type: other

jurisdiction: US

text: b'U.S. DEPARTMENT OF COMMERCE\n Office of Inspector General\n\n\n\n\n BUREAU OF INDUSTRY\n AND SECURITY\n\n U.S. Dual-Use Export Controls for India\nShould Continue to Be Closely Monitored\n\n\n Final Report No. IPE-18144/March 2007\n\n\n\n\n PUBLIC RELEASE\n\n\n\n Office of Inspections and Program Evaluations\n\x0c UNITED STATES DEPARTMENT OF COMMERCE\n The Inspector General\n Washington, D.C. 20230\n\n\n\n\nMarch 30,2007\n\n\nMEMORANDUM FOR: Mark\n Acting Under Secretary for Industry and Security\n\n\nFROM: E.\n\nSUBJECT: Export Controls\n\n\nAs a follow-up to our February 23,2007, report, attached is our final report on\nuse export controls for India, the eighth report required by the National Defense\nAuthorization Act for Fiscal Year 2000, as amended. As you know, the act mandates that\nwe issue a report to the Congress on the policies and procedures of the U.S. government\nwith respect to the export of technologies and technical information to countries and\nentities of concern by March 30 of each year through 2007.\n\nWhile our review found that coordination between the various federal export licensing\nagencies was adequate during the dispute resolution process for export license\napplications involving India, we identified several areas of concern related to\nexport control activities. We offer a number of specific recommendations beginning on\npage 27 that we believe will help strengthen these activities, if implemented. This report\ncontains three classified appendixes that have been provided under separate cover.\nAppendix D discusses implementation of the Next Steps in Strategic Partnership and is\nclassified SECRET. Appendix E is classified and highlights concerns\nrelated to end-use check program in India. Appendix contains a summary of the\nclassified recommendations and is classified SECRET.\n\nWe are pleased to note that BIS, in its written response to our draft report, indicated that\nit plans to take action on many of our recommendations. We request that you provide us\nwith an action plan addressing the status of the recommendations in our report within 60\ncalendar days.\n\nWe thank you and other members of the BIS staff for your assistance and courtesies\nextended to us during our review. If you would like to discuss this report or the requested\naction plan, please call me at (202) 482-4661 or Jill Gross, Assistant Inspector General\nfor Inspections and Program Evaluations, at (202) 482-2754.\n\nAttachment\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n CONTENTS \n\n\nSUMMARY \xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6... i\n\nBACKGROUND \xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6...\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6 1\n\nOBJECTIVES, SCOPE, AND METHODOLOGY \xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6. 10\n\nOBSERVATIONS AND CONCLUSIONS \xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6. 13\n\n I. \t Dual-Use Export Control Policies and Practices for India Are Not Fully Transparent..... 13\n A. \t Questions remain over whether the Government of India has fully implemented\n two of the export control-related steps under the \xe2\x80\x9cNext Steps In Strategic\n Partnership\xe2\x80\x9d\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6..\xe2\x80\xa6... 13\n B. \t BIS\xe2\x80\x99 Entity List does not clearly identify some Indian entities ..\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6 13\n\n II. BIS\xe2\x80\x99 End-Use Check Program in India Needs to Be Improved\n (This chapter is included in classified Appendix E. The unclassified report contains\n only the introduction and subchapter headings)\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6..... 16\n A. The End-Use Visit Arrangement between BIS and India\xe2\x80\x99s Ministry of External\n Affairs limits the effectiveness of end-use checks\n B. Government of India end-use checks are not always conducted within prescribed\n time frames\n C. End-use checks involving private Indian entities are generally conducted in\n a timely manner\n D. BIS lacks clear and consistent time frames for processing end-use checks\n for India\n E. Two cancelled pre-license checks met BIS\xe2\x80\x99 criteria for an \xe2\x80\x9cunfavorable\xe2\x80\x9d\n rating\n F.\t BIS can improve its targeting of post-shipment verifications for India\n\n III. BIS Needs to Enhance Its Efforts to Ensure Compliance with License Conditions \xe2\x80\xa6.. 17\n A. Export Administration is not adequately monitoring India licenses with reporting\n conditions \xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6 .. 18\n B. \tExport Enforcement needs to improve its monitoring and enforcement of India\n licenses with condition 14 ..........\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6 22\n\nSUMMARY OF UNCLASSIFIED RECOMMENDATIONS\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6 27\n\nAPPENDIXES\n Appendix A: Acronyms ..\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6..A-1\n Appendix B: Flowchart of Interagency Dual-Use Export Licensing Process.\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6..B-1\n Appendix C: BIS Management Response to OIG Draft Report\xe2\x80\x94Unclassified Version.\xe2\x80\xa6.C-1\n Appendix D: India\xe2\x80\x99s Implementation of \xe2\x80\x9cNext Steps In Strategic Partnership\xe2\x80\x9d\n (SECRET)...\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6.D-1\n Appendix E: End-Use Checks in India (CONFIDENTIAL) .....\xe2\x80\xa6\xe2\x80\xa6.\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6..E-1\n Appendix F: Summary of Classified Recommendations (SECRET)..\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6...\xe2\x80\xa6\xe2\x80\xa6....\xe2\x80\xa6...F-1\n Appendix G: BIS Management Response to OIG Draft Report\xe2\x80\x94\n Classified Version (SECRET)\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6. \xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6\xe2\x80\xa6G-1\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n SUMMARY\n\nThe Inspectors General of the Departments of Commerce, Defense, Energy, and State, in\nconsultation with the Director of Central Intelligence and the Director of the Federal Bureau of\nInvestigation, are required by the National Defense Authorization Act (NDAA) for Fiscal Year\n2000 to conduct an 8-year assessment of whether export controls and counterintelligence\nmeasures are adequate for preventing the acquisition of sensitive U.S. technology and technical\ninformation by countries and entities of concern. The NDAA mandates that the Inspectors\nGeneral report their findings to Congress no later than March 30 of each year, until 2007.\n\nTo satisfy the NDAA\xe2\x80\x99s FY 2007 reporting requirement, the Commerce Office of Inspector\nGeneral assessed the effectiveness of BIS\xe2\x80\x99 export control program for India in conjunction with a\nseparate review to determine the status of prior-year recommendations involving dual-use\nlicensing and enforcement activities. We examined (1) whether BIS\xe2\x80\x99 export control policies,\npractices, and procedures for India are clear, documented, and designed to achieve the desired\ngoals; (2) whether BIS personnel are following the prescribed policies, practices, and procedures\nrelating to India; and (3) how effective BIS is in detecting and preventing the diversion of\nsensitive commodities to weapons of mass destruction-related programs (either within or outside\nIndia).\n\nFollowing the nuclear tests conducted by both India and Pakistan in May 1998, the United States\nimposed economic sanctions on both countries. However, in 2001, the President eliminated the\nsanctions and committed the United States to a \xe2\x80\x9cstrategic partnership\xe2\x80\x9d with India\xe2\x80\x94representing a\nmajor change in India-U.S. relations. At that time, both countries agreed to greatly expand\ncooperation on a wide range of issues, including counterterrorism, regional security, space and\nscientific collaboration, civilian nuclear safety, and broadened economic ties. Toward that end,\nBIS has played an active and key role in improving relations with India. Its most direct\ninvolvement began in 2002 with the establishment of the U.S.-India High Technology\nCooperation Group (HTCG), designed to provide a forum for discussing high-technology issues\nof mutual interest and to broaden dialogue and cooperation in the area of export controls. 1\n\nAs the world\xe2\x80\x99s fastest growing free-market democracy, India presents lucrative and diverse\nopportunities for U.S. exporters along with unique challenges to U.S. export control policy.\nIn 2005 the value of U.S. merchandise exports to India totaled almost $8 billion\xe2\x80\x94up 30 percent\nfrom 2004 2 and nearly double the 2002 figure. 3 BIS reports that only about 1 percent of total\nU.S. exports to India require an export license, and the agency approves most exports that do\nrequire a license provided such items do not contribute to India\xe2\x80\x99s nuclear, missile, or chemical\nand biological weapons programs. Although India is recognized as a democratic partner in the\nfight against terrorism and as a counterbalance to China, concerns have been raised by\nnonproliferation specialists about its nuclear capabilities and intentions. As current U.S. policy\nmoves toward \xe2\x80\x9cfull civil nuclear cooperation\xe2\x80\x9d with India, a critical question needs to be\n\n1\n Matthew Borman, Deputy Assistant Secretary for Export Administration, Overview of U.S.-India Dual-Use Export\n\nPolicies and Procedures (presentation given to Indian industry in New Delhi on November 21, 2003). \n\n2\n U.S. Trade Representative, 2006, National Trade Estimate Report on Foreign Trade Barriers. Washington, D.C., \n\npage 300. \n\n3\n Department of Commerce, U.S. Commercial Service, November 29-December 5, 2006, Official Mission Statement. \n\n\n\n i\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nanswered: Does the U.S. government have the capability to implement effective export controls\nto help ensure U.S. exports to India do not contribute\xe2\x80\x94either directly or indirectly\xe2\x80\x94to Indian\nnuclear weapons or missile programs?\n\nThe number of India export license applications received by BIS increased 30 percent from FY\n2002 to FY 2005, but decreased 19 percent from FY 2005 to FY 2006. This decline is\nattributable to a reduction in licensing requirements for exports to India. The most significant\nchanges occurred in 2005, namely (1) elimination of export and reexport license requirements for\nmost end users in India for items controlled unilaterally by the United States for nuclear\nnonproliferation reasons, (2) removal of the Indian Space Research Organization (ISRO)\nheadquarters from BIS\xe2\x80\x99 Entity List,4 and (3) elimination of licensing requirements for exports of\nEAR99 items 5 to several ISRO subordinate entities.\n\nOur review of India export license applications that were escalated to the interagency dispute\nresolution process in fiscal years 2005 and 2006 found that coordination between the various\nfederal export licensing agencies was adequate. However, our overall review of U.S.-India\nexport control activities identified the following concerns that warrant management\xe2\x80\x99s attention:\n\nDual-Use Export Control Policies and Practices for India Are Not Fully Transparent. In\nJanuary 2004, the United States and India announced the Next Steps in Strategic Partnership\n(NSSP)\xe2\x80\x94an agreement to increase cooperation in civilian nuclear activities, civilian space\nprograms, and high-technology trade, as well as to expand the U.S.-Indian dialogue on missile\ndefense. The initiative was to proceed through a series of reciprocal steps that built on each\nother, addressing nuclear regulatory and safety issues and regulatory changes that would enhance\ntrade in primarily high-technology dual-use goods. 6 As the various steps were determined by the\nU.S. government to be completed by India, a number of license requirements for exports to India\nwere removed. On July 18, 2005, President Bush and Indian Prime Minister Dr. Manmohan\nSingh announced that the NSSP initiative had been completed and declared that they are\ncommitted to transforming the relationship between the United States and India and establishing\na global partnership. 7\n\nWhen the NSSP was launched, BIS helped evaluate and implement the steps set forth in the\ninitiative. However, questions remain among some U.S. government nonproliferation experts\nabout whether the Government of India has fully implemented two of the export control-related\n\n\n4\n The Entity List, established in February 1997 by BIS, identifies individuals, groups, organizations, and other\nentities whose activities offer the potential for diverting exported and reexported items into programs related to\nweapons of mass destruction. The EAR imposes additional export license requirements for transactions involving\nlisted entities.\n5\n EAR99 essentially serves as a \xe2\x80\x9cbasket\xe2\x80\x9d designation for items that are subject to the Export Administration\nRegulations (EAR) but not listed on the Commerce Control List. EAR99 items can be shipped without a license to\nmost destinations under most circumstances unless certain prohibitions apply (e.g., export to an embargoed\ndestination). The majority of U.S. exports are EAR99 items.\n6\n George W. Bush, January 12, 2004. President\xe2\x80\x99s Statement on Strategic Partnership with India,\nhttp://www.whitehouse.gov/news/releases/2004/01/20040112-1.html (accessed January 31, 2007). Alan K.\nKronstadt, April 6, 2006. India-U.S. Relations, CRS Issue Brief for Congress, IB93097.\n7\n Joint Statement Between President George W. Bush and Prime Minister Manmohan Singh, July 18, 2005\n(http://www.whitehouse.gov/news/releases/2005/07/20050718-6.html (accessed January 31, 2007).\n\n\n ii\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nsteps outlined under the NSSP. We discuss this issue and our concerns in Appendix D,\nImplementation of Next Steps in Strategic Partnership, classified SECRET.