U.S. SECRETARY OF COMMERCE

PENNY PRITZKER DELIVERS

REMARKS AT THE

BUREAU OF INDUSTRY AND SECURITY ANNUAL UPDATE CONFERENCE

November 2, 2015

Thank you, Eric for your introduction and for your stellar leadership of the Bureau of Industry and Security. From my first day in this job, you have helped me come to appreciate the work of BIS, the importance of export controls, and the necessity of a strong partnership between our department and America’s exporters.  I also want to thank the entire BIS team, as well as our partner agencies, for their work to advance the President’s Export Control Reform initiative and to operate our system of export control licensing, regulations, and enforcement. It is always great to spend time with our private sector leaders. I am sorry I had to miss last year’s conference, but I am thrilled to be back.

BIS is an agency with little visibility in the public eye, but with an enormous influence on the safety of our nation and a tremendous impact on our country’s competitiveness. Today, I want to address two areas where BIS has been an absolutely essential leader in advancing the priorities of the Department of Commerce and the vision of President Obama: Export control reform, and our evolving relationship with Cuba.

As you know, early in this Administration, the President 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. Our objective has been to increase interoperability with our closest allies, reduce incentives for non-American companies to avoid U.S.-made content, services, and technologies, and ensure our government is focused on the transactions, end uses, and end users that matter the most.

Given the strategic importance of these controls, teams across the federal government have worked to implement smart reforms – with BIS playing a major role and with unprecedented collaboration with private sector leaders like you. Thus far, we have revised 15 out of 21 U.S. Munitions List Categories, so that if an item does not perform a critical military function, its control is moved from the State Department’s munitions list to the more flexible Commerce Control list. We have proposed updates in three additional categories, and our next set of revisions is expected to be final by early next year.

Our goal is to streamline the licensing process, rationalize our system, and reduce the amount of paperwork and applications you have to file with federal agencies – all of which will make it easier for your firms to sell your products abroad to our allies. I recognize that there have been short-term pains stemming from this process. But we are confident that the long-term gains of a reduced regulatory burden on your companies will make the temporary disruption worthwhile.

Export Control Reform is an ongoing effort. BIS and the Commerce Department will keep improving and partnering with you to build a more efficient, more dynamic system that adjusts to emerging threats and to new commercial applications of your technologies. We will keep listening to the voice of industry on how new rules are playing out and impacting your businesses. For example, this spring, we sought and received considerable feedback about regulations for military aircraft and engines, issued in 2013 – about how these rules are working or not working, and where updates may be necessary. In the coming months, the Administration will utilize this input to design more tailored and effective controls in this sector. We will also stay focused on proposals to revise our dual-use controls – recognizing the demand for reform beyond the defense trade.

In order for our reform efforts to be successful, however, we need your help. You know your products, your competitors’ products, your customers, and your marketplace better than we do. We need you to look out for questionable sales, and to let us know if an inquiry or a proposed sale seems suspicious to you. Our partnership is essential to our success. Your presence and your voice matter tremendously to us. 

Moving forward, we will aggressively maintain our controls on prohibited end uses, end users, and destinations. We will build on BIS’ two recent landmark victories: one case that ended with the largest criminal penalty assessed to date in a sanctions investigation, and another that concluded with a guilty plea from a network that smuggled $65 million worth of electronics to Russia in violation of U.S. laws. Finally, we will continue to do as much training, education, and outreach as possible, especially with small and medium-sized enterprises. Already, in the past two years, BIS has led or participated in over 300 outreach events, created online tools for exporters, spoken with more than 70,000 individuals or companies, and held regular calls with industry on Export Control Reform.

Taken together, our outreach, our rules changes, and our reforms speak to a broader message about the vital importance of BIS’ work: that export controls do not exist simply as another set of regulations for industry. They exist to ensure our technological superiority is never employed against us on the battlefield. They exist to ensure a level playing field, so companies that play by the rules do not lose out to those who profit from ignorance or willful disregard of the rules. They exist to ensure our security – our national security, our homeland security, our cybersecurity, and our economic security.

Beyond export controls, BIS has been a key voice in a far-reaching change for our country: the normalization of our relations with Cuba. As you all know, last December, President Obama announced the most significant shifts in U.S. policy toward Cuba in more than half-a-century. This historic announcement is rooted in a fundamental desire to employ a strategy of engagement over isolation, in order to improve the lives of people in both of our nations. We want to help all Cubans plug into the global economy and enjoy a higher standard of living, while giving Americans an opportunity to learn about Cuba and develop relationships with the people of an island just 90 miles from our shores. We want President Castro and his government to make it easier for Cuban citizens to trade and travel more freely, to enjoy the fruits of their labor, to access the internet, and to be hired directly by foreign companies. Doing so will pave the way for a more open relationship between our countries, and empower the Cuban people to achieve greater prosperity.

I was proud to lead a U.S. delegation to Cuba last month to deliver this message to government leaders. Our trip had three primary purposes: 1. to get to know our government counterparts, who we have not dealt with in more than 50 years; 2. to better understand how the Cuban economy works; and 3. to lead a regulatory dialogue between U.S. and Cuban officials. From the start, with the leadership of Matt Borman and Tony Christino, BIS has been part of a select interagency team developing and implementing key components of the President’s new approach. In close coordination with the Treasury Department, BIS has revised a series of regulations that govern American trade with Cuba.

Our changes include authorizing: Exports to entrepreneurs and other private sector actors in Cuba; Exports by U.S. persons traveling to Cuba for business or academic work; and Exports to improve internet connectivity and usage. Our changes mean that a private sector or state trade delegation no longer requires federal permission to travel to Cuba, and U.S. companies no longer need federal approval to send equipment to private agricultural cooperatives in Cuba. Our changes will support the safety of civil aviation, facilitating the establishment of regular commercial flights between the U.S. and Cuba, and our travel-related updates will make it easier for Americans to visit the island.

These all represent positive steps forward. But the U.S. embargo – which only Congress can overturn – limits what the President, our Department, and BIS can do in altering our approach. Let me be clear: our Administration strongly supports lifting the embargo, and we hope Congress will repeal it in the near future. In the meantime, we continue to support greater economic opportunity for the Cuban people. And BIS will remain on the front lines of the effort to build a different relationship – for the benefit of the families, businesses, exporters, and economies of both nations.

On Cuba, on export controls, on a variety of steps to strengthen our economy and advance our country’s interests – BIS’ leadership has been critical. Yet this agency cannot meet its goals, deliver its message, and implement more reforms alone. We need the help of you in the private sector. We need your help to educate your suppliers, employees, and customers on the work of BIS and the progress of Export Control Reform. We need you to be our allies in realizing the President’s vision: To streamline the process for exporters at home and our allies abroad, and to create a 21st century export control system that supports our economic competitiveness and our national security.

BIS and the other export control agencies will continue to lead the way, and we will rely on your ongoing support to keep America safe and strong. Thank you for being here.

