[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
TRANSSHIPMENT AND DIVERSION: ARE U.S.
TRADING PARTNERS DOING ENOUGH
TO PREVENT THE SPREAD OF DANGEROUS
TECHNOLOGIES?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JULY 22, 2010
__________
Serial No. 111-122
__________
Printed for the use of the Committee on Foreign Affairs
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
______
U.S. GOVERNMENT PRINTING OFFICE
57-609PDF WASHINGTON : 2010
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COMMITTEE ON FOREIGN AFFAIRS
HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American CHRISTOPHER H. SMITH, New Jersey
Samoa DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey ELTON GALLEGLY, California
BRAD SHERMAN, California DANA ROHRABACHER, California
ELIOT L. ENGEL, New York DONALD A. MANZULLO, Illinois
BILL DELAHUNT, Massachusetts EDWARD R. ROYCE, California
GREGORY W. MEEKS, New York RON PAUL, Texas
DIANE E. WATSON, California JEFF FLAKE, Arizona
RUSS CARNAHAN, Missouri MIKE PENCE, Indiana
ALBIO SIRES, New Jersey JOE WILSON, South Carolina
GERALD E. CONNOLLY, Virginia JOHN BOOZMAN, Arkansas
MICHAEL E. McMAHON, New York J. GRESHAM BARRETT, South Carolina
THEODORE E. DEUTCH, Florida CONNIE MACK, Florida
JOHN S. TANNER, Tennessee JEFF FORTENBERRY, Nebraska
GENE GREEN, Texas MICHAEL T. McCAUL, Texas
LYNN WOOLSEY, California TED POE, Texas
SHEILA JACKSON LEE, Texas BOB INGLIS, South Carolina
BARBARA LEE, California GUS BILIRAKIS, Florida
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
Richard J. Kessler, Staff Director
Yleem Poblete, Republican Staff Director
------
Subcommittee on Terrorism, Nonproliferation and Trade
BRAD SHERMAN, California, Chairman
GERALD E. CONNOLLY, Virginia EDWARD R. ROYCE, California
DAVID SCOTT, Georgia TED POE, Texas
DIANE E. WATSON, California DONALD A. MANZULLO, Illinois
MICHAEL E. McMAHON, New York JOHN BOOZMAN, Arkansas
SHEILA JACKSON LEE, Texas J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida
C O N T E N T S
----------
Page
WITNESSES
The Honorable Kevin J. Wolf, Assistant Secretary for Export
Administration, Bureau of Industry and Security, U.S.
Department of Commerce......................................... 7
Mr. Vann H. Van Diepen, Acting Assistant Secretary, Bureau of
International Security and Nonproliferation, U.S. Department of
State.......................................................... 18
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Kevin J. Wolf: Prepared statement.................. 10
Mr. Vann H. Van Diepen: Prepared statement....................... 20
APPENDIX
Hearing notice................................................... 46
Hearing minutes.................................................. 47
TRANSSHIPMENT AND DIVERSION: ARE U.S. TRADING PARTNERS DOING ENOUGH TO
PREVENT THE SPREAD OF DANGEROUS TECHNOLOGIES?
----------
THURSDAY, JULY 22, 2010
House of Representatives,
Subcommittee on Terrorism,
Nonproliferation and Trade,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:11 a.m., in
room 2172, Rayburn House Office Building, Hon. Brad Sherman
(chairman of the subcommittee) presiding.
Mr. Sherman. I want to thank our witnesses and ranking
member for being here. This is the seventh or eighth hearing
this subcommittee has had this Congress regarding export
controls. It is long past time that Congress reauthorize the
EAA. My own philosophy is that we need a taller fence around a
smaller field, but obviously anything we do in the area of
export controls can be rendered meaningless by transshipment,
and that is why we are having this hearing today, to focus on
transshipment and diversion and review U.S. efforts to keep
American and other sensitive Western technologies and equipment
out of the hands of those who can use them to threaten our
national security.
Most importantly, this hearing is about preventing lax
export controls and policies in countries that trade with the
West from allowing technology and equipment relevant for the
development of nuclear weapons to reach Iran, Syria, North
Korea, and similar states.
In 1998, Pakistan conducted its first nuclear test, having
developed its weapons far before then. Pakistan had gained that
capacity through international deception in part, whereby the
true end user of various equipment was obscured through
clandestine procurement networks. We now see similar networks
on behalf of other states that either are trying to develop
nuclear weapons or have done so illegally. These proliferation
techniques need countries to be the transshipment hub in the
supply chain. Technology and equipment in countries with high
tech manufacturing can go to those hub countries, and then on
to the prohibited country. These hub countries have weak or
nonexistent export controls, ineffective custom and law
enforcement officials, and most importantly, little or no
political will to do anything about this critical problem.
In addition, large trade volumes at major transshipment
ports can help camouflage the illicit shipment of diverted
goods. In 2004, the U.N. Security Council adopted Resolution
1540, which obligates member states to enact and enforce
measures that would prevent proliferation of weapons of mass
destruction to non-state actors. Efforts under this resolution
generally include strategic trade controls. And many countries
are enacting or strengthening such laws to reach compliance
with that U.N. Security Council resolution.
I would like to highlight the record of three countries
that despite having made some strides still serve as
transshipment and diversion hubs and generally do not
effectively control exports to Iran and other countries of
proliferation concern. The first of these is the UAE, one of
the largest transshipment hubs. For two decades, it was a major
hub through which traffickers of nuclear technology and dual-
use material have routed their illegal commerce to countries
including Iran, Iraq, and Libya. Pakistani scientist A.Q. Khan
operated key parts of his smuggling ring out of the Emirates.
Nuclear traffickers shipped via the UAE because the UAE
lacked significant export control laws and made the UAE one of
the easiest places in the world to mask the real destination of
cargo. Although the UAE has cracked down on smugglers in recent
years by acting to interdict suspect shipments and by closing
down some Iranian front companies, the Emirates still have not
issued regulations or created an enforcement agency for their
export control law, which was passed in 2007. So those seeking
to ballyhoo cooperation with the UAE pointed to the statute.
Three years later, no enforcement agency, no regulations.
Another concern is the UAE governing structure, where each
emirate is semi-independent and retains some national power.
Well, eventually, their Federal Government will enforce export
controls. Currently, any enforcement is the purview of each
emirate. Particularly noteworthy is the emirate known as RAK--
that is Raz Al Khaimah--because of its close proximity to Iran,
the depth of Iranian investments in that emirate, and its
remoteness from the center of the emirates.
Malaysia is the second country I want to highlight. It got
an inadequate record of preventing the diversion of weapons-
related technology shipments. Malaysia's lack of export
controls has allowed arms traffickers to ship sensitive
materials to pariah nations such as Iran and North Korea.
Shipments have included parts for bombers and items sent to
firms linked to Iran's nuclear ballistic missile program.
Reportedly, as a condition for the prime ministerial invite to
the nuclear security conference here in April, Malaysia enacted
a strategic trade act this year.
Prior to the enactment of this legislation, Malaysia didn't
even have significant export controls on its books. However, as
we have seen with the Emirates, just having a law on the
statute books is insufficient. We must make it clear that we
cannot be faked into acting as if Malaysia has acted
appropriately by enacting a statute if they fail to move
forward expeditiously toward regulations, enforcement regimes,
et cetera.
Finally we have China. The Chinese legislation regulation
concerning the control of sensitive technologies is more mature
than the other countries I have mentioned, but the political
will to enforce these regulations remains lacking. U.S.
designation lists are littered with Chinese entities, yet
Chinese authorities are unwilling to meaningfully control
strategic trade. In one example in The Washington Post, a North
Korean businessman used his Beijing office to facilitate the
transfer of nuclear technology to Syria.
