Speaker Identification:
EH: Eric Hirschhorn  
MF: Michael Froman

EH:   Ladies and gentlemen, I hate to interrupt your dessert, but I’m going to anyway.  Thank you.  I often say, and I think many of you heard me say that export control reform would not have been possible without the right and indeed the perfect combination of leadership within the Departments of State, Defense and Commerce, and most importantly, the White House.  Although it took a team effort, and a massive one, to make reform a reality, without the wholehearted engagement of our next speaker, we would not be where we are today or anywhere near where we are today.  I have been involved in export controls for more than three decades, and I’ve been a part, before I returned to the government in 2010, of the exporting community’s repeated calls for systemic reform during that time, and we in the export control community implored the staffs of numerous presidents of both parties to take on, within the White House, a coordination role for an export control reform effort.  Other than Bob Gates, who took a stab at it more than 20 years ago when he was the Deputy National Security Advisor, our calls went unanswered, until Mike Froman took on the task of export control reform.  Ambassador Froman was sworn in as the seventeenth U.S. Trade Representative more than three years ago, but before that, he served as Assistant to the President and Deputy National Security Advisor for National Economic Affairs.  That role saw him active in such international issues as trade and finance, energy security, climate change, development, and democracy issues.  He was the U.S. Sherpa for G8 and G20 summits, and staffed the president for Asia-Pacific Economic Cooperation leadership meetings.  He chaired the Major Economies Forum on Energy and Climate, the Transatlantic Economic Council, the U.S.-India CEO Forum, and the U.S.-Brazil CEO Forum.  Despite all these other responsibilities and activities all across the globe, he agreed to the president’s request to oversee and coordinate the export control reform project.  
Export control reform required input from industry, interagency cooperation, and dedicated leadership from many different parts of the government, but it also required Ambassador Froman doing everything needed to keep this worthy project moving and headed in the right direction.  There’s no way we could have succeeded without him.  Please welcome Ambassador Michael Froman.
[Applause]
MF:  Well, thanks very much, Eric.  It’s a very, very kind introduction.  As you all know, nobody has spent more time and energy in the public sector and the private sector, working on our export control system, than Eric, and we owe you a huge debt of gratitude.  I’ve personally thought I managed to escape the world of export controls when I became a U.S. Trade Representative, and I was delighted when Eric asked me to come back to this conference.  You know, the only thing I would correct in his introduction, he said I agreed to the president’s request that I take on this assignment.  That’s not exactly how I remember the conversation going.  Anybody who has worked at the White House understands presidents’ requests are otherwise known as “orders” and so I was delighted to be involved in this, and I guess I’m here because I was present at the creation of this round of export control reform, as Eric suggested.  As many of you know, this really started back in 2009, at a cabinet retreat, when President Obama asked the cabinet to each identify one particular initiative that each one thought we should be focused on, and Secretary of Defense Gates brought up export control reform, which the president had not been aware of before, I think many of the other cabinet members had not been aware of, but following that, he directed the Secretary of Defense and State and Commerce and the National Security Advisor to launch this effort of fundamental reform of the system, and he wanted us to make sure we made it responsive to the needs and realities of the 21st century economy and national security situation, that we worked both to enhance our national security and our economic security, and he very much wanted to make sure we made the new rules easier for industry to understand and comply with than the old ones, and that we could make enforcement even more effective.  In fact, I think it was… it may have been Ellen Tauscher, or it may have been Bob Gates who coined this phrase, that when it came to the enforcement of export control reform, it’s like looking for a needle in a haystack, and that the first thing you need to do is shrink the haystack, and that’s what the export control reform effort was all about.  Little did I know then how involved it would actually be.  
This is not an issue that comes up in political campaign debates.  It doesn’t get a lot of press attention.  There are probably hundreds of Americans who are not familiar with the issue of export control reform, but it is as important to our national security and our economic security as it is obscure, and there have been previous efforts to reform it.  Dan Poneman, former Deputy Secretary of Energy, reminds me that he and I were involved in an earlier effort to reform the system in the 1990s, but those efforts produced only partial results, and this time the team stayed on to get the whole job done, and we succeeded, I think, for a couple of reasons.  One, because the president gave us a very clear picture of what he wanted us to achieve, and that gave the mandate to do a lot of very hard if unheralded work in the detailed writing, rewriting of regulations and procedures, and it succeeded very importantly because we got input from a broad range of stakeholders, including the industries most affected by the export control regulations.  It was a very complex task.  It took seven years to complete.  It involved hundreds of thousands of military and satellite-related items, hundreds of pages of regulations, and billions of dollars in export sales, and the end result was a top-to-bottom revision of the controls on military and satellite-related items on the munitions list.
Before we took this on, no two export licensing agencies were on the same IT system.  They were oblivious to one another’s licensing decisions.  Now, there’s one online system, U.S. Exports, maintained by the Department of Defense and used by the State and Commerce Departments, and it allows all the bureaus within those departments that have a hand in export licensing to communicate and coordinate their work, and this was a badly needed improvement that will measurably speed up licensing decisions.  We determined from the beginning of this process that the process should be fully transparent, and we published every regulation in its proposed form and actively sought input from the public and from stakeholders, and the comments we received were incredibly useful to the rules that were ultimately finalized and were much better because of them.  
One crucial aspect of the reform is that we embedded in the export control system itself a process for the regular revision and renewal of the regulations.  Under the old system, the control lists rarely changed.  Most remained static for decades and couldn’t easily be updated for changes in technology or for different national security threats, and that made interoperability with our allies unnecessarily cumbersome.  We saw the consequences of that in Afghanistan a few years ago, when a U.S. ally’s F-16 was grounded for the lack of a spare part, and two other allies had the part right there but couldn’t give it to our ally because they needed a license from Washington.  The new rules are designed to prevent that from recurring by prioritizing our controls to focus on the significant, on sensitive items, and letting less significant items go to our allies without a license, and under the revised system, U.S. companies should be less concerned about non-U.S. companies deliberately designing out U.S. content, avoiding U.S. origin services, with respect to less sensitive items, or marketing their products as ITAR free.  This translates, of course, into more well-paying jobs back here in the United States.  
The roughly $200 billion in annual shipments of listed items subject to the Export Administration Regulations involve more than 300,000 exporters and support thousands of American jobs, and in that spirit, since I have a captive audience of exporters, let me talk for a few moments, and I know you won’t be surprised, about the Obama Administration’s trade policies writ large and specifically about the Trans-Pacific Partnership.  We pursue these policies to promote growth, create jobs here at home, and strengthen our middle class, and to do all that, we need to open markets around the world so we can increase our export of goods and services, level the playing field with our trading partners so that our workers can compete and win, and we also work to ensure that the rights and trade rules we fought so hard to negotiate are fully implemented and enforced.  
TPP will connect 12 Asia-Pacific economies representing 40% of the global economy.  It represents the highest standard of trade agreement in history, and those standards are fully enforceable, whether they’re intellectual property rights or labor and environmental standards or other commercial issues, and it reinforces the leadership role that the U.S. plays not only in this region but in the global economic system more generally.  It eliminates 18,000 taxes on American exports to some of the world’s fastest and largest growing economies in the world, and it’s the first trade agreement to require state-owned companies abroad to play by the same rules as private firms.  It’s the first trade agreement to take on the issues of the digital economy, make sure that there’s the free flow of data across borders, that companies are not required to build their servers in each market in order to serve that market, and to make sure that the internet stays open and free, which is so important, not just to internet companies but to any manufacturing or service company that relies on the free flow of information across borders.  As you know, the president very much wants Congress to act on TPP this year, and we’re doing everything we can across the administration, whole of government, whole of White House, to maximize the likelihood of that happening.  
I can’t overemphasize what’s at stake.  If Congress fails to act, the United States will be effectively frozen out of the Asia-Pacific region economically and strategically, and while our allies there wait to see whether TPP is going to move forward and how quickly, China is moving ahead aggressively with its own agreement, the Regional Comprehensive Economic Partnership, or RCEP, which covers 16 countries, ranging from India to Japan, and unlike TPP, it doesn’t have binding and enforceable labor and environmental provisions.  It doesn’t provide for the free flow of data across borders.  It doesn’t put disciplines on state-owned companies so that they have to play on the same playing field fairly with private firms.  That’s what’s at stake.  If we don’t move and others move ahead without us, as they are already indicating they are going to do, we’re going to find ourselves not only missing the opportunity of growth in these markets, but we’re going to find our current market share in these markets going down, and that hurts our jobs and firms back here at home.  If the U.S. walks away from TPP, it will leave a void that China is all too happy to fill, so it can pursue its values and interests throughout the region, and these are values and interests that are markedly different from our own.  If we walk away from TPP, our credibility will be damaged, not only in the Asia-Pacific, but more generally around the world.  Our allies will wonder if we can be counted on to follow through on our commitments, and not just our trade commitments, but on the whole range of bilateral and multilevel initiatives we’re working on around the world.  As Singapore’s Prime Minister Lee put it, “if you’re not prepared to deal when it comes to cars and services and agriculture, can we depend on you when it comes to security and military arrangements?”  So the stakes are high, the choice is clear, and as exporters, it’s important that your voices be heard in this debate as well.  
Thanks again for letting me come.  Congratulations to Eric, to Kevin Wolf, to Brian Nilsson, to the whole interagency team that have invested so much over the last seven years in getting this project done.  Congratulations to the exporters who have a reformed system to deal with, and again, thank you for all your support throughout this process.
[Applause]

Speaker Identification:
KN: Karen H. Nies-Vogel
AG: Ann Ganzer
MB: Matt Borman
BN: Brian Nilsson
ML: Michael Laychak
JS: John Smith
 
KN:  So our first session today is an interagency panel, and I have the pleasure of introducing all the participants.  First, we have Matt Borman, who is Deputy Assistant Secretary for Export Administration at BIS; we have Brian Nilsson, who is the Deputy Assistant Secretary for Defense Trade Controls at the Department of State; Michael Laychak, who is the Deputy Director of the Defense Trade Security Administration at the Department of Defense; John Smith, who is the acting Director of the Office of Foreign Assets Control at the Department of the Treasury; and Ann Ganzer, who is the Director of the Office of Conventional Arms Threat Reduction at the Department of State.  Thank you very much, and enjoy.  

AG:  Good morning.  It’s an honor to be here today.  I’m always glad to come to Update and see so many familiar faces.  It seems like there’s so many of you I only see when I come to events like this, so it’s good to see you.  I thank Under Secretary Hirschhorn for hosting this event and for inviting me to participate.  Let me start by reiterating what President Barack Obama said in Prague in 2009, when he gave that first major foreign policy speech of his presidency.  Hard to believe it was already eight years ago.  In his remarks, the president stated, clearly and with conviction, America’s commitment to seek the peace and security of a world without nuclear weapons.  For the duration of his administration, he has held firm to this promise to work toward a world free of nuclear weapons.  Underscoring this commitment is a clear understanding of the devastating impact of these weapons and our moral responsibility to act to eliminate them, but the president was also realistic when he said that a world free of nuclear weapons is a marathon effort, not a sprint.  Achieving this goal, he said, would likely take this generation and perhaps the next.  
In the United States, combating proliferation has long been a bipartisan priority, and it has been one of the president’s top priorities since day one.  He has invested an enormous amount of time and energy in addressing the threats we face from nuclear weapons.  At the State Department, the Bureau of International Security and Nonproliferation, where I work, is at the forefront of implementing the president’s nonproliferation policy.  Our overriding goal: to prevent the spread of weapons of mass destruction and their means of delivery as well as the spread of advanced conventional weapons.  This is a challenging goal, and as many of you know, the bad guys – those who assist in the proliferation of weapons of mass destruction and who are engaged in arms smuggling – are constantly looking to take advantage of weaknesses and gaps in our international net.  So you know that we have to work creatively to stay ahead of them, and technology advances so quickly that we are constantly working to make sure that our strengths offset our weaknesses.
Fortunately, we have many tools to help us achieve this.  We help our partners build comprehensive strategic trade control systems.  We negotiate – and then help implement – international treaties and agreements that advance our shared interests.  We interdict the weapons flowing to terrorist groups.  We implement sanctions.  We support and push for action by the four international nonproliferation export control regimes: the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, the Missile Technology Control Regime, the Nuclear Suppliers Group, and the Australia Group.  ISN, my bureau, leads the U.S. delegations, which include many of our interagency colleagues here, and our work with them is what I want to update you on today.  
Continuously working with likeminded countries to maintain effective export controls is one of the best ways to fight proliferation.  The bilateral and multilateral diplomacy involved in these efforts is one of the highest priorities we have at the Department of State.  As you know, the regime members use harmonized control lists and share information to frustrate proliferators’ efforts to obtain weapons of mass destruction, missiles and conventional arms and related equipment and technology.  We routinely communicate information to regime members about the status of programs of concern, procurement networks, and the type of items sought by proliferators and foreign supply chains.  Sound export decisions by supplier countries, transshipment companies and the like deny would-be proliferators access to the world’s best sources of technology.  They are forced to resort to elaborate and often covert procurement methods that slow their pace, drive up their costs, and reduce the quality of their acquisitions.  This is why one of the core principles of the president’s Export Control Reform Initiative, which Kevin and I think Eric and others spoke on yesterday, is to honor our commitments to the nonproliferation regimes.  Multilateral standards for export controls support the effectiveness of our own measures here at home.  Proliferation of weapons of mass destruction, missiles, conventional arms and related components and technology is an international problem and therefore requires an international solution.  We alone cannot keep weapons and technologies away from those who would do us harm, and multilateral controls also help level the playing field for U.S. suppliers of strategic good and technologies.  It’s not just you.  It’s not just U.S. industry that has to go through these types of regulations.  Our allies do as well.  Our work with regime partners is a dynamic process that includes discussions of the latest technology advances and changing proliferation trends.  We use these conversations as a framework to refine regime guidelines and their corresponding control lists with the overarching objective of countering proliferation in all of its constantly changing forms.  
Now, just a quick overview of what’s been happening in the regimes since I last spoke to you all last year.  The Wassenaar Arrangement currently has 41 participating countries.  Its purpose is to promote transparency and greater responsibility in international transfers of conventional arms and related dual-use goods and technologies and its control lists underpin our dual-use control system here.  This year, the Wassenaar Arrangement is conducting an assessment, and it does this every four or five years, of its processes and effectiveness, increasing its focus on terrorist access to small arms and balancing the broader benefits of emerging technologies with the potential security risks.  There were 51 proposals for changes to the Wassenaar Control lists agreed by the experts group this year.  They will be sent to the plenary for approval in December.  
The Missile Technology Control Regime seeks to prevent the proliferation of unmanned delivery systems capable of delivering weapons of mass destruction as well as related technology.  The annual MTCR plenary was just held last month in Busan, South Korea.  Some of the key developments from this meeting include the adoption of several changes to the MTCR annex, such as the addition of controls on ultra high temperature ceramic composite materials, aerothermodynamic test facilities (such as arc jet facilities and plasma wind tunnels), and gel propellants, as well as propellant tanks, combustion chambers and nozzles for gel propellants.  Other changes to the MTCR annex were to clarify controls on re-entry vehicles, flow-forming machines, inertial measurement equipment, and software necessary to convert a manned aircraft to an unmanned aerial vehicle.  Finally, the MTCR partners formally welcomed the regime’s newest member, India, which joined the regime this summer.  
Then the Nuclear Suppliers Group.  The NSG, Nuclear Suppliers Group, develops and implements guidelines for the control of nuclear and related dual-use exports.  The Nuclear Suppliers Group consists of most of the largest suppliers of nuclear and related dual-use technology equipment and material.  This year, the Nuclear Suppliers Group discussed the Indian and Pakistani request to open a dialogue on their potential membership in the regime, considered changes to the Procedural Arrangement on outreach, and clarifications on software controls in the Part 1 Guidelines and revisions to the Part 2 Guidelines.  At their plenary meeting in Seoul this summer, they also adopted six new technical changes to the Part 1 and Part 2 lists.  
The Australia Group, next, seeks to harmonize export controls to prevent the proliferation of chemical and biological weapons.  The 2016 Australia Group plenary was held in Paris.  Members agreed to intensify the group’s focus on emerging technologies that can be used for chemical and biological weapons and on impeding chemical and biological terrorism.  Members agreed to continue sharing approaches to challenges posed by intangible technology transfers, proliferators’ procurement of unlisted items, proliferation financing, online procurement, and transshipment.  Members also pledged to continue expanding their outreach to non-member countries in relevant international fora as well as industry and academia to highlight the threat posed by state and non-state actors seeking to acquire the ability to develop chemical and biological weapons.  

