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

Update 2012 Conference

Remarks of
David W. Mills
Assistant Secretary for Export Enforcement
July 18, 2012

Thank you Dan, and good morning everyone!  I would like to express my thanks also to Bernie Kritzer, Toni Jackson and their staff, and to our many other colleagues who have contributed to this event.

This year, the Office of Export Enforcement is marking its 30th anniversary of securing America’s trade.  OEE is the only law enforcement organization in the federal government that is dedicated solely to enforcing export controls.  As you know, specialization enhances expertise.  It enables our people to deepen their knowledge about the export control regulations and about how international business is conducted.  It also enables them to develop sophisticated techniques for investigating and analyzing export and reexport transactions.  Their knowledge and expertise makes them very efficient and highly effective in their efforts to detect and shut down sophisticated export diversion networks operating in the United States and overseas.  Having well-recognized expertise in the broader law enforcement community also means that value can be added by including our special agents and analysts in key inter-agency task forces focusing on specific issues, such as countering Improvised Explosive Devices.  I am particularly delighted that, in recognition of the interagency role Enforcement at BIS plays, Director Mueller of the Federal Bureau of Investigation will be delivering the keynote address today at lunch.

Thanks to EE Managers and their Staff

I am honored to have the opportunity to work with our career law enforcement team.  I’d like to thank in particular Don Salo, our Deputy Assistant Secretary, for his terrific leadership and support, as well as Doug Hassebrock, Director of the Office of Export Enforcement, Kevin Kurland, Director of the Office of Enforcement Analysis, and Ned Weant, Director of the Office of Antiboycott Compliance.  They and their special agents, analysts and compliance officers are all doing extremely important work to protect our country.  I also would like to commend John Masterson and the attorneys in our Office of Chief Counsel for their very effective legal support.  We work very closely with our attorneys and could not accomplish our mission without them.

Let me share with you some statistics concerning our enforcement performance this past year, as well as some examples of major criminal and administrative penalty cases. 

As I go through these figures, I ask you to consider how the expertise demonstrated by Export Enforcement will be applied to the challenge of enforcing the new controls on items that will be transferred from the ITAR to the EAR. 

OEE Statistics

In 2011, the Office of Export Enforcement’s investigations resulted in the conviction of 29 individuals, who received prison sentences totaling 572 months.  There were criminal convictions of 10 companies.  With individuals being convicted three times as often as companies, you are seeing our emphasis on individual responsibility.  These cases resulted in the imposition of $20.2 million in criminal fines and $2.1 million in forfeitures.  In 2012 we are on track to meet or exceed those numbers.

Concerning administrative enforcement actions, in 2011 Export Enforcement and our Office of Chief Counsel resolved 39 cases, which imposed a total of $8.5 million in fines.  A total of 26 export denial orders were imposed.  These denial orders included Temporary Denial Orders as well as permanent denial orders.

So far in 2012, we have resolved 24 administrative cases, which imposed $6.4 million in fines and 24 export denial orders.  This underscores the importance of the variety of enforcement tools we at BIS bring to the table.  Criminal and administrative sanctions, including fines, denial orders and placement on BIS’s Entity List, can be pursued independently or in conjunction with each other, depending upon the circumstances of a particular case.

But importantly for many in this audience, not all of our investigations ended with the imposition of criminal and administrative penalties.  In 2011 the Office of Export Enforcement issued 227 Warning Letters.  This year to date, OEE has issued 181 Warning Letters.

Significant Cases

I want to highlight for you some of the really significant cases that Export Enforcement has worked on this past year.  These cases illustrate three characteristics about our organization that will tell you something about how we will enforce controls on items being transferred from the USML to the CCL.

I will give you two examples where submission of VSDs enabled companies to avert criminal prosecution for egregious violations, and instead receive less than the maximum administrative fines, as well as requirements for remedial compliance measures.  This illustrates that BIS will do its best to treat exporters fairly.  But not all VSDs are guaranteed to result in Warning Letters.  Sometimes a stronger enforcement response is necessary.  The same will hold for future violations of the 600 series of items.  BIS will be fair.  But we will not hesitate to impose penalties where warranted.
In speaking about our cases, I suggest to you that, first and foremost, we should remember that national security concerns people.  We have a duty, in national security matters, to protect our own people, especially the men and women who serve in our armed forces.  Export Enforcement, through the outstanding leadership and commitment of Deputy Assistant Secretary Don Salo, (aka: the “Colonel”) continues to make one of its highest priorities investigations involving global networks that supply components to IED makers.  That brings me to the Corezing International case.

Corezing International

This has been a complex and lengthy investigation.  The RFMs were exported from the United States to Singapore under a License Exception.  Then the violators reexported them illegally to Iran.  This case demonstrates very well the type of expertise and skills our special agents and analysts have.  It also highlights their ability to work effectively with other law enforcement agencies, and with foreign government authorities.  We will continue to apply these skills and abilities when enforcing License Exception STA.

Now I will explain how true it is, in the world of law enforcement, for one thing to lead to another.  Over the past couple of years OEE has pursued a series of investigations relentlessly.  One successful case led to another, and then to yet another.

Ulrich Davis

ING Bank, N.V.

Now let me tell you about two cases involving large global companies that suffered serious and systematic breakdowns in their internal compliance programs.

Ericsson de Panama

Here is another example of a breakdown of a company’s internal compliance program.

Flowserve Corporation

Voluntary Self-Disclosures

I have mentioned two VSD cases that resulted in penalties.  These are the exceptions to the general rule that VSDs do not lead to penalties.  Now I’ll discuss the rule that is proven by those exceptions. 

