Customs Official Outlines Export Control Law Enforcement

"With the dissolution of the Soviet Union, we have seen a shift" in the nature of the threat to U.S. export controls, a U.S. Customs official told members of the U.S.-China Commission January 17.

"In the early 1980s, the nature of the export control threat was mainly by efforts of the former Soviet Union and its allies to acquire sophisticated Western technology for use in building their military establishments," Richard Mercier, the Executive Director for Investigative Programs at the United States Customs Service, said.

"Today, we continue to see efforts by the People's Republic of China (PRC) to obtain sophisticated Western technologies to enhance their military capabilities," Mercier continued. To illustrate the point, Mercier noted: "Since fiscal year 1998, Customs has initiated 558 criminal investigations relative to unlawful exports of technology to the PRC ... [and] 64 cases resulted in an enforcement action, that is, an arrest, indictment, or seizure."

During the same time period, he said, Customs made 32 arrests, 24 indictments, and 21 convictions of individuals and companies charged with unlawfully exporting or attempting to unlawfully export controlled commodities to the PRC.

Mercier said the total value of these PRC-related seizures is "approximately $3,805,432."

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

Statement of Richard Mercier
Executive Director for Investigative Programs
Office of Investigations
United States Customs Service
Before the United States-China Security Commission
January 17, 2002

Good morning, Commissioner Becker, Chairman D'Amato, and members of the Commission. It is a privilege to appear before the Commission today to discuss Customs unique role in enforcing U.S. export control laws and our views on the export of U.S.-origin high technology to the People's Republic of China.

Customs has a long and proud tradition of enforcing our Nation's import and export laws. This tradition has evolved from Customs earliest responsibilities for the collection of revenues on imported merchandise, to our role today as the first line of defense at our Nation's borders in preventing the illegal international trafficking in goods which threaten the public safety and national security.

Customs is a leader in enforcing U.S. export controls. Customs is at the forefront of the Administration's efforts to prevent the proliferation of Weapons of Mass Destruction and conventional arms, combat international terrorism, and implement U.S. economic sanctions and embargoes.

Export Controls Enforced by Customs

Customs is principally responsible for enforcement of:

• The Arms Export Control Act (22 U.S.C. 2778), which regulates the export of arms, munitions, and military equipment;

• The Export Administration Regulations (15 C.F.R.), which regulate the export of dual-use technologies and commodities, including those with application in the development of Weapons of Mass Destruction;

• The International Emergency Economic Powers Act, or IEEPA (50 U.S.C. 1701 et seq), which regulates financial and other transactions with specified countries, individuals and other entities; and

• The Trading With the Enemy Act (50 U.S.C. App. 1), which imposes economic sanctions and embargoes on trade with Cuba and North Korea.

Operation EXODUS

To enforce these laws and regulations, Customs employs its unique border search and law enforcement authorities in processing international passengers, conveyances and cargo crossing our Nation's borders to insure compliance with export requirements, collect trade data, and detect export violations.

The focus of our export enforcement efforts has shifted to meet changes in international threats that have confronted the United States, especially since September 11.

In the early 1980s, the nature of the export control threat was mainly by efforts of the former Soviet Union and its allies to acquire sophisticated Western technology for use in building their military establishments. In response to this threat Customs initiated an intensified enforcement program, Operation EXODUS, to enforce provisions of the Export Administration Act and other export control statutes to prevent illegal exports of munitions, strategic technologies, and shipments destined for sanctioned/embargoed countries from the United States. Under Operation EXODUS, Customs significantly increased examinations of merchandise exported from the United States to insure compliance with export controls and interdict illicit shipments, and aggressively pursued investigations of criminal export violations.

With the dissolution of the Soviet Union, we have seen a shift in the threat once again. Today, we continue to see efforts by the People's Republic of China to obtain sophisticated Western technologies to enhance their military capabilities. Second, we see rogue states attempting to develop nuclear, chemical and biological weapons and delivery systems. Third, we are faced with the potential for international terrorists to acquire weapons of mass destruction, arms, and other support for terrorist attacks innocent citizens in both the U.S. and abroad. Fourth, we again see a rise in illicit trafficking in arms and military equipment, supplying international criminals and political insurgents as well as contributing to regional instabilities.

Customs goals under Operation EXODUS today are to prevent proliferant countries, the PRC being one, and rogue states, international terrorists, and trans-national criminal organizations from obtaining sensitive and controlled technologies and commodities, including materials and technologies for Weapons of Mass Destruction, conventional munitions, and firearms; and from engaging in economic transactions which violate U.S. and international sanctions and embargoes.

Our objectives are to disrupt international trafficking in sensitive and controlled commodities through the interdiction of illicit shipments, and to dismantle criminal trafficking organizations supplying and supporting proliferant countries, rogue states, international terrorists and trans-national criminal groups.

Customs' Unique Role in Export Enforcement

As I have noted, our role in export enforcement is unique in terms of our legal authorities and inspectional presence to enforce export laws and regulations at our Nation's borders; our experience in the processing of international passengers, conveyances and cargo; our expertise in examining and analyzing export documentation, and our familiarity in licit and illicit international shipping modes and routes; our automated commercial and enforcement systems and analytical tools; and our proactive, cooperative enforcement efforts with both U.S. and foreign law enforcement agencies.