The four regimes have been very active, and I anticipate that this pace will not let up in the coming months or even years.  As we all know, we’re in an election year, and it’s a time of uncertainty for many of us.  We won’t know what the future brings until we know who’s at the helm of the next administration, but regardless of the outcome, our teams at the State Department and across the interagency will continue full steam ahead on our nonproliferation priorities and our commitments to our international partners.  Despite much progress made to date, now is not the time for complacency.  We have many challenges ahead, and our commitment to weapons of mass destruction nonproliferation proves that when we hold firm, we can make this world a safer place.  
In this fight, I am thankful to share the trenches with all of you.  Compliance with export controls may seem like a headache at times, and as my colleagues are going to talk about some of the details of it, it can be tricky, but you are our first line of defense.  I cannot state that more emphatically.  We need your vigilance in identifying and stopping suspicious transactions.  Every time that you identify an end user who isn’t who he says he is, you make our job easier.  You stop a bad actor.  If you identify a shipment route that doesn’t make sense, payment terms that set off alarm bells, all of these things make an important contribution to our national and international security.  We want to build and maintain a stronger relationship with industry leaders like you and to raise awareness of our objectives, to help identify suspicious procurements and assist in developing effective internal compliance practices that incorporate checks on end users and end uses of concern.  We are all in this together, and incrementally and together, we are making a difference, so I thank you for all the work you do all year to comply with export control requirements that are not always the easiest to deal with, and I also thank you for your time and attention today.  
[Applause]
MB:  So as I think… can you hear me?  Is the microphone on?
Multiple Speakers:  No.
MB:  All right.  Thank you.  So as I think probably most of you know, virtually all of the entries on the Commerce Control List and the United States Munitions List implement multilateral commitments the U.S. has made to control the export of the items covered by those categories, so Ann, of course, I like to have her start off because she gives us the overview of the architecture for the system that we implement domestically.  Next, Brian will come up and give us an overview of defense trade controls, and then we’ll have Mike follow that.  
BN:  Great.  Well, good morning, everybody.  It’s good to see everybody again on day two.  It’s nice just… Ann was saying it’s always good to see folks in the exporting communities and because I don’t see you, a lot of you during the course of the year, but it’s a good opportunity to see you now, so… and thanks to Commerce for hosting it, as always, and inviting us to participate, so I think the fact that you have all of these agencies together up here as sort of a… is illustrative of all the work that we’ve been doing over the last seven years in really working together as a community to improve how we administer our export control systems, and you know, obviously it’s a work in progress.  I think some of the speakers yesterday had mentioned, we really have taken what is the export control reform initiative and really turned it into a process, where we’re always going to be continually making improvements and changes in how we administer the system to make it easier for you to comply, easier for us to administer and enforce, with the ultimate goals of having an improvement of our national security and foreign policy objectives, so I’d… do we… you do have slides and I see them now.  Let’s see if I can figure out how to advance them.  That’s always the trick here.  Let’s see.  Here we go.
The State Department system for administering our munitions export controls is based on the Arms Export Control Act which I think all of you are aware of, that provides us a statutory underpinning for how we administer the munitions controls.  We actually, as part of export control reform, the president issued revised delegated authorities in 2013 under Executive Order 13637 that helped us update how we administer the system, how Commerce administers its system, and actually also how ATF administers the munitions import controls, as part of the larger effort in making improvements to how we administer the overall system.  The statute, this actually provides a very broad authority, basically for us, for when we consider license applications, we’re looking at the furtherance of world peace or national security and foreign policy interests of the United States, which is very broad guidance.  We have, as you all know, our implementing regulations, or the ITAR.  That is, you know, with the authority delegated to the department, or to the Secretary of State, for us administering the system, it’s further delegated within the State Department to certain functions, either to the Under Secretaries, now currently the acting Under Secretary is Tom Countryman, down to our Assistant Secretaries, currently acting, Tina Kaidanow, and then to the Directorate, myself, in the DDTC, so . . . but we need further guidance, and I think we have, in order to administer the system, and so that brings you to my ability to do the clicker.  There we go.  
The Conventional Arms Transfer Policy.  This actually provides us much more policy guidance.  It’s sort of the in-between space between our legal authority and our regulations.  The Conventional Arms Transfer Policy is something that has been…that each administration has, and we use.  I mean, it had not last been updated since 1995, when President Clinton had issued guidance, and so that provides us with overarching guidance on the goals and criteria that were used in screening license applications.  It is used both for foreign military sales, which is administered by the original Security and Arms Transfer Office within the Bureau of Political and Military Affairs, which is the sister office to us, as well as direct commercial sales. And so for those of you who are coming in for export licenses, the president updated this policy.  It was issued in 2014.  It’s the first time we’ve actually released the policy publically, and so if that provides better granularity for all of you in industry, provides better granularity for our partners and allies as to what the criteria are and the goals are for our… for administering our system.  
Now, Commerce, as you all are well aware, Commerce has further guidance in the form of an Executive Order 12981 that provides more detailed procedures for how the Commerce-administered systems operate, you know, who coordinates and staffs cases and includes a dispute resolution process.  We don’t actually operate under a comparable directive.  We are subject to a similar document from… it’s the National Security Presidential Directive 56, which President Bush issued in January of 2008, but does not provide us sort of a tick-tock of the procedures that we have in processing them or considering license applications.  It merely states that we are required to issue a decision within 60 days.  
So I know you’re not going to be able to actually see this nice little chart, but I think that it’s illustrative of what you would have seen… you would see as part of the Commerce process, and in that we have an administrative process when licenses come into the system, and we do an initial review in one our licensing divisions to determine the adequacy of the application and then look at, based on what it is, the item, and then where it’s proposed to be going is what determines how we staff it.  We staff our cases… for the most part, we staff roughly, basically all of our cases out to the Defense Department, to DTSA, to Mike Laychak’s group, which then coordinates it within DOD.  We also staff it out pretty widely within the State Department, so that’s also a little bit different from the way the Commerce process works, where Commerce is not staffing cases in other bureaus within the Commerce Department.  It certainly can and does consult on occasion with NIST and others but for us, we staff cases to the Democracy, Human Rights and Labor Bureau for human rights review.  We staff it to the regional offices.  We can staff it to some of the other functional bureaus, depending on what it is, including the cyber office.  We could even consult with ISN, so we have a very broad internal process that our licenses go through.  
Depending on how the outcome of that review goes, I mean, we are required to have, you know, basically a… we generally work toward consensus.  We don’t have a dispute resolution process as Commerce has, per the executive order, and so we actually work toward, as best we can, and driving through to consensus.  If we don’t reach consensus, we eventually will do a split recommendation and we will set it up internally within the State Department.  Now, this is something that you’re not seeing and not aware of.  You may know, you probably will know much more granularity if you have a license application at Commerce that’s in the dispute resolution process, you’re going to know that.  You’re going to know if it’s going to the Operating Committee.  You’re going to know if it’s going to the ACEP.  For us,  it’s not quite the same process, and so given the types of issues that we’re looking at, and the reasons for the disputes, you may not always know why a case is on hold, or that it’s going through the dispute resolution process, but it’s not uncommon.  
I will tell you that right now, we have two cases that are sitting with the Deputy Secretary for his consideration.  I shouldn’t say they’re sitting with him.  They are with him for his consideration, and the issues, you know, on one of the cases, it’s an issue where we and DRL, the Democracy, Human Rights and Labor Bureaus are in agreement on what the outcome should be, and then we have a regional office that disagrees and so that’s ultimately gone up to the Deputy Secretary for a decision.  The other one that we have right now, it’s kind of interesting.  We have most of the bureaus within the department in agreement that the license should be denied, and that would include us, it includes DRL, includes the regional bureau, but the dissenting vote or the dissenting bureau is the Diplomatic Security Bureau and also their embassy in the country, and so we actually have put that one up to the Deputy Secretary as well.  So it’s not uncommon, it doesn’t happen every day, but it gives you a little bit of a flavor for the type of work that we do and the type of coordination that happens internally, again looking at the criteria that are outlined in the Conventional Arms Transfer Policy as to how we sort of drive toward decision, and then once we’ve done that, if the case crosses the statutory congressional notification threshold, that starts a whole other process which again, I realize, is not the most… not the most transparent process in the world, but it is clearly mapped out in the statute for those cases that require notification.  We have a… the congressional notification process, there’s a… you’re probably familiar with it, that it’s part of the reforms that we put in place in the early days at ECR.  It used to be somewhat of an unbounded process where we would do an informal notification and wait, and then eventually when we had consensus, concurrence in the applications from our congressional colleagues, we would then do the statutory notification, whether it be the 15 days for certain countries or 30 days for other countries, and so we now have an agreed process that was developed in the early days of ECR, where we do basically a three-tier informal process with, depending on which country it is as to how many days it gets anyway, anywhere from 20 to 40 days for an informal notification to Congress, after which we then do the statutory notification again, 15 days or 30 days., And so again, that takes time that contributes to our ability to get the licenses out, and then ultimately we then issue the licenses.  This past year we did roughly 45,000 licenses, and so only about 150 of those had to go through the congressional notification process, but depending on current events, that all has an influence on the subset of cases and how we’re able to move them.  
This is just some of the agencies.  It just gives you again, it’s a little bit of the flavor for how we staff cases out.  We also will… we will refer to other agencies, depending on what the issue is.  We sometimes will reach out to DHS, sometimes to NASA.  We also in some cases will be part of looking at an issue for a Commerce license, if it comes through ISN, comes through Ann or Pam Durham’s office and comes to RSAT.  There are times that it comes to us as well.  We are also in the process of improving our interagency review process for how we look at certain ATF permanent import license applications, which is again something that we’d been working on that’s part of ECR to make process improvements. I already mentioned that for the cases that we have with our licensing volume dropping almost in half, we generally staff everything out, with the idea being that, you know, we are supposed to be the higher wall around the smaller yard, and so we are left with the most sensitive items.  
That’s reflected in our licensing processing times.  Our average processing times are now up to 28 days.  Again, under NSPD 56, we’re supposed to do them within 60 days.  Pre-ECR, the last full year before ECR started, we were down to an average processing time of 16 days, but I think that’s flavored in large part by a lot of the easier cases, the sort of the nuts and bolts and screws and parts and components, that type of thing, that we largely moved off of the munitions list.  And so by design, we anticipated that we would end up spending more time on cases as warranted based on their complexity., So those are some of the issues that we grapple with.  I think that, you know, I mentioned that we have two cases right now that are pending with the Deputy Secretary.   When we’re vetting license applications, there’s a lot of considerations… I mean, I think Tony Dearth often says it best,  you know, you have to do the Washington Post test.  If you’re reading the news and seeing what’s going on, that’s your flavor, what’s going on and what you can anticipate for your license applications. So as you may have seen, a good case and study is just yesterday, Senator Cardin’s office spoke with Reuters, this Reuters article that came out late yesterday, basically saying that the senator, who was on our oversight committee and is SFRC and reviews congressional notifications, it indicated that he was opposed to the State Department’s consideration of a license application for 26,000 rifles going to the Philippines.  And I can’t either affirm or deny that I have a license application for 26,000 rifles going to the Philippines, under (c) and the AECA, but I can tell you that his timing is actually helpful for purposes of again using an example today because it does give you a flavor for sort of what’s going on in the world.  I mean, if you’re watching the news and you’re seeing what President Duterte is saying and doing in the Philippines, I think that’s flavored why the senator is saying what he’s saying.  It also gives us reason to carefully look at certain license applications, given what’s happening in the Philippines.  I mean, since Duterte has come to office, you know, he’s taken actions,  there are human rights concerns with regard to how he’s, you know, doing extrajudicial killings.  It’s said that they’ve killed roughly 2600 people thus far, and so, I mean, for those of you who may have licenses for certain categories in the USML pending with us, you can expect that that will flavor what we’re doing as we’re looking at that, and so there are times that we may not be able to give you, you know, specific guidance on exactly why an issue is pending, but I think that that is a good example of, you know, current events that you should anticipate would flavor the process, but it is public in that regard in that you’ll know that there’s something going on with the Philippines based on what you’re seeing.  
We also try to do the best we can in giving you public guidance with regard to updating the regulations.  I mean, we have just put out a new rule, updating 126.1 of the ITAR back at the end of September, where we’re updating what countries are subject to partial or total arms embargoes and providing new guidance.  I mean, Vietnam is probably the best example.  You know, we have incrementally been changing our licensing policy for Vietnam as our overall relations with Vietnam has improved and so I think that’s reflected in our licensing policies.  There’s also a nonpublic process in which we engage on a regular basis where, I mean, we’re actually required by statute to notify Congress if we become aware of an unauthorized transfer for something subject to our jurisdiction or something subject to the AECA, so that could be an FMS case or a DDTC case.  We’re also required to inform Congress promptly if an item that was authorized for export has been used in substantial violation of the terms of the authorization.  So none of that is a public process, and that results in us having robust engagement with the government, with those involved in the allegations, and that’s something that’s not just handled by DDTC.  In many instances, there are instances where the alleged violations or unauthorized retransfer may have been an FMS case and so that’s a different part of the Defense Department.  That’s a different part of the PM bureau or RSAT office, but we’re the ones that do the coordination as far as doing the initial review, and so that also involves not only us and DSCA, it also involves DTSA, when we go to them for a national security assessment, for what the impact of these violations may be or the re-transfers.  It also involves us working with the regional offices within the State Department because they generally take the lead for our foreign policy engagements with those governments, and so that could result in holds, temporary soft holds on certain commodities that we have in the system, I mean, for licenses in the system, as we’re working through this.  Unfortunately, a lot of this is not something that we would be able to tell you, and so I think that it will give you a little bit of a… it gives you a little bit of a flavor for why we have what we have and why certain cases are on hold for a policy review, just to give you a little bit of an example.  And for licensing decisions, I mean, generally we will do the best we can to tell you why we’ve denied a license but in some instances we may not be able to tell you this, the fact that what I’ve just mentioned as far as if we have information of an unauthorized transfer or information about violation of the terms of use that we’ve authorized that may actually influence whether or not we’re going to be able to approve your license, and because of the nature of the occurrence, we may not be able to necessarily tell you.  
You do have the right to come in for appeal.  I mean, that’s not… it doesn’t happen very often, but you know, but you do have the right to do that, just as you do under the Commerce system.  The reason we don’t see very many is that in some instances, because we’re not able to tell you the reason why exactly that we’ve denied it, which limits your ability to come in for an appeal, but if you are coming in for an appeal, we also would… we require that you would have to give us new information, something that we didn’t know or consider as far as part of the original licensing decision and so we would need you to do that but it’s certainly something that we do consider when we receive them, so that gives you a bit of a flavor for how it works with us and gives you hopefully a little more insight on sort of how the internal mechanics work for us, given that it’s not as obvious and not as mapped out as you’re probably used to under the Commerce system, but just wanted you to know that cases are actively considered and there is a robust interagency dialogue with regard to all of our license applications, and then there’s a robust internal State consideration of all license applications and some of them have to go up to very senior leadership for decisions so with that, I will close and I’ll turn it back to Matt, so thank you very much.  
MB:  Good.  Thank you, Brian.
[Applause]
MB:  We’ll now hear from Mike Laychak.  As probably most of you know, the Defense Technology Security Administration is not a regulatory body, they don’t issue licenses, but they’re certainly a central player in the operation of the Commerce export control system as well as the State export control system, both in terms of making recommendations on the license applications but also in terms of what should be controlled and how it should be controlled and they were really a critical player in revising all of the U.S. Munitions List categories as part of Export Control Reform.  Mike’s team did just a tremendous job on that.  So Mike?
ML:  Thank you, Matt, and thank you, again, as the others have said, for inviting me to participate.  I find this conference to be invaluable because not only do I see the usual veterans of the export control issues and the export control wars but also there’s a new crop of individuals who are just getting started in the process, and it’s an opportunity for us, quite honestly, in this forum, to kind of pull the veil back and the curtain back and allow you to see some of the processes to hopefully let you better understand why on earth did the government do what they did, so hopefully I’ll give you a little bit of sense of how the Department of Defense looks at the problem and looks at the issues with regard to export control so that we can get a better idea again of why we do or why the position comes across the way we do.  
This is our mission, the DTSA mission, and quite honestly, you will see it prominently is ringed with regard to national security.  As Brian noted, when there’s a national security review necessary with regard to export transfers, the Department of Defense, and more specifically, my organization, the Defense Technology Security Administration, provides that position back not only to State but also to Commerce, and one of the things that we have within our organization, quite honestly, that’s an invaluable asset, is in a cadre of technical expertise and also policy expertise, but specifically with regard to the technology itself, we have about 50 engineers and scientists who work in the organization, lots of them with advanced degrees, PhDs.  They’ve often come from parts within the department, the services, research institutes, and they provide a tremendous asset to us with regard to the reviews we do on both the dual use and the State side.  I will note as well that we are unique in the interagency in that we do a vast number of both dual use and State Department licenses.  
This gives you a sense of the breadth of the organizations within the department that we touch.  We’re talking regional bureaus from a policy perspective, the services, the expertise across the organization, across the department, we tap into that depending on the circumstances of the license and how it may impact the warfighter.  Again pointing back to our mission statement and the vision, we must ensure that what we have with regard to the technical capabilities of our warfighters is superior, is the best.  It was ironic.  I was talking yesterday with Mary O’Brien, who used to work in the Department of Commerce, but she reminded me of a story back in the early days of the Iraq… back in the ‘90s, 1990s, the early days of the Iraq’s War, she brought to us, they had seized a case of, you know, tiny impellers, and the note on it, or the end use statement on it was for refrigerator parts, and she looked at it and something triggered in her a, you know, “I’ve got to look at this or ask” so she was trying to figure out whether or not there was any military significance or any type of significance, so she sent it to us, and sure enough, we reached out to the Army and other services, and it came back and they said, because we couldn’t find anything associated with this type of a part with a refrigerator unit, so we started, you know, the wheels started turning, engineers doing what engineers do.  They start talking to each other.  Well, it turns out that that impeller actually was identical to a part of a guidance on a missileor  something on a bomb, so we were able to tap into the expertise in the reviewing agencies that are noted up here, in really getting down to the nitty-gritty with regard to what the significance of that particular item was, and that’s what we do over and over again with each, depending on the circumstance of the case.  If there’s some issue that arises, we’re able to tap into this huge cadre within the department to enable us to identify any issues of concern, or from the other perspective as well, confirm either the application, the end use, or the risk, so it’s very helpful to have such a vast array of expertise available.  
With that mission in mind, we really have tried to support a balanced approach.  It reminds me of the speech that Secretary Gates gave at the beginning of ECR.  We, the United States, and the Department of Defense specifically, are not going to fight or confront enemies alone.  We’re going to work with our partners, we’re going to work in coalitions, and in order for us to be able to fight side by side with those other countries, we need to be able to share our technology.  We need to be able to share the capabilities, and this is the balance that we have.  We need to share but we also need to be very aware of the risks of allowing our key crown-jewel technology to go out, so that’s the balancing act that my organization does in trying to achieve, again, the capabilities of the warfighter and make sure that there’s not the huge risk to them, because we are dedicated, and I will say this again, over and over, we are dedicated to making sure that our guys go into a fight and it’s not going to be a fair fight.  We’re going to make sure that they have the best and they have the capabilities, and so in going through the process, and again, with every case that we have, that’s in the back of our minds as we balance the trade.  