\n\nWe also found a problem with BIS\xe2\x80\x99 Entity List\xe2\x80\x94a list of entities worldwide for which the U.S.\ngovernment requires a license for virtually all items subject to the EAR. Some Indian entities on\nthe list are not clearly identified, which raises the risk that U.S. exporters could inadvertently\nexport controlled dual-use items to these entities without the required license. The Entity List\ncontains 12 Indian entities identified by name along with 3 \xe2\x80\x9ctypes\xe2\x80\x9d of Indian end users (e.g.,\nnuclear reactors not operating under International Atomic Energy Agency safeguards. At least 2\nof 29 license applications were escalated to the interagency dispute resolution process in FY\n2005 because of questions about whether the Indian entity on the application was covered under\none of these broad designations of end users (see page 13).\n\nBIS\xe2\x80\x99 End-Use Check Program in India Needs to Be Improved. End-use checks seek to verify\nthe legitimacy of dual-use export transactions controlled by BIS. A pre-license check (PLC) is\nused to validate information on export license applications by determining if an overseas person\nor firm is suitable for a transaction involving controlled U.S.-origin goods or technical data.\nPost-shipment verifications (PSVs) strengthen assurances that exporters, shippers, consignees,\nand end users are complying with the terms of export licenses, by determining whether goods\nexported from the United States were actually received by the party named on the license and are\nbeing used in accordance with license provisions. BIS has an export control officer (ECO)\nstationed in India to conduct end-use checks.\n\nOur review of BIS\xe2\x80\x99 India end-use check program identified several weaknesses. First, the\nSeptember 2004 End-Use Visit Arrangement between the U.S. Department of Commerce and the\nIndian Ministry of External Affairs\xe2\x80\x93designed to strengthen existing commitments on export\ncontrols\xe2\x80\x94actually limits the effectiveness and utility of end-use checks in India. In addition,\nwhile end-use checks involving Indian private sector entities are generally conducted in a timely\nmanner, those involving Indian government or government-affiliated entities have not always\nbeen conducted within prescribed time frames. We also found that BIS has not set clear and\nconsistent time frames for two parts of its internal end-use check process: (1) initiating PSVs\nupon receipt of required shipping documents and (2) notifying the Ministry of External Affairs\nabout end-use check requests.\n\nFurthermore, we determined that BIS failed to follow its end-use check criteria for two PLCs that\nwere cancelled but should have been rated as \xe2\x80\x9cunfavorable\xe2\x80\x9d because the government entity\ninvolved failed to cooperate in the checks. Finally, although the U.S. government is concerned\nabout diversions of sensitive exports to programs involving weapons of mass destruction (either\nwithin or outside India), BIS did not adequately target PSVs to help determine whether\ndiversions were occurring. We detail our concerns about these issues in Appendix E, End-Use\nChecks in India, classified CONFIDENTIAL.\n\nBIS Needs to Enhance Its Efforts to Ensure Compliance with License Conditions. Placing\nconditions on a license is the U.S government\xe2\x80\x99s way of better controlling and monitoring certain\nshipments. However, license conditions only have the desired effect when exporters and/or end\nusers fully comply with them. In general, BIS has put adequate procedures in place over the last\n\n\n\n iii\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nfew years, in response to OIG recommendations, to help ensure compliance with license\nreporting conditions. 8 However, we found that Export Administration and Export Enforcement,\nboth of which have responsibility for monitoring compliance with certain license conditions,\nneed to improve their implementation of these procedures.\n\nWithin Export Administration, we determined that some licensing officers did not fully adhere to\nBIS procedures for requiring exporters or end users to fulfill the license reporting conditions, that\nis, to submit documentation related to the shipment. For 5 of the 13 India licenses we identified\nas having reporting conditions, the licensing officer did not mark the licenses for follow-up. In\naddition, Export Administration issued a memorandum on May 9, 2006, requiring licensing\nofficers to review technical documentation submitted pursuant to a license condition if the\ndocumentation was requested because of BIS national security concerns with the transaction.\nHowever, the memorandum specifically excludes those licenses involving reporting conditions\nplaced on a license by the Defense Department unless BIS licensing officers also have a concern\nwith the transaction. As a result, 10 of the 13 India licenses were not marked for licensing\nofficer review because the technical reporting condition was placed by Defense. However, BIS\nhas the authority to administer and enforce the EAR and, as such, is ultimately responsible for\nmonitoring all conditions placed on a dual-use license. Furthermore, we determined that staff\nfrom the Office of Exporter Services (OExS) were not fully aware of the reporting conditions\nthey were required to monitor, and they were not properly referring noncompliant exporters to\nExport Enforcement. This breakdown in Export Administration\xe2\x80\x99s monitoring process might\ndiminish the deterrent effect that license conditions can have on potential violators (see page 18).\n\nWithin Export Enforcement, we found that the Office of Enforcement Analysis (OEA) is not\nfully adhering to its guidance for monitoring or enforcing compliance with licenses that contain\ncondition 14, which requires exporters to notify OEA within 30 days that a shipment pertaining\nto a license has taken place. It is one of the most critical conditions placed on a license, because\nthe interagency licensing agencies decided that a PSV was needed to determine whether the\ngoods or technology were being used in accordance with the license provisions. But the PSV\ncannot be initiated until the shipment has actually taken place. Our review of 24 India licenses\ncontaining condition 14 determined that 11 exporters submitted their shipping documents to BIS\nbetween 12 to 1,158 days after the 30-day deadline. In fact, of the cases where a PSV was\nrequested, 8 out of 24 PSVs were initiated more than 100 days after shipment. This delay\ndiminishes the possibility of detecting diversions or other violations of license terms and\nconditions. We also found that OEA (1) recommended approval for additional licenses to\nexporters that had previously not fully complied with the condition 14 reporting requirement, and\n(2) did not refer noncompliant exporters to the Office of Export Enforcement for appropriate\naction (see page 22).\n\nOn page 27, we summarize the unclassified recommendations we are making to address our\nconcerns. A summary of classified recommendations can be found in Appendix F, which is\nSECRET.\n\n8\n U.S. Department of Commerce Office of Inspector General, June 1999. Improvements Are \n\nNeeded to Meet the Export Licensing Requirements of the 21st Century, IPE-11488; Commerce OIG, March 2003. \n\nImprovements Are Needed to Better Enforce Dual-Use Export Control Laws, IPE-15155; Commerce OIG, March\n\n2006. U.S. Dual-Use Export Controls for China Need to be Strengthened, IPE-17500. \n\n\n\n iv\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n\n\n\nBIS Response to OIG Draft Report and OIG Comments\n\nIn its March 23, 2007, written response to our draft report, BIS indicated that it was still in the\nprocess of reviewing some of the recommendations while taking steps to address others. The\nresponse also highlighted BIS\xe2\x80\x99 belief that India has fulfilled its commitment under the Next\nSteps in Strategic Partnership. Where appropriate, we have made changes to the report in\nresponse to both formal and informal comments from BIS. We also discuss pertinent aspects of\nBIS\xe2\x80\x99 response in appropriate sections of the report. The complete responses from BIS are\nincluded as appendixes to the unclassified and classified reports.\n\n\n\n\n v\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n BACKGROUND \n\n\nThe United States controls the export of dual-use items for national security, foreign policy, and\nnonproliferation reasons under the authority of several different laws. Dual-use items are\ncommodities, software, and technologies that have predominantly civilian uses, but also can have\nmilitary, proliferation, and terrorism-related applications. The primary legislative authority for\ncontrolling the export of dual-use commodities is the Export Administration Act of 1979, as\namended, which is implemented through the Export Administration Regulations (EAR). 1\n\nThe Department of Commerce\xe2\x80\x99s Bureau of Industry and Security (BIS) administers the EAR by\ndeveloping export control policies and regulations, issuing export licenses, and enforcing the\nlaws and regulations for dual-use exports. In FY 2006, BIS had 353 full-time equivalent staff\nmembers and an appropriation of approximately $75 million. Its two operating units principally\nresponsible for export controls are Export Administration and Export Enforcement.\n\nU.S.-India Relations and Dual-Use Export Control Concerns\n\n The U.S.-India relationship has undergone a significant\n transformation since the end of the Cold War. Both countries,\n \xe2\x80\x9cpolitically and economically distant\xe2\x80\x9d for almost half of the late\n 20th century, are now finding a common ground with respect to\n their national interests. 2 As the world\'s fastest growing free-\n market democracy, India presents lucrative and diverse\n opportunities for U.S. exporters. 3 In 2005, U.S. merchandise\n exports to India were almost $8 billion, 30 percent higher than in\n2004 and nearly double the 2002 figure. Corresponding U.S. imports from India were $18.8\nbillion in 2005, up 20.8 percent from the previous year. 4 India is the 22nd largest export market\nfor U.S. goods, 5 and its requirements for equipment and services in the infrastructure,\ntransportation, energy, environmental, health care, high-tech, and defense sectors are expected to\nexceed tens of billions of dollars in the coming years. 6\n\nU.S. Export Control Policies and Practices Toward India\n\nIndia presents unique challenges to U.S. export control policy. Although India is recognized as a\ndemocratic partner in the fight against terrorism and as a counterbalance to China,\nnonproliferation experts have raised concerns about India\xe2\x80\x99s nuclear capabilities and intentions.\nFollowing the nuclear tests conducted by India and Pakistan in May 1998, the United States\n\n1\n 50 U.S.C app. sec. 2402(2). Although the act expired on August 20, 2001, Congress agreed to the President\xe2\x80\x99s\nrequest to extend existing export regulations under Executive Order 13222, dated August 17, 2001, as extended by\nthe Notice of August 3, 2006, 71 FR 44551 (August 7, 2006), thereby invoking emergency authority under the\nInternational Emergency Economic Powers Act.\n2\n U.S. Department of Commerce, U.S. Commercial Service, November 29-December 5, 2006. Official Mission\nStatement: Under Secretarial Business Development Mission to India. Washington, DC.\n3\n With more than one billion residents, India is the second most populous country and the largest democratic republic\nin the world.\n4\n U.S. Trade Representative, 2006. National Trade Estimate Report on Foreign Trade Barriers. Washington, D.C.,\np. 300. Commerce, U.S. Commercial Service, November 29-December 5, 2006. Official Mission Statement.\n5\n U.S. Trade Representative, 2006. National Trade Estimate Report on Foreign Trade Barriers, p. 300.\n6\n Commerce, U.S. Commercial Service, November 29-December 5, 2006. Official Mission Statement.\n 1\n\x0cU.S. Department of Commerce Final Report IPE-18144\nOffice of Inspector General March 2007\n\nimposed economic sanctions on both countries. 7 At that time, the U.S. government implemented\na licensing policy of denial for exports and reexports of items controlled for nuclear\nnonproliferation and missile technology reasons to India (and Pakistan), with limited exceptions.\n\nIn September 2001, President George W. Bush waived the sanctions against India (and Pakistan)\nand, subsequently, the policy of denial for exports and reexports of items controlled for nuclear\nnonproliferation and missile technology reasons changed to a case-by-case review. Then, in\nNovember 2001, President Bush and then-Indian Prime Minister Atal Bihari Vajpayee\ncommitted the United States and India to a strategic partnership, that among other things\nenvisioned full civil nuclear cooperation between the United States and India and reversed\nalmost 30 years of U.S. nonproliferation policy toward that country. Both countries also agreed\nto greatly expand cooperation on counterterrorism, regional security, space and scientific\ncollaboration, and broadened economic ties. Since that time, two initiatives regarding relations\nbetween the United States and India have received wide public attention. The first was what has\nbecome known as the Next Steps in Strategic Partnership (NSSP), announced in January 2004.\nUnder the NSSP, the United States and India agreed to increase cooperation in civilian nuclear\nactivities, civilian space programs, and high-technology trade, and expand their dialogue on\nmissile defense. The initiative was to proceed through a series of reciprocal steps that built on\neach other. They included nuclear safety issues and regulatory changes that would enhance trade\nin high-technology dual-use goods. 8\n\nThe second major announcement\xe2\x80\x94coinciding with the reported completion of the NSSP\xe2\x80\x94came\non July 18, 2005, when President Bush and Prime Minister Manmohan Singh jointly declared\nthat they were committed to transforming the relationship between the United States and India\nand establishing a \xe2\x80\x9cglobal partnership.