I should mention Iran at this point. Earlier this month,
the U.N. Security Council took a step in the right direction by
imposing another round of sanctions. Just 3 weeks ago, Congress
further reinforced and went beyond the U.N. sanctions by
passing the good first, but not sufficient, step, comprehensive
Iran Sanctions, Accountability and Disinvestment Act, which
imposes an array of new economic policies aimed at persuading
Iran to change its behavior. However, as our experience with
Pakistan's nuclear program demonstrated, export control laws
will be of little value unless we can properly control the flow
of global cargo at transshipment hubs. And when I say `we,` I
mean not only the United States, but those countries
cooperating with us.
The United States has offices and law enforcement agencies
that work to keep sensitive goods out of the hands of weapons
proliferaters and terrorists. One such office is the Department
of State's Export Control Cooperation, ECC, which provides
assistance related to strategic trade control systems and
prevents illicit transfer of weapons-related technology
materials. A major component of this office is the Export
Control and Border Security program, EXBS, which provides
foreign assistance for the development and implementation of
trade controls.
In addition, the Department of Commerce's Bureau of
Industry and Security's, BIS, transshipment country export
control initiative is tasked with strengthening trade
compliance and export control systems with those countries and
companies that continue to act as transshipment hubs. I think
it is important that we provide aid to countries that have the
political will to prevent diversion, and at the same time the
State Department has to advise Congress and be frank with
regard to those countries where the lack of political will is a
reason for us to reevaluate other aspects of our relationship
with that country.
Finally, and perhaps most importantly, the Iran sanctions
legislation I referenced moments ago includes a title I
introduced here in the House, championed by Senator Dodd in the
Senate, that would create a new export control category for
countries that are of transshipment or diversion concern and
have taken ineffective steps to rein in this problem. A country
slapped with this designation will be denied critical U.S.
technology, including technology needed for the development of
their manufacturing in high tech sectors.
I know it is early, but I hope at this hearing, we will
highlight the need for a vigorous implementation of Title III
of the Iran sanctions bill. And I want to hear how your
agencies will do just that. I thank my colleagues for their
indulgence, as I have gone over time. And again, I hope this
hearing will provide us with a greater understanding of
transshipment threats and our ability to effectively minimize
such threats to our national security.
Now I will recognize the gentleman from California, Mr.
Royce.
Mr. Royce. Thank you very much, Mr. Chairman. Thank you for
this hearing and the work that we have done on this issue. The
diversion and transshipments of sensitive U.S. technology are
very significant security threats around the globe, and keeping
these items out of the wrong hands is an increasing challenge
as global trade of dual-use items just keeps increasing.
There is no more determined violator of this--I think you
and I agree, Chairman--than Iran. Its regime very aggressively,
cleverly and effectively targets advanced technology for its
nuclear program and some of its other weapons programs.
Frequent targets of this are American companies, so checking
Iran's procurement network has to be a top priority.
Another critical country on this front is China because its
manufacturing sector has very weak export controls, which makes
it a key target. China's notorious record as a WMD proliferater
demands that it be given very close scrutiny. In the '90s, we
did work on this committee calling attention to the transfer of
ring magnets from China to Pakistan and into the hands of A.Q.
Khan's network. So I am a skeptic on China's commitment to
export controls given its past behavior, and certainly given
its nonchalance about nonproliferation in general. Its planned
sale just announced of two nuclear reactors to Pakistan, and
its multibillion-dollar investment in Iran's energy sector are
additional cases in point in terms of the way China behaves in
this regard. And I think Beijing's pressure on the Obama
administration to loosen export controls is concerning.
There are some positive developments, and you hit on
several of them, Chairman. The UAE has made progress,
especially in checking shipments to Iran. The UAE recently
stopped a North Korean vessel carrying arms to the Islamic
Republic. So they have moved in the right direction. More is
needed.
There are reports that transshipment and diversion
activities may now be shifting elsewhere in the region.
Malaysia passed an export control law in April, as you
mentioned. That is a good start. It is only a start, and
certainly Malaysia was a past hub of activity for A.Q. Khan as
well. So any steps in Malaysia have to be in the right
direction since there was no real focus on it prior to this
law.
Our export control system certainly needs reform, and we
agree on this. And I am interested in determining if the
administration's reform proposals would strengthen our security
by effectively reducing transshipments and reducing diversion.
And I think the other point I would make is that this hearing
is really an opportunity to look at the Obama administration's
implementation of the Iran sanctions legislation, the
conference committee of which you and I served on, Mr.
Chairman, that was signed into law last month. And I would like
to be clear here.
I think that legislation was a disappointment, a big one.
As I said when the conference report passed, good sanctions
were weakened by delays, half measures, and waiver after
waiver. And that was at the administration's insistence. That
is too bad. But on Iran, with the waivers that the
administration negotiated, the decisions are now in the
administration's court. Will it actually sanction foreign
companies doing business with Iran? The fact that the
administration hasn't imposed a single sanction on an Iranian
trading partner points to more inaction, just what we can't
afford toward Iran.
I hope I am wrong. I suspect I am right, and I yield back,
Mr. Chairman.
Mr. Sherman. Thank you. Would you like an opening
statement? I recognize the gentlemen from Illinois for 5
minutes.
Mr. Manzullo. Thank you, Mr. Chairman, for calling this
very important hearing to examine and discuss the issues of
diversion and transshipment of sensitive export control
technology. Our Government must establish an export policy
based upon clearly defined national security and foreign policy
priorities that also recognizes the realities of a global
supply chain and encourages legitimate trade.
It is clear that overly broad controls are detrimental to
U.S. national security interests as well as our overall global
competitiveness, to which the United States has gone 50 years
ago from a 50-percent market share in machine tools in the
world, to 18 years ago 13 percent, and now we are at 7 percent.
And because, in many cases, of our export controls, we are
losing our technology because the American manufacturers have
made it very difficult--the government has made it very
difficult for them in many cases to export their precision
machinery, and foreign nations have taken that over.
It makes little sense to impose controls on widely
available products that detract our enforcement personnel from
more significant threats to our national security. As part of
this goal to double the exports by 2015, President Obama
ordered a broad-based interagency review of U.S. export control
regulations. The results of that review are now being put into
motion. Defense Secretary Gates outlined four goals for the
administration's export control reform initiative back in
April: An overhaul of the structure of the control lists,
efficient licensing policies and practices that account for the
realities of innovation and production, better coordination in
our enforcement measures, and a unified IT infrastructure.
I truly believe that if we strive to meet these goals, we
will produce a more predictable, efficient, and transparent
system that benefits not only our national security, but our
global competitiveness. And as we continue to discuss proposals
to modernize our export control system, it is imperative that
we remain mindful of diversion and transshipment risks. I have
long been an advocate for tougher penalties that justly target
those who flout our export control laws and regulations. The
Export Control Improvement Act, H.R. 3515, which I introduced
last year with this subcommittee's chairman, my friend Brad
Sherman, and another good friend, Adam Smith of Oregon, would
address several problems with the current system by expanding
enforcement authorities for BIS and also mandating updates to
the computerized automated export system, AES.
The bill would strengthen our current trade controls by
requiring the Federal Government to modernize the AES, update
it continually, making the filing process for shipments abroad
more thorough and significantly reducing unintentional illegal
exports. The bill also authorizes an accountability system for
export intermediaries and enhances prosecution of exporters who
attempt to circumvent electronic blocks.