So how do we look at these cases?  This is a… you know, the technical review, and I don’t just mean from a technology perspective or from an engineering perspective, but across the board with regard to the policies, with regard to where it’s going to, who’s it going to, and this is really… keep these ideas and these questions in mind, for those of you new to putting in licenses.  From a Department of Defense perspective, this is what we’re trying to answer.  This is what we’re trying to identify in the license to assess the risk, to assess the capabilities.  You know, what is the item?  Provide us with… the more ambiguity you have, the more we have, you know, going back to that impeller case, what else can it be used for?  What is the risk?  What’s associated with this, with this transfer?  Again, we balance where it’s going to, who is it being provided to, is it within policy or is it a capability that we share on a normal day-to-day basis or is it something that we really need to focus on and restrict, so these are the questions that we try and review and eliminate the risk that we associated with some of the transfers, or at least mitigate it, not necessarily eliminate it, so I’m just going to give you three examples of case analysis that we’ve done.
The first one’s fairly simple.  It’s where the vast majority of cases that the department reviews fall into, and I have stats to prove it as well, that we do approve licenses at the Department of Defense, but this is where the stated end use, the license comes in.  There’s lots of information with regard to the technology matching, no derogatory information on the end user, end use at business activity supports the stated end use, risk of diversion to a program of concern is very low.  This is, again, the vast majority of cases that we see will fall into this level of category, where it could be either approved straight out, or it could be approved with certain conditions that help mitigate some of the risk.  
When we go through the process and we identify there is a risk of diversion to programs, that lends us to… and this is where, again, the vast majority of cases go through and they’re expedited and then we have a low timeline.  This is where, quite honestly, where the delay kicks in.  If there’s something about the case that piques a concern or identifies a certain technology that is going to an end user in a region or a country where it could be diverted, that begins the process of us going through and seeing how we can mitigate that risk, how we can identify certain conditions, certain provisos, that allow us to allow the trade to… or the transfer to happen, but also helps us to minimize the risk, and oftentimes these type of cases, if they’re particularly squirrely, they will be escalated from the Department of Commerce perspective up to the Operating Committee, where again, we have very senior folks who are very, very familiar with the process, the rules, the regulations, the intelligence.  They begin the process of going through it and identifying what the veracity of whether it’s DOD, State or Energy, whoever’s denying the case, they begin the process of analyzing that, and if it is such a case that we find very, very, very… an issue of concern, we, the other agencies, and also the Department of Commerce can obviously escalate it to much higher Assistant Secretary level, the ACEP, but oftentimes, and we’re very, very proud of this fact, oftentimes we’re able to come up with the type of provisos or the types of conditions that allow us to mitigate the risk, minimize the impact of the transfer, or constrain it enough so that there is no way for possible diversion to occur.  That allows us to say “yes, we can approve it” and allow the transfer to happen, so it really is whittling it down to a case that is approvable, because we want to reach “yes.”
Then you have the other side, where you have a high risk of diversion, that’s really sensitive technology, and these are the key cases, and quite honestly, these are the ones that often go to the ACEP, if there is no way for us to really try and mitigate the concerns, we will take these, and these are, I’m happy to say, are very, very few, but they are critical ones, and oftentimes, even if they’re not necessarily what would appear to be critical-type technology, you know, low level or… not low level but integrated circuits or semiconductors or something of that nature, but it provides insight or provides a capability or the technical data related to that that raises a level of concern, we’re able to discuss that and go back and forth and debate the risks at the higher levels, and that’s the cases… those are the type of cases where a denial oftentimes comes out, and you know, getting back to the impeller case, oftentimes we’re able to identify areas where we need additional information.  We either go back to the company or we go back to try and do end use checks or pre-license checks, and also reach out to the intelligence community to provide information related to the transfer that helps us determine the veracity of the diversion risk.  
That’s a very short and concise kind of review of how we go about looking at cases.  I’m more than happy to answer any questions as we… both on the panel and afterwards, if anybody has any questions, but I think, if I can leave you with any key thoughts about the department, is we look at everything from a national security perspective.  We’re looking at what the technology, how that technology transfer could impact our warfighters, and that’s key to the way we think about the process and how we go through the analysis of the process.  If I could just take an opportunity to kind of just tout the number of cases that the department reviews through DTSA and also to show that, yes, we do approve and approve the vast… with conditions, the vast majority of those cases.  I will say the… I did not catch this before it went out, but the two numbers are not identical, from the munitions and dual use perspective.  Actually, for the first time in almost 20 years, the number of dual use licenses that the Department of Defense reviewed was actually higher than the munitions license cases.  We had about 20… the number under the munitions is correct.  I would say the number for the dual use is probably around 30 to 35,000, so ECR has achieved a shift in the lowering of the number of cases.  We endeavor to continue to use and work with the Department of State and the Department of Commerce to identify ways of expediting cases with past precedents, with technology that we are giving to countries or end uses that we have no concerns about, to expedite those cases and to provide the licensing agencies with authority to go without having to staff them to the Department of Defense, and it really is an effort to achieve the balance of Secretary Gates with regard to working with the system to help our allies and partners and also to really look at and closely observe and identify those tech transfers that are of high risk, so… and I think I’ve got one more slide.  Yes, I do.  