Conventional Arms Threat Reduction

Department of State Director Ann K. Ganzer

  Remarks for the 2015 Update Conference

November 2-4, 2015

(as prepared)

Good morning.  I’d like to thank Under Secretary Hirschhorn for hosting this year’s event, and for inviting me to participate in this discussion.  I welcome the opportunity to highlight some of the ways we at State’s Bureau of International Security and Nonproliferation (ISN) are supporting effective export controls around the globe within the context of the Administration’s export control reform initiative.
First a quick word about the ISN Bureau.  We in ISN are responsible for managing a broad range of U.S. nonproliferation polices, programs, agreements, and initiatives.  The proliferation of Weapons of Mass Destruction (WMD), their delivery systems, and advanced conventional weapons, as well as related materials, technologies, and expertise -- to terrorist groups or countries of concern-- is a preeminent challenge to American national security.  Combating this threat through bilateral and multilateral diplomacy is one of the highest priorities of the Department of State.  An important part of this effort involves continuously working with likeminded countries to maintain effective export controls.
On the export control reform front, I understand Kevin Wolf gave you a comprehensive rundown yesterday.  You all know DDTC is responsible for review of munitions licenses – Brian will talk about that - in ISN we handle the foreign policy review, including staffing within the State Department, for Commerce licenses.  
State ISN has successfully adapted to an increased workload brought upon by growth in the number of 600-series exports.  A key component of this has been the deployment of the single USG license processing system - “USXports” - to adjudicate all Commerce license applications.  For Fiscal Year 2014 State has reviewed 4800 cases for 600-series items.  We continue to work to identify the types of cases that the Department does not need to review in order to speed up our response time to applicants.  Finally we continue to strive for consistency.  Barring any major policy changes, if you never had a problem exporting an item when it was regulated by the ITAR, you should not be experiencing any problems or delays exporting it to the same end use and users now that it is controlled by Commerce.
One of the basic tenets of the President’s export control reform initiative is to honor our commitments to the multilateral export control regimes, the Australia Group (AG), the Missile Technology Control Regime (MTCR), the Nuclear Suppliers Group (NSG), and the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies (WA).  Multilateral standards underpin the effectiveness of national export control measures and help level the playing field for international suppliers of strategic goods and technologies.  With this in mind, the State Department works with the interagency to strengthen U.S. controls and bolster export controls around the world through bilateral engagements.  In addition, the United States works in partnership with multilateral regime members to assist other countries in developing effective national strategic trade control systems.  This helps ensure that bad actors will not be able to shop around and obtain from elsewhere technology that is denied by the United States.

Our work with regime partners is a dynamic process that needs to account for technology innovations and proliferation trends in order to refine regime guidelines and their control lists to make continual progress in fighting proliferation.
A quick overview of what has been happening in the regimes:

Nuclear Suppliers Group (NSG)

The NSG 36th Consultative Group (CG), Information Exchange Meeting (IEM), and Licensing and Enforcement Experts Meeting (LEEM) took place on June 1-3, 2015, in San Carlos de Bariloche, Argentina.  These meetings were followed by the Plenary on June 4-5 in the same location.  Extensive discussion took place on criteria for membership, adherence, and proposed enhancements to NSG outreach activities.  The NSG also discussed possible membership of India in the Group.  
    Presentations in the information exchange and licensing meetings included topics such as the Iranian nuclear program, the DPRK nuclear program, trends in denial notifications, the role of financers and insurers in nonproliferation and export control, additive manufacturing, fuel cycle planning, and research reactors.
The Plenary endorsed thirteen recommendations put forth by the CG.  

Missile Technology Control Regime (MTCR)

During the October 2015 Plenary in Rotterdam, MTCR Partners highlighted the importance of the Regime working to address regional proliferation, adopted changes to the control list, and noted the importance of placing greater focus on the serious risks and challenges posed by intangible technology transfers (ITT), and proliferators’ use – or misuse - of brokering, transit, and transshipment.   Partners emphasized the importance of catch-all controls for non-listed items and nonproliferation-related visa vetting.  They also exchanged information on best practices in export control implementation and enforcement, and discussed the missile activities of the DPRK and Iran and implementation of relevant UN Security Council Resolutions (UNSCRs).   Partners also appealed to all states to support the nonproliferation aims of the Regime by adhering unilaterally to the MTCR Guidelines and Annex.   In 2015, new export controls were agreed in some areas including pneumatic and fly-by-light flight control systems for MTCR Category I systems and gel propellant rocket motors exceeding the MTCR total impulse criterion.  Partners also further clarified existing controls with respect to fiber/tow-placement machines and tape-laying machines, staging and separation mechanisms, software controls for MTCR Category I systems and several sub-systems, and several propellant substances.  Partners also agreed to the addition of a General Minimum Software Note that clarifies that the approval of any Annex item for transfer also authorizes the export to the same end user of the minimum software required for the installation, operation, maintenance, or repair of the item to ensure its safe operation as originally intended.

Australia Group (AG)

On the Chemical and Biological Weapons, or CBW front, the Australia Group or AG continues its effort to impede the flow or supplies and technology to chemical and biological weapons programs around the world.  The regime held its thirtieth anniversary plenary in Perth, Australia, in June 2015, where AG members agreed to intensify their focus on emerging technologies that can be used for CBW and expand outreach to non-member countries and industry and academic organizations to highlight the threat posed by state and non-state actors seeking to acquire the know-how to develop CBW.  Along those lines, the AG members also agreed to enhance their national efforts to control intangible transfers of AG-listed technology and to continue to share information on their approaches to visa-vetting and proliferation-sensitive brokering services.  Members also voiced their concerns about continued use of chemical weapons in Syria, and continued indications of CBW activities in the DPRK and elsewhere in the Middle East.
In addition, technical experts met during the June plenary and a February 2015 intersessional meeting to refine the AG control lists.  This culminated in a major update to the AG’s controls for human and animal viruses and bio-safety cabinets, the addition of a new chemical to the regime’s precursor control list, and revisions to the control for spray-dryers.

Biological and Toxin Weapons Convention (BWC)

In the specific area of the life sciences and biotechnology, the Australia Group – whose participants are all Parties to the Biological Weapons Convention (BWC) – serves to reinforce the Convention.  
BWC Parties are continuing to work to develop common understandings and best practices for implementing the Convention, including through export controls, by gathering information on national implementation, seeking more clearly to define what implementation requires, and providing targeted assistance to strengthen implementation around the world.   The AG works to ensure its members fulfill their legally-binding obligations under Article III of the BWC, and the two are necessary and mutually reinforcing elements of the overall regime to stem the proliferation of biological weapons.

Wassenaar Arrangement

     The Wassenaar Arrangement continues to keep pace with advances in technology and market trends.  Participating States have worked to make the existing control lists more readily understood and user-friendly for licensing authorities and exporters, and to ensure the detection and denial of undesirable exports.  The Arrangement continues work on a comprehensive and systematic review of the Wassenaar Lists to ensure their continued relevance.
In 2014, the Wassenaar Arrangement adopted new control parameters for machine tools that are less subject to environmental conditions.  Participating States also made a number of changes to controls on electronic equipment to take into account technological developments.  The Arrangement adopted new controls on fiber laser components.  In the area of aviation and propulsion, new controls were adopted on commercial satellite components, revised controls that better identify unmanned aerial vehicles of military significance, and finally, clearer controls on jet engine hot section production equipment and related technology.
Significant efforts have also been taken to promote the WA and to encourage voluntary adherence to the WA’s standards by non-WA members.  The WA continues to undertake outreach in support of its aims and objectives, in particular through post-Plenary briefings, interaction with industry, and bilateral dialogues with non-WA members.
Participating states in each of these consensus-based groups have voluntarily committed to observe coordinated export control guidelines and control lists.  These guidelines and control lists increasingly are observed by non-member adherent countries; some of the regime lists also feature in UN Security Council Resolutions (UNSCRs) on Iran and North Korea.  They are also implicitly endorsed by UNSCR 1540, which requires all UN Member States to have nonproliferation export controls to prevent the proliferation of weapons of mass destruction or their means of delivery and to prevent their acquisition by terrorist groups or other non-state actors.  As a founding member and strong supporter of these regimes, the United States welcomes expanding acceptance of their multilateral export control standards.
All four regimes continue efforts to expand their outreach and dialogue with non-participating states.  These efforts further the regimes’ nonproliferation objectives through technical interactions with unilateral adherents as well as pursuing greater international acceptance of the guidelines and control lists among the broader international community.  At the same time, there has been strong interest by some countries to become part of the regimes.

