy that the export control system is like an iceberg. Most people focus on the number of licenses the system requires. I agree that the imposition of unnecessary license requirements creates a drag on U.S. competitiveness, which is why the first part of the reform effort has been focused on licenses involving items and end-users that are affected most significantly, particularly with respect to trusted allies and partners and military parts and components. However, for those of you that work through our export control regulations, I understand the level of complexity and burden hours involved with classifying your products, knowing your customers, and understanding the multitude of licensing policies unique to specific products, end-users, and destinations.

The Export Control Reform “Iceberg” aptly describes the compliance burden that the export control system imposes on exporters. The “above the water” tip of the iceberg represents both the dual-use licenses that can be eliminated by the use of STA as well as the potential melting of the volume of the iceberg that could be achieved if generic parts and components were to be moved from State to Commerce and become exportable under STA. But like most icebergs, there remains the “below the waterline” compliance burden on industry based on complexity, outdated control lists, numerous and sometimes irrelevant license conditions, and divided controls across the various regulations of three agencies. We are committed to preventing the continued underwater growth and drifting of the iceberg by eliminating unnecessary requirements and providing you with the clarity and flexibility to make responsible compliance decisions. (The penguin is not drawn to scale.)

To put some dollar values to these burdens, our Office of Technology Evaluation recently conducted a survey of companies involved in the manufacture of satellites to assess the impact of export controls on their operations. While the compliance costs as a percentage of total foreign sales for primes and integrators were between 1-2%, the total costs to such companies were $60 million annually. Even more stark was the compliance cost burdens for parts and component manufacturers, who tend to be small- and medium-size companies that provide the innovation for the space industry. Approximately 8% of revenue from foreign sales goes toward export control compliance costs. That is a significant drag on the competitiveness of companies, and we must address it.

Later this year, BIS will be issuing a Federal Register notice soliciting public comments on efforts that can be taken to streamline and clarify the EAR. We also are reviewing the public comments we received earlier this year on making the CCL a more positive list. Our goal is that by the end of 2012, we will have a comprehensive proposal to simplify the EAR and start addressing the regulatory compliance burdens that drain tremendous corporate resources but are not visible to the casual observer – while still having a set of regulations that address the key national security, foreign policy, and other objectives of export controls.

VI. Conclusion

Fundamentally reforming the export control system is a time-consuming process. Even with the departure of Secretary Gates and impending departure of Secretary Locke, we have White House commitment to complete the job. We are committed to seeing the job through, too.

Our goal is to find that sweet spot between facilitating trade to trusted end users and ensuring that sensitive items do not find their ways into the hands of entities and nation states that seek to undermine our national security. It takes a collection of activities from all interested stakeholders – exporters, export counselors, licensing officers, enforcement agents, and prosecutors – to make our system effective. But its underlying foundation must be strong. That’s what the President’s export control reform initiative aims to do.

Our accomplishments to date, particularly with regard to the list reform structure, are significant. We must now make them consequential by putting them into force. Commerce’s encryption and STA regulations represent an important start. We must now finish the rewrite of the U.S. Munitions List and complete the tiering of the Commerce Control List to set the stage for final harmonization and work toward our ultimate vision of a single control list, within a streamlined regulatory construct, administered by a single licensing agency operating on a single information technology platform, and enforced by a single primary export enforcement coordination agency.

The control list changes are the key to reform in the short-term, and addressing unnecessary compliance burdens is the key to long-term fundamental reform. I hope you share my enthusiasm for our progress and vision.

I look forward to meeting with you during this conference and listening to your constructive suggestions. Thank you.


U.S. Department of Commerce
Bureau of Industry and Security

Update 2011 Conference

Remarks of
David W. Mills
Assistant Secretary for
Export Enforcement

July 20, 2011


Good afternoon, and thank you for coming today.  I always appreciate the chance to say a few words on compliance and enforcement to a group of industry practitioners, and especially so when there are so many colleagues and friends in the audience.  

We at BIS know you have a tough job as compliance managers, but your expertise and professionalism are invaluable not only to your companies, but are key to achieving our shared objective of an effective and efficient export control system.

As I mentioned at last year’s Update, I started my career here at the Bureau of Export Administration, BIS’s predecessor, in the early 1980’s.  That was a time of change and growth in export control regulation, but certainly nothing in comparison to what we are trying to achieve today. 