\xe2\x80\x9d Their statement highlighted five broad areas of\nagreement and cooperation: economic development; energy and the environment; democracy\nand development; nonproliferation and security; and high-technology and space. In his speech,\nthe President recognized India\xe2\x80\x99s \xe2\x80\x9cstrong commitment\xe2\x80\x9d to preventing the proliferation of weapons\nof mass destruction and noted that \xe2\x80\x9cas a responsible state with advanced nuclear technology,\nIndia should acquire the same benefits and advantages as other such states.\xe2\x80\x9d The President\nadded that he would \xe2\x80\x9c\xe2\x80\xa6work to achieve full civil nuclear energy cooperation with India as it\nrealizes its goals of promoting nuclear power and achieving energy security.\xe2\x80\x9d However, the\nPresident also acknowledged that this would require adjustment to U.S. law (e.g., the Atomic\nEnergy Act of 1954, as amended), 9 and policy as well as international export control regimes\n(e.g., Nuclear Suppliers Group, which controls items or technologies that could be used in\nnuclear weapons). 10\n\n\n\n7\n The sanctions were imposed pursuant to Section 102 (b)(2) of the Arms Export Control Act, also known as the \n\nGlenn Amendment of 1994. The Act requires that the President impose sanctions against a "non-nuclear-weapon" \n\nstate if it "detonates a nuclear explosive device." \n\n8\n George W. Bush. President\xe2\x80\x99s Statement on Strategic Partnership with India, January 12, 2004, \n\nhttp://www.whitehouse.gov/news/releases/2004/01/20040112-1.html (accessed January 31, 2007); Kronstadt, Alan\n\nK. India-U.S. Relations, CRS Issue Brief for Congress, April 6, 2006, IB93097.\n\n9\n 42 U.S.C. 2153. The Atomic Energy Act prohibits the transfer of nuclear materials and technology to countries that \n\nare not signatories to the Treaty on the Non-Proliferation of Nuclear Weapons. \n\n10\n Joint Statement Between President George W. Bush and Prime Minister Manmohan Singh, July 18, 2005 \n\n(http://www.whitehouse.gov/news/releases/2005/07/20050718-6.html (accessed January 31, 2007). \n\n 2\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nToward this end, the U.S. Congress passed and the President signed the United States-India\nPeaceful Atomic Energy Cooperation Act of 2006 on December 18, 2006. The act enables the\nUnited States to enter into an agreement for nuclear cooperation with India if the President\nmakes a determination that various actions have occurred. 11 For instance, the President must\nfind that India has provided the United States and the International Atomic Energy Agency with\na credible plan to separate civil and military nuclear facilities, materials, and programs, and has\nfiled a declaration regarding its civil facilities and materials with the International Atomic\nEnergy Agency. The President must also find that India is taking the necessary steps to secure\nnuclear and other sensitive materials and technology, including:\n\n\xe2\x80\xa2\t Enactment and effective enforcement of comprehensive export control legislation and\n regulations;\n\xe2\x80\xa2\t Harmonization of its export control laws, regulations, policies, and practices with the\n guidelines and practices of the Missile Technology Control Regime and the Nuclear\n Suppliers Group; and\n\xe2\x80\xa2\t Adherence to the Missile Technology Control Regime and the Nuclear Suppliers Group\n (NSG) in accordance with the procedures of those regimes for unilateral adherence.\n\nFinally, the act requires the President to determine that the NSG has decided by consensus to\npermit supply to India of nuclear items covered by the guidelines of the NSG.\n\nBIS\xe2\x80\x99 Role in U.S. Export Control Policies and Practices Toward India\n\nBIS has played an active role in improving relations with India. Its direct involvement began in\n2002 with the establishment of the U.S.-India High Technology Cooperation Group (HTCG) by\nthen Under Secretary Kenneth I. Juster and India\xe2\x80\x99s former Foreign Secretary Kanwal Sibal. The\nHTCG was designed to provide a forum for discussing high-technology issues of mutual interest,\nand broaden dialogue and cooperation in the area of export controls. 12 When the NSSP was\nlaunched, BIS participated in evaluating and implementing the steps set forth in the initiative\nwhile continuing its leading role in facilitating high-technology trade cooperation between the\nUnited States and India. [See chapter I and appendix C (classified SECRET) for a detailed\ndiscussion of the NSSP.]\n\nAccording to BIS, as a result of the HTCG work and in conjunction with the NSSP, the U.S.\ngovernment eliminated approximately 25 percent of the licensing requirements for exports to\nIndia by removing some Indian entities from the Entity List 13 and dropping most unilateral\nexport controls. As a result, U.S. firms can export many formerly controlled items to India\n\n11\n These actions were specified in Section 104 (b) of the Henry J. Hyde United States-India Peaceful Atomic Energy\nAct of 2006, December 18, 2006.\n12\n BIS, November 21, 2003. Overview of U.S.-India Dual-Use Export Policies and Procedures, Presentation by\nMatthew Borman, Deputy Assistant Secretary for Export Administration.\n13\n The EAR contains an Entity List that imposes increased export license requirements for transactions involving\ncertain \xe2\x80\x9clisted\xe2\x80\x9d entities (e.g. companies, organizations, persons). The Entity List was established in February 1997\nto inform the public of entities whose certain activities impose a risk of diverting exported and reexported items into\nprograms related to weapons of mass destruction. The list may also include entities sanctioned by the State\nDepartment for which United States foreign policy goals are served by imposing additional license requirements on\nexports and reexports to those entities. The list contains entities from a variety of countries including China, India,\nIsrael, and Pakistan. See chapter I for a discussion about Indian entities on the list.\n 3\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nwithout a license or under a license exception. 14 BIS reports that approximately 1 percent of\ntotal U.S. exports to India require an export license and that it approves most of the exports of\ncontrolled items provided that such items would not be used in unsafeguarded nuclear activities,\nballistic missiles, or space launch vehicle programs or otherwise be diverted to uses contrary to\nU.S. policy.\n\nThe United States currently controls dual-use exports to India that have potential applications for\nchemical and biological, nuclear weapons, or missile technology, or that can impact regional\nstability, national security, and crime control. These controls are primarily derived from\nmultilateral export control regimes, and the list of items controlled is mutually agreed upon by\nparticipating countries. There are no U.S. sanctions currently in place against the Indian\ngovernment, although several Indian entities have U.S. sanctions placed on them for\nproliferations reasons.\n\nDual-Use License Application Process for Exports to India\n\nLicense applications received by BIS are entered into the Export Control Automated Support\nSystem (ECASS), 15 where they are screened to determine whether the listed parties have\nregistration numbers or need numbers assigned. ECASS flags applications that require referral\nto the Office of Export Enforcement (OEE), and sends them simultaneously to OEE and\nlicensing officers in Export Administration. All other applications are referred only to the\nlicensing officers for processing.\n\nAccording to Executive Order 12981, 16 BIS has 9 days to conduct its initial review of a license\napplication, during which the licensing officer first verifies the export control classification\nnumber (ECCN) the applicant obtained from the Commerce Control List (CCL)\xe2\x80\x94a listing of\ncommodities, software, and technology subject to BIS\xe2\x80\x99 export licensing authority. Items subject\nto the EAR but not listed on the CCL are designated as AEAR99." 17\n\nAfter verifying the ECCN, the licensing officer reviews the related license requirements and\nexceptions, determines the reasonableness of the end use specified by the exporter, and\ndocuments the (1) licensing history of the exporter and ultimate consignee or end users, and (2)\nreasons for not referring an application to the other licensing agencies (if applicable). The\nlicensing officer provides a written recommendation on whether to approve or deny the\napplication, and refers it to the Departments of Defense, Energy, and State unless those licensing\nreferral agencies have delegated their decision-making authority to Commerce. 18\n\n\n14\n According to the BIS, a license exception is an authorization granted by BIS that allows exports or reexports of\n\nitems subject to the EAR that would otherwise require a license.\n\n15\n ECASS is an unclassified system that BIS uses to process and store its dual-use export licensing information. \n\n16\n Administration of Export Controls, December 5, 1995. \n\n17\n EAR99 essentially serves as a \xe2\x80\x9cbasket\xe2\x80\x9d designation for items that are subject to the EAR but not specifically listed\n\non the CCL by an ECCN. EAR99 items can be shipped without a license to most destinations under most\n\ncircumstances unless certain prohibitions apply (e.g., export to an embargoed destination). The majority of U.S. \n\nexports are EAR99 items. \n\n18\n BIS refers licenses to the Department of Justice only when the item is controlled for reasons relating to the \n\nprotection of encryption technologies. As such, per Executive Order 13026, the Department of Justice is a voting \n\nrepresentative at all levels of the dispute resolution process for encryption cases (including the Operating\n\nCommittee, the Advisory Committee on Export Policy, and the Export Administration Review Board). \n\n 4\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nIn addition, BIS requires that its licensing officers forward all India export license applications\n(with the exception of deemed export license applications and EAR99 items without red flags) 19\nto the CIA\xe2\x80\x99s Weapons Intelligence, Nonproliferation, and Arms Control Center for an end-user\nreview.\n\nUnder Executive Order 12981, each licensing referral agency must provide a recommendation to\napprove or deny the license application and all related required information to the Secretary of\nCommerce within 30 days of receiving the referral. To deny an application, a referral agency or\nBIS is required to cite both the statutory and regulatory basis for denial, consistent with the\nprovisions of the EAA and the EAR. An agency that fails to provide a recommendation within 30\ndays is deemed to agree with the decision of the Secretary of Commerce (see appendix B for a\nflow chart depicting the licensing process).\n\nIn FY 2006, all export licenses for India were issued with conditions that subjected the exporter\nto certain restrictions. The conditions are primarily used to control proliferation of the\ncommodity by limiting the end-use or restricting access to the commodity to specific end users\n(see chapter III for more discussion on license conditions).\n\nDispute Resolution Process for India Export License Applications\n\nIf there is disagreement on whether to approve a pending license application after the 30-day\nreview period or if there is disagreement on the conditions of approval, the application is referred\nto a higher-level interagency working group called the Operating Committee (OC), which meets\n weekly (see figure 1 for the number of\n Figure 1: Determinations for India Export India export license applications\n License Applications Escalated to the escalated to the OC in FYs 2005 and\n Operating Committee (FY2005 and 2006) 2006). Under Executive Order 12981, the\n OC has voting representatives from the\n 20 Departments of Commerce, Defense,\n 18\n Energy, and State. Nonvoting members\n N u m b e r o f A p p lic a t io n s\n\n\n\n\n 15 of the OC include appropriate\n 10 10 representatives of the CIA and the Joint\n 10 Chiefs of Staff. The Secretary of\n Commerce appoints the OC chairman,\n 5 2 who considers the recommendations of\n 2 1 the referral agencies before making a\n 0 decision. With one exception, the\n Approved Denied Returned chairman\xe2\x80\x99s decision does not have to\n Without Action follow the recommendations\n FY 2005 FY 2006\n of the majority of the participating\n agencies, though we found that the\n Source: BIS\n chair\xe2\x80\x99s decisions for India cases generally\n\n\n\n\n19\n Red flags indicate possible violators or violations of the EAR.\n 5\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\ndid reflect interagency consensus. 20 If any of the voting agencies disagree with the OC decision,\nthey have 5 days to appeal.\n\nAppeals at the OC level escalate the decision to the Advisory Committee on Export Policy\n(ACEP). The ACEP meets monthly if there are applications to decide. It is chaired by the\nCommerce Assistant Secretary for Export Administration and consists of Assistant Secretary-\nlevel voting representatives from the Departments of Defense, Energy, and State. Nonvoting\nrepresentatives are drawn from the CIA and the Joint Chiefs of Staff. The ACEP\xe2\x80\x99s decision is\nbased on a majority vote. In FY 2005, one India export license was escalated to the ACEP; it\nwas ultimately approved with conditions. Two India export license applications were escalated\nto the ACEP in FY 2006, and both were approved with conditions.