UN Security Council Resolution 1540

As many of you know, U.N. Security Council resolution 1540 (2004) requires all states to establish and maintain effective controls on the export, transit, transshipment, and re-export of WMD- and delivery system-relevant items, as well as on related trade services.  In 2015, the UN’s 1540 Committee has nearly completed compiling a set of effective national and international practices for implementing the resolution, including several submissions on export controls, most of which already appear on its website.  The 1540 Committee also has completed its initial update of the matrix of laws, regulations, and other measures taken to implement the resolution, including those on export controls, by all 193 UN member states, which will become publicly available by the end of the year.  Notably, the 1540 Committee continues to enhance its efforts to get states to work with industry, especially through the “Wiesbaden Process” meetings hosted by Germany, a process the Committee will likely expand through cooperation with an Asian partner.  These meetings play an important role in the Committee’s efforts to get industry input into its comprehensive review, which it will complete by the end of 2016 and will produce recommendations to guide the work of the Committee through the end of its current mandate in 2021.

Arms Trade Treaty (ATT)

130 countries (including the United States) have signed the Arms Trade Treaty or ATT, of those 77 have ratified.  This treaty is about keeping weapons out of the hands of terrorists and rogue actors.  It is about reducing the risk of illicit international transfers of conventional arms that will be used to carry out the world’s worst crimes.  It is about keeping Americans safe and keeping America strong.  It is about promoting international peace and global security, and about advancing important humanitarian goals.
This Treaty is not about taking away domestic freedoms.  The treaty is fully consistent with the rights of U.S. citizens, including those secured by the Second Amendment.  The ATT recognizes the freedom of individuals and states to obtain, possess, and use arms for legitimate purposes.  This treaty reaffirms the sovereign right of each country to decide for itself, consistent with its own constitution and legal requirements, how to deal with conventional arms exclusively within its borders.
Let me add one other thing that this treaty is not.  It is not about limiting a country’s sovereign right to conduct responsible arms transfers.  Indeed, the ATT is a trade regulation treaty focused exclusively on the international trade in conventional arms.  It aims to create a global framework for countries’ responsible national regulation of the international transfer of conventional arms, which the treaty recognizes as a legitimate activity that supports countries’ national security and commercial interests.
The ATT compels States Parties to undertake rigorous national assessments when making decisions to export weapons so that, in the future, rather than conventional arms being secreted out of warehouses and into the unknown, a government will need to have a control system in place to adequately review the request to authorize the export of such arms to another country.  In this way, the ATT helps establish a common international standard for regulating the international trade in conventional arms.  The Arms Trade Treaty won’t change what the U.S. does on a day-to-day basis to implement effective export and import controls on conventional arms and address illicit shipments of conventional arms.  Rather, it will induce other countries to come up to our standards.  The goals of the ATT are important goals that are also aligned with our foreign policy and national security interests.  

Export Control and Related Border Security (EXBS)

The Export Control and Related Border Security, or EXBS, program is the flagship initiative of the U.S. government designed to assist other countries in developing effective national strategic trade control systems.  EXBS is active in 67 countries worldwide and conducts each year approximately 250 outreach and capacity building activities to support partner countries in developing modern legal and regulatory frameworks; effective licensing systems; government-to-industry outreach mechanisms; stronger enforcement capabilities; and improved interagency and international coordination and cooperation.  Partner government officials, including parliamentarians, senior executive branch officials, the judiciary, and front-line licensing and enforcement personnel take part in these capacity building efforts.   
For example, in 2015, EXBS efforts led to the adoption of a sweeping new export control law in Tajikistan and resulted in significant progress on the Philippine Strategic Trade Management Act (STMA), which is pending Parliamentary approval.  EXBS experts have also provided input into new laws being drafted in Kazakhstan and Morocco.   In addition, over the past year, EXBS assistance has led to the adoption of new control lists in Serbia and the Kyrgyz Republic.  EXBS also supported a joint industry outreach seminar with the European Union in the United Arab Emirates that was attended by a number of private sector representatives from the region.  EXBS also hosted a regional conference on Countering the Financing of Proliferation of WMD to promote the establishment of national measures, such as targeted financial sanctions and better interagency coordination mechanisms, to combat illicit trade in goods and technologies that may contribute to development of weapons of mass destruction.  Finally, EXBS provided funding to support the efforts of the World Customs Organization (WCO) to develop a long-term strategic trade controls enforcement program.
EXBS outreach to partner governments, multilateral and international organizations, private industry, and other donors reduces the risk of proliferation of weapons of mass destruction (WMD) and the diversion of conventional arms.  This type of engagement and cooperation provides us with obvious security benefits while at the same time preserving our economic competitiveness by promoting common levels of control between the U.S. and other countries.
One last point that I wanted to make is that export control license review policies are subject to change and take into account new foreign policy developments.  Let’s take for example Russia.  The President announced on April 28, 2014 that, in response to Russia’s actions in Ukraine, the Department’s Directorate of Defense Trade Controls (DDTC) and Commerce/BIS continue to deny applications to export or re-export high technology defense articles or services that could contribute to Russia’s military capabilities, including its ambitious defense modernization plans.  We have instituted these export controls in response to Russia’s actions to destabilize Ukraine, and we will not reconsider the restrictions until Russia abides by international law and its commitments under the

Minsk agreements.
I would like to close by reiterating that the regimes and treaties I’ve discussed this morning continue to be dynamic.  Every year changes to the control lists and guidelines based on ever-changing and -advancing technology and proliferation trends are debated, negotiated, and agreed upon.  Every year changes in the regime control lists lead to updates of export control regulations not only in the United States, but around the world.  Multilateral export controls must be continually improved, so that national security concerns are balanced with economic considerations.  Finally, the treaties and United Nations Security Council Resolutions we discussed demonstrate a growing acceptance by the international community of the role of export control in addressing shared concerns.
The U.S. export control reform effort has helped us to better focus our attention on transactions that merit higher scrutiny while continuing to carry out our international commitments and obligations.   In the end US export control rules is, and will continue to be, recognized as the “gold standard” and our actions will be dictated by national security and foreign policy objectives.
Thank you.

Speech of David W. Mills

Assistant Secretary of Commerce

for Export Enforcement

BIS Annual Update Conference, November 3, 2015

It is a great pleasure to be speaking for the sixth time at BIS’s annual Update on Export Controls and Policy Conference.  Over these past six years, I have been part of an incredible era of change at BIS, especially as a result of the President’s Export Control Reform or “ECR” initiative and shifting geopolitical events across the globe.  We at Export Enforcement have embraced these changes and challenges, and have worked proactively with you, our private sector partners, as well as our licensing and interagency colleagues, to implement the President’s vision through our “Securing America’s Trade” initiative.

What this means is that we are working hard every day to help U.S. companies differentiate between legitimate and illegitimate business inquiries; to ensure that companies with strong internal compliance programs are not placed at an economic disadvantage by those seeking to flout U.S. export rules; and to differentiate between inadvertent compliance failures and less serious violations reported to BIS under our voluntary self-disclosure (VSD) program from the more egregious, more serious violations which typically cause harm to U.S. national security and may involve willful acts.  