I know that the Bureau of Industry and Security regularly
accesses AES data to verify compliance with the Export
Administration regulations and to support its investigative
functions. For example, AES data contributed to a BIS
investigation that led to the identification of a major
diverter of U.S.-origin aircraft parts to Iran. I hope our
proposals, aimed at strengthening the statutory requirements
for the AES, will be included in any rewrite of the Export
Administration Act.
The second half of that bill focuses on enforcement
measures and addresses transshipment, re-exportation, and
diversion of controlled items by providing guidelines and
consequences for designation of a country as a destination of
diversion concern or of possible diversion concern. Some of
these changes were incorporated into the Iran sanctions bill
recently signed into law. Specifically, Title 3 of H.R. 2194
included much of the language we introduced in H.R. 3515. These
new mandates should provide another set of tools for our
Government to combat diversion and transshipment of sensitive
technologies.
Chairman, I greatly appreciate the opportunity to share my
views and concerns. I look forward to continuing to work with
you and other colleagues on the committee in crafting
legislation that will improve our national security by
reforming our export control system. I thank you again for
having this hearing.
Mr. Sherman. Thank you, Mr. Manzullo. I will now recognize
Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman. It is a pleasure to be
with you. And let me join you in welcoming our distinguished
witnesses. The topic of today's hearing is one that is
particularly relevant in light of the recent situation and our
sanctions on Iran, that this committee, with the leadership of
Chairman Berman and others, was able to push through this
legislative chamber, which the President has now signed into
law.
The Iran Sanctions Act, the strongest sanctions we have
placed on the Islamic Republic, have already begun to have
immediate effect in pressuring and punishing international
companies who do business with Iran. Now we have got to ensure
that in conjunction with these economic sanctions that we
address and prevent the trade of dangerous technologies from
into the hands of rogue states like Iran and terrorist
organizations.
The United States and its trading partners must be ever-
vigilant about the trade and smuggling of dual-use technologies
into Iran, into China, into North Korea, and others whose
interests are in direct opposition to the United States and our
friends and allies. One particular trading partner I would like
to address is the UAE. Dubai has been working to improve its
image, for sure. And the reality has a venue for such
counterproductive trade. They have in fact clamped down on
financial flows to suspected terrorist organizations following
the September 11th attacks.
However, Dubai in 2003 was also known as the base of
operations for front companies working for the Pakistani
scientist A.Q. Khan and his nuclear procurement network. Very
dangerous business. Today, the UAE says that it is taking
action to maintain nuclear security and counter threats. It has
closed down 40 international and local firms as part of a
crackdown on violators of the sanctions that were also passed
by the United Nations. And this is a good thing.
Earlier this year, the UAE and the United States signed an
agreement for the installation of equipment at UAE ports for
the detection of nuclear materials. This is another good thing.
These good things, these steps, are steps in the right
direction, but we must go further.
In 2007, the UAE enacted a new export control law, which
included license requirements for the export or re-export of
sensitive goods. In 2008, the law was amended to toughen its
implementation. And in 2009, the UAE cabinet formed a committee
to improve compliance and enforcement.
So the fundamental question we have got to answer today
regarding the UAE is this. What is the status of the
implementation of the UAE export control law, and how is the
United States involved in its implementation and oversight?
So again, Mr. Chairman, thank you for giving venue to
explore how the administration has led in this way and
continues to do so, and I look forward to the witnesses.
Mr. Sherman. Thank you for that opening statement. Our
ranking member does have a good excuse for not being here. He
is questioning Chairman Bernanke, so I am sure Assistant
Secretary Wolf and the Acting Assistant Secretary will not be
offended. And I will ask my questions in the first round after
other members. That way, if they are not suitably entertained
here, they can leave after they ask their questions. On the
other hand, I would hope that they would stay for the grand
finale, which of course will be my own questioning of the
witnesses.
First, I would like to introduce the Honorable Kevin Wolf.
Mr. Wolf was sworn in to his current post as Assistant
Secretary of Commerce for Export Administration in February
2010. Prior to joining the Bureau of Industry and Security in
the Department of Commerce, he was a partner in the Washington,
DC, office of Bryan Cave. From 1996 to 1997, Mr. Wolf was the
Special Assistant Counsel to the House Committee on Standards
of Official Conduct.
In any case, welcome back to the House. But before you
begin your remarks, it is also my pleasure to introduce and
welcome back Vann Van Diepen. Mr. Van Diepen has been the
principal Deputy Assistant Secretary of State for International
Security and Nonproliferation since June 2009, and now is the
Acting Assistant Secretary. From 2006 to 2009, he was a
national intelligence officer for Weapons of Mass Destruction
and Proliferation in the Office of the Director of National
Intelligence. Prior to that, Mr. Van Diepen directed the State
Department's Office of Missile Threat Reduction.
Mr. Wolf, please proceed.
STATEMENT OF THE HONORABLE KEVIN J. WOLF, ASSISTANT SECRETARY
FOR EXPORT ADMINISTRATION, BUREAU OF INDUSTRY AND SECURITY,
U.S. DEPARTMENT OF COMMERCE
Mr. Wolf. Chairman Sherman, Ranking Member Royce, and
distinguished members of the committee, thank you for the
opportunity to testify before the Terrorism, Nonproliferation
and Trade Subcommittee regarding the work the Department of
Commerce is doing to prevent the diversion of controlled goods
through transshipment areas.
The dual-use export control system is a vital tool on the
front line to fight the effort to protect national security of
the United States against a diversion of threats our nation
faces. The department's Bureau of Industry and Security, or
BIS, administers and enforces the Export Administration
regulations, known as the EAR, to further U.S. national
security, foreign policy, and economic security interests.
The commodities, software, and technology that are subject
to the EAR are generally referred to as dual-use items and are
for supposed civilian use, but also may have a range of
military applications or are controlled for other foreign
policy reasons. In administering and enforcing the EAR, BIS
works closely with a number of other agencies, including the
Departments of Defense, Energy, Homeland Security, Justice,
State, Treasury, and the intelligence community. And since
arriving at BIS, I have placed a particular emphasis on
interagency cooperation.
BIS employs a variety of methods to prevent diversion of
items subject to the EAR to unauthorized destinations and uses.
These methods include interagency review of export license
applications, identification of high-risk foreign parties,
extensive outreach to the business community, end use checks,
and reviews and analysis of export data from various sources.
BIS controls the export, re-export, and transfer of all items
subject to the EAR. Last year, BIS processed approximately
20,000 export license applications. The value of those
applications was about $60 billion--with a b--for items subject
to the EAR.
The Commerce Department, along with the Departments of
Defense, Energy, and State, have the opportunity and generally
do review all aspects of a proposed export to evaluate the risk
of diversion either in-country or to a third country, or to
evaluate any other national security or foreign policy risks.
The entity list is one tool increasingly used to address the
diversion issue. BIS places on the entity list individuals and
companies based on specific facts that the entities have been
involved, are now involved, or pose a significant risk of
becoming involved in activities contrary to the national
security or foreign policy interests of the United States. It
is a fairly broad standard.
The expanded entity list has proven to be an extremely
effective tool against diversion and has significant
consequences for the listed entities that I will be able to
describe later. BIS also imposes restrictions on exports and
re-exports through the issuance of temporary denial orders.
These TDOs deny the export privileges of a company or an
individual to prevent an imminent export control violation.
Vigorous enforcement is a critical aspect of addressing
transshipment concerns. The bureau's Office of Export
Enforcement conducts end-use checks to confirm the bona fides
of a foreign entity to ensure that sensitive items are not used
in ways that threaten national security interests of the United
States, and for other reasons.
There is a group of people who work with the Office of
Export Enforcement, special agents and export compliance
officers, whose principal mission is to ensure that items on
the EAR entering the regions and the countries where they work
are used in accordance with U.S. export control laws and
regulations.