Now, the President is personally interested in our discipline, and it was that interest that really started the ball rolling on Export Control Reform.  Since my confirmation as Assistant Secretary, I have been particularly impressed by the energy and creativity of our team, led by Under Secretary Hirschhorn and Assistant Secretary Wolf, in driving some of the key elements of the reform effort, as well as by our dedicated BIS staff and the attorneys in our Chief Counsel’s Office.

Having observed the evolution of the export control system over the years, the challenge of changing attitudes and institutions that have evolved over decades is no small job.  But it is a job that needs to be done, and Export Enforcement is no exception.

You’ll notice that I used the word “discipline” to refer to export controls.  That is no accident.  What we do is based on certain clear and shared principles, which have been reinforced by precedent and practice.  Understanding that can help us to set priorities, improve our performance, and meet our goals without being a captive of what has gone before.

I have given much thought to this in the Enforcement dimension of BIS, and have motivated my staff to look at our processes in a new and original light. 

We place a great deal of emphasis on the quality of our work, but also on efficiency and level of service, and are continually reviewing the range of enforcement activities in our three offices - Export Enforcement, Enforcement Analysis, and Anti-boycott Compliance - with an eye toward eliminating inefficient processes and providing more visibility and predictability in executing our mandate.

We in the enforcement role in BIS also understand the need to reach out to industry practitioners in order to adjust our processes and initiatives to a quickly evolving international business environment.

Supporting our national security mission has always been the first priority, but how effective we are in executing this mission depends on our knowledge of how international commerce works, as well as on cooperation with U.S. exporters.

I am also a strong supporter of outreach and information aimed at small to medium sized business.  Export control requirements can be complicated and demanding.  While our Administration is making great efforts to simplify and streamline the process, understanding all the elements remains a challenge.

However, solid compliance should not need large, dedicated staffs and frequent recourse to costly outside counsel.

Striking the right balance between compliance, enforcement and the competitiveness of our exporting community is critical, and as a result, we seek to broaden a two-way dialogue on key control and enforcement issues.

One important area of our responsibilities in which we have made progress is the review of voluntary self-disclosures or VSD’s. VSD’s are a pivotal element of compliance.  We recognize that internal compliance procedures and processes can occasionally fail, even in well managed enterprises. 

This is especially true when business models are swiftly evolving in a highly competitive global environment.  As a result, we continue to afford great weight mitigation to VSD’s, as we have in the past, and most are resolved with warning letters or no action.

A review of lead times for VSD resolution showed that the review cycle for VSD’s was not only lengthy, but varied according to the OEE field office responsible for processing them.  In order to address this, we have centralized the review process for VSD’s in headquarters, which has resulted in more consistent and speedier resolution.

While the complexity of VSD’s vary considerably, the review times for the less egregious cases, which make up the great majority of them, have been reduced by half since this policy was introduced.

In the last fiscal year (that is, FY 10), 226 VSD’s were closed.  Of these, 19% were found not to involve any actual violation, and 67% resulted in warning letters only.  Only 6% resulted in administrative sanctions.   In the first three quarters of this fiscal year, we received 193 VSD’s; so the rate of disclosures is roughly the same.  

I think this demonstrates our commitment to granting substantial mitigation to VSD’s, in particular those that involve technical violations and where an effective control program is in place.

The Office of Anti-boycott Compliance plays a vital role in protecting American business from foreign boycotts.   U.S. firms may not participate in foreign economic boycotts that are counter to U.S. foreign policy; these typically involve the Arab League boycott of Israel.

OAC, like the rest of BIS, has been looking at its own procedures to find ways of improving speed and efficiency.  Under the EAR, U.S. companies are obliged to report any boycott-related language encountered in customer documentation to OAC.  These boycott report forms are now downloadable from the BIS website, but must be printed, filled in manually, and returned to OAC by mail.

In our effort to improve our processes, OAC has been working with the Office of the Chief Information Officer to include these reports as fillable reports on the BIS website.  When this project is complete, companies will be able to submit the required information electronically, saving significant time and resources.

In recent years, Enforcement at BIS has focused considerable effort on the on disruption of overseas procurement networks.  A major tool to do this has been the BIS Entity List.  As an example, the Mayrow and related investigations, which involved components for improvised explosive devices, resulted in the addition of over 190 new foreign entities to the list.

We maintain a high level of analytical and investigative effort focused on IED component procurement networks.  In fact, today we are adding two companies in Hong Kong and four companies in Lebanon to the Entity List based on evidence that they purchased electronic components from foreign subsidiaries of U.S. firms and then resold the components to persons in Iran and Iraq.  These same components were later found in Iraq in unexploded IED’s and related materials.

