The ACEP structure operated at three levels prior to December 1995:

The ACEP structure operated on a consensus basis at each level. Interagency differences that could not be resolved at the Export Administration Review Board level could be sent to the President for final resolution.81

Export license application processing deadlines were established by the Export Administration Amendments Act of 1985. The maximum processing time for a license application that required referral to another department or agency was 120 days. If a license application did not require referral to another department or agency, the maximum processing time was 60 days.82

Prior to the issuance of Executive Order 12981 in December 1995, the 1979 Act required that the Commerce Department seek information and recommendations from other U.S. Government departments and agencies that had important interests in exports in determining whether a dual-use export license should be granted or denied.

Prior to December 1995, the Commerce Department referred many, but not all, license applications to the Departments of State, Defense, and Energy, and the U.S. intelligence community for review.

Nevertheless, a number of U.S. Government reports over the years identified problems and disagreements involving U.S. Government agencies regarding which applications the Department of Commerce should refer to them.83 One 1993 study noted that this disagreement resulted in part from ambiguities in the 1979 Act. In contrast, the Nuclear Non-Proliferation Act of 1978 required the Department of Commerce to consult with the Department of Energy under specific procedures regarding applications for items with nuclear-related capabilities.

License Processing Since Executive Order 12981 in December 1995

Executive Order 12981 was issued on December 5, 1995. It established new procedures and deadlines for the processing of export license applications by the Department of Commerce pursuant to the 1979 Act and the Export Administration Regulations.

Among other things, the Executive Order made a major change regarding the referral by the Commerce Department of license applications to other departments and agencies. The effect of this change was to permit the Departments of State, Defense, and Energy, and the Arms Control and Disarmament Agency, to review any license application submitted to the Commerce Department.

As was the case prior to Executive Order 12981, the Commerce Department is free to refer license applications to other departments and agencies as it deems appropriate.84

The Executive Order also changed the composition and operation of the Advisory Committee for Export Policy (ACEP) for resolving interagency disputes on license applications. Instead of operating on a consensus basis at each level as previously had been the case, the Executive Order authorized the Operating Committee Chair to make decisions on license applications at the Operating Committee level.

These decisions could be appealed to the ACEP. The Executive Order established that decisions on license applications at the ACEP level and at the Export Administration Review Board level would be made by majority vote.85

The Executive Order also changed the time requirements. It specified that all license applications submitted to the Commerce Department must be resolved, or referred to the President, no later than 90 days after the license application. This represented a 30-day, or 25 percent, reduction in the maximum time that was previously allowed to process a license application.86

In October 1996, export license applications for commercial communication satellites and any jet engine "hot-section" technology for the development, production, and overhaul of commercial aircraft engines were transferred from the State DepartmentÌs Munitions List to the Commerce DepartmentÌs Control List.87 President Clinton issued Executive Order 13020 (Amendment to Executive Order 12981, October 12, 1996) regarding the procedure for interagency processing of these applications. Executive Order 13020 also called for a majority vote decision of the Operating Committee on disputed applications, rather than a decision by the Operating Committee Chair.88

By Executive Order 13026 (Administration of Export Controls on Encryption Products, November 15, 1996), President Clinton amended the process for export licensing of encryption products. The new system requires the Commerce Department to refer license applications for encryption products controlled under the Commerce Control List to the Department of Justice for review. The Executive Order includes the Justice Department as a full voting member of the Operating Committee, the ACEP, and the Export Administration Review Board when those bodies are reviewing encryption export license applications.89

Carol A. Kalinoski, the Commerce Department official who currently is the Chair of the ACEP Operating Committee, indicates that meetings are currently held at least weekly. The agenda for each Operating Committee meeting generally ranges between 60 and 70 license application cases. Out of that number, approximately 20 to 40 typically are new cases. The Operating Committee handled 704 export license application cases in fiscal year 1998, 634 in fiscal year 1997, and 385 in fiscal year 1996.90

Kalinoski says that Operating Committee meetings are getting "harder." This is occurring because the Operating Committee is reviewing license applications that are more complex than in the past. End-user concerns are a primary cause of export license disagreements.91

