TESTIMONY OF MICHAEL J. GARCIA
COMMERCE ASSISTANT SECRETARY OF EXPORT ENFORCEMENT
BEFORE THE UNITED STATES-CHINA COMMISSION
JANUARY 17, 2001
Thank you for the opportunity to testify today. I would like to offer a few
prepared remarks on the Department of Commerce’s activities with respect
to enforcement of restrictions on dual-use items to China.
Before doing that, however, let me introduce myself. I am the Assistant Secretary
of Commerce for Export Enforcement, and I was confirmed to that post in August
2001. Prior to joining the Commerce Department’s enforcement team, I was
an Assistant United States Attorney (“AUSA”) in the Southern District
of New York where I focused on prosecuting national security-related cases.
As an AUSA, I prosecuted a number of terrorist cases, including the four defendants
who were charged with conspiring, along with Usama Bin Laden and 17 others,
to kill Americans overseas by bombing our two embassies in East Africa. Those
four defendants were convicted in May 2001. While an AUSA, I also participated
in the successful prosecution of four defendants in the first World Trade Center
bombing trial and the successful prosecution of Ramzi Ahmed Yousef and two others
who had plotted to cause 48 hours of “terror in the sky” by planting
bombs aboard American jetliners flying from South East Asia to the United States.
These cases involved very real threats to our national security. I bring this
experience, this background, to my work as Assistant Secretary of Export Enforcement.
The primary mission of the Commerce Department’s Bureau of Export Administration
(BXA), where I now serve, is to advance U.S. national security, foreign policy,
and economic interests. The Export Enforcement arm of BXA protects U.S. national
security interests by identifying and halting illegal export transactions and
prosecuting violators. It is a responsibility that we take very seriously, especially
with respect to exports to areas, such as China, where U.S. trade is increasing
rapidly, and which also pose complex national security issues.
Export Enforcement performs its mission through several program offices. Altogether
Export Enforcement employs approximately100 special agents located in Washington,
D.C. and in field offices in eight major American cities. They are responsible
for investigating violations of the Export Administration Regulations, apprehending
violators, and working with U.S. Attorneys to prosecute cases. Our investigators
are empowered to make arrests, carry firearms, execute search warrants, and
seize goods about to be illegally exported.
Two of our agents are stationed overseas as export control attachés in
Beijing and Moscow.
Export Enforcement employs 26 analysts who assist EE’s field offices and
BXA's export licensing offices by receiving and disseminating information on
end-users and end-uses of concern. Export Enforcement also makes licensing recommendations
to BXA licensing officers based on intelligence information and input received
from special agents in the field.
Export Enforcement uses its resources-- our attaché in Beijing, analysts,
and agents-- in its effort to ensure compliance with BXA’s regulations
governing exports of dual-use items to China. I will briefly discuss (1) the
activities of our export control attaché in Beijing, (2) our preventive
enforcement efforts with respect to China; and (3) some of our completed investigations
involving to China. As a preliminary matter, however, I would note that a substantial
portion of our enforcement resources is devoted to enforcement of export controls
to China.
Export Control Attaché
China was deemed sufficiently important to BXA’s mission that in 1996
we placed our first post-Cold War export control attaché there. The attaché,
who is also a criminal investigator, serves as a bridge between our preventive
enforcement programs and our investigative programs. He conducts all end-use
checks in China - - those that EE selects, those required by the NDAA, as well
as those requested by other USG agencies. The attaché works with the
Embassy community, educating Embassy personnel on export control issues. He
is the point of contact for the Chinese business community and U.S. businesses
operating in China who have questions about U.S. export control issues. The
attaché also provides valuable information to BXA officials and licensing
officers back in the United States to ensure that U.S. strategic products are
safeguarded. The presence of the attaché also signals to the U.S. and
Chinese business community that the Department of Commerce places emphasis on
stopping any illegal exports to China.
Preventive Enforcement
EE’s analysts review BXA licenses and shipping documents to determine
which transactions should be the subject of end-use checks (both pre-license
and post shipment) and to recommend the denial or conditioning of licenses in
light of specific facts and circumstances. In China, we have an end-use visit
arrangement (negotiated between the U.S. and Chinese Governments in July 1998)
regarding end-use checks. In the past 12 months, BXA conducted 42 checks. These
checks help ensure that our national security is not compromised by the exports
of controlled goods and technology.