\n\nAn agency that disagrees with an ACEP decision has 5 days to appeal to the Export\nAdministration Review Board (EARB). The Secretary of Commerce chairs the EARB, whose\nvoting members also include the Secretaries of Defense, Energy, and State. The chairman of the\nJoint Chiefs of Staff and the director of Central Intelligence are nonvoting members. The\nEARB=s decision is based on a majority vote and a dissenting agency has 5 days to make a final\nappeal to the President. No export license application for India was escalated to the review\nboard in either FY 2005 or FY 2006.\n\nOverall, we found that the interagency escalation process for disputed India export license\napplications allows dissenting agencies a meaningful opportunity to seek additional review of\nsuch cases.\n\nIndia Export License Application Trends\n\nDuring FYs 2002 through 2004, the number of dual-use export license applications received for\nIndia increased approximately 56 percent from 784 to 1,226. However by FY 2006, this number\ndropped by approximately 30 percent (see figure 2). Of the 18,698 export license applications\nBIS received during FY 2006, 827 (approximately 4.4 percent) were for exports to India. A\nreduction in the number of dual-use export license applications for India is attributable to fewer\nlicense requirements, as a result of the NSSP and the ongoing work of the HTCG.\n\n\n\n\n20\n Executive Order 12981, as amended, provides one exception to this rule for \xe2\x80\x9c . . . license applications concerning\ncommercial communication satellites and hot-section technologies for the development, production, and overhaul of\ncommercial aircraft engines . . . .\xe2\x80\x9d For these applications, the OC chair is to report the \xe2\x80\x9cmajority vote decision of the\nOC\xe2\x80\x9d rather than his/her decision.\n 6\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nFigure 2: Export License Applications BIS Received for India\n\n\n 1,400\n 1,226\n 1,200\n\n 1,021\n Number of Applications\n\n\n\n\n 989\n 1,000\n\n 827\n 800\n 784\n\n\n 600\n\n\n 400\n\n\n 200\n\n\n 0\n\n FY2002 FY2003 FY2004 FY2005 FY2006\n\n Applications Received for India\n\n\nSource: BIS\n\n\nBased on the number of export license applications BIS processed for India during FY 2006, 587 \n\nwere approved, 39 were denied, and 189 were returned without action (see figure 3 for a \n\nbreakdown of BIS\xe2\x80\x99 determinations for these licenses). \n\n\nFigure 3: India Export License Applications Processed by BIS\n\n 1000\n 907\n\n\n 800\n 694\n Number of Applications\n\n\n\n\n 598 587\n 600\n\n 422\n 400\n 279 264 307\n 229\n 189\n 200\n 81 103\n 72 69\n 39\n 0\n Approved Denied Returned Without Action\n FY2002 FY2003 FY2004 FY2005 FY2006\n\nSource: BIS\n\n\n\n\n 7\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nTrends in Technologies Sought by India Through the Export Licensing Process\n\nMost of the export license applications for India in FY 2006 involved technologies categorized\nunder materials, chemicals, \xe2\x80\x9cmicroorganisms,\xe2\x80\x9d and toxins; materials processing;\ntelecommunications and information security; and computers (see table 1 for a full listing of the\nnumber of export license applications BIS received for each CCL category).\n\nTable 1: BIS License Applications for India by CCL Category (in FY 2006)\n Applications*\n CCL Received in\n Category Description of Category FY2006\n 0 Nuclear Materials, Facilities, and Equipment 8\n 1 Materials, Chemicals, \xe2\x80\x9cMicroorganisms,\xe2\x80\x9d and Toxins 225\n 2 Materials Processing 208\n 3 Electronics 95\n 4 Computers 130\n 5 Telecommunications and Information Security 206\n 6 Lasers and Sensors 22\n 7 Navigation and Avionics 56\n 8 Marine 2\n 9 Propulsion Systems, Space Vehicles, and Related Equipment 55\n EAR99 Classification used for items subject to the EAR but not listed on the CCL 147\n*Note: Because applications may contain a request to export more than one technology, the number of\napplications in this column does not equal the total number of India export applications BIS received during FY\n2006.\nSource: BIS\n\nEnd-Use Checks in India\n\nEnd-use checks play an important part in the export licensing process by helping BIS determine\nwhether the end users or intermediary consignees are suitable recipients of sensitive U.S. items\nand technology and would likely comply with applicable license conditions. End-use checks\ninclude either pre-license checks (PLCs) or post-shipment verifications (PSVs) and may be\nrequested by any of the executive agencies involved in the interagency licensing process. A PLC\nis conducted to establish the bona fides\xe2\x80\x94or evidence of the qualifications\xe2\x80\x94of a foreign entity\ninvolved in the export transaction while the license application is being reviewed. A PSV is\nconducted on a foreign entity after the license has been approved and the item shipped to help\ndetermine whether the licensed item is being used in accordance with license conditions.\n\nThe U.S. Department of Commerce and the Indian Ministry of External Affairs entered into an\nEnd-Use Visit Arrangement in September 2004. Since November 2004, end-use checks in India\nhave been conducted by an export control officer (ECO) based in New Delhi. ECOs are BIS\nexport enforcement agents who hold the rank of commercial officer in the commercial section of\nU.S. embassies and consulates. 21 In addition to conducting end-use checks, they handle various\nother in-country export control activities.\n\n21\n BIS has additional ECOs stationed in Abu Dhabi, United Arab Emirates; Moscow, Russia; Beijing, China; and\nHong Kong.\n 8\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n\n\n\n (see Chapter II for more discussion on the targeting of end-\nuse checks).\n\n\n\n\n A Sentinel trip is\nperformed by domestic BIS export enforcement agents, largely to conduct PSVs. Often, Sentinel teams target some\nchecks that are not requested by licensing officers or other U.S. government officials. Usually, the Sentinel checks\ninvolve conducting multiple PSVs at the same entity (so the team\xe2\x80\x94and in this case the ECO in New Delhi\xe2\x80\x94can\ngroup multiple checks at the same location), whereas headquarters-initiated checks usually involve conducting only\none check at one entity. Therefore, in addition to conducting the end-use checks that were requested by BIS\nheadquarters in FY 2005, the ECO conducted .\n 9\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n OBJECTIVES, SCOPE, AND METHODOLOGY\n\nThe Inspectors General of the Departments of Commerce, Defense, Energy, and State, in\nconsultation with the director of Central Intelligence and the director of the Federal Bureau of\nInvestigation, are required by the National Defense Authorization Act (NDAA) for Fiscal Year\n2000 to conduct eight annual assessments through FY 2007 of the adequacy of current export\ncontrols and counterintelligence measures in protecting against the acquisition of sensitive U.S.\ntechnology and technical information by countries and entities of concern. This is the eighth and\nfinal review under the NDAA requirement.\n\nTo satisfy the NDAA\xe2\x80\x99s FY 2007 reporting requirement, the Commerce Office of Inspector\nGeneral assessed the effectiveness of BIS\xe2\x80\x99 export control program for India in conjunction with a\nreview to determine the status of prior-year recommendations involving dual-use licensing and\nenforcement activities.23 We examined (1) whether BIS\xe2\x80\x99 export control policies, practices, and\nprocedures for India are clear, documented, and designed to achieve the desired goals; (2)\nwhether BIS personnel are following the prescribed policies, practices, and procedures relating to\nIndia; and (3) how effective BIS is in detecting and preventing the diversion of sensitive\ncommodities to weapons of mass destruction-related programs (either within or outside India).\n\nWe conducted our evaluation from June through November 2006 under the authority of the\nInspector General Act of 1978, as amended, and in accordance with the Quality Standards for\nInspections issued by the President\xe2\x80\x99s Council on Integrity and Efficiency in 2005. At the end of\nour review, we discussed our findings and conclusions with the Acting Under Secretary for\nIndustry and Security and other senior BIS officials.\n\nOur methodology included the following activities:\n\nU.S. Interviews. Within BIS, we spoke with the Acting Under Secretary, Deputy Assistant\nSecretary for Export Administration, and the Assistant Secretary and Deputy Assistant Secretary\nfor Export Enforcement. Within Export Administration, we met with the director of the Office\nof Exporter Services (OExS), the directors of the Offices of Nonproliferation and Treaty\nCompliance and National Security and Technology Transfer Controls, as well as with staff from\neach office. Within Export Enforcement, we met with the director and staff of the Office of\nExport Enforcement (OEE) and the Office of Enforcement Analysis (OEA). We also spoke with\nstaff from OEE\xe2\x80\x99s Boston field office regarding closed investigations involving Indian entities. In\naddition, we met with the chairperson of the Operating Committee, the policy advisor to the\nAssistant Secretary for Export Administration, the Export Administration Intelligence Liaison,\nand staff from BIS\xe2\x80\x99 Office of Chief Counsel.\n\nWe spoke with officials from federal agencies directly involved with or knowledgeable about U.S.\ndual-use export control policies and procedures related to India. Within the CIA, we spoke with\nanalysts from the Center for Weapons Intelligence, Nonproliferation, and Arms Control. Within\nthe Department of Defense, we spoke with officials from the Defense Technology Security\nAdministration. Within the State Department, we interviewed staff from the Bureaus of South and\nCentral Asia; International Security and Nonproliferation; and Political-Military Affairs, and\n\n23\n A separate report on the status of all open recommendations resulting from Commerce OIG\xe2\x80\x99s NDAA reporting\nwill be issued in March 2007.\n 10\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nattended meetings of the Missile Technology Export Control Group and Subgroup on Nuclear\nExport Coordination. Within the Department of Energy, we met with officials from the Office of\nInternational Regimes and Agreements.\n\nOverseas Visit. We also traveled to India to assess U.S. dual-use export control operations. At\nthe post, we interviewed officials at the U.S. embassy in New Delhi. We met with BIS\xe2\x80\x99 ECO\nand accompanied him on two end-use visits to Indian entities located in Chennai and Bangalore\n(a representative from India\xe2\x80\x99s Ministry of External Affairs was also present at the end-use visit in\nChennai).\n\nWe also spoke with the Commercial Service\xe2\x80\x99s (CS) deputy senior commercial officer in India\nand the two commercial specialists who currently assist the ECO. In addition, we spoke with the\n embassy\xe2\x80\x99s deputy chief of mission and the\n heads of the consular; defense; economic;\n environment, science, technology, and health;\n CHINA and political sections; and other relevant U.S.\n government officials. 24 Finally, we met with\n Government of India officials from the Defence\n Research and Development Organization and\n the Indian Space Research Organization to\n discuss the progress of end-use visits in India\n and obtain the Indian government\xe2\x80\x99s views on\n some aspects of U.S. dual-use export controls.\n\n While in India, we also met with representatives\n from two leading Indian industry associations\xe2\x80\x94\n the Confederation of Indian Industry and the\n Federation of Indian Chambers of Commerce\xe2\x80\x94\n Sites visited to discuss U.S. export controls and their efforts\n by the OIG team\n to promote U.S. and India export control\n compliance among Indian companies.\nSource:https://www.cia.gov/cia/publications/factbook/\ngeos/in.html\n\n\nReview of export control laws and regulations, relevant BIS guidance, and other\ndocuments. We examined current and prior legislation, executive orders, policy papers, and\nrelated regulations (including the EAR) that pertained to India. In addition, we reviewed the\nfollowing documents, covering the period of FYs 2005 and 2006 (unless otherwise indicated):\n\n \xe2\x80\xa2\t Complete licensing histories for 43 India cases escalated to the OC and ACEP\n \xe2\x80\xa2\t Records for 106 India end-use checks (including applicable licensing histories) that were\n initiated or completed (for FY 2005 we only reviewed those checks that received ratings\n other than favorable)\n \xe2\x80\xa2\t Sentinel trip reports from July 2000 to December 2003\n \xe2\x80\xa2\t Program material related to the roles and responsibilities of the ECO in India\n\n24\n During our visit we were unable to meet with Homeland Security\xe2\x80\x99s Immigration and Customs Enforcement attach\xc3\xa9\nbecause the position was vacant.\n 11\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n \xe2\x80\xa2 ECO\xe2\x80\x99s subject matter files at post relating to export controls\n \xe2\x80\xa2 Summaries of 124 India technology licenses for FYs 2005-2006 (through April 30, 2006)\n \xe2\x80\xa2 BIS directives and procedures related to license monitoring\n \xe2\x80\xa2 Relevant cable traffic and intelligence reports pertaining to India\n\n\n\n\n 12\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n OBSERVATIONS AND CONCLUSIONS \n\n\nI. Dual-use Export Control Policies and Practices for India Are Not Fully Transparent\n\nThe 2001 commitment by the United States and India to form a \xe2\x80\x9cstrategic partnership\xe2\x80\x9d\nenvisioned, among other things, full civil nuclear cooperation between the two countries and\nreversed almost 30 years of U.S. nonproliferation policy towards India. When the NSSP was\nlaunched in January 2004, BIS participated in evaluating and implementing the export control-\nrelated steps set forth in the initiative. As a result of the NSSP and in conjunction with the U.S-\nIndia High Technology Cooperation Group (which is co-chaired by BIS), the U.S. government\neliminated approximately 25 percent of the licensing requirements for exports to India by\nremoving some Indian entities from the Entity List and dropping most unilateral export controls.