Export Enforcement Philosophy in Action

From my days at the Office of Foreign Assets Control (OFAC) at the U.S. Treasury Department to my current responsibilities leading Export Enforcement at BIS, assisting industry to comply with export control rules has been a guiding principle of mine.  Industry is the first line of defense in preventing unauthorized exports.  And having an internal compliance program to identify suspicious inquiries and developing a two-way street of communication between Export Enforcement and your sales force complements the actions that our Special Agents and analysts take to secure America’s trade.

The U.S. Department of Commerce plays an integral role at the intersection of economic growth and national security.  My organization is responsible for detecting, investigating, preventing, and deterring the unauthorized export and reexport of U.S.-origin items contrary to the Export Administration Regulations (EAR), particularly to parties involved with: (1) weapons of mass destruction programs; (2) terrorism; (3) unauthorized military modernization efforts; or (4) human rights abuses.  We do this through a robust enforcement program that leads to both criminal and administrative penalties.  Export Enforcement also discourages, and in some circumstances, prohibits, U.S. companies from furthering or supporting the Arab League boycott of Israel.  

Congress has most succinctly described Commerce’s export control responsibilities in the FY16 Senate committee report on our appropriations:  “BIS is the principal agency involved in the development, implementation, and enforcement of export controls for commercial technologies and for many military technologies as a result of the President’s export control reform initiative. Export Enforcement…detects, prevents, investigates, and assists in the sanctioning of illegal exports of such items.”  Our successes over the past year, from industry outreach to licensing reviews to bona fides checks to criminal and administrative penalties, all demonstrate the value that an expert team of agents and analysts brings to countering proliferation and terrorism.

 
Transition to Post-Export Control Reform Normalcy

We are moving from a period of Export Control Reform (ECR) transition to a new era of export controls.  What this means is that companies can return to focusing on their core mission of understanding export markets instead of Washington policymaking.  Make no mistake about it – ECR has fundamentally altered export control administration by focusing controls on the most sensitive items through the transition of less sensitive military and satellite-related items from the U.S. Munitions List (USML) to the Commerce Control List (CCL).  And there is still more work to do, including harmonizing terms between the ITAR and EAR and completing the last few categories of list review.  
As we turn to the new “normalcy” that is ECR implementation, it is time for companies to recommit to making export compliance a routine part of their business practice – in other words, that it is as ingrained in your exporting culture as finding new products and markets is.

From a geopolitical perspective, we have come full circle from the Cold War era as Russia export cases make up a growing percentage of our overall investigations.   China also continues to be a significant subject of export investigations.  And while we are working to implement an agreement with Iran on the civilian nuclear side, primary U.S. export controls remain in place; and we will continue to fully enforce them.   Finally, as we watch the horrors that ISIL is inflicting in Iraq and Syria, I am proud to say that Export Enforcement is working to counter these efforts by targeting ISIL’s procurement of U.S.-origin items, like spare parts for oil refining, which fund their reign of terror across the Levant.  

Combatting these destabilizing activities requires a dedicated and expert enforcement cadre linked to licensing officers and engineers, and armed with a multitude of administrative and criminal tools to mitigate these threats.  That’s where our Special Agents and enforcement analysts excel.  But first and foremost, we need your support.

BIS-Industry Cooperation

The partnerships we build with the exporting community are by far the most important.  You are our eyes and ears; you are the ones receiving the suspicious inquiries; you are the ones whose reputation is most damaged when your items get diverted; you are the ones spending hard-earned profits on compliance programs while some of your competitors may not be.  We ask you to be ever-vigilant, as all unsolicited inquiries or unauthorized intrusions, such as cyberthefts, should trip your compliance system into motion, and we encourage you to contact one of our field offices for advice.

And we have a responsibility to you:
•    To support the licensing process by making sure relevant and timely intelligence and enforcement information is factored into a decision.
•    To provide you with information about foreign parties seeking to illicitly procure your items.  In fact, last year, our Guardian Lead program resulted in more than 150 outreaches to industry involving suspicious inquiries, an all-time high for this program.  Additionally, we updated transshipment guidance involving Russian firms seeking to circumvent our enhanced controls on Russia.
•    To inform you about parties of concern through our enhanced Consolidated Screening List, which now allows exporters to conduct web-based searches and seamlessly integrate the list into their IT infrastructure.  
•    To give you appropriate mitigation for violations if you have an export management and compliance system in place – especially if brought to our attention through a VSD.
•    And to take enforcement action against parties that divert or steal your items without your knowledge.  

On this last issue, if you take one thing away from today’s discussion, it is this:  strong enforcement is good for legitimate U.S. business by ensuring that all companies that invest in an export compliance program are placed on a level playing field against their competitors.  To further underscore the point, check out our updated publication Don’t Let This Happen to You – available on our website – which provides important examples of how cutting compliance corners and flouting our export control rules will result in painful consequences for culpable individuals and companies.  

 
BIS-Interagency Cooperation

For our part, Export Enforcement is placing a special emphasis on diversionary tactics and end-use- and end-user-based controls.  This includes:  monitoring efforts by Russia, China, and Venezuela to circumvent military end-use controls, including through allied and partner countries; identifying proliferators supporting weapons of mass destruction programs; and impeding terrorist activities and human rights abusers around the globe. We are doing this through increased collaboration with our interagency and international partners.

During the licensing process, we are evaluating the legitimacy of foreign parties to licenses through the Office of Enforcement Analysis’ (OEA) management of the Information Triage Unit (ITU), which was established as part of the ECR initiative.  For example, last fiscal year, every license under dispute resolution procedures received an ITU scrub, which created efficiencies for policymakers in deciding whether or not to approve a controlled transaction.  In Fiscal Year 2015, the ITU can be credited with producing reports that supported 30 percent of all BIS denials.  The ITU also plays a critical role in supporting Entity List nominations.  It’s not an understatement to say that when the ITU gets involved with the licensing process, the likelihood of diversion of U.S.-origin item significantly decreases.

Working cooperatively with our international partners, our end-use check program continues to ferret out sophisticated networks of proliferators.    Our end-use check program is anchored by BIS Export Control Officers or ECOs stationed in six locations around the globe -- China, Hong Kong, India, Russia, Singapore, and the United Arab Emirates – which have geographical reach to an additional 38 countries.  And while our Russia ECO will be moving to Frankfurt, Germany next month, he will continue to focus on securing U.S. exports to Russia.  When combined with our Sentinel Teams of domestic field agents deployed abroad and U.S. Commercial Service colleagues that also conduct end-use checks, we achieve global end-use monitoring of U.S.-origin items.   Last year, Export Enforcement conducted 1,031 end-use checks in 55 countries and our ECOs conducted 173 outreaches to help train foreign governments and companies on compliance with the EAR.

Of course, cooperation with our law enforcement partners remains paramount to our success.  Whenever the Office of Export Enforcement (OEE) initiates an investigation, we work with our partners at the Export Enforcement Coordination Center (E2C2) to bring relevant enforcement agencies together for a whole-of-government approach.  We want to ensure that U.S. Government resources are managed wisely and leveraged, which has resulted in more collaboration among law enforcement agencies and broader focus on proliferation networks.  

Penalties as a Deterrent

We wield a powerful deterrent to proliferators by using our criminal and unique administrative enforcement tools, including administrative fines and denial of export privileges.  Office of Export Enforcement (OEE) Special Agents harness their export control expertise and close working relationship with BIS licensing officers to bring to justice the most sophisticated criminal networks.  Currently, we have Special Agents stationed in a record 16 cities across the United States with a 17th coming in early next year when we expand to San Diego, CA.