The bureau also conducts research and analysis of open
source, intelligence, financial, statistical, and other
information, including export data from the automated export
system, to identify trends in controlled trade, including with
regard to transshipment, and develop productive end-use checks
and actionable law enforcement leads.
BIS maintains a constructive cooperation relationship with
the U.S. business community on specific diversion threats
through targeted industry outreach, which focuses on specific
goods and technologies that illicit proliferation networks
actively seek to acquire. BIS contacts U.S. manufacturers and
exporters of these goods and technologies to apprise them of
acquisition threats and solicit their cooperation in
identifying and responding to suspicious foreign purchase
requests.
We also have significant outreach activities, and as we
will describe later, we support the Department of State in its
EXBS program that Vann will describe later, in which we
participated considerably in the last year. And in general, I
want to thank you for the opportunity to discuss these issues
with you and the tools the Department of Commerce has and uses
to protect the national security of the U.S. against the
diverse threats our country faces.
[The prepared statement of Mr. Wolf follows:]
Mr. Sherman. Mr. Van Diepen.
STATEMENT OF MR. VANN H. VAN DIEPEN, ACTING ASSISTANT
SECRETARY, BUREAU OF INTERNATIONAL SECURITY AND
NONPROLIFERATION, U.S. DEPARTMENT OF STATE
Mr. Van Diepen. Thank you. Mr. Chairman and members of the
subcommittee, thank you for giving me the opportunity to
testify on the diversion of sensitive items in transshipment
and the State Department's efforts to address this challenge. I
ask that you include my prepared testimony into the record of
today's hearing.
As you have noted, Mr. Chairman, major transshipment hubs
with weak regulatory controls represent an important
vulnerability in preventing proliferation-related trade. In
these hubs, brokers, front companies, and middlemen can
facilitate proliferation-related activities, hiding their
transactions among large volumes of fast-moving commercial
goods. In order to stop them, a strong regulatory structure is
necessary. And through intensive diplomacy, the State
Department is taking a leading role in building such a
structure.
Our efforts are apparent in several U.S. Security Council
resolutions requiring countries to exercise greater authority
over transshipment and to prevent proliferation-rated
transfers. As you noted in 2004, U.N. Security Council
Resolution 1540 established binding obligations to take and
enforce effective measures against the proliferation of WMD,
their means of delivery, and related materials, including
controlling the transshipment of WMD-related items.
Additionally, the U.N. has adopted several resolutions on North
Korea's and Iran's nuclear and missile programs that call upon
countries to stop proliferation-related transactions. These
resolutions identified states' authorities to search, seize,
and dispose of items destined for proscribed programs. The most
recently adopted resolution on Iran, U.N. Security Council
Resolution 1929, further expanded these authorities.
In building international support, State also works
directly with other countries to detect and halt specific
proliferation-related transactions. We alert these countries to
a potentially proliferant transaction and request that they
investigate and take necessary measures to stop any
proliferation. These interdiction efforts are greatly
facilitated by the Proliferation Security Initiative, the PSI,
a global effort to stop the trafficking of WMD. Many key
transshipment centers, including the UAE and Singapore, are
partners in the PSI.
The department also meets regularly with various countries
bilaterally to discuss proliferant procurement, export and
transshipment control, the implementation and enforcement of
proliferation-related U.N. Security Council resolutions,
proliferation finance, and other relevant issues. These
dialogues have proven to be an effective way to improve overall
cooperation.
We also work to ensure that the multilateral export control
regimes address the risk of diversion during transshipment.
Both the missile technology control regime and the Australia
Group, which controls chemical and biological items, have taken
steps in this area. And we are continuing to improve the
regulation and enforcement of transshipment controls by key
countries via the export control and related border security
assistance program, EXBS, the premiere U.S. Government
initiative in this regard.
During the past 24 months, EXBS has delivered 98 bilateral
trainings to 37 countries on transit and transshipment related
topics. EXBS convenes a global transshipment conference every
year, providing a forum for supplier countries and
transshipment hubs to collectively discuss challenges and
solutions. EXBS succeeds by assisting foreign governments to
establish and implement effective export control systems that
meet international standards.
In conclusion, the department is employing a number of
tools to help counter the challenge posed by diversion of
sensitive items in transshipment, and I look forward to
discussing these issues with the subcommittee. Thank you.
[The prepared statement of Mr. Van Diepen follows:]
Mr. Sherman. Mr. Klein, if you want to go first?
Mr. Klein. No.
Mr. Sherman. Done? Okay. Mr. Manzullo.
Mr. Manzullo. Thank you, Mr. Chairman. The current U.S.
export policies are negatively impacting our high technology
industrial base, as I mentioned in my opening statement. We
have European countries that are advertising that they are
ITAR-free. The United States is becoming known as an unreliable
supplier. We worked last year with Mr. Sherman and Mr. Crawley
and Mr. Blumenauer 2 years ago on changing section 17(c) of the
Export Administration Act that has resulted in billions of
dollars more of aircraft parts that are being exported.
But one in four people in the majority of the district that
I represent are directly involved in manufacturing. Rockford,
Illinois used to be known as the machine tool center of the
world. And I am very concerned that this country has lost its
cutting edge in machine tool technology. Now, I know today's
topic is transshipment, and I don't think we have too many
examples of transshipments of machine tools. They just copy
them, and so that takes care of that.
But my question to both of you in the broadest sense is how
do we strike that balance on national security, and at the same
time try to encourage exports of many machine tools that have
been commoditized around the world and as to which we have
archaic rules, such as if it is over four access in some cases,
you need a license, and some countries you can't ship to at
all. It is an open question.
Mr. Wolf. No. Thank you. It is a good question. First, as a
general principle, I don't view export controls as a balancing
of national security against economic interests. They are
national security controls. And then it comes to the issue of
how you define what national security is. And if you don't have
a healthy industrial base, and if you have export rules that
motivate companies to offshore their work, or if you have rules
that are so complex that no one understands, you are harming
your national security and your economic base. And so as very
well laid out by Secretary Gates and then later by General
Jones, the reform plan clearly takes those issues into account
with this, as generally described, as earlier described, a
smaller yard with a higher fence, so that we can review the
lists of things that are controlled now so that we can put more
resources and more emphasis on the things that really matter
without harming the industrial base.
So the points that you have made are already being
contemplated and considered. I mean, it is a general answer to
a general question. I would be happy to go into more detail on
this or transshipment-specific topics, as you like.
Mr. Van Diepen. The only thing I would add to what Kevin
has said is that one of the things that we do at State to try
and ameliorate this problem is to promote multilateral
implementation of export controls. To the extent to which
export controls are not unilateral, not only are they more
effective, but it helps the commercial playing field, so to
speak. And so the work that we have done to expand the
membership of the international nonproliferation regimes to
promote countries who are not members unilaterally applying the
same standards, the requirements of U.N. Security Council
Resolution 1540 for all countries to have proliferation-related
export controls, is another way in addition to the internal
business of export control reform of trying to address some of
the concerns that you have mentioned.
Mr. Manzullo. The reason I mention that is we have a unique
situation in Rockford, Illinois. When Ingersoll Machine Tool,
the giant company, went into bankruptcy, it got split into four
parts. One part, just prior to the bankruptcy, was sold--the
tool cutting division was sold to an Israeli company. I am
sorry. The cutting tool division was sold to an Israeli
company. The machine tool division was sold to an Italian
company. And the production line was sold to a Chinese company
that is wholly owned by the Chinese Government, Dalian. And
that is the Ingersoll production line. And we have a unique
situation where if they actually wanted to manufacture high end
machines, they may not be able to ship those machines to China,
even though the Chinese Government owns that American company.
