Illegal Technology Transfer

The U.S. Government -- often in collaboration with its allies -- controls the export of certain technologies and commodities to countries that for various reasons are judged to be inappropriate recipients. The violation of these export controls is commonly referred to as illegal technology transfer. It is a criminal act and is a serious security concern.

The Arms Export Control Act regulates the export of U.S. arms and implements of war (including cryptography) and defense technology to proscribed countries that could misuse or cause illegal proliferation of those items.  Such exports may be licensed only if their export will strengthen U.S. national security, promote foreign policy goals, or foster world peace. The Arms Export Control Act is administered by the Department of State's Office of Defense Trade Controls, through the International Traffic in Arms Regulations (ITAR) and the U.S. Munitions List. The Munitions List is a list of defense articles that require a license prior to export.

The Export Administration Act regulates the export of restricted dual-use technologies to countries where they may be used in ways that are inimical to U.S. interests. Dual-use technologies have both military and civilian applications. This includes, for example, certain technologies that are used for the manufacture or delivery of weapons of mass destruction. These export controls are administered by the Department of Commerce, Bureau of Industry and Security (BIS) through the Export Administration Regulations (EAR) and Commodity Control List. The Commodity Control List includes items from the Defense Department's Militarily Critical Technologies List

The BIS Office of Export Enforcement conducted more than 1,200 export enforcement investigations during the period between October 2003 and May 2005.These resulted in 49 arrests, 42 criminal convictions (with prosecution of the remaining cases ongoing) and criminal fines totaling $9.8 million. During that same period, it imposed more than $8.8 million in administrative penalties and other administrative sanctions as a result of more than 100 closed administrative enforcement cases. This information plus short case summaries of many of the convictions are available on the BIS web site at www.bis.doc.gov/ComplianceAndEnforcement/index.html. At this site, click on Selected Major Export Enforcement Case Summaries.

In many cases of illegal technology transfer, the intended end-user is a country with which the United States has significant policy differences, but this is by no means always the case. Some friendly countries also try to avoid U.S. export controls in order to gain economic advantage or enhance their military capability vis-a-vis a hostile neighbor. The illegal end-user may also be a corporation or research institute rather than the national government. One outdated but still representative study of illegal technology transfer operations during the 12-year period from 1981 to 1993 identified 56 different end-user countries.1 The same study found as follows:

• Various schemes were used to get around the requirement for an export license. In over half the cases, the goods were simply purchased and shipped by another U.S. company (often a front company) without a license in hopes they would get past Customs without incident. Fraudulent end-user certificates were used in many cases. In other cases, military items were declared as civilian, high tech items were declared as low tech, shipping documents were falsified, export licenses were forged, or a partial license was used rather than a full license.

• By far the most common means of shipping the goods out of the United States was to export them first to a friendly country, then transship them to a proscribed end-user. Half the transshipments during the time period covered by this study were via Europe, most commonly via Germany, Switzerland or the United Kingdom. The next most common procedure was for goods to be ordered by a U.S. individual or company which then mislabeled them and repackaged and reshipped them illegally to the end-user. Less frequently, goods were concealed in personal luggage, delivered directly to a foreign diplomatic mission in the U.S., or smuggled in a chartered transport.

The initial buyer in illegal technology transfer operations is often a front company in the U.S. set up to acquire technology legally and then export it illegally to an unauthorized recipient. 

Security Countermeasures

  The best security countermeasure is for a business to know its customers. When a "new company" enters the picture requesting sensitive or classified information or technology, prudent risk management would suggest doing some checking of the company's history. For companies handling classified information, this is mandated under the National Industrial Security Program (NISP).

To help U.S. businesses recognize indicators of possible intent to circumvent export regulations, the Department of Commerce's Bureau of Industry and Security developed the following check list: 2

• The customer or its address is similar to one of the parties found on the Commerce Department's list of denied persons.
• The customer or purchasing agent is reluctant to offer information about the end-use of the item.
• The product's capabilities do not fit the buyer's line of business, such as an order for sophisticated computers for a small bakery.
• The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.
• The customer is willing to pay cash for a very expensive item when the terms of the sale would normally call for financing.
• The customer has little or no business background.
• The customer is unfamiliar with the product's performance characteristics but still wants the product.
• Routine installation, training, or maintenance services are declined by the customer.
• Delivery dates are vague, or deliveries are planned for out of the way destinations.
• A freight forwarding firm is listed as the product's final destination.
• The shipping route is abnormal for the product and destination.
• Packaging is inconsistent with the stated method of shipment or destination.
• When questioned, the buyer is evasive and especially unclear about whether the product being sought is for domestic use, for export, or for reexport.

The Bureau of Export Administration hotline for reporting suspected export violations is 1-800-424-2980.

Information on export controls is now available on the Internet in an up-to-date database at www.bis.doc.gov. This website contains the entire Export Administration Regulations (EAR), including the Commerce Control List, the Commerce Country Chart, and the Denied Persons List.

In checking the origin of any request for classified information, it may be useful to know whether the requesting organization has a DoD facility security clearance. The Defense Security Service maintains a database that enables any organization with a DoD facility clearance to check whether or not any other organization has such a clearance. It is called the Central Verification Activity (CVA) and can be accessed at www.dss.mil/infoutl/index.html.

Related Topics: Export-Controlled Information, Illegal Export of Poison Gas.

References
1. Extract from controlled report, approved for public release.
2.  Bureau of Export Administration web site, www.bxa.doc.gov/ComplianceAndEnforcement/RedFlagIndicators.html
 

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