The following are examples of recent compelling cases that demonstrate our wide-ranging powers and contributions in protecting U.S. national security and foreign policy interests.  
As you may have heard about in today’s “Anatomy of an Investigation” session, one of our recent landmark cases involves Schlumberger Oilfield Holdings, Ltd..  The criminal penalty assessed in this case represents the largest to date in a sanctions investigation conducted under the International Emergency Economic Powers Act (IEEPA), and OEE was the sole investigative agency.  Starting about 2004 and continuing through June 2010, a U.S.-based subsidiary of Schlumberger Ltd. provided oilfield services to customers in Iran and Sudan.  Although Schlumberger had policies and procedures designed to ensure that it and its U.S. subsidiary did not violate U.S. sanctions, both companies failed to train their employees adequately to ensure that all U.S. persons, including non-U.S. citizens who resided in the United States, complied with Schlumberger’s sanctions policies and compliance procedures.  
As a result, U.S. sanctions against Iran and Sudan were violated through the acts of these employees residing in the United States.  Schlumberger entered a plea of guilty in May 2015 and agreed to pay over $232.7 million for conspiring to violate IEEPA by willfully facilitating trade with Iran and Sudan.  Schlumberger also agreed to the following additional terms during the three-year term of probation: (1) maintaining its cessation of all operations in Iran and Sudan, (2) reporting on the parent company’s compliance with sanctions, (3) responding to requests to disclose information and materials related to the parent company’s compliance with U.S. sanctions laws when requested by U.S. authorities, and (4) hiring an independent consultant to review the parent company’s internal sanctions policies and procedures and the parent company’s internal audits focused on sanctions compliance.
You also may remember Secretary Pritzker’s comments yesterday regarding our landmark case involving an international procurement network that obtained and smuggled millions of dollars in electronics from the United States to Russia in violation of export control laws.  As an update for you, on September 9, 2015, Alexander Fishenko, a dual citizen of the United States and Russia, pled guilty in Brooklyn, New York to all charges pending against him, including acting as an agent of the Russian government within the United States without prior notification to the Attorney General, conspiring to export, and illegally exporting, controlled microelectronics to Russia, conspiring to launder money, and obstruction of justice.  Four members of the conspiracy previously pled guilty.  On September 21, 2015, a jury trial commenced in EDNY on three remaining individuals.   On October 26, 2015 those three individuals were found guilty on all counts.

Another case, involving illegal exports to Iran by Helmut Oertmann and his company Hetran Inc., combines the totality of Export Enforcement’s capabilities, from internal targeting and analysis to an end-use check to a criminal investigation.  Upon identification of a suspect export by our New York Field Office, our ECO in Dubai conducted two end-use checks that confirmed that the item was not staying in the UAE, but rather was being transshipped to Iran.  Based on the ECO’s assessment, Special Agents then used their authorities to order the illegally exported item returned to the United States while the item was on the high seas on its way to Iran.    

Previously, Oertmann and Hetran pled guilty in April 2014 to smuggling goods from the United States in connection with the illegal export of a horizontal lathe to Iran, which is used in the production of high-grade steel for the aerospace and automotive industries.   Aware that it was unlikely that a license for Iran would be granted, Hetran, Oertmann and other co-conspirators agreed to falsely state on the shipping documents that the end-user of the machine was Crescent International in Dubai.

Both parties were sentenced in U.S. District Court for the Middle District of Pennsylvania to 12 months of probation each.  In addition, a final order was issued holding Oertmann and Hetran jointly and severally liable for a civil penalty of $837,500.  They must pay an out-of-pocket penalty of $337,500 with the remaining $500,000 suspended for two years and thereafter waived in its entirety subject to certain conditions during a two-year probationary period.  

And finally, to provide you an example of why it’s important to pay attention to our Consolidated Screening List, I will mention the Russell Marshall/Universal Industries case involving the violation of a Denial Order.   For some background on the original investigation, in October 2006, Immigration and Customs Enforcement (ICE) received information that Universal Industries may be exporting USML controlled turbine blades to Singapore without the required Department of State export license and may be undervaluing the export-related shipping documents for these transactions.  

In April 2007, Customs and Border Protection (CBP) officers intercepted and detained a shipment from Universal of  200 Stage-1 Turbine Blades and 9 Stage-2 Turbine Blades destined to Singapore without the required export license.  In 2009, the investigation was transferred to Florida and ICE contacted our Miami Field Office to request assistance in investigating this matter. Eventually, Universal pled guilty to one count of violating the Arms Export Control Act (AECA), and was sentenced to 1 year probation, a $1,000 fine, and $400 special assessment.   Universal’s VP Russell Marshall pled guilty to one count of making false statements relating to the undervaluing of the shipping documents.  He was sentenced to only 3 years probation, 180 days of home confinement, 150 hours of community service, and a $100 special assessment.  Remember that light sentence for later.  

As a result of the AECA conviction, in July 2012, BIS imposed a three-year denial period on Universal retroactive to the date of conviction.  Remember, the 11(h) provisions allow for denial of export privileges for export violations.  
Apparently, Mr. Marshall was not impressed with his penalties, because in November 2012, Defense Criminal Investigative Services (DCIS) Ft. Lauderdale, FL, received a hotline tip that Universal may be selling counterfeit or fraudulent aircraft parts. DCIS' initial review revealed that Universal may also be exporting contrary to the previously filed BIS Denial Order.  

The investigation eventually revealed that in 2012 and 2013, Marshall and Universal violated IEEPA and the BIS denial order. Specifically, the defendants brokered the sale of military aircraft parts identified as three temperature transmitters used on F-16 fighter jets and a saddle part for the J-69 engine used on 737 military trainer aircraft to Thailand and Pakistan, respectively, which were subject to license controls by BIS, and which the defendants knew were intended to be illegally exported to Thailand and Pakistan.  The items are currently controlled under ECCN 9A619.  

On April 24, 2015, Marshall was sentenced in U.S. District Court for the Southern District of Florida to 41 months in prison, two years of supervised release and a $200 special assessment.  At the same time, Universal was also sentenced to one year of probation and an $800 special assessment.  

VSDs and New BIS Administrative Enforcement Guidelines
As I mentioned earlier, we are also in the process of developing new Administrative Enforcement Guidelines to improve transparency and predictability, and to bring them more into alignment with those promulgated by OFAC.  OFAC administers the bulk of its sanctions programs under the same statutory authority, IEEPA, and uses the transaction value as the point of departure for determining civil penalties pursuant to its Economic Sanctions Enforcement Guidelines. Under IEEPA, criminal penalties can reach 20 years imprisonment and $1 million per violation and administrative monetary penalties can reach $250,000 or twice the value of the transaction, whichever is greater.  Both agencies coordinate and cooperate on investigations involving violations of export controls that each agency enforces, including programs relating to Weapons of Mass Destruction, Terrorism, Iran, Sudan, Specially Designated Nationals and Specially Designated Global Terrorists.  

The Guidelines reflect several changes to the current Guidelines set forth in Supplement No. 1 to Part 766.  First, the Factors set forth in the Guidelines are reconstituted into the following Factors: 1) Aggravating Factors (e.g., willfulness or recklessness); 2) Mitigating Factors (e.g., remedial measures taken); 3) General Factors that could be considered either aggravating or mitigating depending upon the circumstances (e.g., the absence or presence and adequacy of an internal compliance program); and 4) other Relevant Factors on a case-by-case basis (e.g., related violations or other enforcement action).  