\nThus, U.S. firms can export many items that formerly required a license to India without a\nlicense or under a license exception. Although the United States and India announced in July\n2005 that the objectives of the NSSP had been completed, questions remain over whether the\nGovernment of India has fully implemented two of the export control-related steps outlined\nunder the agreement.\n\nWe also found a problem with the listing of Indian entities found on BIS\xe2\x80\x99 Entity List.\nSpecifically, some Indian entities meant to be captured on the list are not clearly identified. As a\nresult, U.S. exporters could inadvertently export dual-use controlled items to these entities\nwithout the required license. 25\n\nA.\t Questions remain over whether the Government of India has fully implemented two of\n the export control-related steps under the \xe2\x80\x9cNext Steps In Strategic Partnership\xe2\x80\x9d\n\nDue to the classified nature of the material discussed in this section, we offer our specific\nfindings and recommendations in Appendix D, which is classified at the SECRET level.\n\n\n\nBIS Response to OIG Draft Report and OIG Comments\n\nIn its written response to our draft report, BIS stated that it believes that India has fulfilled its\ncommitments under the NSSP. BIS\xe2\x80\x99 specific comments and our response are provided in the\nclassified section of this report.\n\nB.\t BIS\xe2\x80\x99 Entity List does not clearly identify some Indian entities\n\nBIS established the Entity List, a supplement to the EAR\xe2\x80\x99s export license requirements, in\nFebruary 1997 to inform the public of entities whose activities impose a risk of diversion of\nexported and reexported items into programs related to weapons of mass destruction (WMD). In\nconjunction with the 1998 economic sanctions against India for its nuclear tests, BIS increased\n\n25\n A license is required for the export or re-export of all items subject to the EAR for most of the Indian entities on\nthe Entity List. In addition, the nuclear end-use/end-user control in Section 744.2 of the EAR imposes a license\nrequirement on all exports to three activities, one of which is \xe2\x80\x9cunsafeguarded\xe2\x80\x9d nuclear activities. This license\nrequirement exists independent of the license requirements imposed by the Entity List.\n 13\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nthe number of Indian entities on the list from 4 to more than 200. According to BIS, these\nadditional entities were \xe2\x80\x9cdetermined to be involved in nuclear or missile activities.\xe2\x80\x9d\n\nIn March 2000, BIS removed 51 Indian entities from the list after conducting a congressionally-\nmandated review intended to focus the list on entities that made direct and material contributions\nto WMD and missile programs. After removing the 51 entities, BIS restructured the list,\nmoving many subordinate organizations affiliated with the listed Indian entities and of interest to\nthe United States to a special appendix to the Entity List. The appendix included over 100 Indian\nsubordinate entities associated with 6 different Government of India agencies.\n\nAfter the President waived the economic sanctions against India in 2001, BIS removed some\nIndian entities from the list and deleted the special appendix, reducing the number of named\nIndian entities on the Entity List at that time to 15. 26 As part of this action, BIS grouped\nsubordinate entities of the Indian Department of Atomic Energy into three types or categories\nwithout listing the specific entities by name. The types are as follows:\n\n\xe2\x80\xa2\t Nuclear reactors (including power plants) not under the International Atomic\n Energy Agency safeguards (excluding Kundankulam 1 and 2), 27\n\n\xe2\x80\xa2\t Fuel reprocessing and enrichment facilities, and\n\n\xe2\x80\xa2\t Heavy water production facilities and their collocated ammonia plants.\n\nAccording to representatives of the agencies involved in the interagency licensing process,\nconsolidating these subordinate entities into the three categories without naming them has made\nit more difficult to determine whether a specific entity is covered by the list. As a result, U.S.\nexporters could inadvertently export certain sensitive or EAR99 items to these entities without\nthe required license.\n\nWe identified two export license applications that were escalated to the Operating Committee, in\npart, because of disputes among interagency licensing officials as to whether the Indian entities\non the applications were covered by the Entity List. Both cases involved subordinates of the\nIndian Department of Atomic Energy, but the licensing officials could not agree as to whether\nthe entities were \xe2\x80\x9csafeguarded\xe2\x80\x9d or \xe2\x80\x9cunsafeguarded\xe2\x80\x9d nuclear facilities\xe2\x80\x94a key factor in\ndetermining whether the entities are subject to the list.\n\nIt should be noted that in one of the two cases, part of the confusion was based on erroneous\ninformation provided by the applicant, who reported on the license application that the ultimate\nconsignee was a subordinate of a listed entity. When the applicant realized that the ultimate\nconsignee was not a subordinate of that entity, he asked BIS to modify the license application\naccordingly. At this point, according to the OC records, the then-acting OC Chair \xe2\x80\x9csuggested\nthat the application be returned without action because the items listed were EAR99 and were\ndestined to a non-listed entity.\xe2\x80\x9d However, while the ultimate consignee was not a subordinate of\n\n26\n Since that time, an additional 3 Indian entities were removed from the list, making the total now 12. \n\n27\n According to the International Atomic Energy Agency, safeguards are applied to verify a state\xe2\x80\x99s compliance with \n\nits agreement to accept safeguards on all nuclear material in all its peaceful nuclear activities and to verify that such\n\nmaterial is not diverted to nuclear weapons or other nuclear explosive devices. \n\n 14\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\na listed entity, the Energy representative at the OC reported that it was a subordinate of the\nIndian Department of Atomic Energy and as such, was still covered by the Entity List. State\nconcurred with this assessment.\n\nUltimately, it was determined that the ultimate consignees in both cases were \xe2\x80\x9cunsafeguarded\xe2\x80\x9d\nfacilities and, as a result, were included on the list. Both license applications were subsequently\nrejected. However, these cases call into question how clear the Entity List actually is with regard\nto the Indian Department of Atomic Energy subordinates since it led to some confusion during\nthe interagency licensing review process.\n\nThe OC chair acknowledged that consolidating the list has created some confusion both for\nexporters and interagency licensing officials, resulting in an occasional dispute about whether a\nparticular entity was listed. As a result, he prepared a handbook for OC members in early 2006\nthat includes a section on Indian entries on the Entity List. The section compiles all the Federal\nRegister notices relating to the addition and deletion of Indian entities on the list, as well as any\nlicensing policy changes for specific entities since 1998. The chair believes this guidance has\neliminated much of the confusion over which subordinate entities are covered by the list.\n\nThe OC chair also provided this guidance to BIS licensing officers who attended an OC training\nsession in June 2006. The positive feedback he received on the guidance prompted him to put it\non BIS\xe2\x80\x99 shared network in October 2006 so that all BIS\xe2\x80\x99 licensing officers could have access to\nit. This document is not available to the public. Thus, while BIS and other U.S. licensing\nofficials now have clearer information on the specific Indian entities on the Entity List, U.S.\nexporters do not. BIS needs to ensure that U.S. exporters clearly understand which Indian\nentities are meant to be captured on the Entity List to help ensure export controlled dual-use\nitems are not inadvertently shipped to these entities without the required license.\n\nRecommendation:\n\nWe recommend that BIS specifically list all of the Indian entities that should be captured on the\nEntity List, or determine an alternative means to better ensure exporter compliance with export\nlicense requirements.\n\n\n\nBIS Response to OIG Draft Report and OIG Comments\n\nIn its written response to our draft report, BIS stated that it will review the listing of the Indian\nentities on the Entity List to determine how additional information can be provided to exporters.\nThe planned completion date for this review is April 30, 2007. We acknowledge BIS\xe2\x80\x99 planned\nefforts in this area and look forward to receiving a copy of the review results upon completion.\n\n\n\n\n 15\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nII. BIS\xe2\x80\x99 End-Use Check Program in India Needs to Be Improved\n\nGiven India\xe2\x80\x99s importance in U.S. export control matters, BIS assigned one of its export\nenforcement agents to New Delhi in November 2004 to conduct end-use checks. This move has\nprovided BIS with new opportunities to work more closely with the Government of India on\nexport control matters. However, we identified several weaknesses in BIS\xe2\x80\x99 end-use check\nprogram for India that should be addressed:\n\n \xe2\x80\xa2\t The End-Use Visit Arrangement 28 between the U.S. Department of Commerce and\n India\xe2\x80\x99s Ministry of External Affairs limits the effectiveness of end-use checks.\n\n \xe2\x80\xa2\t While end-use checks involving Indian private sector entities are generally conducted in a\n timely manner, the majority of those involving government or government-affiliated\n entities are not.\n\n \xe2\x80\xa2\t BIS has not set clear and consistent time frames for completing two steps of the end-use\n check process, namely (1) initiation of PSVs upon receipt of required shipping\n documents and (2) notification to the Ministry of External Affairs of end-use check\n requests.\n\n \xe2\x80\xa2\t Two of the India PLCs BIS cancelled in FY 2006 should have been rated \xe2\x80\x9cunfavorable\xe2\x80\x9d\n per the bureau\xe2\x80\x99s end-use check criteria.\n\n \xe2\x80\xa2\t Although the U.S. government is concerned about diversions of sensitive exports to\n programs involving weapons of mass destruction, BIS did not adequately target PSVs to\n determine whether diversions were occurring.\n\n Because of the sensitive nature of these findings, we discuss them in Appendix E, classified\n at the CONFIDENTIAL level.\n\n\n\nBIS Response to OIG Draft Report and OIG Comments\n\nIn its written response to our draft report, BIS stated that it disagreed with some of the report\nfindings listed above. However, it agreed to take action to implement a number of the\nrecommendations we proposed. BIS\xe2\x80\x99 specific comments and our response are provided in the\nclassified Appendix E to this report.\n\n\n\n\n28\n Commerce and India\xe2\x80\x99s Ministry of External Affairs entered into this agreement in September 2004 to establish\nprocedures for full and timely end-use checks.\n 16\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\nOffice of Inspector General March 2007\n\nIII. BIS Needs to Enhance Its Efforts to Ensure Compliance with License Conditions\n\nThe EAR allows BIS or licensing referral agencies to place conditions on an export license when\nthere are specific concerns about the exporter, end use, or end user. Frequently, the conditions\nare the result of lengthy negotiations among the licensing referral agencies. They are an\nimportant part of the interagency export licensing process and offer BIS an additional means for\nmonitoring certain shipments. BIS monitors export licenses to ensure the holders comply with\nall license conditions. This endeavor requires the combined efforts of Export Administration and\nExport Enforcement.\n\nThere are 55 standard license conditions. Six of these place reporting conditions on exporters or\nend users which require them to submit documentation to BIS regarding the shipment (see table\n2). 29 A seventh condition\xe2\x80\x94referred to as \xe2\x80\x9cWrite Your Own\xe2\x80\x9d\xe2\x80\x94allows licensing officers to\nformulate unique requirements, which may include reporting requirements for either the exporter\nor the end user. Licenses with reporting conditions are tracked in the Follow-up Subsystem\nwithin ECASS.\n\nTable 2: License Conditions with Reporting Requirements*\n Condition BIS Requirements\n Responsible\n Unit\n10\xe2\x80\x93Temporary Notify BIS once the licensed item is returned to\n Export\n Demonstration the United States after its temporary demonstration\n Administration\n in another country.\n12\xe2\x80\x93Delivery\n Export\n Verification\n Administration\n Standard\n Provide BIS delivery verification documents.\n13\xe2\x80\x93Delivery\n Export\n Verification\n Administration\n Triangular\n14\xe2\x80\x93Post-Shipment Submit a shipper\xe2\x80\x99s export declaration to BIS\n Export\n Verification following the shipment of the item (so that a PSV\n Enforcement\n (PSV) can be initiated).\n17\xe2\x80\x93Aircraft on Export Notify BIS after the return of an aircraft on\n Temporary Sojourn Administration temporary sojourn to a foreign country.\n *The table excludes the \xe2\x80\x9cWrite Your Own\xe2\x80\x9d condition (since there is no standard requirement to be followed) as\n well as the \xe2\x80\x9cNDAA PSV\xe2\x80\x9d condition (see footnote 30 below).\nSource: BIS and OIG\n\n\n\n\n29\n The NDAA for FY 1998 requires BIS to perform PSVs on all high-performance computers with a computing\ncapability beyond a certain threshold that are exported or reexported to \xe2\x80\x9cTier 3\xe2\x80\x9d countries, including China, India,\nUnited Arab Emirates, and Israel. BIS implements this provision through condition 34 which requires exporters to\nsubmit a post-shipment report to BIS on exports of high-performance computers to \xe2\x80\x9ctier 3\xe2\x80\x9d countries. The act also\nrequires BIS to submit annual reports to the Congress listing these high-performance computer exports and the\nresults of the PSVs. License condition 34 is tracked separately from the ECASS Follow-up Subsystem.