Border Search Authority

Let me first briefly address Customs' unique legal authorities. Chief among them is our border search authority. By statute, Customs may search, without warrant, passengers, conveyances and cargo entering and leaving the United States to insure full compliance with all U.S. import/export requirements and to uncover violations. Customs is the only Federal law enforcement agency with this broad power. As a result, we are the only Federal agency with the ability to interdict merchandise being illegally exported from the United States. Every other Federal agency with export requirements, restrictions or prohibitions relies on Customs to enforce those provisions as passengers; conveyances and cargo cross our international borders.

Outbound Examinations

Customs maintains 301 ports of entry and exit throughout the United States. These include international airports, seaports, and vehicle and rail crossings along our land borders with Canada and Mexico. Customs has over 7200 Inspectors operating in these ports to process passengers, conveyances and cargo to insure compliance with all U.S. import and export requirements, detect violations, and seize merchandise imported or exported contrary to law. As noted above, Customs is the only Federal law enforcement agency with border search authority with merchandise. Customs Inspectors are the only Federal presence at our Nation's borders with the ability to examine outbound passengers, conveyances and cargo to interdict and seize strategic and controlled commodities being exported in violation of U.S. export controls.

As I previously noted, Customs has had a long standing, intensified outbound examination program designed to enforce U.S. export controls, known as Operation EXODUS. Operation EXODUS has had a significant impact on preventing the illegal export of strategic and controlled commodities: since its inception in 1981, Operation EXODUS has to date resulted in the seizure of over $1.2 billion in merchandise being exported in violation of U.S. export controls. Since fiscal year 1998, Customs has initiated 558 criminal investigations relative to unlawful exports of technology to the PRC. Of that number, sixty-four (64) cases resulted in an enforcement action, that is, an arrest, indictment, or seizure. The seizures range from the commodity being intercepted before export up to real property owned by the defendants. During the aforementioned time period, Customs effected 32 arrests, 24 indictments, and 21convictions of individuals and companies, charging them with unlawfully exporting or attempting to unlawfully export controlled commodities to the PRC. The value of all the seizures is approximately $3,805,432.

Export Investigations

Our experience in conducting proactive investigations of international trade violations directly contributes to our export enforcement efforts. Our experience and successes in conducting proactive investigations of criminal export violations continue Customs tradition of leadership in export enforcement. Customs investigations have resulted in the arrest, prosecution and conviction of hundreds of criminal export violators dealing in equipment ranging from sophisticated computer and precision machining technologies used for nuclear weapons development, to helicopters equipped for chemical agent dispersal, to nuclear reactor components.

By way of illustration, in 1998, Customs Special Agents in Boston arrested two Chinese nationals involved in the attempted export of sophisticated aircraft and missile gyroscope systems to China, and obtained the conviction of a third individual for earlier, attempted exports of similar sophisticated aircraft guidance components to that country. (Lion Photonics)

In May 2001, Special Agents in Baltimore initiated an investigation based on a referral made by the Defense Security Service which alleged that EUGENE HSU, of Blue Springs, Missouri, was attempting to acquire sophisticated encryption technology and related data for illegal export to the People's Republic of China (PRC). The technology is controlled for export under the U.S. Munitions List of the International Trafficking in Arms Regulations and by the National Security Agency. Based on the referral, an undercover investigation was initiated and contact with HSU was made with the cooperation of the manufacturer of the technology. On August 28, 2001, HSU and DAVID YANG, a co-conspirator in Los Angeles, California, were arrested for attempting to unlawfully export the encryption devices to the PRC via Singapore. An arrest warrant was also issued for another co-conspirator, CHARLSTON HO, currently residing in Singapore, and is a fugitive. Their trial is pending. (Eugene HSU)

International Cooperation

A key element of our enforcement efforts is coordination and cooperation with our foreign customs and law enforcement counterparts. In fact, many of our most successful interdictions were effected by foreign customs and law enforcement agencies, based on our providing them with the information they needed to stop these shipments before the goods were delivered to their intended, ultimate destinations. Customs maintains 28 Customs Attach��offices in countries around the world to coordinate our international enforcement efforts, including the PRC. As I previously mentioned, one of our export enforcement objectives is the dismantlement of criminal trafficking organizations - not just in the United States, but in every country and venue in which they operate. Our foreign partnerships are essential to meeting this objective.

Project Shield America

In seeking to both gather and provide information, Project Shield America was initiated by Commissioner Bonner on December 4, 2001. Project Shield America is an industry outreach program, which is intent on obtaining the assistance and cooperation of those companies involved in the manufacture, sale, and export of U.S. origin high technology and munitions used in weapons of mass destruction and delivery systems, that could be unlawfully exported to the enemies of the United States.

The Commissioner has invited the Office of Export Enforcement, U.S. Department of Commerce, and the Federal Bureau of Investigation to participate in this endeavor and they have responded enthusiastically. Customs and OEE have worked and will continue to work jointly in the investigation of unlawful exports of dual use technology.

Customs has also implemented the Customs - Trade Partnership Against Terrorism (C-TPAT) program. C-TPAT is a partnership between Customs and the importing community requiring importers to review their entire logistics chain and incorporate sound security measures to reduce exposure to product and conveyance tampering. Customs believes that this is an effective program for importers to implement in their efforts against terrorism.

Our relationship with the Federal Bureau of Investigation has led to Customs placing Special Agents in 30 Joint Terrorism Task Forces around the country. Their mission is to investigate not only terrorist organizations but also to follow up on information from the FBI regarding the PRC's efforts to obtain U.S. origin high technology.

Conclusion

This concludes my statement for the record. I appreciate the opportunity to appear before you today. I would now be pleased to answer any questions you may have about Customs enforcement of U.S. export controls relative to the PRC.