This is a dramatic example of how BIS’s enforcement effort can have a direct impact on the lives on our troops, and also shows the sophistication of our investigative work and how it can succeed in closing down illicit procurement networks overseas.

Use of the Entity List highlights our focus on the prevention of violations, and the public naming of individuals and entities that are involved in or pose a significant risk of engaging in illicit export activity.  This widely used proscribed parties list takes advantage of the automated name screening infrastructure that exists in banks, trading companies and manufacturing enterprises worldwide, which I’m sure you are all familiar with.

This approach can effectively shut down these networks, and prevents resellers and other parties in the Unites States and overseas from inadvertently doing business with them. 

However, for this to work, proscribed parties screening must be part of company due-diligence.  This means effective procedures that ensure that electronic or manual screening is executed at any point in the order management and delivery process where one of these parties may become involved in an export transaction.  It also means that a complete list must be used – including Entities, Denied Parties, and Specially Designated Nationals.

To make this easier, we have made a consolidated, up-to-date proscribed parties list available from a government source for the first time; it contains over 24,000 entities and can be downloaded from

In terms of penalties, we continue to support and apply the principles that were outlined in the Penalty Guidance issued by BIS in 2003.  However, we will be looking at ways to make the assignment of penalties more predictable, and will be considering different analytical approaches such as those found in the 2009 Guidelines of the Office of Foreign Assets Control.

We have prosecuted a number of precedent-setting cases recently, and I would like to mention a few this afternoon.

As Under Secretary Hirschhorn has noted, BIS will take a harder line when it comes to willful misconduct.  Historically, we have sought penalties more so against companies rather than individual employees.

Now, when a violation is a deliberate action of an individual, we are making an extra effort to determine whether it would be appropriate to seek penalties against the individual or against a supervisor who is complicit in deliberate violations by subordinates.

Since the Under Secretary announced this policy focus last year, we have directed our agents and analysts to factor in this approach as they track down and assemble information for both administrative and criminal cases.  We fully expect this policy to bear fruit in multiple cases in the near future, and we are already seeing results in a few situations.

For example, an important case that was settled last December involved the Chinese subsidiary of the U.S-based PPG Industries.  PPG pled guilty to actions that caused the illegal export, reexport and transshipment of high-performance coatings from the U.S. to the Chasma 2 Nuclear Power Plant in Pakistan via China, a shipment to an Entity List party that required a U.S. export license.

The case dramatized the critical role that parent companies play in monitoring the activities of their subsidiaries in dealing in U.S.-origin items that are subject to U.S. export controls.  The case’s $3.75 million in criminal and civil fines represent one of BIS’s larger monetary penalties.

This is a significant prosecution, but the story does not end there.   In this case, a regional sales manager for PPG conspired with others to bring about this unlawful export.  As a result, the sales manager was charged separately, required to receive compliance training, and made subject to a 15-year suspended denial order.  Earlier this month, Xun Wang, a former Managing Director of PPG Paints Trading (Shanghai) was also arrested in the same case.

These are clear examples of the policy of pursuing both the company and culpable individual employees.  Going forward, we will see more prosecutions and administrative sanctions along these lines.

Another significant recent case involved Anvik Technologies of Malaysia and Hong Kong.  Anvik used a worldwide network of “virtual offices” to procure items for ultimate shipment to Iran.  “Virtual Offices,” for those of you who have not heard the term, are organizations that provide a variety of services to clients which create the image or impression that an entity is operating from a particular facility when it fact it is somewhere else. 

In this case, one of the “virtual offices” was in Chicago, which provided the impression to U.S. vendors that they were shipping to a U.S. entity, when in fact the items would be forwarded outside the company, and ultimately to Iran.

This case demonstrates an important phenomenon in international trade: the development of a global order management, payment and delivery infrastructure that can easily be accessed and used for a very wide range of items. 

The problem is that it can be exploited by bad actors to divert items in violation of the law, as the Anvik case demonstrates.  We are looking at creative ways to attack this sort of illicit activity, including investigation of how responsible service providers may be for creating basic due diligence steps to prevent such abuse. 

The majority of our criminal investigations now involve Iran as the ultimate end-user.  While the United Arab Emirates was historically the point of diversion for many commodities, in recent years it has been eclipsed by Malaysia, Hong Kong and China.  Many of these cases involve aircraft components.

The Office of Export Enforcement has also aggressively pursued illicit procurement activities of other countries.  China is now the second most common country of end use in our criminal investigations, many of which involve electronic components diverted through Hong Kong.