Only five percent of the license applications reviewed by the Operating Committee are escalated to the Advisory Committee on Export Policy. Currently, there is a meeting of the ACEP about every two months. Kalinoski says there has not been an appeal to the Export Administration Review Board since December 1988.92

The number of license applications received by the Department of Commerce has dropped dramatically over the past ten years. Commerce received 97,902 license applications in fiscal year 1988, 26,126 in fiscal year 1993, and 11,472 in fiscal year 1997.93 CommerceÌs Bureau of Export Administration explained this decline in export license applications in its 1997 Annual Report to Congress by stating:

Pre-License Checks and Post-Shipment Verifications

The Department of Commerce or another department or agency may request a pre-license check to establish the identity and reliability of the recipient of the items requiring an export license.94

The 1979 Act provides that the Secretary of Commerce and designees may conduct overseas pre-license checks and post-shipment verifications of items licensed for export: 95

The Commerce DepartmentÌs procedures for conducting pre-license checks and post-shipment verifications are similar.

A pre-license check or post-shipment verification is initiated by sending a cable with relevant information about the case to the appropriate U.S. Embassy overseas. Specific officials at the Embassy usually have been pre-designated to conduct these checks, although special teams from Washington, D.C. also periodically conduct end-use checks.

The Embassy official initially collects background information on the end user. Next, the Embassy official visits the end user and interviews senior employees there. Upon completing the visit, the Embassy official is required to cable the Commerce Department with the information collected and an evaluation as to whether the end user is considered a reliable recipient of U.S. technology.

Based on the cabled information, the Commerce Department evaluates whether the result of the check is favorable or unfavorable.97

Over the years, several studies have criticized how the authority for pre-license checks and post-shipment verifications has been implemented.98 These criticisms have included:

Roles of Other Departments and Agencies In CommerceÌs Export Licensing Policy

Department of State

Within the Department of State, the Export Control and Nonproliferation Office is responsible for reviewing most dual-use license applications referred from the Department of Commerce.

Normally, the license applications are received via a dedicated electronic link with the Commerce Department. As appropriate, the State Department coordinates the license application with its own offices and, when necessary, with U.S. Embassies overseas. Once the State Department formulates its position on a license application, it typically transmits the recommendation back to the Commerce Department via the same dedicated electronic link.

Depending on the technology involved, some dual-use license applications are processed by other State Department organizations instead of the Export Control and Nonproliferation Office:

As appropriate, each of these interagency groups also reviews license applications involving other technologies that are destined to a country or end user of concern.99

Department of Defense

At the Department of Defense, the Technology Security Operations Directorate in the Defense Technology Security Administration (DTSA)100 reviews the end users that are identified on Commerce Department export license applications.

The Defense Department uses information from a variety of sources, such as the U.S. Customs Service, the Federal Bureau of Investigation, the Central Intelligence Agency, and the Defense Intelligence Agency, to vet the end user. Also, a "tiger team" meets at the Defense Department each morning to review a synopsis of dual-use license applications that is transmitted electronically from Commerce.

Typically, the Defense Department has seven days to determine whether to recommend that it be given time to review a license application more closely. Invoking the seven-day period to ask for more information from the Commerce Department essentially places a hold on the license for a period of up to 30 days. During that time, the Defense Department works on developing information that eventually will lead to a recommendation for its position on the license application. Within the Defense Department, the License Directorate determines which Defense organizations will be afforded the opportunity to comment on the license application.