\n 17\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nThe OIG previously reported that Export Administration and Export Enforcement did not\nconsistently monitor licenses with reporting conditions and, therefore, did not ensure exporter or\nend user compliance with license conditions. 30 In response to our recommendations, both units\ninstituted procedures to (1) regularly monitor licenses with reporting conditions that are marked\nfor follow-up by licensing officers, (2) follow up with exporters to request any necessary\nreporting documentation, and (3) provide for the review of technical documentation submitted by\nexporters and end users. However, our review found that both Export Administration and Export\nEnforcement need to improve implementation of the procedures.\n\nA. Export Administration is not adequately monitoring India licenses with reporting\n conditions\n\nWithin Export Administration, the Office of Exporter Services (OExS) is responsible for\nmonitoring exporter compliance with five of the seven reporting conditions, including Write\nYour Own conditions that have reporting requirements. Of these five conditions, four involve\nthe submission of routine documentation, such as delivery verification, that does not require a\nlevel of technical expertise to verify. If a licensing officer marks a license with any of these four\nconditions, the license is automatically entered into the Follow-Up Subsystem, enabling OExS to\nfollow up with the applicable exporters to ensure that the required documentation is submitted in\naccordance with the condition.\n\nBy contrast, Write Your Own conditions are unique and for each one, the licensing officer must\ndetermine whether the condition needs to be entered into the Follow-Up Subsystem. Write Your\nOwn conditions may sometimes require the exporter or end user to provide BIS substantive\nreports related to the export, such as maintenance reports or technology control plans (TCPs), 31\nwhich require some level of technical review. For these conditions, the licensing officer must\nchoose \xe2\x80\x9cyes\xe2\x80\x9d or \xe2\x80\x9cno\xe2\x80\x9d in the Write Your Own screen indicating first whether the condition\nrequires follow-up. If the licensing officer marks \xe2\x80\x9cyes\xe2\x80\x9d for follow-up, he then must indicate\nwhether the documentation requires a licensing officer\xe2\x80\x99s technical review. The license is only\nentered into the Follow-up Subsystem if the officer marks \xe2\x80\x9cyes\xe2\x80\x9d for \xe2\x80\x9cfollow-up\xe2\x80\x9d required.\n\nOf the 273 India export license applications included in our sample, only 13 contained reporting\nconditions that fell under the responsibility of OExS to monitor. Twelve of the 13 licenses\ncontained a Write Your Own condition, whereas the 13th license contained a standard reporting\ncondition requiring the submission of a report summarizing specific details related to\ndemonstrations of the item. Based on our review of these 13 licenses, licensing officers failed to\nmark 5 of them for follow-up to verify that the reporting conditions were met. We also found\nthat staff from OExS were not fully aware of the reporting conditions they were required to\nmonitor and were not properly referring noncompliant exporters to Export Enforcement. This\nbreakdown in Export Administration\xe2\x80\x99s monitoring process might diminish the deterrent effect\nthat license conditions can have on potential violators.\n\n\n30\n U.S. Department of Commerce Office of Inspector General (Commerce OIG), June 1999. Improvements Are \n\nNeeded to Meet the Export Licensing Requirements of the 21st Century, IPE-11488; Commerce OIG, March 2003. \n\nImprovements Are Needed to Better Enforce Dual-Use Export Control Laws, IPE-15155; Commerce OIG, March\n\n2006. U.S. Dual-Use Export Controls for China Need to be Strengthened, IPE-17500. \n\n31\n According to BIS, a TCP is a reporting requirement put in place by BIS or Defense in cases when foreign nationals \n\nare employed at or assigned to security-cleared facilities that handle export-controlled items or information.\n\n 18\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\nOffice of Inspector General March 2007\n\nLicensing Officers are not properly marking the \xe2\x80\x9cfollow-up\xe2\x80\x9d box in ECASS for India licenses\nwith Write Your Own conditions\n\nWe found that 5 of the 13 licenses that contained a reporting requirement as part of the Write\nYour Own condition, were not marked for \xe2\x80\x9cfollow-up\xe2\x80\x9d by the licensing officers. These errors\noccurred despite the fact that each export license application was reviewed and signed off by a\ncountersigner. 32 Because these licenses were not entered into the Follow-up Subsystem, OExS\nstaff did not know to follow up with the exporters to determine whether they had complied with\nthe conditions.\n\nRegardless, two exporters provided the required documentation to OExS. However, OExS did\nnot have any information pertaining to the remaining three licenses. Export Enforcement\xe2\x80\x99s\nOffice of Enforcement Analysis (OEA) later informed us that two of the remaining three licenses\nhad been shipped against. However, OEA did not have any records relating to the third\nlicense. 33\n\nIn response to similar monitoring weaknesses identified in our March 2006 report on dual-use\nexport controls for China, the director of OExS issued a memorandum on May 9, 2006,\nreminding licensing officers of the importance of marking a license for follow-up. 34 We do not\nknow whether the May 2006 memo has improved officer compliance with this requirement since\nthe five licenses not marked for follow-up were processed before this memorandum was issued.\nUnder the circumstances, we suggest that OExS review a sample of license applications to see\nwhether licensing officers and countersigners are consistently marking the appropriate licenses\nfor follow-up. Additionally, OExS should contact exporters for the three licenses that were not\nproperly marked for follow-up to determine whether they complied with their reporting\nrequirement.\n\nLicensing officers are not required to review all technical documentation submitted by exporters\nor end users pursuant to license conditions\n\nOf the 13 India licenses that had reporting conditions, we found that 10 required submission of\ntechnical documentation but were not marked for and did not receive the licensing officers\xe2\x80\x99\nreview. Reporting requirements are designed to address particular concerns that either BIS or\nother licensing referral agencies had about the parties to the transaction or about the transaction\nitself. In these 10 cases, the licensing officers informed us that because Defense had requested\nthe technical reporting conditions, they did not believe that they were responsible for reviewing\nthe documentation. While Defense may have requested these conditions, BIS ultimately agreed\nto issue the licenses with the conditions.\n\nTwo of the 10 licenses had conditions that required the end user or consignee to develop and\nimplement a technology control plan prior to shipment. Seven licenses required the exporter to\nsubmit a service report on the condition and use of the commodity covered under the license,\n\n32\n A countersigner is typically a division director. The countersigning process was established by BIS to help ensure \n\nthat export license applications are processed appropriately. \n\n33\n Licenses are generally issued for a period of 2 years and the exporter can ship anytime during that period. \n\nThis license expires in May 2007.\n\n34\n Memorandum from the Director of OExS to BIS Licensing Officers, Review of Technical Reports Submitted\n\nPursuant to a License Condition, May 9, 2006. \n\n 19\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nfollowing any maintenance performed on the equipment. In the last case, the condition required\nsubmission of a biannual report to BIS summarizing specific details related to the demonstrations\nof the item. Aside from licensing officer review, there are no BIS processes in place for\nreviewing the technical documentation to ensure that exporters or end users comply with such\nlicense conditions.\n\nPrior to May 2006, BIS did not require any form of technical review of the documentation\nsubmitted to ensure that it meets the requirements of the condition. In response to similar\nconcerns in our March 2006 report on export controls for China, the May 9, 2006, OExS\nmemorandum additionally required licensing officers to review technical documentation\nsubmitted pursuant to a license condition if the documentation was requested because of\nconcerns with the transaction. However, the memorandum excludes those licenses involving\nreporting conditions placed on a license by the Defense Department unless BIS licensing officers\nalso have a concern with the transaction.\n\nWith regard to reporting requirements placed on a license as a condition of approval by Defense,\nBIS reported that Defense has the ability to identify technical reports it wishes to review and BIS\nprovides those reports to them accordingly. BIS further reported that if Defense identifies a\nproblem during its review of the reports, DOD will notify BIS of a compliance issue and raise\nthis in future reviews of license applications involving the applicable exporter. The Acting\nUnder Secretary for Industry and Security stated that he did not know whether Defense actually\nrequests copies of technical reports required as part of license conditions. Based on our\ndiscussions with two of the licensing officers who were responsible for several of the licenses\nreferenced above that had technical reporting conditions, it appears that these reports are not\nroutinely provided to Defense.\n\nBIS has the authority to administer and enforce the EAR and, as such, is ultimately responsible\nfor monitoring and enforcing all conditions placed on a dual-use license. Without knowing\nwhether an exporter or end user is fully compliant with license conditions, BIS cannot make\ninformed decisions on future license applications involving the same parties or take appropriate\nenforcement action on the current license. BIS should revise its procedures with respect to the\nreview of technical documentation by licensing officers to require that all technical\ndocumentation requested by any licensing agency, and included in an approved license, be\nexamined by the appropriate licensing officer upon submission by the exporter to ensure\ncompliance with the reporting conditions.\n\nOExS staff are not always aware of the reporting conditions they are required to monitor\n\nOur review of the 13 licenses with reporting conditions also revealed that OExS staff (1)\nprematurely closed out two India licenses that required reporting documents from the exporter or\nend user, and (2) failed to forward shipping documentation received for one license to OEA.\n\n\xe2\x80\xa2\t Licenses prematurely closed out. In the first case, 35 OExS staff did not have any\n information documenting whether the license was shipped against and could not explain why\n it was prematurely closed out of the Follow-up Subsystem. However, OEA officials\n\n35\n This license required the submission of a delivery verification report, which is provided to BIS after delivery of\ngoods, and a maintenance report, provided when maintenance is performed on equipment.\n 20\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n apparently had information indicating that the goods had been exported. In the second\n case, 36 OExS staff had information relating to the date the goods were shipped, but they\n could not explain why they closed the license out in the Follow-Up Subsystem before\n receiving the required documentation. According to BIS procedures instituted in early 2005\n in response to a recommendation from our March 2003 export enforcement report, 37 OExS\n staff must obtain all required documentation from the exporter or end user before closing out\n a license.\n\n\xe2\x80\xa2\t Failure to forward shipping documentation to OEA. OExS staff failed to forward\n shipping documentation they received for one license to OEA so that a PSV could be\n initiated. This case involved a shipper\xe2\x80\x99s export declaration and a post-shipment report, both\n of which should have been submitted directly to OEA by the exporter, but were mistakenly\n submitted to OExS after the May 2006 shipment. According to a memorandum issued by the\n director of OExS in March 2006, OExS staff must forward misrouted shipper\xe2\x80\x99s export\n declarations and all relevant documentation to OEA within 48 hours of receipt of those\n documents. An OExS employee said that she did not forward the shipping documentation to\n OEA because she believed monitoring the license conditions in this case was the\n responsibility of OExS. But if OEA does not receive shipping documents, it has no way of\n knowing whether exporters have complied with the license condition and cannot initiate a\n PSV.\n\nBIS should ensure that OExS staff understand which license conditions they are responsible for\nmonitoring and when they should forward documentation to OEA. In addition, OExS should\nreopen the two licenses that were prematurely closed out of its system and contact the exporters\nto obtain the documentation needed to fulfill the reporting requirements.\n\nOExS staff are not referring non-compliant exporters to OEE\n\nAccording to BIS\xe2\x80\x99 guidance, OExS staff are required to follow up with exporters that are\nnoncompliant with reporting conditions prior to closing out the license in the Follow-Up\nSubsystem. The procedures further state that if exporters are non-responsive to requests for\ninformation, OExS staff should refer them to the Office of Export Enforcement (OEE).