Export Controls: Compliance and Enforcement Activities and Congressional Notification Requirements under Country-Based License Exemptions

What GAO Found

Some compliance activities for the export of controlled items under State and Commerce licenses differ from compliance activities under country-based license exemptions, but enforcement activities are generally the same. Compliance activities provide information for exporters, licensing officials, and enforcement agencies to help assess the validity of export transactions, identify potential violations, or prevent violations before they occur. Of the seven compliance activities we identified, three differ for licensed exports compared with country-based license exemptions. These activities are (1) license application review, (2) vetting parties to transactions, and (3) compliance program reviews (recordkeeping). In contrast to these compliance activities, the other four compliance and three enforcement activities, such as inspection of exports, investigations, and punitive actions for violations, are generally the same for both licensed exports and country-based, license-exempt exports.

The congressional notification requirements for State and Commerce to report proposed exports and statutory violations vary because each agency's authority stems from different legislative statutes. Specifically, each agency's export control regulations derive from different legislative authorities and aim to control articles that have different levels of concern for diversion or unintended use. State is required by law to notify Congress of proposed exports of major defense equipment, articles, and services that meet specific dollar thresholds under a license or treaty. Commerce is required to notify Congress of proposed exports that are destined for a designated state sponsor of terrorism or could make a significant contribution to the military potential of the government of a country that has repeatedly provided support for acts of international terrorism. However, in June 2012, Commerce issued a proposed rule that would add a new requirement to notify Congress of pending exports of major defense equipment, such as articles under the proposed 600 series, including those exported under the STA, that meet the same dollar thresholds as those required of State. As of November 2012, Commerce was considering how to implement its proposal. In terms of enforcement actions, State is required to notify Congress of certain violations of export laws. Commerce is required to provide an annual report to Congress that includes statutory violations resulting in administrative and criminal penalties.

Why GAO Did This Study

In 2010, the United States announced a reform of its export control systems that proposed, among other things, to reduce the numbers and types of items requiring government review and licensing before export. The U.S. government uses the export control system to limit the risk of sensitive items falling into the wrong hands, while at the same time allow legitimate trade of these items to occur. In particular, the United States controls the export of sensitive defense and dual-use items (items with both commercial and military, proliferation or terrorist applications) to foreign governments and commercial entities and non-governmental organizations. As part of the export control reform effort, the Department of State (State), the Department of Commerce (Commerce), and other agencies are reassessing the level of control warranted for certain defense items they consider to be less sensitive.

The U.S. government generally requires each export of defense articles, services, and dual-use items to undergo a government review and receive a license before export. However, State and Commerce provide certain exemptions--commonly referred to as country-based license exemptions--for the export of selected items to particular destinations that present a lower risk of misuse or diversion. Additionally, as part of the export control reform, the administration is working to establish a framework to transfer control of thousands of defense items from State’s U.S. Munitions List to Commerce’s Commerce Control List.

Historically, State has controlled defense items, while Commerce controlled dual-use items. According to the Acting Secretary of Commerce, items that will be transferred from State’s list to the more flexible Commerce list are those that do not perform an inherently military function and do not provide the United States with a military or intelligence advantage. This would allow the United States to put in place more logical controls on trade with close allies while maintaining strict controls over exports and re-exports to others, according to the Acting Secretary.

In a Congressional request, concerns were raised about compliance and enforcement activities for items exported without a license, such as those under the country-based license exemptions. Of particular concern are those defense items proposed to be transferred from State’s to Commerce’s control, which may include items such as certain firearms and satellite technology. Congress also raised concerns about potentially diminishing congressional notification requirements. U.S. law requires State to notify Congress of certain defense exports and to report to Congress certain statutory violations and has different requirements for Commerce to do so for dual-use Items. Finally, Congress raised concerns about whether notifications to Congress for the export of certain defense articles and services and for statutory violations related to those exports would continue if such articles and services move to Commerce for control.

As such, in response to Congressional request, we analyzed State’s and Commerce’s compliance and enforcement activities for items exported with a license and those that could be exported under four existing or proposed country-based license exemptions: the Defense Trade Cooperation Treaties with the UK and Australia (hereafter referred to as “the treaties”), the Canadian exemption, and the STA. Specifically, this report describes existing and proposed (1) compliance and enforcement activities for exports under both licenses and country-based license exemptions and (2) requirements for State and Commerce to notify Congress of certain defense exports and of violations of export control laws.

For more information, contact Thomas Melito at (202) 512-9601 or melitot@gao.gov.