Central Intelligence Agency

Commerce Department officials may refer license applications for dual-use items to the CIAÌs Nonproliferation Center for help in identifying sensitive end users.101

Commerce Department officials say that they refer to the CIA all license applications for exports to the PeopleÌs Republic of China.102

In 1996, the Commerce Department began referring to the CIA information it receives from exporters about end users for all high performance computer exports to certain countries Û even if an export license is not required. However, the CIA has recommended 22 general types of foreign end users that the Commerce Department should exempt from Nonproliferation Center review. These include some foreign government entities whose activities are considered to be benign, public service organizations, and some foreign trade organizations.103

Enforcement

Alleged violations of the 1979 Act or the Export Administration Regulations are investigated by the Department of CommerceÌs Office of Export Enforcement.104

Consisting of about 100 special agents and other personnel, the Office of Export Enforcement operates from eight field offices located in key areas of the United States. In addition to conducting criminal and administrative investigations, it performs:

In 1993, the Commerce Department and the U.S. Customs Service signed a Memorandum of Understanding to enhance their cooperation on export enforcement. The agreement contains provisions to facilitate information sharing, to coordinate enforcement activities, and to delineate responsibilities between the two agencies.

Voluntary Disclosures

In addition to reliance on standard methods of enforcement, the Commerce Department has procedures for exporters to self-disclose their own violations.

While the Export Administration Regulations provide that voluntary self-disclosure may be considered a mitigating factor in determining the appropriate administrative penalties, the regulations also make clear that the weight to be given a self-disclosure is entirely within the discretion of the Commerce Department, and that it will not prevent transactions from being referred to the Department of Justice for criminal prosecution.105

Penalties for Violation of the Export Administration Regulations

Since the 1979 Act expired in August 1994, the Export Administration Regulations have been enforced under the authority of the International Emergency Economic Powers Act. The penalties that can be imposed under this law are less than the penalties provided under the 1979 Act.

Penalties Under the 1979 Act (Expired Since 1994)

The 1979 Act provided for criminal and civil penalties, as well as administrative sanctions such as debarment from the privilege of exporting.

Criminal penalties for knowing violations under the 1979 Act included:

Willful criminal violations were punishable by:

Civil penalties under the 1979 Act included:

Civil penalties under the 1979 Act were held by at least one federal court to be subject to a strict liability standard, with no necessity to show knowledge or intent.109

Administrative Sanctions

Administrative sanctions imposed under the Export Administration Regulations include denial of export privileges for up to ten years.110 Persons convicted under specified national security laws, including the 1979 Act, may also lose export license privileges for up to ten years.111

When necessary to prevent the occurrence of an imminent violation, the Assistant Secretary of Commerce for Export Administration can issue an order temporarily denying export privileges without a hearing.112

All Commerce Department export licenses and license exceptions are subject to revision, suspension, or revocation without notice whenever it becomes known that the Export Administration Regulations have been violated, or that a violation is about to occur.113

A further sanction prescribed in the Export Administration Regulations is the exclusion of professionals involved in the export process Û such as attorneys, accountants, consultants, and freight forwarders Û from practice before the Bureau of Export Administration.114

Finally, illegal exports are subject to seizure together with any vessel, vehicle, or aircraft used in the export or attempt to export.115

Penalties Under the International Emergency Economic Powers Act

The criminal and civil penalties under the International Emergency Economic Powers Act (IEEPA) are substantially less than those provided under the 1979 Act. The maximum civil fine is $10,000 per violation.116 The maximum criminal penalties under IEEPA are $50,000 and/or ten yearsÌ imprisonment.117

Commerce Undersecretary for Export Administration William A. Reinsch notes that the maximum civil fine under IEEPA Û $10,000 per violation Û may not be a significant cost for a major company.118

Customs Enforcement

The U.S. Customs Service is the principal border enforcement agency in the U.S. Government. It has the authority to search any shipment that crosses the U.S. border, whether entering or exiting the country.

One role of the Customs Service is to work with the State DepartmentÌs Office of Defense Trade Controls in conducting end-use checks Û the BLUE LANTERN program. The State Department sets criteria for when these end-use checks should be performed, but asks the Customs Service to carry them out. (In contrast, the Commerce Department schedules its own end-use checks and uses its own staff to implement them, although they are coordinated with the Customs Service and overseas attaches.)

The Customs Service receives leads from a variety of sources, including information from licenses issued by the Commerce Department and the State Department. In turn, it also shares information with Commerce and State.

The Customs Service maintains overseas offices, including one in Hong Kong, to support its investigations. Foreign national employees hired by the Customs Service are subject to full background investigations.

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