\nHowever, in the two cases of noncompliance, both exporters had shipped against their licenses,\nbut neither one had provided BIS all of the required documentation as of October 2006. We\nbrought these cases to the attention of OExS staff members during the course of our review, but\nthey were not referred to OEE. OExS should immediately refer any noncompliant exporters to\nOEE.\n\nRecommendation:\n\nBIS should, at a minimum, take the following actions to improve its monitoring of license\nconditions:\n\n\n\n36\n This license required the submission of a demonstration report to BIS every 6 months for a period of 2 years.\n37\n Commerce OIG, March 2003. Improvements Are Needed to Better Enforce Dual-Use Export Control Laws, IPE\xc2\xad\n15155.\n 21\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n\xe2\x80\xa2\t Determine why there are persistent breakdowns in BIS\xe2\x80\x99 process for monitoring license\n conditions.\n\xe2\x80\xa2\t Review a sample of license applications to ensure licensing officers and countersigners are\n properly marking licenses for follow-up.\n\n\xe2\x80\xa2\t Contact exporters for the three licenses we identified as not marked for follow-up to\n determine whether the exporters complied with reporting requirements.\n\n\xe2\x80\xa2\t Amend procedures to require licensing officers to review all technical documentation\n submitted by exporters or end users to ensure their compliance with the conditions.\n\n\xe2\x80\xa2\t Ensure that relevant OExS staff know which license conditions they are responsible for\n monitoring and the steps they should be taking to follow up on license conditions, including\n referral to OEE, as appropriate.\n\n\xe2\x80\xa2\t Reopen the two licenses that were closed by OExS and contact the exporters regarding\n reporting requirements.\n\n\xe2\x80\xa2\t Refer all noncompliant exporters to the Office of Export Enforcement.\n\n\n\nBIS Response to OIG Draft Report and OIG Comments\n\nIn its written response to our draft report, BIS stated that it is still reviewing our\nrecommendations pertaining to Export Administration\xe2\x80\x99s monitoring of license conditions. The\nplanned completion date for this review is April 30, 2007. We look forward to reviewing BIS\xe2\x80\x99\nresponse when completed.\n\n\nB. Export Enforcement needs to improve its monitoring and enforcement of India licenses\n with condition 14\n\nWithin Export Enforcement, OEA is responsible for monitoring licenses marked with the\nremaining two reporting conditions\xe2\x80\x93the submission of shipper\xe2\x80\x99s export declarations, which is\nreferred to as condition 14, and post shipment reports on high-performance computer exports to\ncertain countries, referred to as condition 34. 38 Licenses with condition 14 require a PSV on a\nspecific foreign entity following the first shipment made against the license. Within 30 days of\nshipment, exporters are required to submit a copy of the shipper\xe2\x80\x99s export declaration directly to\nOEA, which then initiates the PSV to confirm a commodity\xe2\x80\x99s stated end-use\n\nOur review of the 24 India licenses from our sample that contained condition 14 revealed that\nOEA is not fully adhering to its guidance for monitoring licenses with condition 14. Condition\n14 is one of the most critical conditions placed on a license because either the interagency\n\n38\n Since licenses with condition 34 are tracked separately from Export Enforcement\xe2\x80\x99s Conditions Follow-up\nSubsystem, we focused our review on licenses with condition 14. However, some of the licenses with condition 14\nin our sample also contained condition 34.\n 22\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nlicensing agencies or export enforcement officials decided that a PSV was needed to determine\nwhether the goods or technology were actually being used in accordance with that license.\nHowever, it should be noted that even when condition 14 is imposed on a license, the PSV might\nnot occur in all cases. For example, if there is no export against the license or if the agency\nrequesting this condition changes its mind (e.g., the item subsequently becomes decontrolled),\nthe PSV may be cancelled. One of the 24 PSVs in our sample was cancelled because the item\nwas decontrolled after the license was issued.\n\nOf the reviewed India licenses that contained condition 14, several exporters submitted their\nshipping documents to BIS well after the established time frame, which in some cases hinders\nBIS\xe2\x80\x99 ability to detect possible diversions or violations of license conditions. In addition, OEA\nrecommended approval of additional licenses to exporters that had not fully complied with\ncondition 14 reporting requirements on previous licenses and did not refer noncompliant\nexporters to OEE for appropriate action.\n\nExport Enforcement management is unable to determine whether OEA analysts and supervisors\nare fully adhering to OEA\xe2\x80\x99s follow-up procedures\n\nWe determined that exporters submitted their shipper\xe2\x80\x99s export declarations after the established\n30-day deadline in 11 of the 24 cases\xe2\x80\x94between 12 and 1,158 days beyond the deadlines (see\nfigure 6). In response to our March 2003 export enforcement report, BIS issued procedures\nrequiring its staff to follow up at least twice with the exporter on all licenses with condition 14:\nfirst, 1 year after the license\xe2\x80\x99s date of issue and then within 30 days of the date of license\nexpiration to see whether shipments have occurred. However, we were unable to determine if\nOEA followed these procedures in these cases. Specifically, records in OEA\xe2\x80\x99s electronic follow-\nup tickler system for 8 of the 11 licenses 39 in which exporters submitted their shipper\xe2\x80\x99s export\ndeclarations late did not clearly show what actions were taken to monitor compliance. Seven of\nthe 8 records only showed the date when the follow-up tasks were assigned to an analyst and not\nwhat actions the analyst took. The remaining record did not provide any information about OEA\nfollow-up.\n\nGiven that the acting director for OEA\xe2\x80\x99s South Asia and Europe Division was new to this\nposition at the time of our review and the fact that OEA\xe2\x80\x99s follow-up tickler system did not\nclearly indicate what follow-up action, if any, was taken in these cases, she could not confirm if\nanalysts followed the prescribed procedures for these eight cases. Since only OEA supervisors\nhave access to the Follow-up Subsystem, it was their responsibility to record what actions were\ntaken by the analysts in these cases. However, the acting director for OEA\xe2\x80\x99s South Asia and\nEurope Division suggested that supervisors would be better able to hold analysts accountable if\nthe analysts had access to the Follow-up Subsystem so that they could record the actions they\ntook to monitor these cases.\n\n\n\n\n39\n One exporter was under investigation by OEE at the time of our review, so we did not pursue our inquiry related to\nthis license. While the remaining two licenses had been shipped against, they were granted in March 2006 and, as\nsuch, had not reached the one-year mark requirement for follow-up as called for in OEA\xe2\x80\x99s guidance.\n 23\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n\n\n\nFigure 6: Exporters Noncompliant with Condition 14 Reporting Requirement\n\n 11 12\n 10 12\n 9 38\n 8 48\n Number of Exporters\n\n\n\n\n 7 106\n 6 170\n 5 232\n 4 312\n 3 521\n 2 786\n 1 1158\n\n 0 200 400 600 800 1000 1200 1400\n Number of Days SEDs Were Received Beyond the 30-day\n Requirement\n\nSource: BIS\n\nOEA is not denying noncompliant exporters future licenses or referring them to OEE per its\nguidance\n\nOEA\xe2\x80\x99s procedures require its analysts to (1) refer noncompliant condition 14 exporters to OEE\nfor possible investigation, and (2) recommend denial of any subsequent license applications\ninvolving a party who has not complied with a previous license condition. We found also that at\nleast 6 of the 11 noncompliant exporters in our sample received additional licenses after the 1\xc2\xad\nyear deadline established by OEA for its analysts to follow up with exporters to determine\ncompliance with condition 14.\n\nIn addition, only 2 of the 11 exporters that submitted their shipping documents to OEA after the\nestablished deadline were referred to OEE. The director of OEA informed us that while he was\naware of the other 9 noncompliant exporters, he made the decision not to make the referrals. He\nand the acting director for the South Asia and Europe Division stated that despite BIS\xe2\x80\x99 guidance,\nthey generally do not refer these types of cases to OEE because they believe these cases would\nnot be a priority.\nWe discussed this matter with the director of OEE, and he stated that OEA should refer these\ntypes of cases. He stressed that these violations should be examined so that they can consider\nappropriate enforcement action (e.g., a warning letter or fine).\n\nBIS needs to ensure that its analysts and supervisors closely monitor licenses at the 1-year mark\nand within 30 days of license expiration to prevent additional licenses from being issued to\nexporters that do not comply with condition 14, and it should hold those exporters accountable.\n\n\n 24\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n\n\n\nRecommendation:\n\nBIS needs to review Export Enforcement\xe2\x80\x99s process of monitoring and enforcing license\ncondition 14 and take the following actions:\n\n\xe2\x80\xa2\t Require OEA analysts and supervisors to closely monitor licenses at the specified follow-up\n time frames, record their monitoring activities in the Conditions Follow-up Subsystem, and\n recommend that exporters who do not comply with condition 14 be denied additional\n licenses.\n\n\xe2\x80\xa2\t Refer all noncompliant exporters to the Office of Export Enforcement.\n\n\xe2\x80\xa2\t Hold exporters accountable for noncompliance with condition 14 through appropriate\n enforcement action.\n\n\n\nBIS Response to OIG Draft Report and OIG Comments\n\nIn its written response to our draft report and our recommendation addressing Export\nEnforcement\xe2\x80\x99s license monitoring and enforcement efforts, BIS stated that it is still reviewing the\nfirst part of this recommendation to determine whether it can be implemented using the current\nlicense processing system (ECASS), or if some alternative approach is necessary. We look\nforward to learning of BIS\xe2\x80\x99 decision upon completion of its review.\n\nAs for the second part of our recommendation related to BIS\xe2\x80\x99 adherence to its own guidance on\ndenying licenses to those exporters who do not comply with condition 14 and/or referring\nnoncompliant exporters to OEE, BIS stated that this requirement needs modification.\nSpecifically, BIS reported that it put this requirement into place in October 2003 in response to a\nprevious OIG recommendation, but found that there were many factors involved that needed to\nbe considered before determining whether subsequent licenses should be denied or referrals\nmade to OEE based on a late filing. As such, BIS stated that in cases where OEA believes it is\nappropriate to refer an investigative lead to OEE, it does so while also screening the party\ninvolved and recommending against issuance of any license until the OEE investigation has been\nconcluded.\n\nWhile we agree that some flexibility might be warranted (e.g., if the exporter is just a few days\nlate in providing the required shipping documentation) in determining whether future licenses\nshould be denied or referrals made to OEE based on a late filing, we found no evidence in the\ncase files to indicate any type of analysis was conducted to determine whether or not the late filer\nshould be held accountable for not fully complying with the license condition. In fact, as\ndiscussed in our report, the director for OEA and the acting director for the South Asia and\nEurope Division stated that they generally do not refer these types of cases to OEE because they\nbelieve these cases would simply not be a priority. Nonetheless, the director of OEE informed us\nduring our review that these types of cases should be referred to OEE so that they can consider\n\n 25\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\nappropriate enforcement action, such as a warning letter. Therefore, we reaffirm our\nrecommendations on these matters and ask that BIS address them in its action plan.\n\nWith regard to the part of our recommendation about holding exporters accountable for\nnoncompliance with condition 14 through appropriate enforcement action, BIS\xe2\x80\x99 response stated\nthat its Office of Chief Counsel and OEE, as well as the Department of Justice, determine the\nappropriate investigation and prosecution for filing documentation late, based on all the facts\npresent. While we agree that these three entities, as appropriate, should make the decision as to\nwhat type of investigation and/or prosecution is appropriate on any given case, as stated above,\nnone of the nine cases highlighted in our report were referred to these offices so that an\nappropriate decision could be made. As such, we reaffirm this part of our recommendation on\nthis matter and ask that BIS address it in its action plan.\n\nFinally, BIS\xe2\x80\x99 response noted that the 24 licenses from our sample did not all contain condition\n14. We disagree. Our review of these licenses indicated that all 24 contained the standard\ncondition 14 language:\n\n After the first shipment is made against this license, send one copy\n of your shipper\xe2\x80\x99s export declaration, or automated export system\n (AES) record, bill of lading or airway bill to the Department of\n Commerce within 30 days of the date of export. Indicate the\n license number on each document. Send these documents to the\n Bureau of Industry and Security, Office of Enforcement Analysis,\n Room 4065, 14th Street and Constitution Avenue, N.W.,\n Washington, D.C. 20230. These documents must be received by\n certified mail or via a private courier. They may not be faxed.