For China (and 50 other countries), post-shipment checks on all high performance
computers above a specified level of performance are mandated by law. This level
has been raised as technology advances, reducing the number of PSVs required
for future exports. However, as we interpret the law, EE is not relieved of
the requirement to conduct PSVs on previously exported computers that met the
prior – lower – control level. This presents EE with a problem. We
are being required to conduct checks on computers that are no longer considered
advanced enough to be controlled, yet were controlled when exported. The sheer
volume of these backlog checks, combined with our limited enforcement resources,
diminishes our ability to choose and conduct those targeted checks which we
believe are most critical to our national security interests. We are actively
exploring different avenues for relief from this burdensome requirement.
In addition to analyzing specific transactions involving Chinese entities or
individuals, EE also reviews applications for visas filed by Chinese nationals
to prevent such individuals from illegally acquiring controlled U.S. technology
while in the United States. EE recommends denial of visas to the U.S. Department
of State when it believes that the applicant poses a particular risk of illegally
seeking or gaining access to controlled technology or technical data.
Investigations
Export Enforcement vigorously enforces U.S. export control regulations concerning
China. Working within its resource limitations and consistent with its broader
global enforcement responsibilities, BXA’s enforcement arm concluded a
number of major investigations involving China that resulted in the imposition
of significant criminal and administrative penalties in 2001.
Commerce’s dedication to the enforcement of export controls applicable
to China is illustrated by a pair of cases that arose from the 1994 sale of
controlled machine tools by the McDonnell Douglas Corporation to the China National
Aero-Technology Import and Export Corporation (CATIC), a PRC government-owned
corporation. On May 11, 2001, following a six year investigation by Commerce,
the U.S. Customs Service, and the Department of Justice, TAL Industries, Inc.,
a wholly owned subsidiary of CATIC, pled nolo contendere to a felony violation
of the Export Administration Act for making false and misleading statements
in connection with an export license application submitted by McDonnell Douglas
and CATIC. TAL was sentenced to pay a criminal fine of $1 million, and, in what
we believe to be an unprecedented step for a Chinese sovereign entity, TAC waived
its sovereign immunity.
In addition, TAL, CATIC, CATIC USA, and CATIC Supply settled administrative
charges by Commerce that they conspired to violate the Export Administration
Regulations, made false statements or misrepresentations of material facts to
the U.S. Government, and violated the terms and conditions of ten export licenses
that were issued to McDonnell Douglas concerning the machine tools. TAL agreed
to pay an administrative penalty of $1.32 million and have its export privileges
denied for 10 years. CATIC, CATIC USA and CATIC Supply each agreed to a 5 year
export denial, with the denial suspended provided they comply with the Export
Administration Regulations and cooperate in any administrative enforcement proceedings
against other parties.
On November 14, 2001, Commerce imposed a $2.12 million administrative penalty
against McDonnell Douglas Corporation, which by that time had become a wholly
owned subsidiary of the Boeing Company. This was the maximum monetary penalty
available under the applicable law. In addition, the Boeing Company agreed to
assume responsibility and liability for all future exports by McDonnell Douglas
that are subject to the Export Administration Regulations.
The Commerce Department, as well as other U.S. Government entities, devoted
substantial resources to these two cases over the course of many years. We did
so, not only because these cases raised potentially serious violations of Export
Administration Regulations, but also to send a clear message that the Commerce
Department takes very seriously, and will enforce, exporter obligations where
the items at issue are sensitive controlled items going to destinations that
raise complex national security issues such as China.
I’d like to make one final point that, while relevant to China, has a far
broader applicability. As many of you know, U.S. export controls were authorized
under the Export Administration Act, legislation that expired in August of last
year. This is the sixth time in the past 23 years that this act - enacted in
1979 - has expired. To maintain a system of export controls in effect, the President
was forced again to declare a national emergency and invoke safety net emergency
powers. The absence of a coherent, modern statutory basis for our export control
laws not only creates uncertainty for the business community and hurts the United
States credibility in dealing with foreign governments, it also harms our efforts
- my efforts - to enforce export control laws.
Accordingly, as an enforcer of the export control laws, I believe it is critical
that we get new export control legislation enacted in the near future.
In short, Export Enforcement is actively involved, within the limits of our resources, in monitoring our strategic exports to China. No system is perfect. An export control system must be fluid in the sense that it must be responsive to advances in technology and to evolving threats to national security. Yet it must also be consistent in providing the law-abiding business community with guidance on legitimate transactions and deterring those who would compromise our national security through illegal exports. I will use my time as Commerce’s enforcement Assistant Secretary to enhance our efforts on both fronts aided, I hope, by new authorizing legislation. I would be pleased to answer any questions you may have.