And yesterday, we had a tariff act, a tariff relief act,
where we charged tariffs to manufacturers on items that are not
even available domestically. And the reason I raise that is
that appears to be no focus on this country--and I am not being
critical--no focus as to the impact on manufacturing of all the
various agencies that are involved, except to the extent that
we have lost this huge market share around the world on it. And
I know we have talked to both of you, and I know of your
sensitivities and your desire to make sure that you do
everything possible to maintain our industrial capacity.
But I am just really, really concerned. And as much as I
admire my friend Mr. Royce, we do have some differences on the
extent to which these controls have actually hurt us. But I
just wanted to raise that as a point of thought, and I
appreciate your comments on it. And thank you for coming today.
Mr. Sherman. Thank you. I would just comment that on those
occasions when we do not allow an export, not only are we not
helping build the industrial base of the United States, we are
helping build the industrial base in whatever country that does
get the order. With that, I would like to recognize the
gentleman from Florida for 5 minutes.
Mr. Klein. Thank you, Mr. Chairman. And, gentleman, thank
you for being here today and giving us your insight on this.
Obviously, there is a balance of interests, as has been
mentioned by Mr. Manzullo and the chairman. We have an interest
in our industrial base and creating jobs in the United States.
We also have an interest in our national security and the
nonproliferation, and the proliferation security initiative,
which obviously has good goals.
What I would like to focus on for a second is the
recognition--I think it has already been said, but just to
reiterate this--that when other countries are not
participating, and there is a free flow of these goods or these
components or products, obviously as a world interest in
national security, we are not getting to the endpoint or the
end goal.
Specifically, China. China is not a signatory, correct, to
the proliferation security initiative?
Mr. Van Diepen. Correct.
Mr. Klein. They are not. Okay. Very large economy, very
industrious at this point, and very much pushing itself out
into all parts of the world. The significance of China not
being a participant of this initiative, what does it mean, in
your opinion, to the effectiveness of this international effort
to control these components? And what are we doing about it as
the United States reacting to this or using our efforts to
reach out to them or get other countries to reach out to them
engage them in this?
Mr. Van Diepen. Right. I think that the presence or absence
of their subscription to PSI, I think, is less significant than
the extent to which China is effectively preventing
proliferation-related transfers from coming out of its economy
in its territory. I mean, if things were under a good control,
but they weren't a member of PSI, I am not sure that would be a
particularly problematic situation. Likewise, if they were a
member of PSI, but we saw the continued levels of activity that
we are seeing coming out from Chinese entities, that would
still be quite problematic.
Really, what we have been trying to do over a number of
administrations over more than 20 years is to try and persuade
the Chinese to put on and more effectively enforce controls on
Chinese entities to keep them from getting involved in
proliferation-related activity. We have done a good job over
the years, I think, in getting them committed to the right
standards. They are now members of the right treaty regimes.
They support Security Council resolutions like U.N. 1540, which
could not have passed without China's vote, that set the right
standards. They have on paper a pretty good set of domestic
export controls. But our most persistent problem over these
past 20 years has been the fact that individual Chinese
entities continue to engage in proliferation-related activity,
and that is despite repeated imposition of U.S. sanctions
against those entities under a variety of different laws and
authorities, despite repeatedly bringing this up diplomatically
with the Chinese. So this is a----
Mr. Klein. So as to your assessment of where we are at
today versus 5 years ago?
Mr. Van Diepen. Is that we are--things are a lot better in
terms of some of the details of what is being shipped. And we
can get into some of that in a classified setting. But overall,
there is still much too much proliferation-related activity
going on from Chinese entities, and it is our continuing
challenge to try and push that into a better direction.
Mr. Klein. Mr. Wolf, any different opinion?
Mr. Wolf. No. I agree.
Mr. Klein. I mean, I think, Mr. Chairman, as we all know,
this is obviously a huge issue because to the extent we are
preventing our companies in the United States from producing--
and we understand the importance of doing it. We are doing the
right thing in the United States. But if we are punishing, you
know, American companies and other companies from producing
things, and we don't have the real controls, and other
companies are supplying components of WMDs to terrorist
organizations or whatever, it is a very--the outcome is no
different. And that is a big problem. So I think there really
does have to be--and I appreciate the effort. And I am in
agreement with you. Once you signed a piece of paper, if you
are not following it through, it doesn't really matter. We may
have the worst case scenario, where they haven't signed it, and
they are not really putting the necessary controls in place.
We want to do whatever we can to get the necessary controls
and get other countries that engage in commerce with China to
make this a high priority issue, that this is a matter of
international national security, not just the United States.
This isn't just our game. This is everybody's game in terms of
making sure that these products don't get into the hands of the
wrong people for development.
Thank you, Mr. Chairman.
Mr. Sherman. Thank you. Members are reminded that
immediately after this open hearing, we will go into a
classified hearing in another room, and hear the real answers
to all these questions. With that, Mr. Royce.
Mr. Royce. Thank you, Mr. Chairman. Let me ask Deputy
Assistant Secretary Van Diepen a question. The Obama
administration hasn't imposed sanctions on any Iranian trading
partner. It was clear to me, I think, and to others involved in
the sanctions legislation on the conference committee that the
administration really doesn't want to sanction foreign
companies. The new sanctions law is full of waivers,
unfortunately. So I was going to ask you, what is going to be
different now. Will there be a willingness to sanction, and
what role will your office play in making decisions on bringing
sanctions?
Mr. Van Diepen. Well, Mr. Ranking Member, first of all, I
am not quite sure what was meant by Iranian trading partners,
but during the time of this administration entities who have
engaged in various proliferation-related activities with Iran
have been sanctioned. In fact, we just recently sanctioned----
Mr. Sherman. If I can interrupt the witness, the gentleman
from California was referring to the Iran Sanctions Act, and
those companies who invest in the Iranian oil sector.
Mr. Van Diepen. Thank you. I appreciate that clarification.
Now in terms of the new sanctions legislation, the portion of
it that is really directly relevant to the work of the
Nonproliferation Bureau, is Title 3, dealing with potential
countries of diversion concern. And, you know, we will be part
of the State Department's part of dealing with the consequences
that will flow from the report that the DNI is supposed to be
doing under that legislation that talks about potential such
countries. So, you know, this will become part of the normal
policy implementation process.
Mr. Royce. Let me ask you another question. China has a
long history of proliferation. I spoke in my opening statement
about some of that past activity, especially providing those
critical components to Pakistan's capability originally, A.Q.
Khan's network and their ability to bring an atomic weapon
online. China now appears determined to sell Pakistan two
nuclear reactors, and that is certainly against the norms of
the Nuclear Suppliers Group. What is the administration's
position on the sale by China to Pakistan of these reactors?
Mr. Van Diepen. Based on the facts that we are aware of, it
would appear to us that that sale would not be able to occur
consistent with NSG rules unless the NSG were to give it a
specific exemption, which, of course, China does not currently
have for that. So if they were to proceed with that sale
without such an exemption, it would be contrary to NSG
guidelines.
Mr. Royce. I would ask you--well, then what will our
position be at the--we have input. Will you advance the
position in opposition?
Mr. Van Diepen. Yes, sir. I mean, by definition, we don't
support any activity that is inconsistent with the guidelines
of these various regimes that----
Mr. Royce. So you will raise that.
Mr. Van Diepen. And have, yes.
Mr. Royce. And we will have the ability to block that.
Mr. Van Diepen. Well, what we can block is giving the
exemption, but if China decides to go ahead without the
exemption and violates the rules, the group per se can't block
the sale. But we can certainly make clear our opposition and
try and take steps to persuade them to do otherwise.