So we can see that we’re quite honestly on the… this is for six months in the year, we’re looking to have about the same number of cases that go through the system from the regulatory authorities for a Department of Defense review, so with that, I’d like to thank you again for an opportunity to kind of look and talk about the department, how we work with the other agencies in reviewing export cases, and I look forward to any questions you may have.  Thank you.  
[Applause]
MB:  Thank you, Mike, and one of the things I think that’s interesting when you look at Mike’s statistics and Brian’s is before ECR, DDTC was processing close to 85,000 licenses, I think, and we at BIS were in the neighborhood of the low 20,000s, 22, 23,000, so if you put those two together, that’s a little bit more than 100,000 licenses between the two agencies, obviously not counting OFAC’s licenses, which in a sense are different… they’re license applications but they’re a different animal because for both the Commerce licenses and the State licenses, the fundamental review is “what is the technology, who’s getting it, and what do we think the risk is of it going somewhere other than we would authorize it to go, whereas sanctions, it’s a little more they’re applying the sanctions policy, so the technology, I think, is not as significant, but you’ll hear a little bit more from John on that, after I speak.  
Last year, we processed at Commerce over 35,000 license applications, so of course that reflects now the dramatic movement of items from the USML to the CCL under export control reform.  So if you add the 35,000 to the roughly 45,000, you can see the overall licensing numbers between State and Commerce are now significantly lower than they were before ECR, and of course we, in our system, we have license exceptions that are available for the 600 series items and the satellite items under the 500 series, and of course that was the whole point of export control reform is to spend less time looking at the lower-risk transactions to our allies to achieve the goals of export control reform, which are interoperability, more opportunities for the U.S. Defense Industrial Base, and both the government and industry spending less time on the lower-risk transactions and therefore more time on the higher-risk transactions, so the increase in DDTC’s license processing time reflects that, as Brian said.  They’re now looking at the harder cases, so their average processing time goes up.  The easier cases are now in the Commerce system.
What I thought I would do is effectively pick up on where Brian and Mike left off, which is do a quick walkthrough of a license application that we had in our system that initially was likely to be denied, but because of the escalatory review process, we are able to have ultimately interagency concurrence to approve.  In the sense this is an outlier case, because out of the roughly 35,000-plus licenses we processed last year, roughly 300 of them went to the Operating Committee, and from there, only about 30 or so went to the Advisory Committee on Export Policy, which is the next level of review, the Assistant Secretary level, so you can see the vast majority of cases that come into our system and go to… certainly they all go… virtually all go to State and Defense, and a lot of them also go to Energy, they’re approved in the first 30-day review period, and our average processing time last year was about 24 days for all those 35,000-plus licenses, so really only a fraction even goes to the Operating Committee, which is the level if agencies disagree on whether to approve or deny a license.  Once the Operating Committee chair makes a decision, then only a fraction of those go up to the next level, and as you heard, I think Kevin mentioned yesterday, virtually all of those get decided either to approve or deny by a consensus of the four agencies, Commerce, Defense, State, Energy, at the Advisory Committee for Export Policy.  As you can imagine, under the Executive Order, license applications can go to the cabinet level, and even from the cabinet level to the president, but as you can imagine, we don’t have export license applications that go to the cabinet level, let alone the president.  We really try to come to decisions before those levels.  
Anyway, the case I want to talk a little bit about, you see, we try to come up with a catchy title here, “Salvaging a License Application or Lessons in Complete Applications.”  This was a… oops, I think I went one too fast.  Nope.  Okay.  This was a license application that came in to the Commerce system for a party in China, and as you can imagine, probably the single biggest chunk of license applications that there may be initial denial recommendations on is China.  It’s a big commercial market, but we also have significant concerns from a national security viewpoint as well as a foreign policy viewpoint with items going to China for certain parties or certain end uses or end users, so on the license application, the company, the U.S. applicant put down, a particular Chinese company as the ultimate consignee, and then a different party as the actual end user, which is not unusual, so in the initial interagency review, again, under our system, a license comes in under the Executive Order.  We have nine days at Commerce to review it and determine is a license needed or not, and if it’s needed, is the application complete?  
We typically get those out to the other agencies if a license is needed within about two to three days, so and we always put it out with the Commerce position, which actually reflects not only the licensing position but the enforcement position, because in our system, Export Enforcement acts almost as an internal review agency, so if they have a flag on a transaction, then we don’t send it out as a Commerce recommendation of approval unless we’ve resolved that issue internally with our Enforcement colleagues, but anyway, on the initial review, State came in with the recommendation to deny, Defense also came in with the recommendation to deny.  This case did not go to Energy because it was a Wassenaar controlled item, a remotely operated undersea vehicle which is a Wassenaar control, so Energy doesn’t see those in the first go-round, so under the Executive Order 12981 that Brian mentioned, any time there’s a license application where agencies put in different initial recommendations, it automatically goes to the Operating Committee, which is chaired by Commerce and staffed by more senior level career officials from DOD, State and Energy.  
This application, by the way came in in March of 2015, so it took a little longer than usual to get to the Operating Committee, so the fundamental issue was derogatory information, classified information, about the ultimate consignee that was on the license application, and because this is a remotely operated vehicle, there are significant national security concerns with that type of equipment being used for purposes other than the stated purpose, for salvage operations or undersea oil exploration, those kinds of things, so at the Operating Committee, there’s actually a meeting.  The agency reps all discuss the case and then the Operating Committee chair makes a decision.  The chair is not bound by the views of the agencies but certainly takes them into account, but it’s not a vote.  The Operating Committee chair under the Executive Order just makes a decision and issues the licensing decision, so internally then the process is over we, under our regulations, send an Intent to Deny letter to the applicant, saying we’re telling you we’re intending to deny your application but you have 20 days to come back and provide additional information, so that happened in July of ’15.  
The applicant in this case submitted a fairly detailed rebuttal to the Intent to Deny letter, and in this case, it had new information on the end user, the vessel that the remotely operated vehicle was going to be stationed on, what the role of the ultimate consignee was, and that there was also foreign availability for comparable ROVs, and in this Commerce system, for dual-use items, which this was, foreign availability is a significant factor because one of the things the agencies all are cognizant of is if we deny a license application and a foreign competitor can just go in and fill that order, we have to take that into account when we’re looking at whether to approve or deny, so what was really critical here was the basis for denial was negative information on the ultimate consignee.  It turned out that the U.S. applicant was able to demonstrate in this review process that the ultimate consignee was actually only the sales agent for the applicant.  By a contract, the ultimate consignee had already legally… would legally transfer title of the ROV to the end user, so they were not going to take physical possession, which was the critical factor, because we were concerned about the ultimate consignee using it for a purpose other than what we would authorize it to be used for, so this process of gathering the information, having the other agencies consider it, and then think about whether it changed their position on the case, you can see, took place over a couple of months.  
We discussed the new information with the other agencies.  We even had the applicant come in and talk with the other agencies.  This doesn’t happen often, but certainly an option if you have a license application that’s in the denial process, you can certainly request to come in and have a meeting with all the agencies at the Operating Committee to explain your transaction in detail in person, and then at the end of the day, when the Operating Committee looked at it again, they all agreed that it should be approved with condition, and the condition really was to prohibit the ultimate consignee from taking title or possession of the ROV, which was part of the transaction anyway, so it wasn’t actually an additional limitation in terms of the transaction, but it’s a license condition, of course, the applicant has to, and the other parties have to comply with it.  Otherwise, they’re in violation of the license condition.  So in September the license was actually approved, so the morals of the story, I guess, are two.  
One is even when there’s initially a view that an application should be denied, there is a process to bring more information to the table and get the agencies to reconsider their positions, which is exactly what happened here.  The other is that you really want to think through how the information you put on the license application… Mike mentioned this in his remarks as well, if you don’t tell us for sure, for example, that the ultimate consignee is not going to take title, and it turns out there’s derogatory information on the ultimate consignee, that leads to a denial recommendation, so this company could have saved itself probably several months and I don’t know how many hundreds or thousands of dollars in staff time pursuing this had they put that, made that clear in the application upfront, and I know it’s not possible for you as the applicants to think of every single thing we in the government might be looking at, but they’re always pretty standard.  You know, who are the parties, what are they actually doing in the transaction, and the likelihood that the item will be used for a legitimate civilian end use in China, for example, versus a military end use.  
So with that, we’ve just got, of course, at the end, the definitions of, in this case, ultimate consignee and intermediate consignee, but I think I will stop at that point.  I want to have… John will come up and do a quick OFAC overview and then we’ll take questions for the whole panel and we’ve already got quite a few of them, so thank you.
[Applause]
JS:  Good morning.  Thanks to Matt and to Eric and to the Commerce Department for hosting this event, and thank you to all of you for coming.  It really is important, I think, when the government and the private sector get together.  When you hear from us and when we hear from you, I think it helps us make our job go better and I think it does the same for all of you.  I think with some of the best practices that we’ve heard so far, I’m going to add a few to the list so that you can hear from us on ways that we can streamline, and I certainly want to hear from you.  I’ve already got a few questions that I’ll be happy to answer on that front.  It’s really been an unprecedented year for us in the sanctions realm.  I think when we come to an export controls and policy conference, as Matt indicated, OFAC is a little bit different of a player at the table.  We deal with sanctions.  We deal with economic sanctions.  We deal with areas where traditionally, if we get a license application, you’re looking at something where we have already said “no, that is prohibited under our sanctions program” and you’re looking for us to make an exception to the sanctions that we have, so we’re in a little bit different of a place when it comes to the way we look at license applications and the way that we process them.  
It’s been an incredible year because in my 10 years at OFAC, I think there’s been more that’s happened in the world of national security and foreign policy in this last year, when you look at the implementation of the Iran deal, the easing of the Cuba sanctions, the ending of the Burma program, plus the tightening in a number of other countries including North Korea and a number of other countries across the globe, this has been an incredible year, and our license applications have responded accordingly.  It’s been surprising to me perhaps over the years to find that no matter what we do, we seem to increase the license applications that we get.  If we issue additional general licenses, authorizations in the Cuba program, as we ease the sanctions, we have received more license applications under the program.  When we tighten sanctions in other programs, we have also received more license applications in the programs, so whatever we do, we seem to be more popular with the exporting community in terms of the license applications we receive.  
In fact, about last year we received about 10,000 license applications, many for complex, very complex transactions.  The numbers may pale in comparison with some of the sister agencies that we’re dealing with here, but we look at it in a different circumstance.  Often we are dealing with not a single product or set of products that there may be guidance about the product, but we may be looking at a very complex transaction where a product may be part of that very complex transaction that ultimately involves a government that is under sanctions, so that may be a complicated interagency process and a complicated OFAC process to get through it, but we’re doing what we can to best resolve these license applications as quickly as we can.  We have issued a tremendous number of what we call general licenses, the OFAC equivalent of the BIS license exception that basically says you can, if you meet the criteria, our regulations say that you can conduct the activity without coming to OFAC first, so we’ve issued a number of general licenses where we can to make sure that where we don’t have a particular concern, and where we can impose conditions as a general matter, we can put that out as a regulatory change without causing you to have to come into OFAC with a specific license application.  
We’ve also been doing fair numbers… fair increases in our numbers in what we call our frequently asked questions, FAQs on our website.  We’ve put out hundreds and hundreds and hundreds of those over the course of the past years so that if you have a particular question for OFAC, you may not have to call in to us or write in to us.  You may already have that on our general license and our license application portal on our OFAC website so that you can get your questions answered without coming in.  We try to be fair in the way that we process our license applications.  Absent compelling circumstances, we treat them on a first-in, first-out basis, and also when we get guidance to one company, we treat similarly situated applicants in the same manner.  It is a complicated process where the stakes are high, involving sensitive sanctions programs.  You can bet on the Iran portfolio, the North Korea portfolio, even the Cuba portfolio, we’re being watched by Congress, the industry, the public.  I think the Washington Post Test is one that we all, I think, think about when we look at sensitive license applications to make sure not so much that the media would be satisfied but what we do makes common sense and seems to make common sense not only to the public, to the industry, to all outside observers looking at our programs.  
Since we’re focusing on the licensing process, I’m going to follow up with a little bit of a case study for the OFAC process just to give you a little bit of detail on how we handle a typical license application.  It’s difficult when I try to use a word like “typical” because it seems like these days there are no typical license applications that we get, but I’m going to try to give my best example.  For the Cuba program, when we had an easing of sanctions and the president announced a new policy change in December 2014, there was immense interest in, I think, from the private sector, in perhaps pushing the boundaries of what we had already authorized to see if U.S. national security and foreign policy would ease our sanctions programs even further, and I think some applicants were in some ways ahead of the curve in coming in to us with applications.  
In January of 2015, OFAC received a request, multiple requests, to establish passenger ferry service between the United States and Cuba.  It won’t surprise you that we got a number of those applications, a number of those companies were beginning to talk to U.S. officials, the services hadn’t been authorized yet by OFAC, but people thought this might fall within the president’s policy, and so we looked at the application, went back to the requester and said “okay, this is kind of the first of its kind under the new policy and we’re going to need additional information.”  The requester was relatively speedy and got additional information for us in mid-March of 2015, and at that point, when we considered the application complete, we referred it over to the State Department for foreign policy guidance.  Now that is the typical OFAC maneuver that we would have in the licensing process.  If it is not clear foreign policy guidance under a sanctions program, we would refer any applications that we get to the State Department for foreign policy guidance, so the State Department looked at the application and raised a number of additional questions that it needed to know from the foreign policy perspective, and we went back to the requester and the requester came back just a few weeks later, so in mid-March, late March, we had a complete application from both the OFAC perspective and the State Department perspective.  We got foreign policy guidance from the State Department on April 18th with a recommendation to approve the license application, which was historic, because before then the applications would have been denied without a referral because that was the policy of the U.S. government at the time.  
Because that application required coordination with a number of agencies, not only State but Homeland Security, Commerce and other agencies, we were coordinating across the board as that license application came through, and we issued this specific license on May 5th of 2015.  The end of that story is that for us, specific licenses don’t answer the question.  If we are beginning to issue the same specific license to numerous companies and there seems to be no distinction or we can put out the conditions in a regulatory authorization, as I said, we’ll do that, and we included that in our next round of regulatory changes in September of 2015, so we amended our regulations at that time to authorize carrier services by vessel between the United States and Cuba under certain conditions, so we no longer had to issue the specific licenses.  
That is a little bit of the process that OFAC would go through in a typical case.  I’ll give one other example, not going through the whole application process, but there also may be different hurdles that license applicants would have to go through in coming into OFAC.  For example, you may have read about certain civil aviation applications that OFAC has received in the Iran context, and licenses that we may have issued.  Those licenses often will require not only the typical referral to the State Department for receipt of foreign policy guidance but the State Department also may have to issue a notification to the Congress pursuant to certain statutes that said the Congress shall be notified and have a certain waiting period before certain technology is approved for export involving Iran and other jurisdictions that have been of concern to the Congress.  So for example, that’s an additional step that would have to occur in the Iran program.  
Going through that case study, going through, I think, what Matt and others have said, I think there are a few best practices that I would identify that we in the U.S. government are trying to implement to make sure that life is a little bit easier for you, and frankly, life’s a little bit easier for us as we process license applications.  The first is that we will issue a general license where we can.  Again, I think that’s the Commerce equivalent of what they call their license exception, but if we see the same type of license application, and we don’t need to see the circumstances, we don’t need to see anything on a case-by-case basis, then we’re going to try to issue a general authorization where we can.  That’s not going to be possible in every circumstance because many of these cases may be very factually dependent.  The facts and circumstances of a certain type of transaction, who it’s going to, the type of entity maybe, what we need to actually see in the license application itself, so we may not be able to do a general license, but where we can, we’ll try.  
The second best practice involves the foreign policy guidance.  When we refer something over to the State Department for foreign policy guidance, we indicate to State that we will plan to treat similar applications in a similar manner.  Now the State Department may still say “we need to see any further applications” because they may also want to see the organizations, the individuals or entities that are involved, and that may be what makes a distinction between the processing of one application versus the other, but we try to make it clear that we’re going to treat similar applications in an identical manner.  Again, the applications may differ just based on the individual or the entity that’s involved, and I think something that may be less noticeable but was apparent, I think, in our last round of regulatory changes, is we try not to duplicate efforts as much as possible.  I think we’ve been working very much with BIS in terms of not duplicating our jurisdiction and I think our last round of Cuba regulatory changes demonstrated that we were trying to say where we don’t have to duplicate jurisdiction.  You can just go to BIS.  You don’t need to come to OFAC on a specific license application, and we keep looking at programs to say “are there additional areas where we can refine?”
Since I gave you some of the best practices that we’re working on, and since Matt opened the door and gave you some of his, I think I’m going to give you a few additional ones from the OFAC perspective.  I think some of those are duplicates of what Matt said, but I think it’s helpful for us, and Matt and Brian and others, I think, gave some of these.  I think some of these are helpful, the way we look at applications, and sometimes inside the agency, when we hear frustrations from you, it’s hard not for us to be able to go back and say “if you had satisfied some of the best practices that I’m giving you, we wouldn’t have the delay that you’re looking at,” but first, all of these are going to sound basic, and I think on all of these you’re going to say “of course,” but you would be surprised at the number of applications, even from sophisticated applicants, sophisticated companies, that we get that do not satisfy these best practices.  
The first is, we’d say, research the sanctions program in question.  Many of your companies may be used to dealing with, in the export control arena, you may be experts in the type of product that may be going, but you need to become an expert in the sanctions program that is involved to make sure that you are satisfying the concerns and that you are reading the signals that we have provided in our guidance, our guidelines, our regulations, and our frequently asked questions.  So that’s a simple way of saying “do your homework, please.”  It helps us.  Please reference the particular regulations that you see that are involved because sometimes we will get an application that says “we want to do the following,” and it won’t indicate from the company’s perspective why that might be of concern, and so the application may be vague enough that we have to go back and say “please tell us how this relates to an OFAC sanctions program.”  It would surprise you the number of times we have to go back.  We would say provide comprehensive background, give the details.  I think this was Matt’s point about having the company save itself.  There are a number of times that we’ll get an application that might sound horrifying from the OFAC perspective that indicates that a company wants to do a certain type of activity that would just seem to be out of bounds from the sanctions perspective, and then we finally, with a supplemental application, get an “aha” moment where we say “okay, now we understand why we would be licensing this application,” so we’d say be clear in what you want.  
I would also say be persuasive.  Sometimes we get a very fact… facts and circumstances.  Somebody just sets out a fact pattern.  I would also say advocate.  Tell us why that we should be granting a license application for a sanctions program where we have generally said “this country is off limits, this country is out of bounds, we’re not allowing transactions for this country.”  Generally, the successful applications are saying “this is why we think this is in the U.S. national security and foreign policy interest as evidenced by some of the other changes that OFAC, State and other agencies have made,” so we would say make sure that you are very clear in what your position is and advocate, and I think the last but not least is please make sure that you give us legible supporting documents and try to do it once, and I got a laugh from the audience, and we always get a little bit of laughter for that, and then we’re always surprised when an application will come around and we’ll say “we just can’t read this, the supporting documents, the shipping bills, whatever were included with it, we just can’t read it,” so whatever you can do to make our lives a little bit easier would be helpful.  
I think I’d end on the best practices for us, and with a plug for using our electronic system.  We are in the Treasury Department, and that is governed by the Treasury Department and even the Secret Service regulations because we’re part of the White House Complex, so snail mail does not get to us very quickly.  So if you are still sending us your applications in writing, that’s great, but you’re going to be a few weeks behind those that use our electronic platform, that goes instantly into the licensing officers’ queue and we’re able to begin work on it right away.  So it may take a little bit of adjustment.  I doubt… I’m guessing that probably 90% of you use that electronic platform, but for those 10% that don’t, this is a way to speed up your license application process by at least a few weeks.  So I think I’ll end there, since we’ve already gotten some questions, and I’ve been told by Matt I should answer mine when we are back down on the panel, but I’m going to end with again a thank you, thank you, thank you to all of you.  Really, we do depend on you for sanctions compliance.  Our regulations and our rules would just be words on paper without the vigilant efforts by all of you with the compliance work you do and all of the other enforcement work you do as you come in to us, so thank you very much.
[Applause]
MB:  Thank you, John.  As you’ve probably seen, we are getting tranches of questions up here, so I’m going to make a couple of thoughts, suggestions procedurally.  I know the break is supposed to be at 10.  Why don’t we say we’ll go in this session till 10:10?  What I would like to do is Mike, maybe start with a couple questions you have, then Brian, Ann, then come back to John, and then the questions that I have, I think we’ll do a session on Wednesday, when we have kind of the open forum, and I’ll address the Commerce questions then, because that’s my opportunity to come back.  I also may see John, if we don’t get through the OFAC questions, which I don’t think we will, maybe we can get somebody from John, from your team, to come back on Wednesday and answer some of those.  We have kind of an open forum session Wednesday afternoon.  
JS:  I’ll also mention that we have a few of our licensing chiefs that are going to be here later in the day, I think, today.
MB:  Oh good.  Okay.  
JS:  So the folks who really know the details are two, Assistant Director for Licensing and our Deputy Assistant Director are both appearing here later today.  
MB:  So why don’t you triage your questions kind of with some that they maybe will answer. So Mike, do you want to go ahead and take yours first, please?
ML:  Okay.  Thanks, Matt.  I have three questions just real quick.  “There’s talk in industry that DTSA is trying to undo aspects of ECR and pull certain items back into the ITAR.  How true is this?”  No, but we are using the process that currently is in place to try and identify technologies, and actually call them out, that should be identified or may very well be identified on the ITAR, but were missed during the first review, and the example of that is some of the production technology related to the F-35, the Joint Strike Fighter.  In the beginning of the process, as we went through, and this is true for a vast majority, or all the categories, is we’re going to have to go back and we’re going to have to adjust just to make sure that nothing’s either slipping through or something that we missed may very well have to come back, but we’re going to use the process that was developed under ECR where we get together as an interagency, we identify the impacts of moving a technology back to the ITAR, what it will… is it just solely for military use, and this is what came out in Category VIII with regard to the production technology on JSF, is it solely used on the JSF and then therefore should be in a munitions or an ITAR-related item, or is it something that is also related to commercial work, so the process is now, and we’ve gone through the initial review, or the additional review of VIII and XIX and putting that out, and that’s where I see the process actually benefiting both you and Defense, because… and the interagency, because there’s going to be that initial government review and then there’s also going to be the review of the industry to allow them to review any changes to the regulations, and that process has worked tremendously well for us throughout ECR, and I think that it will continue to work and we will continue to push and use that process as we make adjustments.  
Next question was “in a past license review, a licensing officer went TDY for 30 days.  DTSA would not agree to a face-to-face meeting to discuss technology review.  Review period was excessive, very frustrating.”  I agree.  If you can’t get ahold of your licensing officer, elevate it to the team leader.  If you can’t get ahold of the team leader, elevate it to the division chief.  If you can’t get ahold of the division chief, elevate it to the director of licensing.  If you can’t get ahold of him, call me.  We should not be not picking up the phone.  Our job is to review these cases and review it in such a way that we expedite it and we get the proper answer back to you and the form.  We encourage companies to come in and discuss face-to-face any issues that they may have.  We may very well ask for a white paper, and additional details on why it is you want to come in.  There may very well be a discussion amongst us as to whether or not we really need to adjust it or it’s just something that we need to go through the process, but if you’re not getting any communication from my folks, I want to know about it, and that’s not the way we do business at DTSA.  