Second, in accordance with OEE’s existing posture that enhanced maximum civil penalties authorized by the International Emergency Economic Powers Enhancement Act (Enhancement Act) (Pub.Law 110-96, 121 Stat. 1011 (October 16, 2007) should be reserved for the most serious cases, the Guidelines will now formally account for the substantial increase in the maximum penalties for violations of IEEPA and distinguish between egregious and nonegregious civil monetary penalty cases.  Egregious cases are defined as those representing the most serious violations, with substantial weight given to considerations of willfulness or recklessness, awareness of the conduct giving rise to an apparent violation, and harm to the regulatory program objectives, taking into account the individual characteristics of the parties involved.  The Guidelines generally provide for significantly higher civil penalties for egregious cases than BIS has historically imposed.  We anticipate that the majority of violations identified in OEE investigations will fall in the non-egregious category.

Third, reference in the Guidelines to ‘‘transaction value’’ provides sufficient flexibility to allow for the determination of an appropriate transaction value in a wide variety of circumstances.  Amounts set forth in a schedule provide for a graduated series of penalties based on the underlying transaction values, reflecting  appropriate starting points for penalty calculations in non-egregious cases not voluntarily disclosed to OEE.  The base penalty amount for a non-egregious case involving a VSD equals one-half of the transaction value, capped at $125,000, per violation of the EAR.  The base penalty calculation ensures that the base penalty for a VSD case will always be one-half or less than one-half of the base penalty for a similar case that is not voluntarily self-disclosed. This is intended to serve as an additional incentive for the submission of VSDs.  In the interests of providing greater transparency and predictability to OEE administrative enforcement actions, OEE will also allot penalty reductions – all from the base penalty amount - of between 25-40% for exceptional cooperation, and up to 25% for first offenses and for transactions that were otherwise licensable.  In rare cases, if you have enough mitigation we may end up owing you money… just kidding….

OEE encourages the submission of VSDs by parties who believe they may have violated the EAR.  The purpose of an enforcement action includes raising awareness, increasing compliance, and deterring future violations, not merely punishing past conduct.  VSDs are a compelling indicator of a party's intent to comply with U.S. export control requirements in the present and the future. The purpose of mitigating the enforcement response in voluntary self-disclosure cases is to encourage the notification to OEE of apparent violations about which OEE would not otherwise have learned.  OEE’s longstanding policy of encouraging the submission of VSDs involving apparent violations is reflected by the fact that, during  my time as Assistant Secretary, the percentage of VSDs submitted that have resulted in a civil penalty has declined to only 2%.  The vast majority of cases brought to the attention of OEE through VSDs results in the issuance of warning letters.  

 OEE expects that VSDs submitted under the 600 Series for non-egregious violations will also generally result in warning letters.  The number of overall VSDs has increased 22% from FY14 to FY 15.  With respect to VSDs generally, OEE will issue warning letters in cases involving inadvertent violations and cases involving minor or isolated compliance deficiencies, absent the presence of aggravating factors.  

So you should expect to see a continuing robust and comprehensive administrative enforcement program at BIS involving cases where aggravating factors are present, particularly cases involving knowledge, willful conduct and/or harm to U.S. national security or foreign policy interests, whether or not those cases arise in the context of criminal prosecutions.   

Antiboycott Activities

Let me now turn to the important responsibilities and accomplishments of the  Office of Antiboycott Compliance or OAC.  OAC carries out its mandate in three ways:
1)    it counsels U.S. businesses on the substance and application of the EAR to particular transactions;
2)    it monitors and analyzes trends with respect to the source and type of boycott-related requests received by U.S. businesses; and
3)    it maintains a vigorous enforcement program bringing enforcement actions and imposing penalties, where necessary.  

As some recent case examples will demonstrate, OAC enforces the antiboycott provisions of the EAR in an effort to ensure that no export transaction is encumbered by a restrictive trade practice to the detriment of U.S. business interests.

In its case against Electro-Motive Diesel, Inc., OAC alleged that the company, an exporter, on thirty-one occasions, failed to report receipt of a goods directive in Invitations to Bid from Bangladesh, which stated that goods and related services from Israel were not eligible to fulfill the contract.

Similarly, in its cases against two related Houston companies, Vinmar International, Ltd and Vinmar Overseas, Ltd, OAC alleged that  the companies, on seven occasions, furnished prohibited information in  bills of lading or vessel certificates regarding the blacklist status or eligibility status of the vessel to enter Arab ports.   OAC further alleged that, on ten occasions, they failed to report receipt of requests from Lebanon, Libya, Oman, Qatar, Syria, and Yemen to furnish a vessel eligibility certificate signed by other than the owner, master or charterer of the vessel and that Vinmar Overseas Ltd., on three occasions, failed to report receipt of a directive from the UAE requiring the exclusion of parties of Israeli origin.   

If anyone has any boycott issues or concerns in a transaction, OAC is available all day, every day through their Advice Line to counsel and guide you.

Conclusion

Abraham Lincoln once said, “A law without enforcement is just good advice.”  When it comes to protecting national security and the lifeblood of the U.S. economy, the intellectual property and innovative products resulting from your ingenuity, effective enforcement is essential.  
My organization is committed to partnering with industry to comply with the EAR. Enhanced compliance and enforcement measures create effective safeguards to deter the diversion and misuse of EAR items and protect your reputation, investments, and profitability.  Export Enforcement stands ready to assist you to assist us in securing America’s trade.  Thank you.

Remarks of Eric L. Hirschhorn
Under Secretary for Industry and Security
United States Department of Commerce

Export Control Forum
April 20th, 2016

Good morning and welcome to BIS’s 11th Export Control Forum.  I would like to thank our regional office staff for organizing this important event.  I would also like to thank the speakers from across the government for taking time to support this important effort.

Thank you as well to the board and the staff of PAEI, the Professional Association of Exporters and Importers, our long time co-sponsor for BIS seminars in the Bay Area.  Specific thanks go to Wanda Gilmore, who worked tirelessly on this event and Gisele Perez, who is PAEI’s president, and PAEI’s board.

This region is of particular importance to the Bureau.  It is home to many of the leading edge firms that have dominated the high technology field for decades.  It is also home to numerous tech startups that will blaze new trails in the years to come.  Since 1990, we have maintained a field office in Silicon Valley (augmenting our Western Regional Office in Southern California) dedicated to supporting the needs of this vibrant trade and technology community.  We believe that our local presence can be particularly helpful to the small- and medium-sized firms that can benefit from an “insider’s” knowledge of export regulations just down the road.  I’m pleased to note that we have Ms. Lani Tito based here now to ensure you have timely access to the regulatory expertise you may need.  I expect that you will find her to be a valuable resource.

    Before I begin my report on the Export Control Reform initiative and other topics of interest, I’d like to highlight another Administration priority – passing the Trans Pacific Partnership, or TPP.  As you may know, TPP is a trade agreement among the U.S. and twelve other Pacific Rim countries that sets new, high-standard global trade rules, updating 20 year old World Trade Organization rules for the modern economy.  When adopted, TPP tariff eliminations and reductions will decrease prices, which in turn will result in U.S. products being more attractive to TPP consumers.  It will ensure that the global economy reflects our interests and values by requiring other countries to play by fair wage, safe workplace, and strong environmental rules that we help set.  TPP will open markets and level the playing field for American workers and American businesses, leading to more Made-in-America exports and good-paying American jobs here at home.

