GAO Report Details Compliance Differences for Licensed, Country License Exception Exports
Compliance and enforcement activities for exports using country-based license exceptions differ only from licensed exports in terms of license application review, vetting parties to transactions, and recordkeeping, said the Government Accountability Office in report on “Export Controls: Compliance and Enforcement Activities and Congressional Notification Requirements under Country-Based License Exemptions.” The report, requested by House Foreign Affairs Committee Chairman Ileana Ros-Lehtinen (R-Fla.) and Ranking Member Howard Berman (D-Calif.), was compiled in response to concerns about new country-based license exceptions such as the State Department’s defense trade treaties with the U.K. and Australia, as well as the Bureau of Industry and Security’s new Strategic Trade Authorization (STA) license exception.
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According to the report, State allows two country based license exceptions in the form of the defense trade treaty with the U.K., as well a license exemption for exports to Canada. A defense trade treaty with Australia is set to take effect soon as well. To State’s knowledge, there had been no reported U.K. defense treaty exports as of September 2012, while exporters conducted roughly 35,000 transactions, worth about $1.7 billion, using the Canadian exemption, the report said. Meanwhile, BIS implemented the STA license exception in July 2011. In the first year STA was available, 74 exporters used the STA exception to conduct 604 transactions worth $33.9 million, GAO said.
Most Compliance and Enforcement Activities Similar
Enforcement activities are generally the same for licensed exports and exports under country-based license exceptions, GAO said. All exports, regardless of how they're exported, are subject to inspection and possible seizure at the border, investigation for potential violations, and punitive violations for actual violations, said the report.
Of GAO’s seven identified export compliance activities, four are the same for all exports. Both licensed exports and exports under country-based license exceptions may be subject to end-use monitoring checks, and State and BIS both analyze shipping data on all exports. Country-based license exceptions also do not influence the process the agencies use for updating and maintaining lists of parties against which applicants or end-users are screened during the vetting process, the report said. Finally, State and BIS have been conducting outreach to exporters and foreign government officials to educate them about country-based license exceptions.
Some Compliance Activities Differ
However, three compliance activities do differ between licensed exports and exports under country-based license exceptions, GAO said. These activities are license application reviews, vetting of parties to a transaction, and recordkeeping.
License application reviews. Because country-based license exceptions do not require a license, neither State nor BIS conducts license application reviews for items exported under an exception.
Vetting of parties to a transaction. Generally, for licensed exports, agency officials review the license application and screen all entities that are party to each transaction against various agency lists, as well as export and licensing histories, and public, law enforcement, and intelligence information. State and BIS may also conduct prelicense checks to verify the credentials of a party before approving a license.
For State’s country-based license exceptions, however, foreign countries share some of the vetting burden. The U.K. defense trade treaty, as well as the eventual Australia treaty, requires the foreign country to vet applicants to the approved community, after which State vets the applicants. Once applicants become members, State does not vet exporters or end-users before each transaction. Under State’s Canada license exception, all vetting activities are performed by the Canadian government.
BIS does not vet parties prior to transactions either for exports under the STA license exceptions. Vetting occurs after a transaction, and BIS also reviews new exporters to ensure compliance with STA requirements, the report said.;
Recordkeeping. In contrast to laxer compliance activities for exports under country-based license exceptions for license application reviews and vetting, recordkeeping requirements for country-based license exceptions are more stringent, GAO said. State’s defense trade treaties require extra marking on items; exporters using State’s Canadian exemption must submit semiannual reports; and exporters using the STA license exception must obtain and maintain consignee statements acknowledging agreement to STA requirements, the report said.