Commerce Official Cites Need for New Export Administration Act

17 January 2002

Commerce Official Cites Need for New Export Administration Act

Legislation critical for protection of national security

Enacting new export control legislation in the near future is "critical" for the protection of U.S. national security interests, Michael J. Garcia, Assistant Secretary of Export Enforcement for the U.S. Department of Commerce's Bureau of Export Administration (BXA), told members of the U.S.-China Commission January 17.

Garcia noted that the legislation that authorizes U.S. export controls expired in August 2001 -- making this the sixth time in the past 23 years that this legislation, the Export Administration Act, has expired.

To maintain a system of export controls in effect, Garcia said, the President of the United States has repeatedly had to declare a national emergency and invoke safety net emergency powers.

"The absence of a coherent, modern statutory basis for our export control laws not only creates uncertainty for the business community and hurts the United States credibility in dealing with foreign governments, it also harms our efforts -- my efforts -- to enforce export control laws," Garcia said.

He said the mission of the Export Enforcement arm of BXA is to protect U.S. national security interests by identifying and halting illegal export transactions and prosecuting violators.

"It is a responsibility that we take very seriously, especially with respect to exports to areas, such as China, where U.S. trade is increasing rapidly, and which also pose complex national security issues," Garcia said.

"I would note that a substantial portion of our enforcement resources is devoted to enforcement of export controls to China," he added.

To illustrate the Department of Commerce's dedication to the enforcement of export controls applicable to China, Garcia cited the successful conclusion in 2001 of two cases that arose from the 1994 sale of controlled machine tools by the McDonnell Douglas Corporation to the China National Aero-Technology Import and Export Corporation (CATIC), a PRC government-owned corporation.

The U.S.-China Security Review Commission was created by the National Defense Authorization Act signed into law on October 30, 2000. The 12-member Commission is assigned the tasks of analyzing the national security implications of trade and economic ties between the United States and the People's Republic of China, and of issuing reports including recommendations for action by Congress and the President of the United States.

Following is the text of Garcia's remarks, as prepared for delivery:

Testimony Of Michael J. Garcia
Commerce Assistant Secretary Of Export Enforcement
Before The United States-china Commission
January 17, 2001

Introduction

Thank you for the opportunity to testify today. I would like to offer a few prepared remarks on the Department of Commerce's activities with respect to enforcement of restrictions on dual-use items to China.

Before doing that, however, let me introduce myself. I am the Assistant Secretary of Commerce for Export Enforcement, and I was confirmed to that post in August 2001. Prior to joining the Commerce Department's enforcement team, I was an Assistant United States Attorney ("AUSA") in the Southern District of New York where I focused on prosecuting national security-related cases. As an AUSA, I prosecuted a number of terrorist cases, including the four defendants who were charged with conspiring, along with Usama Bin Laden and 17 others, to kill Americans overseas by bombing our two embassies in East Africa. Those four defendants were convicted in May 2001. While an AUSA, I also participated in the successful prosecution of four defendants in the first World Trade Center bombing trial and the successful prosecution of Ramzi Ahmed Yousef and two others who had plotted to cause 48 hours of "terror in the sky" by planting bombs aboard American jetliners flying from South East Asia to the United States.

These cases involved very real threats to our national security. I bring this experience, this background, to my work as Assistant Secretary of Export Enforcement.

Export Enforcement's Mission

The primary mission of the Commerce Department's Bureau of Export Administration (BXA), where I now serve, is to advance U.S. national security, foreign policy, and economic interests. The Export Enforcement arm of BXA protects U.S. national security interests by identifying and halting illegal export transactions and prosecuting violators. It is a responsibility that we take very seriously, especially with respect to exports to areas, such as China, where U.S. trade is increasing rapidly, and which also pose complex national security issues.

Export Enforcement performs its mission through several program offices. Altogether Export Enforcement employs approximately 100 special agents located in Washington, D.C. and in field offices in eight major American cities. They are responsible for investigating violations of the Export Administration Regulations, apprehending violators, and working with U.S. Attorneys to prosecute cases. Our investigators are empowered to make arrests, carry firearms, execute search warrants, and seize goods about to be illegally exported.

Two of our agents are stationed overseas as export control attach�� in Beijing and Moscow.

Export Enforcement employs 26 analysts who assist EE's field offices and BXA's export licensing offices by receiving and disseminating information on end-users and end-uses of concern. Export Enforcement also makes licensing recommendations to BXA licensing officers based on intelligence information and input received from special agents in the field.

Export Enforcement's China Programs

Export Enforcement uses its resources -- our attach��in Beijing, analysts, and agents -- in its effort to ensure compliance with BXA's regulations governing exports of dual-use items to China. I will briefly discuss (1) the activities of our export control attach��in Beijing, (2) our preventive enforcement efforts with respect to China; and (3) some of our completed investigations involving to China. As a preliminary matter, however, I would note that a substantial portion of our enforcement resources is devoted to enforcement of export controls to China.

Export Control Attach��/strong>

China was deemed sufficiently important to BXA's mission that in 1996 we placed our first post-Cold War export control attach��there. The attach�� who is also a criminal investigator, serves as a bridge between our preventive enforcement programs and our investigative programs. He conducts all end-use checks in China -- those that EE selects, those required by the NDAA, as well as those requested by other USG agencies. The attach��works with the Embassy community, educating Embassy personnel on export control issues. He is the point of contact for the Chinese business community and U.S. businesses operating in China who have questions about U.S. export control issues. The attach��also provides valuable information to BXA officials and licensing officers back in the United States to ensure that U.S. strategic products are safeguarded. The presence of the attach��also signals to the U.S. and Chinese business community that the Department of Commerce places emphasis on stopping any illegal exports to China.