“The most frequent cause of delays in processing licenses at DDTC have been the DTSA DOD review.  Often applicants are told that DOD DTSA is understaffed, particularly your technology directorate.  When will DTSA obtain the staffing levels necessary to more efficiently process the high volume of licensing?”  Darn right!  You know, call your congressman.  Tell them DTSA needs more engineers.  The Department of Defense is in the throes of sequestration.  I don’t foresee us getting… in fact, we’re supposed to reduce by four additional personnel in the FY.  It’s the nature of the business.  We have more work to do and not enough people to do it, so I appreciate the note, but we will endeavor to again try and work as quickly and expeditiously as possible, but I don’t foresee us getting an increase in personnel anytime soon.  
BN:  Okay.  Thanks, Mike.  I’ve got two questions, actually three questions.  First one.  “Please give what information you can on what is happening with cases related to Thailand and then same with Peru.”  Thailand, you know, we have sort of a tightened export policy as a result of the coup that happened in Thailand in 2014.  I can tell you that more recently there has been a policy review ongoing that has resulted in some cases being temporarily held.  We are working through that and so I think that we’ll see some movement with regard to some of the held cases in the near term, so that’s sort of… we’re sort of in a little bit of a state of flux right now, but it’ll be coming nearer to the end.  With Peru, we had… this is actually a good question and gives a good example.  Peru passed a law that where they would do… they would shoot down civilian aircraft or small civilian aircraft, and under U.S. law and under U.S. policy, we don’t support such a policy, and some governments have opted to do that with regard to the smugglers, with regard to drug trafficking, but again, under the U.S. law and policy, we don’t support anything that would support that activity.  It’s my understanding that Peru is in the… either already has or is in the process of considering changing its domestic law, in which case that would result in us changing our licensing policies, so that is the status on Peru, and then the other question.  “Please comment on the status of revisions to USML Categories I, II and III.  Is there a proposed rule in the works?”  Yes.  I mean, we… you know, these categories were… we did initial drafting in 2012.  They were six different rules, three State, three Commerce.  We have updated those rules and merged them into two rules.  There’s simply one rule, one State rule for the three categories, one rule for the Commerce Department.  We still are in the final throes of completing the other categories, and so we’re then simply awaiting policy guidance for what we’re going to do with these last rules, and then I also wonder if I can plug what I have, Mike, sorry Mike, is that DDTC has a breakout session next, it’s one of the breakout sessions, so if you have more questions for us, feel free to come to the next session, so… and with that, I will pass it to Ann.
AG:  Thank you.  The first question I have, really, I think, is kind of shared between Brian and I, so I will start with it.  It’s “with the elimination of economic sanctions against Burma, is there a timetable or a plan to release or eliminate the arms embargo against Burma?”  The president ended the economic and financial sanctions and the prohibitions in the Burmese Sanctions Regulations are no longer in effect.  However, this is still a complicated situation.  We’re still working through it, so no.  No timetables.  No further proposed changes at this time.  
BN:  Nothing more to add.  I mean, as Ann hit it right on the head.
AG:  Great.  Okay.  It’s always nice when we’re synced up.  And then the other one I have is, “is your office requesting the regimes to harmonize with the U.S. catch-and-release process?”  The simple answer there is “no.”  What the regimes do is they establish common control lists, common, you know, practices, but they leave the actual implementation, the how-to, to the member or participating states.  Now, we did bring Kevin Wolf to the Wassenaar Arrangement and had him do a presentation on how catch-and-release works.  A lot of the countries were very interested and asked all kinds of good questions, so you may see some version of catch-and-release coming out in some of those countries.  I just don’t know right now, but we would not propose it to the regimes because that’s not really the role of the regimes, but we have, as I said, brought Kevin, who is perhaps the best person to explain how it works to others, and had him lay it all out for them, so we may or may not see other countries adopt it.  
MB:  Good.  Thanks, Ann.  I know John has a whole stack of questions down there.  Maybe, John, what you could do is take at least a few of them that are more general and then OFAC. and then the ones that are country specific, they’re actually doing the same breakout session twice, the foreign policy controls, both at 10:30 and at 1:30, and then I think maybe the country specific we could answer there, because that’s where your folks are going to be, right?  
JS:  That sounds great.  All the Iran questions, and there are a number on the civil aviation front, I’m going to tell you that you have… we’re going to have the head of our Iran Licensing and Civil Aviation Licensing, Jeanette Miller, is going to be at the breakout session, so I’m going to sic you all on Jeanette to ask all of those detailed questions.  She is the best person, I think, to answer those.  I’m going to give you the general ones, a couple of the general ones first.  “Of the three agencies, OFAC is the least transparent.  Applications are filed and we get an automated pending status for months.  We don’t know who the licensing officer is, calls and emails go unanswered or nonresponsive on basic issues.  Why?  Why can’t you work more closely and actively with industry?”  I think that’s a good question because we do get a number of questions about “why can’t we call in to licensing officers and talk to them more often, and why can’t industry help find us a solution?”  Well, I would love if industry could help us find a solution, but let me tell you the problem as I see it.  Each one of our licensing officers, we have a few dozen of them, has a couple hundred license applications on their desk, in various stages of processing, and we have had occasions where licensing officers spend most of their day on the phone responding to questions about where the license applications are.  People want to come in and meet with the licensing officers to talk about the processing of the case, and so what we’ve tried to do is set up a system where we have a licensing hotline, call center, where you can call in and have someone on our administrative team tell you where it shows in the system, but I’ve been trying to preserve my licensing officers’ time for actual processing of the license applications.  We do have some situations where some companies will call in every single day because one of their bosses has told them to find out, check in with OFAC every day, and so we have people on the phone every day saying “nothing new from yesterday, nothing new from yesterday,” and so that is why we have a licensing call center that is trying to shield some of the licensing officers’ time.  Now, that isn’t to say that there aren’t better ways that we could communicate.  We are trying to communicate by putting more on the web, more in FAQs, but I would welcome, if the industry has additional suggestions on how we can do this, how we can be more available but at the same time handle our limited resources by handling the license applications, I would welcome any feedback you’d have on that process.  
We have another general one on “almost all EOs are not clarified by OFAC rules.  This results in ambiguous notice to foreign firms.  What can you do as the OFAC leader to clarify EOs and the president’s delegations?”  I would say a note, with every Executive Order, we try to go out at the same time with frequently asked questions, FAQs about the Executive Orders.  Generally, we have regulations that will go out within a month or a couple months of what we call skeletal regulations of the programs.  We’re trying to get better, so some of our older Executive Orders, this didn’t take place.  Now with an Executive Order, you generally have a whole series of documents that go with that Executive Order, where we try to provide more clarification and we try to work with all the agencies at the table, where it’s relevant, to make sure that we’re providing some of those answers.  
“Recommendations on how the public can support OFAC efforts to increase staffing or are there ways to expedite turnaround on submissions to OFAC?”  I’ll probably say the same thing.  We don’t see a lot of additional resources coming our way, but sanctions have become increasingly popular.  Every year, there is more than a handful of Executive Orders.  There’s new proposals for legislation almost every month in Congress, and so every year we have several additional statutes that we’re implementing, many of those with reporting requirements, many of those with other processes that have to be built in on the same set of resources and same set of people that have been handling our license applications.  I will tell you our numbers in terms of applications for licenses have doubled in the course of the past few years, but our resources haven’t, and so we’re trying to do what we can to be lean and mean and respond as quickly as possible, but I think we’re doing as best we can in the limited circumstances we have.  
I’ve tried to do some of the general ones.  I have about 15 others sitting in front of me, so I’m happy to come back, but many of those are the specific Iran ones that I think we can push off till later.
MB:  Yes, so I would suggest the folks that put in questions that are country specific come to one of the two breakout sessions.  John and I will chat sort of offline if there’s another group that might lend itself to being answered on the Wednesday sort of open forum.  John, we can talk about whether you have anybody available in your lean-and-mean operation to come over and do that.  Let me do a couple of quick general ones for BIS, and as I said, the rest of them, we will definitely have time devoted on Wednesday to get into the more detailed ones, but a couple of the general ones.  
“Is export control reform expected to continue in the next presidential administration, and what changes might we see?”  I can certainly say that as career folks here, when the next team comes in, we will brief them on export control reform, and certainly, I believe my recommendation will be that we continue.  As you already have heard, we really tried to establish the precedent of once we’ve gone through one round of revisions of the USML and the Commerce bookends, that roughly every two years we want to keep that process going, and we’ve already started that with USML Categories VIII and XIX.  We’ve got NOIs out that have already gone out on some of the other categories, but at the end of the day, it’ll be up to the new political team that comes in to decide do they want to continue export control reform and/or do something else.  
This is a related question.  “Now that most of the USML has been reviewed, will a review of the CCL categories be done?  There are many items that are now old technology while new technology has not been addressed.”  That’s a good question.  We do have a process that we go through every year with the four multilateral export control regimes where the three agencies here, Commerce, State and Defense, look at U.S. proposals.  These are mostly for Wassenaar but they also include the nonproliferation regimes, that we, the U.S. government, go to the regimes with those proposals to change.  Generally speaking, those are to raise control levels, so effectively decontrol some level of technology, but in some cases they are to impose new controls.  We typically, I think, Ann, have 20 to 25 U.S. proposals to Wassenaar, and you know, a handful to the NSG, the MTCR, and the Australia Group, but then remember other countries come in with their own proposals, so there’s a real bandwidth issue because for Wassenaar to look at, you know, 40 to 60 technical… 80, more like 80, Ann says… technical list changes every year, that’s a big work task, and so to do something beyond that would be challenging, so I would encourage folks to continue to work through our Technical Advisory Committees to come up with proposals… suggestions for our proposals to change the sort of legacy dual-use CCL controls.  Ann, I don’t know if you had anything you wanted to add to that.  
AG:  No, I just double-checked, the number I was given was that Wassenaar approved 51 list changes this year in the exports group.  It still has to go through the plenary, so they aren’t final, so they are constantly changing.  Matt is totally right.  If you think something should no longer be on the list or warrants a change, work through the Technical Advisory Committees or the agencies here because we do send forward a good number of proposals every year, but as I said, Wassenaar… the numbers have just been growing and growing because technology advances rapidly.  I think this year… I threw out the number of 80, it seems to me, it was almost… it was 84, 85 proposals that we considered this year.  That’s a lot of work, because not only ginning up our proposals but examining other countries’ proposals, so it’s a fulltime job, but if you’ve got things that don’t warrant control or warrant changes to the control, that’s where to plug it in.  
MB:  So I’ll take one more question, and then let everybody go on to the break.  “Will the temporary general license for ZTE Corporation in China be extended?  How do you determine a temporary license is granted to an entity?”  I think the Federal Register notice on placing ZTE on the Entity List and then the subsequent temporary general licenses is quite clear.  It’s really dependent on ZTE’s cooperation with the U.S. government in its activities, reviewing ZTE’s activities, and so whether the temporary general license will be extended yet again really depends on that, and that decision will be made in the coming weeks since the current temporary general license expires at the end of November.  How do we determine a temporary license is granted to an entity?  It really depends on the entity and the facts of the situation.  As I’m sure you know, there is an appeal process for parties that are on the Entity List that every year a handful of companies avail themselves of, and that’s typically to get off the list, but that could also include a request for a temporary waiver, and as you can imagine, it’s a fairly high bar for a company to demonstrate that they’ll address the circumstances that got them placed on the Entity List in the first place. With that, I think we’re just a little bit past 10 after, so I would suggest we’ll go ahead and take your break now, but again, for the rest of the Commerce questions, we’ll have a session Wednesday and we’ll let you know if OFAC is able to have somebody come over to deal with some of the OFAC questions.  Thank you.
[Applause]