Mr. Royce. In April, The Wall Street Journal reported that
an Iranian procurement firm obtained critical valves and vacuum
gauges made by a French company that until December was owned
by a U.S. firm. Allegedly, the valves moved through an
intermediary representing the Chinese company that was based
outside of Shanghai. The story reported that an investigator
said that Iran has made ten attempts to acquire valves used in
uranium enrichment, and they did that over the last 2 years.
That is the tenacity that we are up against.
What could you tell us about this case?
Mr. Van Diepen. I am not familiar with the details of that
particular case. We would be happy to provide you with more
information on that subsequently.
Mr. Royce. Okay. I am going to ask you lastly about
authority to interdict here. Assistant Secretary Van Diepen,
you said in your testimony that the most recent U.N. sanctions
on Iran single out the Islamic Republic of Iran's shipping
lines for cargo inspection vigilance when there is reason to
believe its business could contribute to proliferation-related
activity. What does vigilance actually mean? Do you have
authority to interdict with this vigilance? The administration
sought a more aggressive mandate at the U.N., reportedly
seeking to blacklist this firm. What action would that outcome
have allowed for or required, and right now what action can be
taken, in your opinion?
Mr. Van Diepen. In terms of what would have been permitted
prior, I think it is better for us to get that to you
definitively in writing so I don't get it wrong. In terms of
the current situation under the vigilance, I think the key
thing it does is it provides those countries that are willing
or can be persuaded to take action a better basis to act. It
doesn't go as far as we would have liked because there is no
mandatory quality to it. So if there is a country that takes
what we would regard as the wrong course and chooses not to act
in that situation, they would not technically be in violation
of a U.N. Security Council resolution in doing so.
But because of the language in the resolution, we would
have a better basis to pressure that country to try and do the
right thing, but it would not be required to do the right
thing.
Mr. Royce. Let me ask you one last question. Reportedly,
Microsoft recently provided the source code of some of its
biggest products to Russia's Federal security bureau.
Reportedly, similar deals have been done with China by
Microsoft, who provides the operating system for 90 percent of
the world's computers, including our Government's. As I
understand it, source code that is relevant to specific
products like a missile or night vision goggles is controlled
under U.S. export control laws.
However, operating system source code used in commercially
available computers or servers is generally not controlled.
Given the increased emphasis on protecting U.S. national
security and commercial infrastructure from cyber attacks,
should such code be controlled under U.S. export control laws?
Do you think this is a valid concern? I would appreciate your
opinion, and ask that of Assistant Secretary Wolf.
Mr. Wolf. Sure. I won't comment on any particular export or
license application here because of statutory prohibitions on
public, but with respect to the general principle about
software and source code and operating code, there is a
Commerce control list which identifies a wide variety of
different types of software for the production, development,
and use of end items and software that contains different
degrees of encryption controls that are controlled for export
from the U.S.
You know, we would have to go down into the weeds about
what the particular issues are of concern, but there are
already significant controls in a variety of types of software.
And the extent to which additional types should be controlled,
that is part of the reform and the review effort now.
Mr. Royce. But to finish the point, at the U.S.-PRC's
Strategic and Economic Dialogue held this past May in Beijing,
the administration reported that both countries would be
working to expand high tech trade. China has long complained
about U.S. export controls and the administration is promoting
export control reform. So the question is, are plans afoot to
relax export controls on China?
Mr. Wolf. The reform effort is not country-specific. We are
not attempting to change the China military end-use rule. We
are not trying to change the prohibitions that are specific to
China as part of the reform effort. We are not considering
issues with respect to any particular country. So to the extent
that there is reform and a license is no longer required for a
particular item because its export would no longer present a
threat, what would go for China would go for any other country
in that same group of countries.
So no, we are not focusing on trying to relax trade or
export controls with China per se.
Mr. Royce. Thank you very much, Mr. Wolf. Thank you,
Chairman.
Mr. Sherman. I thank the ranking member. And perhaps he
would want to co-sponsor the bill I will introduce next week to
6 months after the enactment of such bill in MFN for China. It
is time to cut the Gordian Knot. Mr. Van Diepen, the ranking
member went through a number of specifics. I will go through a
number of specifics. But is China absolutely confident that
everything they have done in this area does not put at risk at
all their access to U.S. markets and does not put at risk at
all America's policy of not encouraging or helping Taipai move
in a nuclear direction?
Mr. Van Diepen. Well, Mr. Chairman, that sort of requires a
degree of insight into the Chinese mind.
Mr. Sherman. Let me put it like this. Are you aware of
anything the State Department has done that would lead the
Chinese to believe that they are at any risk of a change of
either of those two policies?
Mr. Van Diepen. Well, I assume related to at least the
first one is the fact that, you know, we have sanctioned many,
many Chinese firms for engaging in----
Mr. Sherman. No. I am asking about their access to U.S.
markets in general for civilian goods. I am talking about Most
Favored Nation (MFN) status for each and every one of their
consumer products.
Mr. Van Diepen. I guess I would say that is sort of out of
my lane in the department.
Mr. Sherman. Let me ask something more specific. In late
2009, British naval forces intercepted a ship from China near
Dubai containing nuclear components intended for the Iranian
firm Kalaye Electric. The firm was designated by the U.S. and
the U.N. as an entity involved in Iran's proliferation-
sensitive nuclear activities. In April 2010, The Wall Street
Journal reported that a firm associated with that Iranian firm
had acquired special hardware for enriching uranium from a
French company via a Chinese trading group. And I will just use
initials for that group, ZOT Corp.
What are we doing to address Iran's acquisition of nuclear
components from Chinese companies or via transshipments from
China, Mr. Van Diepen?
Mr. Van Diepen. Through a whole host of measures, we have
been trying to work on that problem. Those include direct
engagement with the Chinese to try and get them to improve
their export controls, and more importantly, the implementation
and enforcement of those controls; going to them to stop
specific transfers where we have got releasable intelligence
that we can use with the Chinese; sanctioning Chinese entities
involved in these activities; our work in transshipment areas
like the UAE----
Mr. Sherman. Okay. So we begged China to not sin again, and
we sanctioned entities. Can you identify the total amount of
dollar exports that are prevented by our sanctions? Or are we
just sanctioning front companies or companies that don't even
export to the United States?
Mr. Van Diepen. There is a mix. In some cases, we are
sanctioning----
Mr. Sherman. Can you for the record provide a dollar value
of what those companies were exporting before the sanctions and
how much that was reduced after the sanctions on those
individual companies? Are we talking about millions of dollars
here or billions of dollars? And does China in any way
cooperate with us in preventing front companies or telling us
that front companies have been created? With the cooperation of
a government you can create as many front companies as you
want. Does China provide any cooperation in the enforcement
sanctions against proliferating companies?
Mr. Van Diepen. Yes, but not enough. There have been
concrete cases where we have gone to the Chinese on specific
transactions and specific entities, and the Chinese have in
fact taken action. But there are----
Mr. Sherman. No, no, not taken--but, I mean, do they help
us impose a sanction? Do they say, ``Here are the 19 other
names by which the sanctioned company goes by--they have asked
us to create 19 other company names, and here are the new 19
names.''?
Mr. Van Diepen. Not directly. However, they have been doing
that as part of the U.N. Security Council process that develops
lists of entities to be subject to designation.
Mr. Scott. They have put their own companies on the U.N.
list?
Mr. Van Diepen. Not that I am aware of.