It’s important to note the importance of TPP countries to U.S. exporters.  Currently, 44% of U.S. goods exports go to TPP markets and support 3.1 million jobs.  Services exports to TPP countries support an additional 1.1 million jobs.  

The U.S. market is one of the most open in the world.  Trade agreements such as the TPP level the playing field because they get other countries to open their markets to us in the way that our market already is open to them.  When the rules are fair, American companies and American workers can out-compete anyone in the world.

ECR Update
Now, on to the Export Control reform initiative and the progress we’ve made over the past year.  When I spoke to you last year, Commerce and State had published final rules on 15 out of the 21 categories of the Commerce Control List (CCL) and the US Munitions List (USML) with all of those fifteen categories effective.  On February 19th, BIS and the State Department’s Directorate of Defense Trade Controls (DDTC) published a second set of proposed rules for USML Category XII, which includes fire control, laser, imaging, and guidance and control equipment.  We believe these new proposed rules address many of the concerns expressed in public comments, including avoiding capturing USML items that are in normal commercial use.  Public comments were due by April 4th but I encourage you to review the second set of proposed rules.  

We are also reviewing with our interagency colleagues the public comments on the proposed rules for USML Category XIV, which covers toxins, biological organisms, and Category XVIII, which covers directed energy weapons.  These rules will proceed directly to final rules.

A key benefit of the reform process has been the recognition by all that regulatory reform does not have a finish line, that technology doesn’t stand still, and that development and production aren’t the exclusive province of the United States.  For this reason, in addition to our work completing the remaining categories, BIS continues to work with our interagency colleagues to review finalized USML categories and corresponding 600 series entries on the CCL to update for technological changes and to clarify.

As a result of public comments from a March 2015 Notice of Inquiry, on February 9th of this year, BIS and State published proposed revisions to USML Categories VIII (military aircraft) and XIX (military engines).  This is the first of a series of proposals revisiting categories that were revised in the early phases of the Export Control Reform initiative.  The revisions are intended to (1) take account of changes in technology; and (2) refine, in the light of two years’ experience, our original decisions on what should be transferred from State to Commerce jurisdiction.  We are reviewing the comments, which were due by March 25th.

On October 19, 2015, BIS and State published Notices of Inquiry requesting comments regarding controls on the revised categories for military vehicles, vessels of war, submersible vessels, oceanographic equipment, and auxiliary and miscellaneous military equipment.  We are currently reviewing those comments.  BIS and State anticipate issuing similar notices of inquiry for the other revised categories once they’ve been in effect for approximately eighteen months.

Another important element of ECR is the proposed definitions rule. In June of last year, BIS and the State Department published proposed rules to harmonize definitions of key export control terms, which also have implications for cloud computing.  These definitions rules include proposed changes that would result in a "carve-out" from EAR controls for data encrypted as specified in the proposals.  While not expressly referencing cloud applications, these changes, if ultimately adopted, will have an important effect on the management and use of many cloud services.  "End-to-end" encryption is required to qualify for the carve-out.

We have carefully reviewed public comments and have made some technical adjustments based on the comments that will provide additional flexibility to cloud computing users.  We expect the final BIS version of the definitions rule to be published in the next several months, but at this point we expect the State rule containing this provision will be published later, and in proposed form.

Scorecard for ECR-Related Transactions

•    Under ECR, along with enhanced security, we have seen tangible benefits to exporters.

•    The average number of State Department license applications for items in the 15 categories of the U.S. Munitions List (USML) that have moved to the CCL showed an overall average of 57% decline since the ECR transition rules became effective on October 15, 2013.  

•    BIS’s Munitions Control Division, which licenses “600 series” items, has processed approximately 28,300 licenses with an average processing time of 17 days (as of 2/29/16).  

•    Between October 15, 2013 and February 29, 2016, the number of export transactions related to “600 series” and “9x515” satellite items totaled over 171,000 valued more than  $10 billion.  Exporters have used License Exception STA to export “600 series” and “9x515” satellite valued at more than $1.2 billion.  Exporters have also made use of other license exceptions, which include Government End User (GOV), Servicing and Replacement of Parts and Equipment (RPL), and Temporary Exports (TMP) for exports valued at over $1.5 billion.

Of course, these data demonstrate only part of the return on investment.  The critical national security benefits include:  timely exports to key defense allies; no unexpected license provisos; lower Defense Department acquisition and research costs; enhanced U.S. partner affordability throughout the product life cycle; a stronger defense industrial base; and the reduction of the licensing burden for the exporting community.

I would now like to turn to other areas of note in the world of export controls, including Wassenaar network intrusion controls, the proposed changes to our administrative enforcement guidelines, and recent country policy changes.

Wassenaar Network Intrusion Controls
    In 2013, the United States and our Wassenaar Arrangement partners agreed to control the export of certain purpose-built tools and related technologies designed to remotely penetrate the defenses of networked devices and covertly extract information.  The reasons for control were related to national security and human rights concerns.

    In May 2015 BIS sought comments on that proposal, which delivery systems, development of “intrusion software,” and network surveillance systems.  During the public comment period, we received many comments on the proposed rule.  In response to concerns raised by Congress, the private sector, academia, civil society, and others, and as a result of extensive outreach efforts and further U.S. Government review, the United States has proposed to the Wassenaar Arrangement to eliminate the controls on technology required for the development of “intrusion software."

    Our discussions of the remaining controls on software and hardware tools for the command and delivery of intrusion software continue domestically and at the Wassenaar Arrangement.  These discussions will seek to resolve issues raised by stakeholders and will include significant consultations with the other Wassenaar participants as well as the U.S. Government, private sector, civil society, and academic cybersecurity communities.  The discussions will give the Administration a chance to share with our counterparts in other countries the U.S. cybersecurity communities' concerns regarding the unintended consequences such controls could have.

    Because changes in Wassenaar controls must be approved by all 41 Participating States, we cannot predict the outcome of these discussions and negotiations.  The Administration, however, will continue to consult with the cybersecurity communities during the negotiations will not implement domestically any regulations on these specific controls without first giving the public an opportunity to participate through the notice and comment process of a future proposed rule.

    Further, the Administration commits will be guided by whether the benefits of controlling the export of the purpose-built tools at issue outweigh the harms to effective U.S. cybersecurity operations and research.  The Administration also continues to analyze the role appropriate export controls could play within the larger strategy of countering the growing capability of malicious actors to cause harm through cyberspace.

Enforcement Guidelines

    On the enforcement side, BIS published a proposed rule on December 28, 2015 that would rewrite our administrative enforcement guidelines, which appear in Supplement No. 1 to Part 766 of the EAR.  BIS proposed these new guidelines to make civil penalty determinations more transparent and predictable, and to align them more closely with those used by the Treasury Department’s Office of Foreign Assets Control (OFAC).  

    BIS implements the EAR under the same statutory authority by which OFAC administers the bulk of its sanctions programs, namely the International Emergency Economic Powers Act (IEEPA).  The proposed guidelines formally take account of the substantial increase in 2007 in the maximum penalties for violations of IEEPA.  The proposed guidelines provide a clearer description of how the base penalty amount is likely to be determined.  The base penalty would depend on whether the violation is egregious or non-egregious and whether the case resulted from a voluntary self-disclosure (VSD).  Although the proposed Guidelines generally provide for significantly higher civil penalties for egregious cases, we anticipate that the majority of violations identified in OEE investigations will fall in the non-egregious category.