Speaker Identification:
KW: Kevin Wolf
KN: Karen H. Nies-Vogel

KW:  We’ll get a group photo before we begin. This is a fish eye lens if anybody’s curious, so I can get everybody in here and get the whole room. Are you ready? No, you’re blinking.
Audience:  (Laughter)
KW:  Here, this is actually a good shot. Let’s get this one here. Cheese!
Audience:  (Laughter)
KW:  Okay. So, thank you, Eric. You’re a great friend, leader, lawyer, public servant. It’s been a thrill to work for you, and also Dan Hill, thank you very much for your leadership and hard work over the years.
I have something from my front porch. Is it…? There we go.
Audience:  (Laughter)
KW:  That’s how nerdy I am. I actually carved that.
Audience:  (Laughter)
KW:  Given the day, I thought it was appropriate for something scary.
Audience:  (Laughter)
KW:  I thought about the EAR, but it was too complex.
Audience:  (Laughter)
KW:  And I thought about carving BIS, but it wouldn’t have frightened anybody. I also thought about DTSA, but the knife wouldn’t have stayed within the lines.
Audience:  (Laughter)
KW:  I called OFAC for advice and left a message….
Audience:  (Laughter) (Applause)
KW:  (Laughs) You know how the joke is going to end. They didn’t call back.
Audience:  (Laughter)
KW:  I thought about ISN, but I couldn’t get 40 countries to agree.
Audience:  (Laughter)
KW:  STA I thought about, but nobody would’ve cared.
Audience:  (Laughter)
KW:  So, I left it with ITAR. The truly scary thing though is I live in Arlington which is the home, as you know, of a lot of public officials and lawyers and, you know, people who when they were in high school played the clarinet…
Audience:  (Laughter)
KW:  …and did student council and did Model U.N. instead of going to gym class, and the scary thing is that their kids actually got the joke.
Audience:  (Laughter)
KW:  One 12 year old wanted to know if the pumpkin applied to FMS or just DSP’s.
Audience:  (Laughter)
KW:  Anyway, so other than…. Why are we here? Take a step back and remember what the purpose of export controls are. It’s the regulatory net over the export, reexport, and transfer of physical items, technology, software, and services to various end-uses, end-users, and destinations for a variety of national security and foreign policy purposes. There. That one sentence describes my entire professional life. I suddenly feel very small.