Mr. Sherman. Okay. Mr. Wolf, in 2007, Mr. Padilla,
Assistant Secretary of Commerce for Export Administration under
the Bush administration, gave us testimony before this very
subcommittee that the Commerce Department had published
regulations that would expand the entity list to target suspect
end users. Two years later, in July 2009, Arthur Shulman of the
Wisconsin Project, testified before this very subcommittee that
his organization had provided Commerce's Bureau of Industry and
Security with concrete proposals for updating the entity list,
but that none of the proposals had been implemented. He further
argued that the list remained unclear, and that it was not a
useful tool for exporters.
What is the status of revisions to the entities list?
Mr. Wolf. Thank you for the question. I disagree that it is
not a useful tool. It has, since we have expanded the scope of
the entity list in 2007, become a critical tool in focusing on
the end use and end user based aspects of export controls. As
we move away from controls that can't really be accomplished
through country-specific sanctions, the key is to focus on
those entities, those people, for which we have reason to
believe--and it is a very open standard--have been involved in
activities that we don't like, proliferation-related
activities, for example.
Mr. Sherman. You are aware of the Wisconsin Project's
helpful suggestions to your department?
Mr. Wolf. I am. And if they or you or anyone else has
suggestions about additional information about also-known-ases
or doing-business-ases for any particular companies that we
have listed, send it to me, and we will review it. There is an
agency-driven process.
Mr. Sherman. And did you respond or has your bureau
responded to the suggestions they made in July 2009, which I
realize was before your time.
Mr. Wolf. It was before my time. I will have to check into
that.
Mr. Sherman. I would like and hope that you would check
that. Until recently, the Commerce Department had only one
individual stationed in the UAE to carry out end user
verifications. These verifications are obviously critical in
our efforts to uncover illicit transshipments. Has the U.S.
placed additional resources in the UAE to conduct end user
unifications and investigate illicit export schemes? How many
people have you got on the ground in the UAE?
Mr. Wolf. There is one person full time who has an export
compliance officer. You are correct. But the work of that
export compliance officer is augmented from time to time by
direct visits from other agents and from foreign commercial
service officers. So yes, there is one employee.
Mr. Sherman. So we have got one guy, and if somebody from
the State Department happens to have some extra time, is
looking for more work to do to help the U.S. Government, they
are allowed to chip in?
Mr. Wolf. Well, I wouldn't view it quite that way. To the
extent that there is an opportunity to send agents or other
officials to the UAE to participate in end user checks, that is
done. And it is not----
Mr. Sherman. People are sitting around Commerce and State
saying, ``I don't have enough work on my desk. Send me to the
UAE. I would like to work there for a couple of weeks.'' Okay.
With all this help, are we up to 1.1 full time equivalents, or
are we still at 1.0001 full time equivalents?
Mr. Wolf. There is one full time----
Mr. Sherman. There is one person, okay. Next question. On
January 23, 2009, the Commerce Department issued a temporary
denial order to prevent the imminent violation of the Export
Administration regulations related to the shipment of a U.S.
manufactured high performance motor boat from South Africa to
Iran for use by the Iran Revolutionary Guard Corps. The next
day, a ship owned by the Islamic Republic of Iran Shipping
Lines left Durban, South Africa with that very boat. Obviously,
the denial order failed to prevent the export.
I have a number of questions about this. Why did the system
fail in this instance, and what is Commerce doing to prevent
similar occurrences in the future? Did the U.S. contact the
South African Government seeking to prevent the export of that
boat? Why don't you go with those two questions. I will come up
with some others.
Mr. Wolf. Sure. That also was in fact before my time. What
I know about it generally, though, is that there has been
significant amount of follow-up with respect to sanctioning
particular entities that were involved in that transaction. And
I know from my past life and my current life that the
imposition of a sanction against a company is significant.
Being identified as an entity effectively works as a blacklist
in that companies in the U.S. and others actually outside the
U.S. don't want to do business with listed companies, and we
know that that has an impact because companies do come back to
us and ask for relief under that. So I will just leave it at
that.
Mr. Sherman. I have gone over time, with the indulgence of
the vice chair of the committee, who is now recognized. Let me
do a second round.
Mr. Scott. All right. Thank you, Mr. Chairman. First, let
me get your assessment and opinions of the A.Q. Khan
procurement network. What is your assessment of it now? How is
it? How dangerous is it? Where is it operating? And what do we
have to fear from it?
Mr. Van Diepen. The network, as far as we understand, is
basically defunct. Because of the efforts taken in a number of
countries against the constituent parts of that network, we
think that network is basically defunct. I think the relevance
of the A.Q. Khan network now is that it shows that there can be
such a thing as a non-state procurement network, and so we are
on the lookout for sort of the next A.Q. Khan network, so to
speak. And, of course, we have done a lot of work in a number
of the countries where the network was able to operate more
freely because there were not export controls in place. And so
as the chairman noted in his opening statement, for example,
the UAE and Malaysia are places that we focused on to get them
to put in place export control legislation that had it been in
place would have made illegal what the network was doing, and
hopefully will help prevent either a resuscitation of the
network or the creation of a new network.
Mr. Scott. Is that your opinion, too, Mr. Wolf?
Mr. Wolf. Yes.
Mr. Scott. Are there any remnants of it? Is there any
indication that--you said it has been disbanded. I think that
is what you said, or words similar to that. But there is no
evidence of it operating anywhere? There is no remnants of it?
There is no shoot-off organization of it?
Mr. Van Diepen. I think to go beyond the we assess it is
defunct, we need to get into a classified----
Mr. Scott. All right. We don't want to do that. We will
wait for the classified point. Now, continuing with that in
terms of the UAE, what is the status of the implementation of
the UAE export control law now? They have gone through a
process of putting it in and an implementation, setting up a
committee. What is your assessment of that now?
Mr. Van Diepen. As we understand it, they are continuing to
staff up the implementation office that would oversee
implementation of the law. Now, it is not the enforcement arm.
That already exists. It is being enforced by the existing
customs and law enforcement services, intelligence services, so
on and so forth. But the people who would oversee the
implementation of the law, that office is still being staffed
up. Our understanding is that implementing regulations have
been drafted, but they have not yet been approved by the senior
levels of the UAE Government that are required to do that.
In addition, the Federal level has been reaching out to the
authorities and the various constituent entities of the UAE,
the various sheikdoms that constitute the UAE, to help them get
up to speed because a lot of the actual on-the-ground
implementation will actually be done at that level rather than
at the Federal level.
Mr. Scott. And how are we, meaning the United States,
involved in its implementation and oversight?
Mr. Van Diepen. Our export control and related border
security program is providing a lot of training to the UAE,
again both at the Federal level and in some of the key
sheikdoms. We assisted them in the drafting of the legislation.
We have given them advice on the implementing regulation. We
also have a continuous engagement at the export control policy
level. We once or twice a year have interagency consultations
between the two countries that specifically deal with these
export control implementation issues and nonproliferation
issues. And so there is a lot of both assistance and follow-up.
And, of course, over all of this, we are watching what is going
on through intelligence and other means to, you know, get a
sense of is the problem moving in the right direction.
Mr. Scott. Very good. The UAE has been under some degree of
security and scrutiny as an alleged transshipment point for
military and dual-use exports, particularly to Iran, as a hub
of operations for weapons proliferaters. What is your
assessment now of the current situation in the UAE? And are
these laws effective?
Mr. Van Diepen. First of all, it is very clear to us that
the UAE Government, at the highest levels and also broadly
throughout their interagency, you know, has internalized and
understands the importance of nonproliferation and of dealing
with the proliferation problems through effective action. And
the UAE has taken a lot of very important steps, not just
passing legislation, but in terms of stopping specific
shipments, shutting down companies, dealing with specific
individuals. A lot of concrete, real-world activities have been
engaged in by the UAE to really do things in the real world
that matter.