    The guidelines also reinforce the fact that BIS strongly encourages the submission of VSDs by parties who believe they may have violated our regulations.  The vast majority of cases brought to our attention through VSDs result in the issuance of warning letters.  The number of overall VSDs increased over 20% from FY14 to FY 15.  Our Office of Export Enforcement (OEE) anticipates that VSDs submitted for non-egregious violations under the 600 Series will also generally result in warning letters.  With respect to VSDs generally, OEE will issue warning letters in cases involving inadvertent violations and cases involving minor or isolated compliance deficiencies, absent the presence of aggravating factors.  

    OEE will continue to pursue criminal and administrative penalties not only against companies that fail to comply with the EAR, but also individuals who flout the rules.  Strong enforcement ensures that companies that act in good faith and invest money in their compliance programs will not be put at a competitive disadvantage vis-a-vis those who fail to comply with our export control laws.

So you can expect to see a continuing robust and comprehensive enforcement program at BIS involving cases where aggravating factors are present, particularly cases involving knowledge, willful conduct, or harm to U.S. national security or foreign policy interests.

    Fundamentally, our job is to deprive our adversaries and potential adversaries of the technological advantage we possess, to ensure that our own advances are not employed against us in the battlefield.  Export Enforcement works in close cooperation with our interagency colleagues and industry to maintain our military superiority.  You will hear more tomorrow from Assistant Secretary for Export Enforcement David Mills and his team on a range of enforcement activities in which BIS is currently engaged.

Cuba
Recently, there have been a number of country-specific policy changes.   In December 2014, President Obama announced a new course in our relations with Cuba, a course that would engage and empower the Cuban people.  These steps build upon actions taken since 2009 that have been aimed at supporting the ability of the Cuban people to gain greater control over their own lives and determine their country’s future.

In January 2015, the Commerce and Treasury Departments took coordinated actions that included changes to licensing policy and license exceptions in the EAR that are consistent with U.S. support for the Cuban people.  On July 22nd, BIS published a second rule, implementing the Secretary of State’s rescission of Cuba’s State Sponsor of Terrorism designation.  This was followed by a third rule on September 21st that amended the terms of existing license exceptions that are available for Cuba, increased the number of license exceptions available for Cuba, and created a new licensing policy in the EAR.  

On January 27th of this year, BIS published a fourth rule changing the general policy of denial for licenses to export to Cuba.  It put in place a general policy of approval for five types of transactions and a policy of case-by-case review for items to meet the needs of the Cuban people, even in instances where the Cuban government is the consignee.  

Most recently, on March 16th, BIS published a fifth rule allowing vessels on temporary sojourn to Cuba with cargo for other destinations to travel to Cuba under a license exception rather than having to obtain a license for the cargo bound for destinations other than Cuba. This rule also authorizes exports of certain items to persons authorized by the Department of the Treasury to maintain a physical or business presence in Cuba.  Further, this rule adopts a licensing policy of a case-by-case review for exports of items that would facilitate the export of items from the private sector in Cuba, subject to certain limitations.

Russia
BIS and the Treasury Department’s Office of Foreign Assets Control have implemented a number of sanctions to deter Russian conduct that violates international norms.  Specifically, we seek to convince Russia to desist from its territorial claims against Crimea, stop its interference in Ukraine, and—importantly—refrain from misconduct elsewhere.  BIS’s sanctions cover certain exports to the defense and energy sectors, as well as certain transactions with named foreign parties.  BIS is coordinating with our international partners to identify items of strategic concern, and is working hard to minimize damage to allies and friends.  The future of sanctions is dependent on President Putin’s compliance with the Minsk II package to alleviate the ongoing war in the Donbas region of Ukraine, and to respect the territorial integrity of Ukraine.  We are prepared to impose additional sanctions if circumstances so require.  

Iran
On July 14, 2015, the P5+1 countries and Iran agreed upon a Joint Comprehensive Plan of Action (JCPOA) to ensure that Iran’s nuclear program will be exclusively peaceful.  Building on the key parameters announced in April 2015, the JCPOA provides Iran with phased sanctions relief upon verification that Iran has implemented key nuclear commitments.  OFAC licenses the export or reexport of items subject to both BIS’s EAR and OFAC’s Iranian Transactions and Sanctions Regulations (ITSR).  

When Implementation Day was reached on January 16th of this year, most U.S. sanctions remained in place.  This is because they are directed not at Iran’s nuclear activities but at its continued sponsorship of terrorism, violation of human rights, and ballistic missile development.  The JCPOA allows non-U.S. entities that are owned or controlled by a U.S. person to engage in activities with Iran.  The only other significant change in U.S. licensing policy is to permit exports of commercial aircraft for civilian end use.  Other than that, however, the prohibition on facilitation by U.S. persons, as well as broad export and reexport controls on U.S.-origin goods and technology, remains in effect.
Deputy Assistant Secretary for Export Administration Matt Borman and his panel will discuss these topics in more detail later today.  

Enhanced Outreach Efforts
 
    As you can see there is never—okay, hardly ever— a dull moment in the world of export controls.  An important part of our job is to help you stay current.  I would like to describe the enhanced efforts we are undertaking to educate the exporting community, not only on ECR related changes, but also the range of issues you undertake as export control administrators and compliance specialists.  I’m sure you will agree that Michael Hoffman and his staff do an excellent job of outreach on the West Coast.  In fiscal year 2015, the Western Regional Office (WRO) organized 10 seminars and participated as speakers in an additional 12 programs reaching approximately 2,800 people.  They also did  much of the work in answering the 33,000 e-mails and telephone calls that BIS received.  

    The Western Regional Office’s efforts complement the work that the Office of Exporter Services (OExS) is doing in other areas of outreach, including the development of additional decision tree electronic tools,  a new series of webinars on topics including sanctions, encryption, and soon to come, the “Specially Designed” definition, an increasing number of compliance-related outreach visits to companies, and the continuation of our popular weekly teleconferences, which are usually chaired by Assistant Secretary Kevin Wolf.  OExS is working hard to convey more information on export controls to more people through greater use of electronic resources and increased partnerships with trade associations, industry groups, and other U.S. Government agencies.   The Office is also working to broaden BIS’s outreach to small and medium-sized companies, including start-ups.  As more and more U.S. companies look to do business abroad, it is vital that they be aware of export control requirements.

    Within BIS, OExS is administering projects to improve the efficiency of the licensing process while maintaining the current high quality of work done by BIS’s licensing officers, and to expand the use of SNAP-R, BIS’s on-line application system, to such other uses as the submission of advisory opinion requests and amendments to licenses.   In coordination with the PECSEA and BIS’s Technical Advisory Committees, OExS is also working on changes to enhance exporters’ use of SNAP-R, including a revised version of the SNAP-R handbook.

    Last October, the Departments of Defense, Commerce, State, and Energy began reviewing Commerce license applications on a single IT platform, a Defense Department system known as USXPORTS.  We have turned our attention to the next important step, which is to create a single portal with a single license application form, and we’ll be seeking input from industry as we develop requirements for this step.  Although this effort might not be finished before the end of the Obama Administration, we will work hard to move it along.

Closing

My remarks today underscore not only the deep commitment and demonstrated follow-through of the Obama Administration on Export Control Reform but also our activities across a broad spectrum of country policy issues.  Over the next day and a half, my colleagues will provide you with a wealth of information on the range of export control issues.  I encourage you to take advantage of their knowledge, expertise, and unique insights.  Our commitment to you, the business community, is to ensure that we maintain a strong and open dialogue.  We welcome your thoughtful questions and constructive feedback.

Thank you for your participation and enjoy the conference.