Audience:  (Laughter)
KW:  But I’m actually kind of serious. Whenever you’re thinking through an export control compliance analysis, just repeat that sentence and go through and diagram whatever the transaction is that you’re dealing with. Ask yourself, “What is the verb? What is the noun? What is the direct object? What is the object of the preposition,” and you answer each of those questions, and you’ll be able to do your compliance analysis. Try it.
Now I realize diagraming sentences is not all that exciting for some because as they say, export control regulations are a lot like tax law but without the sex appeal.
Audience:  (Laughter)
KW:  I also realize when you’re doing that, your family may have no idea what you’re doing. My mother still doesn’t know what I do for a living. “It sounds interesting, dear, but... I’m glad you do what you do. Okay.”
Audience:  (Laughter)
KW:  Anyway, but whatever you’re doing to determine compliance by whatever method, I just wanted to sort of echo Eric’s point of thanking you for being here and thanking you for spending the time and resources, both by your employers or individually, to understand and comply with the rules because unless you do that, the very real national security and foreign policy purposes behind the regs aren’t furthered.
So as with any area of regulation, export controls are inherently complex. You can tell from Eric’s speech and what you’re going to be hearing, the goal of regulatory simplification is a high bar. In the abstract, there are two ways to make the system more simple. You can require a license everywhere, all the time, always, for all listed items to all destinations, or in the extreme in the other way, no licenses required unless individual transactions are notified by the U.S. government. The first, of course, would impose a dramatic and devastating regulatory burden on exports, and the latter, obviously wouldn’t, because of its after-the-fact nature, satisfy the national security and foreign policy objectives. And to add to the complexity, you have the situation, which is inherent in the world, of foreign policy concerns and priorities changing over time. Technologies evolve, newly developed items become more sensitive, other items become more widely available and are less sensitive for those reasons. You have different changes in different issues that evolve regarding specific end-uses and end-users. Small changes in fact patterns can result in completely different outcomes, and also most of the controls that exist in the regulations, particularly on the dual-use side, are a result of negotiations by and among 30 to 40 countries and are a result of compromise, and all of the regulations are there as a result of agreements by and among different agencies with different equities and compromises. So you add that, plus the fact that these regs have been around for decades and complexity is accreted, that’s making it more a system.
So with the Obama administration completely aware of this inherent tension, at the beginning we made the choice, made the policy decision, to reduce the overall regulatory burden as much as possible in order to further those national security and foreign policy objects, and this manifested itself in the reform effort that Eric described. And I just want to repeat something he said: Don’t think of the reform as finished. Just look at those four standards he articulated. I know he said this, but I want to repeat it. And always ask us, always ask the government, use this to judge by the way of what we’ve done whether it’s working. Are we improving interoperability with NATO and other close allies? Are we reducing the incentive to design out and avoid U.S. content services and technology? Are we allowing the government to spend its time focusing its resources on the types of transactions that matter the most? And are we getting to the point where the regulations are more reliable and predictable so that compliance and enforcement, frankly, are more reliable and predictable as well? Can you make confident compliance conclusions based upon law rather than lore? If we’re doing that, great; if we’re not, let us know.
So even though we finished the lion’s share of the category revisions and the other types of ECR changes, all this means is that ECR doesn’t really end. It’s more of a spirit and a process that’s now baked into the system. The agencies will continue to review the U.S. Munitions List to try to identify those items that provide critical military advantage. And even for trade, buying among and between close allies warrants strict controls. They’ll continue to review and adjust the controls that are not clear, and all of this will be done through a transparent, open process of publishing notices of inquiries, asking for advice, thoughts, and opinion, fully utilizing the Technical Advisory Committee process, publishing the rules as proposals, sometimes twice, to give industry its input and suggestions and pointing out errors, and then final rules with a massive amount of education and training for compliance thereafter.
And so the first of these examples that’s going to kick in, I think probably in November, will be the first revision of one of the categories, and that’s the aircraft and engines rules, and you’ll see in that rule what is going to be the standard for all the other rules in that we’ve spotted actual mistakes where we’re going to fix things that after a couple of years of practical application we realize, based on the comments, could be said more clearly, some increases in controls on a specific subset of items that upon reflection are sensitive, also some evolving technologies that need to be described at a higher level. But then on the flip side, as items become more commercially available and upon reflection are less sensitive, warrant, consistent with our regime obligations, reduction in controls.
So, just to go into a couple of other topics, one example that I mentioned as a goal is to allow the government to focus its resources on things that matter most, and all of you know the commodity jurisdiction process: so, determining whether something is or isn’t subject to the jurisdiction of the State Department. And the way it works is you submit the request to State. State, of course, has the lead. It asks for advice from Commerce and the Defense Department, and then those are negotiated, or discussed rather, and resolved, and to the extent that there is a dispute, it’s elevated to the Deputy Assistant Secretary level and then, if necessary, the Assistant Secretary level for review. In the last year prior to the first category kicking in in 2013, there were 23 Deputy Assistant Secretary level CJ meetings from January to August, and in that same period in the last year, only two were needed. That’s a rather dramatic shift, and at the Assistant Secretary level, we haven’t had to get together for actually several years now to resolve a dispute that couldn’t be resolved by either the staff or the DAS level, so whether you like the answer or not on any particular CJ you’re getting, at least we’re spending less time arguing about jurisdictional status and are allowing ourselves to focus more on more important issues about how things should be controlled.
I realize not all the agencies always agree all the time, and it would be weird if we did, because we each have different expertise and equities and backgrounds, and the system is deliberately designed that way in order to – oh, that’s a good phrase – anyway, deliberately designed that way in order to result in a better outcome, and we still have improvements to make to particular entries based on experience. Ahem – XIII(g), and XIII(j)(2). Anyway, but the point of these examples is that we’re making the system more reliable and predictable both for you and for us.
On another topic, I know that there are a lot of non-U.S. companies here. The EAR apply extraterritorially. Our rules, our law follow the items wherever they go that are subject to the EAR, and we realize that our reexport rules are not laid out as clearly as perhaps they could be. I mean, over the decades, the rules have largely been written from the perspective of the exporter, the person shipping from the United States, and there are several topics that I know we need to think through and work through over the next year: second incorporation, direct product, the de minimis rules in particular cases. And in order to help us spot these and other that are reexport-specific topics, we’ve created a reexport working group within the Technical Advisory Committee structure of those participants who have thoughts and experiences with reexports to provide us with advice and thoughts about how to improve the EAR with respect to the structure and the content and the organization of reexport controls.
In the meantime, I think we’ve made a lot of improvements within the EAR that should be of assistance to non-U.S. parties and thus enhance overall compliance. So for example, on the destination control statement rule that becomes effective on November 15, there will be a requirement to identify if there are satellites under 9A515 or 600 series items being shipped, so this should help reduce some confusion regarding classification status of such items, tangible items, by non-U.S. parties. This, by the way, is yet another example of the ongoing effort, the regular effort, to harmonize to the extent possible the definitions and the structure and the content of the EAR and the ITAR to reduce regulatory burden. On November 15, the destination control statement words, accomplishing exactly the same objectives, will be identical whether it’s an ITAR, EAR, or a mixed shipment.
And also in the definitions rule, as Eric mentioned, we have put into the regulations new deemed reexport standards; that is, when a particular release of technology outside the U.S. to a foreign national doesn’t count as a deemed export and when it does. This is something very important, and this is yet another example, by the way, of our effort to harmonize with the ITAR because basically we just lifted an idea that the State Department did back in 2010.
Also part of the definitions rule that became effective on September 1, we’ve laid out new rules for when an export does not occur with respect to the taking, sending, or storing of technology if certain conditions are met such as encryption and not stored on servers in certain countries, which will be of assistance.
And in the new 750.7, which is a revised section that became effective on September 1, there’s now a requirement of the applicants to tell the foreign parties the end-users, consignees, et cetera, about what the scope of the license is, so this should go a long way to eliminating doubt and confusion among the parties as to the limitations and requirements.
We also in that section made it clear as we have been doing over the last couple of years with license conditions that what a license authorizes is that which is stated in the license and that which is sought, and this is all part of a broader effort to reduce the proliferation of unnecessary license conditions that largely serve to confuse everybody, and we’ve gotten it down to the point in section 750.7. The new one, the revised one, says very clearly that a license authorizes that which was requested minus whatever is identified as a condition. We’ve removed requirements such as the International Import Certificate because we found that those were not largely useful or necessary. All of these things are going toward making it easier for non-U.S. parties to be able to comply with our regulations.
I’m going to be speaking at length Wednesday and answering particular questions, but this is my chance really to brag about my terrific staff at BIS and Export Administration and to tell you a little bit about some of their accomplishments. And there are five offices.
So in no particular order, the Nonproliferation and Treaty Compliance Office is led by Alex Lopes. I don’t see Alex. He’s around here somewhere. Anyway, he and his staff always have done a terrific job of handling the exports of items on the list that are controlled by the Nuclear Suppliers Group, the Australia Group, and the Missile Technology Control Regime. They’ve also supported a number of significant nonproliferation initiatives with partner countries, and notably, the Export Control Cooperation initiative with India.  India’s aligning its export controls with those of the multilateral Export Control Regimes resulted in India’s successful accession to the MTCR and current consideration for membership of the Nuclear Suppliers Group. This year, India held its first National Export Control Update Conference due in large part to these efforts.
The office also contributed a significant amount of effort to the interagency work to revise the biological and toxin controls, category XIV, and the bookends on the Commerce regulations. And its Office of Foreign Policy, or the Foreign Policy Division, was really busy with all issues pertaining to Cuba and Iran. We’re going to get into the details on those over the course of the conference, but this is the office that planned and coordinated and executed the effort including over 90 Cuba-related outreach events that provided essential information regarding the administration’s effort, particularly, of course, the Commerce side. The office has worked closely with the other agencies responsible for Iran policy in working out issues related to the export of aircraft and aircraft parts in connection with the U.S. plan pursuant to the Joint Comprehensive Plan of Action.
Another part of BIS’s mission that we don’t talk a lot about, but it’s within this office, is ensuring industry compliance with the Chemical Weapons Convention implementing the Additional Protocol to the U.S.-International Atomic Energy Agency Safeguards Agreement and achieving the goals of the Biological Weapons Convention. So for example, last year, the group processed 838 declarations and reports covering the activities of 532 U.S. chemical facilities and trading companies. We hosted 21 inspections of U.S. chemical facilities by the Organization for the Prohibition of Chemical Weapons including one involving sampling and analysis  and three involving the sequential inspections of facilities in close proximity to one another, and BIS has processed over 18,000 of these CWC declarations and reports in the past years.
So on the Additional Protocol, we’re responsible for collecting declarations on nuclear-related activities from U.S. industry, the Nuclear Regulatory Commission, and the Department of Energy, and we recently dedicated funding to develop an Additional Protocol reporting system which will manage the burden better for both industry and the government to submit, manage, and vet reports.
Our Office of National Security and Technology Transfer Controls is led by Eileen Albanese. Is Eileen here? I can’t see with the lights. Anyway, in addition to all the day-to-day licensing, of course, this is the office that primarily handles issues and implementation and negotiation for our Wassenaar Arrangement which is the lion’s share of the source for our dual-use controls. It has done a massive amount of work in most of the categories involving the USML to CCL revisions and has provided technical expertise to all those negotiations. In particular, most recently, it is folks within this office who did a great job working through the very complex issues involving revisions to USML Category XII and the Commerce bookends dealing with… it’s largely known at night-vision items, but it’s also gyros, lasers, fire control devices. That’s a very complex topic that we will be speaking about in great detail during the morning Wednesday session. This is also the office that has taken the lead on renegotiating and working through the complex issues involving the Cyber-Intrusion Rule which has gotten so much public attention, and terrific thanks and credit to them for that and all the other work they do.
Our Office of Strategic Industries and Economic Security, or SIES, is led by Michael Vaccaro. It’s our newest office, or it’s the most revised office rather, and they’ve done a great job in processing over 14,000 600-series licenses just so far in 2016, and overall, they’ve processed more than 35,000 600-series licenses. They continue to support a lot of the outreach and training efforts both domestically and abroad with respect to the reform effort, doing site visits with respect to STA compliance, and unrelated or slightly differently, they continue to work with the Department of Defense and other agencies on the Defense Priorities and Allocations System regulations, and they also report to  Congress on the annual impact of offsets. Leveraging, and this is a significant amount of their time as well, leveraging this industrial technical expertise, they’re our principal coordinator for the Commerce Department, or rather the BIS, role with the Committee on Foreign Investment in the United States, and although I don’t get into CFIUS discussions, let me just say that they do an amazing amount of really good work in that area and provide a lot of value to the overall system.
Our Office of Exporter Services, which puts on this terrific conference and others like it of course, is led by Karen, and her staff has done a great job with this and all the other things that they do. I want to call out in particular its Regulatory Policy Division which is largely the topic around which… Their work is what we’re going to be speaking about most of the three days, which are the regulations, because literally everything that goes into the Federal Register is written and goes through this office, and special thanks to Hillary Hess for leading that office. I also want to call out Bill Arvin, one of our uber reg writers who is retiring after 42 years of government service, so if you see him, give him your thanks.
Eric gave you a few statistics on the activities, but as an example of how important education and outreach is to BIS, I think he said but I don’t recall anyway, we’ve answered almost 40,000 phone calls and e-mails through the help desk, have organized 92 ECR outreach events with nearly 10,000 participants, 21 domestic conferences in 12 states and participated in 15 others, participated in 13 AES compliance seminars, Eric mentioned the web hits at about 34,000 on our various online decision tree tools which are very popular, and also creating a series of webinars. Eric and Karen both mentioned the weekly conference call where I answer whatever questions that come in. I think we’ve done 217 of them, and I’ve lost track of the number of questions, but I’m sure there’s a number, but I want to thank Tim Mooney and Stephen Hall for shepherding those. Tim is largely working with Bill, the drafter of many of the draft answers.
Our Office of Technology Evaluation co-leads with the State Department and Interagency Working Group right now to create the single licensing system. We’re calling it STARS, Single Trade Application and Reporting System, which is in full swing. This group stood up a landing page on the export.gov webpage to direct new exporters to the appropriate agency for licensing information. They’re close to completing the data elements for the single licensing system, and then this will all manifest itself in a series of proposed rules that are published through the regular OMB data collection authority process for your comment. They also of course continue to be a really terrific source of data on all of the regulatory and policy issues that we administer, such as the Russia sanctions, Cuba issues, and the reform effort. Also in support of the Secretary’s goal of data in her strategic plan, they stood up a data portal on the BIS website, and visitors to that site can get a very good sense of the volume, quantity, and type of U.S. exports and related transactions. They work very closely with Customs and Border Protection on export clearance issues, primarily the automated export system, and our group, that really punches above its weight, played a major role in initiating the BIS license decrementation process in July of this year where exporters now receive from AES the balance of license values for every export shipped after July. It also continues to work through and clean up unnecessary requirements in AES such as removing NLR type C32 which was very confusing.
Another part of OTE of course surveys and assesses particular sectors affecting the defense industrial base because it has unique authorization to survey companies. It’s in the middle of assessments on industries of textile, footwear, apparel, semiconductors, the C-17 aircraft supply chain, rocket propulsion, and U.S.-printed circuit boards, so it’s a very active survey group, and that data is useful for policymakers around the government.
There are two offices that report to the Office of the Assistant Secretary: the Operating Committee, which is representatives of State, Commerce, Energy, and Defense to resolve disputes on licenses, and I want to thank Susan Kramer and new Chair Mi Yong Kim for terrific work in handling what are by definition all the hard cases. Last year, they had 329 cases before them, and of those, 36 were escalated to the Assistant Secretary-led Advisory Committee on Export Policy, which I chair, and where we as a group make a decision about whether to approve, deny, or condition. Something I’m particularly proud about in that group is that almost all those decisions have been unanimous in terms of whether to approve, deny, or condition, which shows that there is a right answer in most cases. The other office that reports is the End-User Review Committee which is now chaired by Joe Cristofaro. It handles Entity List actions. Some data on that: we published nine Federal Register rules that added about 200 entities and removed about 20 others based on requests. Eighty-one of those entities were added pursuant to continued maintenance of Russia-related sanctions, and another four were added with respect to their involvement in an elaborate scheme to divert, or rather avoid, U.S. export controls for sanctioned countries.
And then the last but not least, in my front office, I want to call out and give particular thanks to those who keep the Office of the Assistant Secretary running, obviously Deputy Assistant Secretary Matt Borman for whom EA would collapse if he were not there, Petrina Chase and Grace, my assistants, Kathleen Barfield, who’s right there, Steve Emme, and Bob Rarog, and this is a really fun, terrific, well-functioning, intelligent group of public servants, and for them and for all the other staff within EA and the rest of the government, I just want to echo the President who reminds us that our nation’s progress has long been fueled by efforts of selfless citizens who come together in service to their fellow Americans with the goal of making the country better, and it’s these civil servants who pour everything that they have into what they do, and they are the difference, and they are what keeps democracy running.
So with that note of thanks, I want you to have fun, enjoy the conference. Thank you for being here, and take care. Cheers.
Audience:  (Applause)
KW:  Oh, right. Yeah, so, by the way, we’re on to you.
Audience:  (Laughter)
KW:  Trust me. I know what you’re thinking. I was there for 17 years. I know what’s going on. I just wanted to leave you with: I’m on to everything that you’re thinking right now. So with that… and it’s actually a nice segue into what David Mills and EE are going to do, so… alright. Thank you.
KN:  So that concludes our opening plenary, and we will move on to… I believe there’s a break next, and then for the first round of breakout sessions. Thank you.
Audience:  (Applause)

Speaker Identification:
EH: Eric Hirschhorn  
PP: Penny Pritzker  


EH:  Ladies and gentlemen, I’m sorry to interrupt your dessert and coffee, but we would like a few minutes of your time. I’m Eric Hirschhorn. I have the honor of heading the Bureau of Industry and Security, and I’m privileged today to introduce someone who really needs no introduction, or at least not much of one, and that’s our keynote speaker.
Penny Pritzker is one of the most visible and influential Secretaries of Commerce since the department was created over a century ago. As our country’s chief commercial advocate, she’s traveled to more than 35 countries as well as many locations within the United States seeking to advance the President’s priorities of expanding growth and opportunity for all Americans. Before joining the administration, she founded and ran businesses in the real estate, hospitality, senior living, and financial service industries, so she’s spent a lot more time on really your side of the street than on the government side. She was also active in public service during that period including service on the Chicago Board of Education.
Given her enormous success in our Washington, D.C. circus, I’d been wondering whether her next gig might be with Ringling Brothers and Barnum & Bailey. She certainly has proven her ability both as a juggler and as a ringmaster over the past three years, handling simultaneously such disparate subjects as export controls, international trade missions, data privacy, patent legislation, weather satellites, spectrum allocation issues, the economy of Ukraine, the 2020 Decennial Census, and local economic development here at home. The President’s Export Control Reform initiative was well under way when she arrived three years ago, but she has put her shoulder to the wheel 110 percent to ensure that we have the resources and the political support to complete that massive task. Please welcome the Secretary of Commerce, Penny Pritzker.
Audience:  (Applause)
PP:  Eric, thank you very much for your kind introduction. I think I’m going to be like the elephants at Ringling Brothers. My day has come and gone. Anyway, Eric… okay. Bad circus joke, right?
Audience:  (Laughter)
PP:  Anyway, Eric, I can’t thank you enough for your tremendous leadership of the Bureau of Industry and Security. You’ve approached your role with both excellence and persistence, and the people in this room could not have asked for a better steward of BIS during this critical time in its history. And I must admit, Eric, over the last three and a half years, you’ve actually managed to make export controls both interesting and exciting for me.
See, the first time I met Eric, I was a total newbie when it came to the work of BIS, and Eric knew that I’m a visual person. I kept repeating this: “I’m a visual person. I’m a visual person,” in the office, because I was struggling to understand, and so to help me understand the challenges that are faced by exporters, he showed me these two aircraft switches. Now, they look the same, right? They even serve the same simple function: turning a circuit on and off. But before Export Control Reform, one had no restrictions, and the other had the same restrictions as an entire military aircraft. Now please do not ask me to tell you which one is which.
Audience:  (Laughter)
PP:  But clearly, with that example, it’s easy to visualize why our export control system had room for improvement. Three and a half years later, not only do I finally have a solid grasp on the intricacies of BIS’s work, but this administration has successfully implemented Export Control Reform. Today as I speak to you for the last time, I hope to leave you with a clear understanding of the two critical roles BIS plays in our country: protecting our national security and advancing U.S. foreign policy goals around the world.
So let me begin with national security. As you know, early in this administration, President Obama and the Secretaries of Commerce, Defense, and State recognized the urgent need for a broad-based review and comprehensive reform of our export control system. Over the last seven years, we have taken significant steps to rationalize our controls, increase interoperability with our closest allies, reduce incentives for companies in allied countries to avoid U.S. content, services, and technologies, ensure our government is focused on the transactions, end-uses, and end-users that matter the most, and make regulations more reliable and predictable.
We’ve revised the military and satellite controls on the U.S. Munitions List and the corresponding controls on the Commerce Control List. We’ve also published rules that help you reach quicker, more reliable conclusions about applicable Export Control Reforms. Our goal has been to rationalize the system and streamline the licensing process, but in the process, we’ve also reduced the amount of paperwork and applications you have to file, making it easier for you to sell your items around the world.
As you all know, reform alone is not sufficient. An Export Control Reform system is only as good as its enforcement, and during the Obama administration, we have taken concrete steps to make enforcement of our laws more focused, more efficient, and more transparent. Our information triage unit has helped us to make better decisions about proposed exports and helped us prevent diversions of controlled items.
We also launched the Interagency Export Enforcement Coordination Center to increase communications and resolve potential conflicts among various federal enforcement agencies. In addition, BIS has made the civil penalty process more predictable and more transparent to the public.
Even with this progress, there’s still much more work to be done, and I know you’ve heard me say this before, but I have to say it again. Export Control Reform is an ongoing effort, and in order for us to do well and deal with emerging threats and new commercial applications of your technologies, we need your help. This is truly a partnership. You know your products, your competitors’ products, your customers, and your marketplace better than we can ever know it. We need you to look out for questionable sales and let us know if an inquiry or a proposed sale seems suspicious to you. We need you to help us understand when we have needlessly restricted a product like the two switches that I have in my hand.
Let me give you an example of where you guys have really helped us. When we attempted to formulate an objective parameter to distinguish between military and civilian aircraft engines, we proposed a distinguishing feature: whether the engine is capable of flying upside-down. Well, imagine our surprise when industry told us that most civil aircraft engines are indeed capable of some flying upside-down. Now I’m sure none of us are looking forward to that experience.
Audience:  (Laughter)
PP:  Certainly not on our flight home after this conference.
Audience:  (Laughter)
PP:  Anyway, we fixed the entry with your input, and now we have a much clearer set of controls to distinguish military from civilian aircraft engines. Clearly your partnership was essential not only to that determination but to our overall success. Your presence and your voice matter tremendously to us, and that will not change.
Now I want to turn to BIS’s second key mission which is equally as important: advancing U.S. foreign policy goals around the world. So for example, BIS plays a critical role in our country’s policies towards Russia. As part of the administration’s effort to sanction their violation of international law through their invasion of Crimea and their misconduct in eastern Ukraine, BIS imposed targeted restrictions on exports to Russia. In looking at the data, those actions are clearly having an effect.
At least year’s conference, I spoke at length about BIS’s role in normalizing relations with Cuba, kind of the opposite. In the past two years, we’ve amended our regulations six times to help implement the President’s historic policy to engage and empower the Cuban people. Since 2015, our department has authorized over $6 billion worth of exports to Cuba, ranging from medicine to agricultural products to items that ensure the safety of civil aviation. Our most recent action allows sales directly to the Cuban people, and although more steps are needed, including lifting the embargo, the changes made by BIS are helping to unlock Cuba’s economic potential and create opportunities for its people.
As you can see, the leadership of the Bureau of Industry and Security has been and will remain critical to protecting our national security, strengthening our economy, and advancing our country’s interests. All of us in this room will miss Eric’s leadership when he departs, but he will leave you in the capable hands of BIS’s experienced and talented professional career staff including Deputy Under Secretary Dan Hill, Deputy Assistant Secretary Matt Borman, and Deputy Assistant Secretary Rich Majauskas.
Now and into the next administration, I have great confidence in this team, and you should as well. Three and a half years ago, after Eric handed me these two aircraft switches, I understand, and I hope you do as well, the critical role of BIS. They ensure that our technological superiority is not employed against us on the battlefield. They help us create a level playing field so that all companies play by the same rules. They serve as a key steward of our nation’s security – our national security, our homeland security, our cyber security, and our economic security. Put simply, with your partnership, BIS helps keep America safe. Thank you very much.
Audience:  (Applause)