Preventive Enforcement

EE's analysts review BXA licenses and shipping documents to determine which transactions should be the subject of end-use checks (both pre-license and post shipment) and to recommend the denial or conditioning of licenses in light of specific facts and circumstances. In China, we have an end-use visit arrangement (negotiated between the U.S. and Chinese Governments in July 1998) regarding end-use checks. In the past 12 months, BXA conducted 42 checks. These checks help ensure that our national security is not compromised by the exports of controlled goods and technology.

For China (and 50 other countries), post-shipment checks on all high performance computers above a specified level of performance are mandated by law. This level has been raised as technology advances, reducing the number of PSVs required for future exports. However, as we interpret the law, EE is not relieved of the requirement to conduct PSVs on previously exported computers that met the prior -- lower -- control level. This presents EE with a problem. We are being required to conduct checks on computers that are no longer considered advanced enough to be controlled, yet were controlled when exported. The sheer volume of these backlog checks, combined with our limited enforcement resources, diminishes our ability to choose and conduct those targeted checks which we believe are most critical to our national security interests. We are actively exploring different avenues for relief from this burdensome requirement.

In addition to analyzing specific transactions involving Chinese entities or individuals, EE also reviews applications for visas filed by Chinese nationals to prevent such individuals from illegally acquiring controlled U.S. technology while in the United States. EE recommends denial of visas to the U.S. Department of State when it believes that the applicant poses a particular risk of illegally seeking or gaining access to controlled technology or technical data.

Investigations

Export Enforcement vigorously enforces U.S. export control regulations concerning China. Working within its resource limitations and consistent with its broader global enforcement responsibilities, BXA's enforcement arm concluded a number of major investigations involving China that resulted in the imposition of significant criminal and administrative penalties in 2001.

Commerce's dedication to the enforcement of export controls applicable to China is illustrated by a pair of cases that arose from the 1994 sale of controlled machine tools by the McDonnell Douglas Corporation to the China National Aero-Technology Import and Export Corporation (CATIC), a PRC government-owned corporation. On May 11, 2001, following a six year investigation by Commerce, the U.S. Customs Service, and the Department of Justice, TAL Industries, Inc., a wholly owned subsidiary of CATIC, pled nolo contendere to a felony violation of the Export Administration Act for making false and misleading statements in connection with an export license application submitted by McDonnell Douglas and CATIC. TAL was sentenced to pay a criminal fine of $1 million, and, in what we believe to be an unprecedented step for a Chinese sovereign entity, TAC waived its sovereign immunity.

In addition, TAL, CATIC, CATIC USA, and CATIC Supply settled administrative charges by Commerce that they conspired to violate the Export Administration Regulations, made false statements or misrepresentations of material facts to the U.S. Government, and violated the terms and conditions of ten export licenses that were issued to McDonnell Douglas concerning the machine tools. TAL agreed to pay an administrative penalty of $1.32 million and have its export privileges denied for 10 years. CATIC, CATIC USA and CATIC Supply each agreed to a 5 year export denial, with the denial suspended provided they comply with the Export Administration Regulations and cooperate in any administrative enforcement proceedings against other parties.

On November 14, 2001, Commerce imposed a $2.12 million administrative penalty against McDonnell Douglas Corporation, which by that time had become a wholly owned subsidiary of the Boeing Company. This was the maximum monetary penalty available under the applicable law. In addition, the Boeing Company agreed to assume responsibility and liability for all future exports by McDonnell Douglas that are subject to the Export Administration Regulations.

The Commerce Department, as well as other U.S. Government entities, devoted substantial resources to these two cases over the course of many years. We did so, not only because these cases raised potentially serious violations of Export Administration Regulations, but also to send a clear message that the Commerce Department takes very seriously, and will enforce, exporter obligations where the items at issue are sensitive controlled items going to destinations that raise complex national security issues such as China.

I'd like to make one final point that, while relevant to China, has a far broader applicability. As many of you know, U.S. export controls were authorized under the Export Administration Act, legislation that expired in August of last year. This is the sixth time in the past 23 years that this act -- enacted in 1979 -- has expired. To maintain a system of export controls in effect, the President was forced again to declare a national emergency and invoke safety net emergency powers. The absence of a coherent, modern statutory basis for our export control laws not only creates uncertainty for the business community and hurts the United States credibility in dealing with foreign governments, it also harms our efforts -- my efforts -- to enforce export control laws.

Accordingly, as an enforcer of the export control laws, I believe it is critical that we get new export control legislation enacted in the near future.

Conclusion

In short, Export Enforcement is actively involved, within the limits of our resources, in monitoring our strategic exports to China. No system is perfect. An export control system must be fluid in the sense that it must be responsive to advances in technology and to evolving threats to national security. Yet it must also be consistent in providing the law-abiding business community with guidance on legitimate transactions and deterring those who would compromise our national security through illegal exports. I will use my time as Commerce's enforcement Assistant Secretary to enhance our efforts on both fronts aided, I hope, by new authorizing legislation. I would be pleased to answer any questions you may have.