Export Controls:

Improvements to Commerce's Dual-Use System Needed to Ensure Protection of U.S. Interests in the Post-9/11 Environment

GAO-06-638: Published: Jun 26, 2006. Publicly Released: Jul 26, 2006.

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In regulating exports of dual-use items, which have both commercial and military applications, the Department of Commerce's Bureau of Industry and Security (BIS) seeks to allow U.S. companies to compete globally while minimizing the risk of items falling into the wrong hands. In so doing, BIS faces the challenge of weighing U.S. national security and economic interests, which at times can be divergent or even competing. In light of the September 2001 terror attacks, GAO was asked to examine BIS's dual-use export control system. In response, GAO is reporting on BIS's (1) evaluations of and changes to the system, (2) screening of export license applications against its watchlist, and (3) actions to correct weaknesses previously identified by GAO.

Lack of systematic evaluations. Although BIS made some regulatory and operational changes to the dual-use export control system, it has not systematically evaluated the system to determine whether it is meeting its stated goal of protecting U.S. national security and economic interests. Specifically, BIS has not comprehensively analyzed available data to determine what dual-use items have actually been exported. Further, contrary to government management standards, BIS has not established performance measures that would provide an objective basis for assessing how well the system is protecting U.S. interests. Instead, BIS relies on limited measures of efficiency that focus only on narrow aspects of the license application review process to assess the system's performance. BIS officials use intelligence reports and meetings with industry to gauge how the system is operating. Absent systematic evaluations, BIS conducted an ad hoc review of the system to determine if changes were needed after the events of September 2001. BIS officials determined that no fundamental changes were needed but opted to make some adjustments primarily related to controls on chemical and biological agents. GAO was unable to assess the sufficiency of the review and resulting changes because BIS officials did not document their review. Omissions in BIS's watchlist. GAO found omissions in the watchlist BIS uses to screen export license applications. This screening, which is part of the license application review process, is intended to identify ineligible parties or parties warranting more scrutiny. The omissions undermine the list's utility, which increases the risk of dual-use exports falling into the wrong hands. GAO identified 147 parties that had violated U.S. export control requirements, had been determined by BIS to be suspicious end users, or had been reported by the State Department as committing acts of terror, but these parties were not on the watchlist of approximately 50,000 names. Reasons for the omissions include a lack of specific criteria as to who should be on the watchlist and BIS's failure to regularly review the list. In addition, a technical limitation in BIS's computerized screening system results in some parties on license applications not being automatically screened against the watchlist. Some prior GAO recommendations left unaddressed. BIS has implemented several but not all of GAO's recommendations for ensuring that export controls on sensitive items protect U.S. interests. Among weaknesses identified in prior GAO reports is the lack of clarity on whether certain items are under BIS's control, which increases the risk of defense-related items being improperly exported. BIS has yet to take corrective action on this matter.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To ensure that BIS has a process that effectively identifies parties of concern during the export license application review process, the Secretary of Commerce should direct the Under Secretary for Industry and Security to establish interim measures for screening all parties until the planned upgrade of the computerized screening system eliminates current technical limitations.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: In response to this recommendation, the Department of Commerce has implemented an interim measure to ensure that parties that cannot be automatically screened against the watch list due to technical limitations are manually screened. The Department still anticipates developing a new computer system that will allow all parties on all applications to be automatically screened against the watch list, but provided no time frame for putting that system in place.

    Recommendation: To ensure that BIS has a process that effectively identifies parties of concern during the export license application review process, the Secretary of Commerce should direct the Under Secretary for Industry and Security to implement regular reviews of the watchlist to help ensure its completeness.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: In response to this recommendation, the Department of Commerce has implemented procedures for regularly reviewing the watch list to ensure its completeness. Specifically, Commerce has appointed a watch list coordinator who is tasked with conducting spot checks and an annual review of the list.

    Recommendation: To ensure that BIS has a process that effectively identifies parties of concern during the export license application review process, the Secretary of Commerce should direct the Under Secretary for Industry and Security to develop criteria for determining which parties should be on the watchlist.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: In response to this recommendation, the Department of Commerce has developed criteria for determining which parties should be included on its export control watch list.