\n\nWhile the licensing officers for 2 of the 24 licenses had improperly coded this condition in\nECASS as a \xe2\x80\x9cWrite Your Own\xe2\x80\x9d condition instead of condition 14, the intent of the condition was\nclearly for a PSV to be conducted. In addition, the exporters in these cases were still required to\nsubmit the appropriate shipping documents in accordance with the license terms.\n\n\n\n\n 26\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n SUMMARY OF UNCLASSIFIED RECOMMENDATIONS \n\n\nWe recommend that the Acting Under Secretary for Industry and Security ensure that the\nfollowing actions are taken:\n\n1.\t Specifically list all of the Indian entities that should be captured on BIS\xe2\x80\x99 Entity List, or\n determine an alternative means to better ensure exporter compliance with export license\n requirements (see page 13).\n\n2.\t Improve Export Administration\xe2\x80\x99s license monitoring efforts by:\n a.\t Determining why there are persistent breakdowns in BIS\xe2\x80\x99 process for monitoring\n license conditions (see page 18).\n b.\t Reviewing a sample of license applications to ensure licensing officers and counter-\n signers are properly marking licenses for follow-up (see page 18).\n c.\t Contacting exporters for the three licenses cited in this report that licensing officers\n did not mark for follow-up to determine exporters\xe2\x80\x99 compliance with reporting\n requirements (see page 18).\n d.\t Amending BIS procedures to require licensing officers to review all technical\n documentation submitted by exporters or end users to better ensure their\n compliance with the conditions (see page 18).\n e.\t Ensuring that relevant Office of Exporter Services staff know which license\n conditions they are responsible for monitoring and the steps they should be taking\n to follow up on license conditions, including referral to the Office of Export\n Enforcement, as appropriate (see page 18).\n f.\t Reopening the two licenses that were closed by Office of Exporter Services staff\n and contacting the exporters regarding reporting requirements (see page 18).\n g.\t Referring any noncompliant exporters to the Office of Export Enforcement (see\n page 18).\n\n3.\t Improve Export Enforcement\xe2\x80\x99s license monitoring and enforcement efforts by:\n a.\t Requiring Office of Enforcement Analysis analysts and supervisors to closely\n monitor licenses at the specified follow-up time frames, recording their monitoring\n activities in the Conditions Follow-up Subsystem, and recommending that exporters\n who do not comply with condition 14 be denied additional licenses (see page 22).\n b.\t Referring all noncompliant exporters to the Office of Export Enforcement (see page\n 22).\n c.\t Holding exporters accountable for noncompliance with condition 14 through\n appropriate enforcement action (see page 22).\n\n\n\n\n 27\n\n\x0cU.S. Department of Commerce Final Report IPE-18144\n\nOffice of Inspector General March 2007\n\n\n APPENDIXES\n\n Appendix A: Acronyms\n\n ACEP \t Advisory Committee on Export Policy\n BIS \t Bureau of Industry and Security\n CCL Commerce Control List\n CIA \t Central Intelligence Agency\n EAR \t Export Administration Regulations\n ECASS \t Export Control Automated Support System\n ECCN \t Export Control Classification Number\n ECO \t Export Control Officer\n FY \t Fiscal Year\n HTCG \t High Technology Cooperation Group\n IPE \t Inspections and Program Evaluations\n NDAA \t National Defense Authorization Act\n NLR \t No License Required\n NSSP \t Next Steps in Strategic Partnership\n OC \t Operating Committee\n OEA \t Office of Enforcement Analysis\n OEE \t Office of Export Enforcement\n OExS \t Office of Exporter Services\n OIG \t Office of Inspector General\n PLC \t Pre-License Check\n PSV \t Post-Shipment Verification\n TCP \t Technology Control Plan\n WINPAC\t Center for Weapons Intelligence, Nonproliferation, and\n Arms Control\n WMD \t Weapons of Mass Destruction\n\n\n\n\n A-1 \n\n\x0cFinal Report IPE-18144\n\n March 2007\n\n\n\n\n\n 0 9 39 Days 90\n Pre-License Approve, Deny, or Approve, Deny, or Approve, Deny, or\n Check (PLC) Return Return Return\n Appendix B: Interagency Dual-Use Export Licensing Process\n\n\n\n\n BIS Initial\n Screening/ Not Referred Post\n Enforcement Shipment\n Technical\n Review Verification\n Review\n CIA (PSV)\n Information\n (Registration\n Decision Decision\n of\n (1) (2)\n Application)\n\n\n\n\n B-1 \n\n Initial Case Referral Process Dispute Resolution Process\n Analysis CIA\n Defense OC => ACEP => EARB => President\n Energy (3) (4) (5) (6)\n Justice\n State\nU.S. Department of Commerce\n\n\n\n\n Source: Office of Inspector General\n PLC\nOffice of Inspector General\n\n\n\n\n (1) On or before day 9 of registration, BIS must refer the application or issue, deny, or return without action (RWA) the license.\n (2) On or before day 39 of registration, the referral agencies must provide BIS with a recommendation.\n (3) On or before day 40 of registration, the application can be referred to the Operating Committee, which has 14 days to make a recommendation.\n (4) On or before day 59 of registration, the application can be referred to the Advisory Committee on Export Policy, which has 11 days to make a decision.\n (5) On or before day 75 of registration, the application can be sent to the Export Administration Review Board, which has 11 days to make a decision.\n (6) On or before day 90 of registration, the application can be escalated to the President.\n Executive Order 12981 provides several circumstances for stopping these time frames, such as obtaining additional information from the applicant.\n\x0cU.S. Department of Commerce Final Report IPE-18144 \n\n of General March 2007 \n\n\n Appendix C: BIS Management Response to OIG Draft Report-Unclassified Version\n\n\n\n OF COMMERCE\n Under Secretary for Industry and Security\n Washington. 2023230\n\n March 23,2007\n\n\n\n\n MEMORANDUM FOR Johnnie Frazier\n Inspector General\n\n FROM: Acting\n\n SUBJECT: Audit Report No. 144\n Report Date: February 23,2007\n Audited Entity: Bureau of Industry and Security\n\n\n Attached are the Bureau of Industry and Security\'s comments addressing the of the\n Inspector General\'s draft report entitled: Dual Use Controls for India Should\n Continue to Be Closely Monitored. Draft Inspection No. February 2007.\n\n The response consists of two parts. First are comments on the unclassified report\'s text and\n recommendations, followed by response to the report\'s classified text and\n recommendations.\n\n Attachment\n\x0cU.S.Department of Commerce Final Report ZPE-18144 \n\n o f Inspector General March 2007 \n\n\n\n\n\n COMMENTS:\n\n U.S. Dual Use Export Controls for India Should Continue to Be Closely Monitored, \n\n Draft Ins~ectionR e ~ o rNo.\n t IPE-18144, Februarv 2007 \n\n\n\n Comments on the Report\'s Unclassified Text:\n\n p. ii For reasons discussed in the classified section, BIS believes that India has fulfilled its\n commitments under the NSSP.\n\n p. iii In the classified section of the report, BIS explains the reasons for its disagreements\n with certain of the report\'s findings as stated on this page.\n\n p. iv For reasons discussed in the classified section of the report, BIS believes that\n performing 8 of 24 within 100 days of shipment is not a disadvantage.\n\n p. 14 For reasons discussed in the classified section, BIS believes that India has its\n commitments under the NSSP.\n\n p. There were two cases in the Operating Committee (OC) in which there was confusion\n about whether, or how, a proposed ultimate consignee was on the Entity List. In one\n of the two cases, the confusion was based on erroneous information provided by the\n applicant.\n\n p. 17 In the classified section of the report, BIS explains the reasons for its disagreements\n with certain of the report\'s findings as stated on this page.\n\n pp. 20-21 On a monthly basis, Defense identifies reports it wishes to review and Commerce\n provides those reports. If Defense requested copies of technical reports it required as\n license conditions, thosc rcports would be provided to Defense for its review. Thus,\n there is a process for Defense to request reports it required in license conditions. If its\n review of those reports were to an issue, it would notify Commerce as a\n compliance issue and raise this in any future license application involving the\n exporter.\n\n p. 23 The characterizationof condition 14 as "one of the most critical conditions"because\n it means that the interagency has decided that a post-shipment verification check\n (PSV) was needed, reflects a misunderstanding of the PSV process, as well as the\n purpose of condition 14. License condition 14, which specifically requests the\n licensee to submit shipping documents to BIS within 30 days of the first shipment, is\n used in instances where Export Enforcement review documentation and\n initiate a PSV at a later point in time. It can also be imposed on the licensee by the\n licensing officer another agency requires that a PSV be conducted as a\n condition of approval. However, even when condition 14 is imposed, the PSV might\n not occur, for example, if there is no export against the license or if the agency\n\n\n 1\n\x0cU.S. Department of Commerce Final Report IPE-18144 \n\n of General March 2007 \n\n\n\n\n\n requesting this condition cancels the request. Commerce has the authority to initiate a\n PSV at any time, regardless of whether it is included as a condition of the license or\n whether the license contains condition 14, and independent of the interagency\n process. Indeed, not all PSVs require condition 14, and not all licenses with\n condition 14 result in PSVs. Of the 24 India licenses containing PSVs noted in the\n report, 10 either did not contain condition 14 or the condition was not placed on the\n license by the interagency, but by an OEA analyst.\n\n Response to the Report\'s Recommendations:\n\n Recommendation 1: \tSpecifically list all Indian entities that should be captured on BIS\' Entity\n List, or determine an alternative means to better ensure exporter\n compliance with export license requirements (see page 14).\n\n BIS Response:\n\n BIS will review the listing of the Indian entities on the Entity List to determine how additional\n inforination can be provided to exporters. The planned completion date for this review is\n April 30,2007.\n\n Recommendation 2: \t Improve Export Administration\'s license monitoring efforts by:\n\n a Determine why there are persistent breakdowns in BIS\' process for monitoring\n license conditions (see page 19).\n b Reviewing a sample of license applications to ensure licensing officers and\n counter-signersare properly marking licenses for follow-up (see page 19).\n c\t Contacting exporters for the three licenses cited in this report that licensing\n officers did not mark for follow-up to determine exporters\' compliance with\n reporting requirements (see page 19).\n d\t Amending BIS procedures to require licensing officers to review all technical\n documentation submitted by exporters or end users to better ensure\n compliance with the conditions (see page 19).\n e\t Ensuring that relevant of Exporter Services staff know which license\n conditions they are responsible for monitoring and the steps they should be taking\n to follow up on license conditions, including referral to the Office of Export\n Enforcement, as appropriate (see page 19).\n f Reopening the two licenses that were closed by Office of Export Services staff\n and contacting the exporters regarding reporting requirements (see page 19).\n g Referring any noncompliant exporters to the Office of Export Enforcement (see\n page 19).\n\n BIS Response:\n\n BIS is reviewing these seven recommendations. The conipletion date for this review is\n April 30,2007.\n\n\n\n 2\n\x0cDepartment of Commerce Final Report IPE-18144 \n\n of General March 2007 \n\n\n\n\n\n Recommendation 3: Improve Export Enforcement\'s license monitoring and enforcement\n efforts by:\n\n a. \t Requiring Office of Enforcement Analysis analysts and supervisors to closely monitor\n licenses at the specified follow-up time frames, recording their monitoring activities in\n the Conditions Follow-up Subsystem, and recommending that exporters who no not\n comply with condition 14 be denied licenses (see page 23).\n\n b. \t Referring all noncompliant exporters to the Office of Export Enforcement (see page 23.)\n\n c. \t Holding exporters accountable for noncompliance with condition 14 through appropriate\n enforcement action (see page 23).\n\n BIS Response:\n\n a. BIS is reviewing the first part of this recommendation to determine if it can be\n implemented using the current license processing system (ECASS), or if some alternative\n approach is necessary.\n\n The second part of the recommendation, to deny licenses to those exporters who do not comply\n with condition 14, requires modification. BIS put this requirement into place in October 2003 in\n response to a previous OIG recommendation, but found that there were many factors involved\n that needed to be considered before BIS should determine to deny subsequent licenses. Thus,\n BIS believes it is more appropriate to consider all of the factors related to a late filing prior to\n to a criminal investigator. In cases where the Export Compliance Analyst believes it is\n appropriate to refer an investigative lead to OEE, OEA does so and also screens the party\n involved and recommends against issuance of any license until the investigation has been\n concluded.\n\n b. As explained above, considers all of the factors related to a late filing and, if\n circumstances warrant, refers the matter to OEE for investigation.\n\n c. Office of Chief Counsel, Office of Export Enforcement, and the Department of\n Justice determine the investigation and prosecution that is appropriate for filing documentation\n late, based on all facts present.\n\n\n\n\n 3\n\x0c'