ID-78-62 U.S. Munitions Export Controls Need Improvement

BY THE COMPTROLLERGENERAL Report ToThe congress OF THEUNITED STATES U.S.Munitions Export Controls Need Improvement The U.S. munitions export control system is seriously weakened by lack of an export inspection program which is essential to assure export compliance with regulations and licenses. This report recommends ways to improve munitions export controls and provide assurance that such exports conform to law and authorized munitions export licenses. 10-78-62 APRIL 25, 1979 : . .( . .-. 1 COMPTROLLER QENERAL OF THE’UM1TED STATES w&swmToN. O.C. Nma B-172255 To the President of the Senate and the Speaker of the House of Representatives This report identifies weaknesses in current muntions export controls and recommends ways to improve the controls and provide reasonable assurance that such exports are in conformance with law and with authorized munitions export licenses. Copies of this report are being sent to the heads of executive agencies which participate in munitions export controls and to the Director, Office of Management and Budget. &*er 4ra& of the United States COMPTROLLER GENERAL'S U.S. MUNITIONS EXPORT REPORT TO THE CONGRESS CONTROLS NEED IMPROVEMENT ------DIGEST The U.S. munitions export control systp is not working as it should, and cannot‘xe depended upon to ensure that munitions are not exported without a license or that shipments made under license conform to the license terms.2 Controls over commercial munitions exports are less effective because munitions export shipments are not inspected for compliance with the law, regulations, or export license terms. c Responsibility for export controls is divided between the Commerce Department, the State Department's Office of Munitions Control,i':'f:)'ii" ') and the U.S. Customs Service. Coordination between the three agencies is not sufficient. to assure compliance by munitions exporters.7 As a result of a 1972 decision by the Depart- ment of Commerce to withdraw its export commodities from the export inspection program then operated by the Customs Service, Customs stopped inspecting export shipments of all types. Commerce now spot checks exports of commodities under its jurisdiction, but is not responsible for munitions exports and does not look for munitions violations. The State Department, which has primary responsibility for munitions export controls, has not taken steps since 1972 to compensate for the lack of inspections. The Office of Munitions Control is aware of the need to balance responsiveness to both industry and government and appears to be doing an effective job of reviewing license applications. Some improvements could be made, however, including increasing the use of --U.S. Embassies in checking the validity of information concerning end use of items proposed to be exported, and ID-78-62 Tear Sheet. Upon removal, the report cover date should be noted hereon. i --automation in monitoring the progress of applications through the review process and to further reduce response time to license applications. ."I Controls over munitions exports are further .weakened by errors the Customs Service makes in controlling export licenses and validating shipper's export declarations.) These errors reduce the effectiveness of shipping document control as a means of preventing and detecting improper exports, and cause in.accuracies in management information data of the Office of Munitions Control. liThe errors by Customs and deficiencies in aW& Office of Munitons Control data processing procedures have made the Office's reports to th Congress on munitions exports inaccurate., e GAO estimated that the Office's data base 'from which the reports are made contains discrepancies in export values for about 50 percent of the approximately 40,000 licenses that the Office approved during fiscal years 1976 and 1977. The possible causes of these discrepancies are numerous, but the basic reason they remain unresolved is the Office's almost total lack of quality control procedures in its data processing. It does not follow up on even the most obvious discrepancies routinely revealed by its computer program. RECOMMENDATIONS To strengthen compliance assurance and to avoid potentially duplicative programs: --The Secretary of State should arrange with the Secretary of Commerce, and the Director, Office of Management and Budget, to incor- porate physical inspections for munitions export control into the Commerce Department's o@i" export compliance programlwith appro- priate budget and personnel increases for Commerce, thus having a single manager for all nonagricultural export inspections. (See p. 36.) ii --The Director of the Office of Munitions Control should report on deficiencies and violations uncovered in these inspections in the Munitions Control