U.S. export reform marches ahead

U.S. export reform marches ahead Commerce officials warn control changes don't mean easing enforcement.

By Chris Gillis

   While many proposed government reforms easily stall or never fully materialize, changes to the way the United States manages its export controls has briskly marched forward.
   In late August, the White House and Commerce Department assured the nation's exporters that the reform is underway and remains a top priority for the Obama administration, which hopes to double U.S. exports over the next five years as a means to reinvigorate the domestic economy.
   'Our current export control system has its roots in the Cold War era, when it was in every western country's security and economic interest to keep dual-use and military technologies away from a well defined bloc of adversarial nations,' Commerce Secretary Gary Locke told a crowd of more than 900 attendees at the Bureau of Industry and Security's annual Update Conference in Washington on Aug. 31.

Locke

   'Today, we simultaneously face a growing array of threats, from chemical and nuclear weapons proliferators, to rogue regimes, to state sponsors of terrorism,' he said. 'Meanwhile, our goods and technologies are incredibly sophisticated, and there are more consumers for them around the world than ever before. Our export control regime has not kept pace with these changes.'
   The administration announced its export reform initiative in April and has expressed its intention to have much of the framework in place by the end of the year.
   'This year, BIS's day-to-day administration of the EAR (Export Administration Regulations) must be considered against the backdrop of President Obama's export control reform initiative,' said Eric L. Hirschhorn, Commerce's undersecretary for industry and security. 'This extraordinary effort has been overseen by the White House on a daily basis.'
   Hirschhorn, who in several decades of private law penned The Export Control and Embargo Handbook and has written numerous articles on export controls, said despite potential for some legislative hurdles, he is optimistic the reform effort will continue taking shape.
   U.S. export control authority is spread across a handful of agency jurisdictions, but namely within the Commerce, State and Defense departments. Each agency operates its own system within an interagency process, which is blamed for numerous delays, loss of business to overseas competition, and confusion among companies seeking export licenses.
   'Our system should make clear when an item, regardless of the intent of its designers, is subject to control,' Hirschhorn said.
   In a first significant reform step, the administration is restructuring the dominant control lists: Commerce's Commerce Control List (CCL) and State's Munitions List (USML). The goal is to divide each list of controlled items into a three-tiered structure, with licensing policies corresponding to specific tiers.
   'The more sensitive the item, the more intensive should be the controls,' Hirschhorn said. 'These higher fences will include more frequent end-use checks and may, in some instances, require identifying markings on items subject to re-export controls.'
   The control lists will be merged into a single control list during the final phase of the reform.
   Hirschhorn also said it's the responsibility of every exporter to classify its exports and screen its customers against government lists, such as the Denied Persons and Entity lists.
   In addition, the departments will transition to a single information system, based off Defense's USXPorts system. 'Defense is currently using this system, State will begin doing so early next year. Commerce should be on board later in 2011, and other agencies will follow,' Hirschhorn said.
   'Concurrently with licensing efficiencies and education efforts, enforcement will become an even higher priority,' he said.
   The reform is expected to allow agencies in charge of export controls to more efficiently concentrate their enforcement resources on violations that threaten national security, such as illicit shipments of military technologies to sanctioned countries or terrorist organizations.
   The recently enacted Comprehensive Iran Sanctions, Accountability and Divestment Act confers permanent law enforcement authorities on BIS's export enforcement agents for the first time. 'This enhances our ability to deter and prosecute violators of the EAR,' Hirschhorn said.
   The agency will closely scrutinize Automated Export System transactions to ensure that exporters are complying with the EAR. 'We may require foreign consignees to provide end-use assurances against diversion and similar undertakings from, or at least notification to, subsequent purchasers. We will be stepping up outreach, domestically and abroad,' Hirschhorn said.
   BIS also participates in the National Export Enforcement Coordination Network, which includes officials from the FBI, military and homeland security agencies and other intelligence community experts.
   President Obama told Update Conference attendees in a recorded video that he would sign an executive order that creates an Export Enforcement Coordination Center to 'coordinate and strengthen our enforcement efforts ' and eliminate gaps and duplication ' across all relevant departments and agencies.'
   The administration would also seek legislation to transfer BIS's criminal enforcement functions to the Homeland Security Department's Immigration and Customs Enforcement, which would have a separate unit dedicated to enforcement of export control and embargo rules.
   Hirschhorn said the agency understands that companies with the best intentions can still make export mistakes. BIS has long promoted the submission of voluntary self-disclosures when companies discover these errors. 'We view VSDs, along with internal compliance programs, as important mitigating factors,' he said.
   'Where appropriate, we will seek to minimize penalties for companies that have good internal compliance programs and make demonstrably unintentional errors,' he added. 'But ' and this is an important but ' we are planning increased efforts against individuals who flout the rules and against companies whose inadequate internal compliance programs tell us that they are indifferent to whether they follow the rules.'