I mean, obviously, it is very important that they have a
good export control system in effect. But what really matters
is the extent to which bad things are affected, and they are
taking important, concrete steps that in a very tangible way
are having an impact on the problem. And again, we can go into
some of the details on that later.
Mr. Scott. Okay. Very good. Finally, if I may, Mr.
Chairman, as you know, I am very much involved with making sure
we maintain excellent relationships with all of our allies, and
we have all of our allies who are very important. But certainly
strategically Turkey is extraordinarily important. Our
friendship and our partnership is long. But I do want to get
your analysis of something relative to this, particularly as
recently we have seen Turkey--or some elements of it seem to be
waltzing closer and closer into the orbit of Iran on some
issues. But let me just ask you to comment on this, if you are
aware of this.
Earlier this year, the Institute for Science and
International Security issues a report detailing evidence and
allegations against a former Iranian diplomat who sought to
smuggle U.S.-made military equipment to Iran. Are you familiar
with that?
Mr. Van Diepen. Not that specific case.
Mr. Scott. All right. Well, according to this report,
Istanbul was originally chosen as the transshipment point for
the equipment from the United States. But in January 2006, one
of the Iranian agents allegedly involved in this scheme cited
potential difficulties posed by the Turkish Government as a
reason to change the transshipment location. Now the reason
analysis of this is so important is because I think it
indicates that Turkey is not a destination of diversion
concern, if this is the case, and that robust enforcement by
Turkey has deterred any would-be weapons smugglers.
Would you say that is an adequate statement? I mean, if you
are not familiar with the case just from my mentioning it----
Mr. Van Diepen. Well, again, I am not able to comment on
the specific case, but more broadly, I mean, Turkey is a
country that is a member of all the multilateral
nonproliferation regimes. It has worked with us on specific
proliferation-related cases. But no country, including the
United States, is in a position to say that, you know, we have
definitively stopped all bad activities from going on. And
given the fact that Turkey shares a border with Iran, it is
certainly a place where, as you noted in your example, Iranians
might consider trying it. But Turkey is also a place that, you
know, has in place and tries to enforce the right kinds of
controls and works cooperatively with us to try and thwart
those efforts. But it is difficult to keep yourself entirely
from being abused by proliferaters, but they are certainly
taking a lot of the right steps.
Mr. Scott. Good. So I want to get on the record. This is a
good report and a good sign from the standpoint of Turkey is
concerned. I think that what you are saying is that this
example works to support the fact that Turkey is very strongly
working to make sure that this kind of activity does not happen
in that region. But I am little bit concerned about some of the
other countries in the Black Sea and the Central Asian region,
which may pose diversion concerns. Are there any? Is that
region fairly safe? Particularly as countries such as the UAE
and Malaysia tighten their export control regimes.
In other words, if you tighten something here, and it opens
up something here, what we want to make sure of is that if we
tighten here, that this stays tight, too.
Mr. Van Diepen. No. And we are very concerned about that as
well. And in fact, if you look at the past history of this,
even the UAE didn't come up--wasn't originally a big place for
this sort of thing. But business tended to gravitate there
because other places got restricted, and so we fully expect
that as the UAE starts to crack down, proliferaters will go
elsewhere.
Now, in terms of Central Asia, really that was one of the
earliest places that we started operating in our export control
assistance activities because we recognized with the breakup of
the Soviet Union there was going to be a loss of centralized
control. And given the geographic proximity of those countries
to places like Iran and other interesting destinations, you
know, early on we sought to try and head that phenomenon off.
And so we have been very actively involved in all of those key
countries, helping them put laws in place, given them
enforcement equipment and training, X-ray machines, nuclear
radiation detectors, that sort of thing. And so there is a
fairly substantial effort in place to try and keep that from
becoming the next place that folks again.
But again, given that there is a geographic proximity,
given that that is a region where smuggling of all types has
been endemic for centuries, there will always be a potential
threat there. But we have been doing a lot in cooperation with
those governments to try and make sure that we have got as good
a handle as we can get.
Mr. Scott. Very good. Well, thank you very much. I
appreciate it, Mr. Chairman.
Mr. Sherman. I am going squeeze in a couple of questions,
and then we will go to the classified briefing. Continuing with
our discussion of the speedboat, the IRISL, the shipping line,
has been sanctioned by the United States for its support of
Iran's proliferation efforts. Why have no sanctions been issued
against any of that entity's front companies, and why have no
front companies been identified by the State Department?
Mr. Van Diepen. I think I will have to----
Mr. Sherman. Did I say State? Excuse me, by the Commerce
Department.
Mr. Wolf. Right. Well, there is the entity list that I was
referring to earlier, where many of the companies that are
associated with that network that you were just describing
either are in the process of being listed, which would result
in the prohibition on exports of items subject to the EAR to
those entities. So----
Mr. Sherman. Let me get this--okay. In January 2003, this
incident occurred.
Mr. Wolf. Right.
Mr. Sherman. As it happened, a front company was used in
that instance, and here we are, 1\1/2\ years later, and you are
in the process of listing your first front company for the
shipping line.
Mr. Wolf. No, no. Some entities already have been listed. I
can send you the information on----
Mr. Sherman. So you have issued sanctions against front
companies, and you have identified front companies, of the
Islamic Republic of Iran Shipping Lines.
Mr. Wolf. With respect to--I believe so. I will confirm,
but I believe so.
Mr. Sherman. Okay.
Mr. Wolf. And to the extent that we get new information on
names and addresses that are the same entity, we will----
Mr. Sherman. Well, one would expect that the first thing
you would do is look at the ship that left Durban, see who it
is registered to, and say, well, if we have said that that ship
was carrying a speedboat, a power boat, to the Revolutionary
Guard, then whoever owns that ship needs to be listed on the
list or as a front company on the list.
In March 2008, the Bureau of Industry and Security issued a
temporary denial order against Iran Mahan Air and several
additional entities after it was discovered that three Boeing
aircraft had been exported to Iran by use of Mahan Air, and an
additional three aircraft were in the process of being
exported. Despite the denial order, Mahan Air has continued to
seek and acquire aircraft with substantial U.S. components to
add to its fleet. And, of course, these planes can be used for
military and transport purposes.
Likewise, Air Iran has acquired several aircraft that
required a U.S. export license. What steps is the Commerce
Department taking to crack down on illicit acquisition of U.S.
aircraft and aircraft with substantial U.S. components by Iran
and by Mahan Air?
Mr. Wolf. Well, through the aggregation of information
gathered during the licensing process, enforcement activities,
intel, tips from private sector companies, we listed and
continue to list the companies that you are referring to as
denied entities. And, you know, it is part of the regular
listing and the review of the process activity of those
companies that are involved in exports and re-exports to Iran.
Mr. Sherman. So has anyone been sanctioned as a result of
the fact that Iran has gotten both U.S.-made planes and planes
with substantial U.S. components?
Mr. Wolf. The reason I am hesitating a little bit is
because these are topics probably better left for the closed
session.
Mr. Sherman. Okay. I hope that during the closed session
you will be able to show me that companies with substantial
U.S. business interest have suffered a significant penalty for
this. But I would comment that Congress is also at fault here.
We have allowed the export to Iran of airport parts or airplane
parts. I realize it is a safety issue for the planes that Iran
acquired many decades ago, and our proper response is to tell
Iran ground your planes until you ground your nuclear program.
Instead, Congress is allowing those Boeing parts to go to Iran,
showing that we screwed up, too.
So we now have votes, I believe, and then immediately after
those votes, we will--wait, do we have votes? We do not have
votes? Okay. Then we will move to the classified session, and
then we will be interrupted by votes.
[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing RecordNotice deg.