Newsletter:; as a means of both educating exporters and enlarging the deterrent value of the inspection program through increased visibility. (See p. 37.1 --The Secretary of State should, with the Commissioner of Customs and the Secretary of Commerce, establish procedures to make sure that (1) Customs and Commerce personnel inform the Office of all noted violations of munitions export regulations and (2) proper penalties are levied in all such cases. (See p. 38.) Further, the Secretary of State should: --Consider eliminating the current system of requiring validation of shipper's export declarations and license control by Customs1 The many errors being made by Customs may be negating any control benefits. --Use U.S. Embassies more frequently in checking on proposed end use of items on license applications1 1 + --Make greater use of automated management data in controlling the license application review process. .. ..." i The State Department generally agreed with these recommendations. While State officials did not agree that eliminating the shipper's export declaration validation procedure was a good idea, they did agree to analyze the situation further before deciding between eliminating or improving the existing system. (See p. 41.) Commerce objected to assuming munition export inspectlons, primarily because of insufficient funds and trained personnel for the added responsibility. Customs agreed that munitions export control is less than satisfactory because of inadequate manpower and a lack of Tmr Sheet iii guidelines, but argued that establishing a separate inspection force in Commerce would be counterproductive and not cost effective. Customs said the most efficient solution would be to provide Customs with sufficient staffing to perform the inspections. (See p. 42.) GAO recognizes that whichever agency does the job will require adequate numbers of properly trained and supervised personnel and sufficient funds. GAO believes that either system-- a strengthened Commerce compliance system, or beefing up Customs to handle export inspections--properly designed, implemented, and managed, could do the job, but it would be more efficient to have only one agency inspecting nonagricultural exports. iv --------Contents Page DIGEST i CHAPTER 1 THE U.S. MUNITIONS EXPORTCONTROL SYSTEM The basic system The licensing process Document control Enforcement Reporting and oversight Scope of review 2 LACK OF PHYSICAL INSPECTIONS WEAKENS MUNITIONS CONTROLS 6 Munitions exports not inspected 6 Export inspection responsibility divided 7 Test inspections made for GAO 9 Other means of enforcement 11 Conclusion 14 3 THE LICENSE APPROVALPROCESS NEEDS IMPROVEMENT 15 OMC's role in the approval process 15 OMC's workload 16 Input from other agencies 17 Timeliness of application review 19 Preshipment and postshipment end use checks 20 4 DOCUMENTCONTROL ERRORS FURTHER WEAKEN MUNITIONS CONTROLS 22 Errors by the Customs Service Errors by licensees i'3 Customs minimizes export control 23 Customs export control staff needs guidance 25 Violators of regulations not penalized 25 5 OMC'S DATA PROCESSINGNEEDS IMPROVEMENT 27 Data base accuracy is questionable 27 Obvious errors 28 Hidden errors 28 Sampling conclusion 28 CHAPTER Page OMC’s reports to the Congress have been inaccurate 29 Untimely reporting 29 Causes of errors 30 Expired licenses not accounted for 30 Returned licenses not checked against data base 31 Known discrepancies not corrected 32 Inadequate SED processing 33 Processed data not verified 34 OMC management information system is inadequate 34 6 CONCLUSIONS AND RECOMMENDATIONS 36 Recommendations 36 To strengthen compliance assurance and avoid potentially duplicative programs 36 To improve export document control 38 To improve the license approval process and OMC's information system 39 To improve reporting to the Congress 40 Follow up 40 Agency comments 41 APPENDIX I Specific examples of errors in document processing and control 49 II U.S. commercial arms exports 59 III Comparative levels--FMS sales, deliveries, and commercial exports 60 IV International traffic in arms regulations-- The U.S. Munitions List 61 V Sample registration application 108 VI Sample shipper's export license 109 VII Sample shipper's export declaration 111 ABBREVIATIONS GAO General Accounting Office ITAR International Traffic in Arms Regulations NRC Nuclear Regulatory Commission OMC Office of Munitions Control SED Shipper's Export Declaration .’ ,:, ( CHAPTER 1 THE U.S. MUNITIONS EXPORT CONTROL SYSTEM Responsibility for administering export controls over items on the U.S. Munitions List, as set forth in section 38 of the Arms Export Control Act, as amended (22 U.S.C. 2778), was delegated by the President to the Secretary of State, while responsibility for

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