Speaker Identification:
EH: Eric Hirschhorn  

EH:  Well thank you, Dan, and good morning, everybody. I have one bit of bad news for you, Dan. I actually did your evaluation last week.
Audience:  (Laughter)
EH:  So you’re too late, but I do appreciate those kind words.
I also want to thank Karen Nies-Vogel, Rebecca Joyce, and our entire BIS team, as well as the many people from elsewhere in BIS and U.S. government colleagues who’ve worked on and contributed so much to this conference.
After listening to that fabulous rendition of the Star-Spangled Banner this morning, I decided that I have a gift that I’m going to give to everyone in the room, which is that I’m not going to sing.
Audience:  (Laughter)
EH:  I’d like to start by introducing our BIS management team. I’ll ask each of you to stand when I call your name, but please, audience, hold your applause until I’ve finished.
We have Assistant Secretaries David Mills, Kevin Wolf, Deputy Under Secretary Dan Hill, whom you’ve already heard from, our new Chief of Staff Aparna Paladugu – I don’t know if she’s here yet. She’s actually working out something else I have to do between now and noon. Deputy Assistant Secretaries Matt Borman and Rich Majauskas, our Chief Financial Officer and Director of Administration Carol Rose, Director of Congressional and Public Affairs Brett Hewitt, and our Chief Information Officer, whom you’ve already met, Roger Clark.
Audience:  (Applause)
EH:  I’d also like to thank all our colleagues from other departments and from the Congress who were involved in export controls, and of course my own colleagues at BIS for all their hard work and success on the President’s Export Control Reform initiative. It is an honor to work with each of you.
Six years ago at this conference, the President outlined his plan to fundamentally reform the U.S. export control system. Many said that the plans were too ambitious to succeed. Previous administrations had tried with at most only moderate success. I am happy to report that thanks to the hard work and support of many talented public servants and the support of the public and the regulated community, we have succeeded.
I know we’ve described the primary purpose of the effort many times, but let me briefly repeat it so that you all have a concise statement of both the vision to guide our future efforts and the standard you can apply to assess our own efforts in retrospect:
To enhance our national security and foreign policy objectives, the export control system needed to be reformed and needs to be regularly revisited and revised in the future in order to strengthen our military interoperability with NATO and other close allies, reduce the regulatory burdens on joint development and production among those countries by reducing incentives to design out or avoid U.S. content, to focus our government’s own limited resources on the end-users, end-uses, and items of the greatest concern, and finally, improve the reliability and predictability of the regulations so that your exports and our enforcement can also be reliable and predictable.  
All the accomplishments of the past seven years in pursuit of this vision have set the stage for the ultimate goal, one we have not reached but one that will be reached, which is the eventual creation of a single export control system with a single set of regulations administered by a single agency. When that is accomplished, the regulatory friction and burden caused by the need for export controls will be at their lowest possible levels.
Revising the control lists and the attendant regulatory structure was a massive effort not only for many dedicated government officials, but for industry as well. In order to be transparent and to have the benefit of industries’ expertise regarding our reform ideas, the Departments of Commerce and State, working closely with the Department of Defense and other agencies, published ideas for change as proposed rules over the course of the last five years. We’ve received more than 600 public comments on those proposals. Many of the suggestions were adopted and made for better final rules, and we thank you again, all of you, who took the time to comment. You really did make it better. I hope you all recognize that.
As you know, we’ve gradually been moving less-sensitive military items and commercial space-related items to the jurisdiction of the Commerce Department from that of the State Department. This movement has been a centerpiece of our reform effort. Most of the items that moved as well as most of the dual-use items that Commerce already controlled are now eligible for export to NATO and other close allies without a license under the conditions of license exception Strategic Trade Authorization (STA). Many other license exceptions that are part of the Export Administration Regulations are now available for former U.S. Munitions List items; for example, exports directly to the governments of those countries, exports of replacement parts, limited-value shipments, and temporary exports.
We understand that learning the parameters of these new exceptions and the new framework is complicated and time-consuming, but we are confident that once exporters and reexporters understand the scope of the exceptions and the new rules in general, their overall regulatory burden will be reduced significantly. Again, if we are wrong, and as I like to say, the government isn’t always right, at least not the first time, you need to let us know so that we can continue to improve the utility of our regulations.
Even for trade that requires a BIS license, the regulatory burdens under the EAR are significantly less than those in the International Traffic in Arms Regulations. The EAR have de minimis provisions, for example, that allow more non-U.S. companies to focus on price and quality in making purchasing decisions rather than concentrate on avoiding U.S. content, services, or technology for fear of entanglement in our regulatory requirements. The movement of items from the ITAR to the EAR should greatly improve the ability of U.S. companies to collaborate with non-U.S. companies in allied countries on research projects and joint development which in turn enhances our collective security.
The improvements of the reform effort go far beyond the availability of de minimis provisions. The EAR do not have import licensing requirements, for example, so non-U.S. companies dealing with items that have moved to the EAR no longer need worry about notifying the U.S. vendor when a component is shipped back to the U.S. for repair. The EAR also don’t regulate defense services or brokering, thus reducing a significant compliance burden for many, many companies. We do regulate the export, re-export, and transfer of commodities, technologies, and software, but not most other acts pertaining to such items.
Our licenses and license exceptions are less burdensome than the Technical Assistance Agreements and Manufacturing License Agreements required by the ITAR, and for reexports of items subject to the EAR, non-U.S. companies can use the same electronic licensing system, SNAP-R, as U.S. companies.
We’ve made BIS licenses more flexible so that they can be used to authorize trade by and among multiple parties. Also, if you have a transaction involving EAR items that will be used with or in ITAR items, you have the flexibility to get a single license from the State Department rather than one from us and then another from State.
Further, the State Department’s ITAR require a purchase order in order to apply for each license, but Commerce does not. This means that your applications to BIS can cover multiple purchase orders over longer periods, ordinarily four years, which in turn reduces the total number of applications that you have to file. As a result of such flexibilities, applicants now have more incentives and opportunities to work with licensing officers to meet the needs of what sometimes are quite complex fact patterns. One company, for example, had more than 1200 separate licenses to authorize its activity on a particular program. After thinking through the common denominators for these controlled activities, we were able to work with that company to rewrite the authorizations and conditions so that the entire program is now covered by just four omnibus licenses.

Complying with the Export Control requirements associated with the program is now much easier for all involved, and at the same time, reviewing and authorizing the transactions has become less burdensome for the government.
We’ve also clarified important terms and definitions to make the system easier to use and understand. One important change affecting non-U.S. companies was to clarify the scope of technology releases, including deemed reexports. Such changes are part of our effort to harmonize to the extent possible the EAR and the ITAR to reduce regulatory burdens that are caused solely by the structural and definitional differences between the two sets of rules.
As for the numbers, we’ve seen great changes to how U.S. companies export less-sensitive defense items and commercial spacecraft items. Since October 2013, when the first two USML categories rewrites became effective, the Department of State has seen a 57-percent reduction in licensing volume, and this includes a 67-percent reduction for the largest categories of licenses by volumes, principally parts and components for military aircraft and military gas turbine engines, as well as an 81-percent reduction in licenses for commercial space-related items. Such data reflect not only the reduction in actual licenses, but also in regulatory burdens that exist under the ITAR but not the EAR.
At BIS, we’ve received more than 37,000 license applications for items that have moved from the ITAR to the EAR. Our average processing time for these since October 2013 is about 17 days, which is in line with the average processing time at State when such items were subject to the ITAR. Of course, the processing time for items now exportable under license exceptions is zero. U.S. exporters have made almost 250,000 shipments of transitioned items valued at more than $15 billion under BIS authorizations, so you can see this has not been an academic exercise.
We’ve also worked hard to create tools and provide training opportunities so that exporters and re-exporters can better understand and comply with the regulations. For example, we’ve created online decision tree tools that allow exporters to apply the order of review, definition of specially designed, License Exception STA, and the de minimis and direct product rules to their transactions. These tools request answers to a series of questions to apply applicable concepts to the specific facts of your transactions. In 2015, these tools received more than 33,000 hits, and their use continues to grow.  
We’ve conducted extensive outreach in the United States and abroad. We estimate that our outreach programs have resulted in over 86,000 interactions. We’ve conducted 227 different events for industry, including the weekly teleconferences on Export Control Reform topics that Assistant Secretary Wolf hosts, as well as the seminars that we hold throughout the country and overseas and the webinars that we produce. Since beginning the weekly teleconferences, we’ve offered more than 200 sessions heard by more than 15,000 listeners in the United States and elsewhere.
Turning to enforcement, when I started at BIS, I characterized my agenda with three words: efficiency, education, and enforcement. As I’ve said repeatedly, without strong enforcement, those who expend energy and resources to comply with our rules are put at a disadvantage vis-à-vis those who flout or are unaware of those rules. At my first Update Conference as Under Secretary in 2010, I described Assistant Secretary for Enforcement, David Mills, as the skunk at the picnic.
Audience:  (Laughter)
EH:  None would dispute that over the intervening years, he has lived up to that name.
Audience:  (Laughter)
EH:  While the President’s Export Control Reform initiative has proceeded full-steam ahead, David and his able staff of special agents and analysts have aggressively pursued a robust but even-handed enforcement agenda. Their work guards against diversion risk and ensures appropriate consequences for those who violate our controls including culpable individuals as well as entities. The accomplishments and successes of BIS enforcement over the last seven years will be described more fully tomorrow by David and his team, but they have left no doubt that enforcement of the controls on items transferred from the U.S. Munitions List to the Commerce  Control List is in good hands.
Of course, the other federal law enforcement agencies responsible for policing exports continue to be involved in the enforcement of 600 and 500 series transfers as well as dual-use exports, but BIS enforcement adds further value because it is the only federal law enforcement agency whose sole focus is the enforcement of export controls and whose enforcement staff, agents, and analysts are entirely dedicated to that purpose.
Administration, licensing, and enforcement are most efficiently and successfully performed when housed under the same roof. From determining the proper classification of an item to convincing a U.S. Attorney that a prosecution of its illegal diversion is in the national security interests of the United States, our agents, analysts, and licensing officers work together seamlessly to carry out our unique mission.
These are some of the unique national and economic security benefits we have achieved by working together, government and industry, to make Export Control Reform a reality. Our partnership and dialogue with the exporting community has been indispensable to creating clear and predictable rules that increase national security and at the same time allow you to reap the benefits of reform. I know that this very positive dynamic will continue and increase in the future. Please take advantage of this conference, ask questions, challenge us, and thank you all for attending.
Audience:  (Applause)
EH:  Let me now take a moment to introduce our next speaker who is Kevin Wolf, our Assistant Secretary for Export Administration. Kevin has been a prime mover of the reform effort. His efforts, dedication, and energy have driven and nurtured this effort. We could not have done it, indeed we could not even have begun it, without his participation and without his leadership. He’s a distinguished graduate of the University of Missouri and the University of Minnesota, and he spent many years working on export control and embargo matters in private law practice before we lured him into the Obama administration. It’s an honor and a pleasure to have him at BIS and to hear from him this morning. Please welcome Assistant Secretary Kevin Wolf.
Audience:  (Applause)

   
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