As a result, the export of dual-use goods or technology for unauthorized use in China is one of OEE’s top priorities.   OEE has had a number of successful criminal and administrative cases related to items that could aid the Chinese military.

The most notable recent case involved the manager of a Massachusetts electronics company who was sentenced in January of this year to 36 months imprisonment for conspiring over a period of 10 years to export military electronics components and sensitive electronics used in military systems to the PRC. The Waltham, Mass., company she managed, Chitron Electonics, was fined $15.5 million stemming from their convictions last year. Several Chinese military entities were among those receiving the equipment.

A final case I would like to review briefly is that of the Balli Group, which I also mentioned at last year’s Update.  Balli is a British-based company that illegally transferred U.S.-made Boeing 747’s to Mahan Air of Iran.  BIS issued a Temporary Denial Order to stop the transfer of additional planes, and to ground those that were already there.  In February of 2010, Balli agreed to one of the largest civil penalties in the history of BIS- $15 million, with $2 million suspended. 

Even though BIS suspended $2 million of the penalty, and provided an installment schedule to make payment more practical, Balli violated the terms of the settlement and order by failing to make its payments in a timely fashion.  In response, BIS in June revoked the suspension, and demanded the remainder be paid immediately, which payment in its entirety was subsequently made.

This demonstrates that the United States has both the means and the willingness to enforce settlement agreements in administrative cases involving violators outside the United States, and to make sure that whatever fines are levied are paid, and paid on time.

Now I would like to turn to the wider issue of Export Control Reform, and how BIS’s export enforcement team participates in the process.  In November, President Obama signed an Executive Order creating a central element of reform as it applies to Export Enforcement, the Export Enforcement Coordination Center.

The EECC will be a permanent committee with dedicated staff intended to ensure that BIS, State, the FBI, the U.S. Immigration and Customs Service, and the intelligence community coordinate their activities. 

The EECC will enable U.S. agencies to better leverage their resources without duplicating or undermining each other’s efforts in the field, and will allow all relevant agencies to approach investigations as full partners.

OEE will more closely coordinate its investigative efforts via the EECC.  For example, when OEE initiates an investigation, it will send the names of suspects to the EECC for deconfliction.  The EECC will then identify any other law enforcement agency identified in the deconfliction process that is investigating the same suspects.  While many of these cases will be worked jointly, when this is not the case, agents will be put in touch with each other so investigations can be coordinated.

The EECC is still in the very early stages of organizational development.  A secure facility is being built in Northern Virginia to house the EECC, and individuals from participating agencies are being selected to staff it.   We are now working with participating agencies on standard operating procedures for the EECC.

While we fully support appropriate liberalization of licensing requirements, both U.S. exporters and customers and resellers outside the United States dealing with sensitive U.S.-origin products need to know that U.S. controls apply, and that U.S. enforcement authorities can and will make sure that the rules are followed, despite the fact that no export license may be needed for the initial transaction.

In our review of regulatory initiatives such as the new License Exception STA, we have kept this firmly in view.   The notification and certification requirement of STA, for example, not only guarantees that data on the control status of U.S.-origin items is passed along to resellers and customers, but that an auditable chain of custody is established. 

This helps all of us, as it not only makes enforcement easier and more transparent, but places compliant U.S. companies on a more equal footing with resellers and customers overseas, who may not be as diligent in complying with U.S. controls after the initial export transaction.

A word about outreach.  An important job of our 9 U.S. field offices and Export Control Officers in 6 overseas locations is outreach- providing information on compliance practice and enforcement issues to U.S. and overseas companies.  

Our offices regularly conduct outreach visits to companies and universities; last year we conducted over 800 such visits.  Of course, we also participate with BIS Export Administration and other agencies such as the FBI in outreach events such as this one for this very purpose.

To conclude, we in Export Enforcement are dedicated to our national security mission in this very challenging global environment.   We want to make it crystal clear to bad actors, whether they contemplate diverting U.S. products, getting access to controlled U.S. technology, or circumventing U.S. embargoes, that we can and will catch up with them, and impose penalties to the fullest extent of the law. 

With the support of our dedicated Agents in the field, our outstanding analysts in headquarters, and the quality legal support we receive from the Office of Chief Counsel, we will continue to strive to improve our work, and make President Obama’s goal of export control reform a reality.

While we have had many successes in the past, there is much work that needs to be done, and we need your help to do it. I look forward to working with you on this important mission.

Thank You.


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