    Recommendation: To ensure that the dual-use export control system is effective as well as efficient in protecting U.S. interests, the Secretary of Commerce should direct the Under Secretary for Industry and Security to implement a plan for conducting regular assessments of the dual-use export control system to identify weaknesses in the system and corrective actions.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: In commenting on the report, the Commerce Department did not address this recommendation. Starting in 2007, the Bureau of Industry and Security (BIS) undertook initiatives to establish a regularized CCL review process. A major step was taken on July 17, 2007 when BIS published a notice of inquiry, "Request for Public Comments on a Systematic Review of the Commerce Control List," in the Federal Register (72 FR 39052). Once the current CCL review is completed, BIS plans to review 1/3 of the CCL each year to create a three review cycle. These subsequent CCL reviews may allow for a more in-depth analysis of a particular CCL category or industry sector. In addition, there are other CCL review processes, such as those for items that are controlled under the multilateral export control regimes, that help to ensure that export controls are being constantly reassessed. By institutionalizing the CCL review process, BIS has put into place a mechanism to ensure that the most sensitive items are controlled to sustain U.S. economic competitiveness and innovation. In addition, BIS has analyzed export data to determine the economic impact of proposed changes to the Commerce Control List, better inform licensing decisions, facilitate exporter adherence to the EAR, and identify trends with key trading partners to support bilateral and multilateral policy decisions.

    Recommendation: To ensure that the dual-use export control system is effective as well as efficient in protecting U.S. interests, the Secretary of Commerce should direct the Under Secretary for Industry and Security to develop, in consultation with other agencies that participate in the system, measures of effectiveness that provide an objective basis for assessing whether progress is being made in achieving the goal of protecting U.S. interests.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: In commenting on the report, the Commerce Department did not address this recommendation. Then in a subsequent letter, the Bureau of Industry and Security (BIS) wrote that it has implemented a plan to evaluate the system from national security, economic, and compliance perspectives. In January 2008, BIS established a new measure of the effectiveness of the system from a compliance perspective: the percent of shipped transactions that were in compliance with the licensing requirements of the Export Administration Regulations.

    Recommendation: To ensure that the dual-use export control system is effective as well as efficient in protecting U.S. interests, the Secretary of Commerce should direct the Under Secretary for Industry and Security to review existing measures of efficiency to determine their appropriateness and develop measures that address commodity classifications.

    Agency Affected: Department of Commerce

    Status: Closed - Not Implemented

    Comments: In responding to the report, the Department of Commerce did not address this recommendation. In a subsequent letter, the Department of Commerce stated it now tracks and reports timeliness of commodity classifications. However, the Bureau of Industry and Security (BIS) has not developed measures of efficiency for commodity classifications. In addition, the performance measures related to efficiency reported in budget documents have remained unchanged.

    Recommendation: To ensure that the dual-use export control system is effective as well as efficient in protecting U.S. interests, the Secretary of Commerce should direct the Under Secretary for Industry and Security to identify and obtain data needed to evaluate the system.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: According to a letter from the Department of Commerce, the Bureau of Industry and Security (BIS) has identified and obtained data to evaluate the system from national security (e.g., contribution of U.S.-origin items to key weapons systems), economic (e.g.. impact that export controls have on bilateral trading relationships. license utilization reviews), and compliance perspectives. Specifically, BIS has obtained data from intelligence and other agencies to assist its national security evaluation and has entered into a memorandum of understanding with the Census Bureau to obtain Automated Export System data to assist its economic and compliance analyses.

    Recommendation: To mitigate the risks identified in prior GAO reports related to the dual-use export control system, the Secretary of Commerce should direct the Under Secretary for Industry and Security to report to Congress on the status of GAO recommendations, the reasons why recommendations have not been implemented, and what other actions, if any, are being taken to address the identified weaknesses.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: The Department of Commerce provided GAO and related congressional committees a status of open recommendations on September 15, 2006.

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