As I said earlier, BIS strongly encourages exporters to submit Voluntary Self-Disclosures under the provisions of EAR section 764.5.  And BIS assigns VSDs what we call “Great Weight” as a mitigating factor when we determine whether or not to seek to impose penalties.

I am pleased to report that we have made significant progress in speeding up our review and resolution of VSD cases.  In 2011, I directed that a review be done of the existing caseload of VSDs, and we formulated a strategy for resolving the older cases.  I wanted to attack not only the backlog, but I also set out to change the standard on the speed with which these cases are addressed. 

As a result, we have all but cleared out the old backlog.  In Calendar Year 2011, there were 213 VSD investigations opened nationwide.  Of those, approximately 60% have already been closed.  Furthermore, in Calendar Year 2012, so far there have been 68 VSD investigations opened nationwide.  Of those, approximately 30% have already been closed.  Nonetheless, there always will be room for improvement in this area and we will continue our efforts to speed up the resolution of VSD cases.

Let me highlight some general points concerning VSDs. 

I hope you will take this information back to the senior managers of your companies, and communicate to them the following three points. 

First, obviously it is in your company’s best interest to maintain an effective internal compliance program and to appoint a senior-level corporate officer to oversee it. 

Second, the data on VSDs show that if you discover violations, it is in your company’s best interest to submit a Voluntary Self-Disclosure to OEE, and to undertake appropriate remedial measures for your compliance program to prevent the recurrence of violations.  Once you discover violations have occurred, your managers must act –promptly–to fix the process that broke down.  To repeat, in 97% of the VSD cases, BIS has imposed no administrative penalty.

Third, if your company committed violations, discovered them, and decided not to submit a VSD, refer your management to my previous discussion of the criminal cases.  Our Office of Export Enforcement personnel have the expertise and commitment to uncover violations and pursue complex investigations.  Failing to submit a VSD and to undertake effective corrective measures only makes matters worse for your company and its managers.

Office of Enforcement Analysis

A few moments ago, I invited you to consider how Export Enforcement would apply its unique skills to enforcing controls on the 600 series of items that will be transferred from State to Commerce.   As Eric Hirschhorn mentioned yesterday, I will outline our six point plan for enhanced enforcement for the transferred items:

      1. First, to complement our colleagues in Export Administration who run the EAR training seminars across the country, our field offices are gearing up for targeted outreach to companies affected by the transition.  We also will reach out to our counterparts in Customs and Border Protection to ensure that the transition phase does not inhibit legitimate transfers of 600 series items.
      2. Second, we are working with the Census Bureau to establish new electronic validations in the Automated Export System to help exporters comply with the transition of defense articles to the CCL. This includes linking the use of License Exception STA to a valid State or Commerce license number to ensure that U.S. companies do not inadvertently ship 600 series items to foreign consignees that have not been previously vetted by the government.
      3. Third, through the use of intelligence information via the Information Triage Unit, which is housed within the Office of Enforcement Analysis, we will provide reliable and objective data to facilitate licensing officers’ reviews of the bona fides of foreign parties to license applications.
      4. Fourth, the Office of Enforcement Analysis, working with compliance officials within Export Administration, will systematically review transactions of License Exception STA to verify that the end-users are eligible and compliant.
      5. Fifth, we are working with our colleagues at the Department of State to coordinate end-use checks at foreign firms receiving 600 series parts and components for incorporation into ITAR-controlled end-items.
      6. Finally, we are prioritizing our enforcement work to focus on illicit procurement networks seeking not only weapons of mass destruction and IEDs, but also 600 series items and information suppression technology.

When coupled with our permanent law enforcement authorities and administrative and criminal penalties, these actions will help cement the higher fences being built around the most sensitive items.

In addition to providing analytical support to our Special Agents and vetting the bone fides of parties to license applications, one of the Office of Enforcement Analysis’s major responsibilities is to manage our End-Use Check program to confirm that controlled items are exported and reexported legally.  End-use checks are conducted primarily by our Special Agents located abroad with the Commerce Department’s Foreign Commercial Service, supplemented by Sentinel trips undertaken by our domestically-based Special Agents.  Here are some key statistics concerning End-Use Checks:

Entities Listings based on Export Enforcement’s Work

With regard to the Entity List, I would like to share with you some examples of how our investigative and analytical work has resulted in additions to the Entities List that BIS maintains under Part 744 of the Regulations.

Office of Antiboycott Compliance

Finally, no picture of Enforcement at BIS is complete without reference to the Office of Antiboycott Compliance, which is celebrating its 34th year.  In Fiscal Year 2011, OAC settled 8 cases totaling $129,300 in administrative penalties and issued 2 Warning Letters. In FY 2012 to date, OAC has settled 7 cases totaling $100,600 in penalties and issued 3 Warning Letters.

Education and Outreach
OAC does an excellent job of helping the business community to understand and comply with the complex antiboycott provisions of the Regulations. 
To illustrate:


Eric Hirschhorn refers to the three “E’s” of Export Control Reform:  efficiency, education, and enforcement.  I am proud to be part of that third “E.”  This is a very challenging and exciting time for our organization.  We have assembled a top-notch management team for Enforcement at BIS, and you will be hearing from them later today and throughout this conference.  I also wish to acknowledge Mr. Mark Menefee, who serves now as my Senior Advisor and is also an indispensable part of our team.

Thank you for your attention this morning.  I look forward to meeting you and listening to your feedback during the rest of the Update.