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Good morning and welcome to Update West. I appreciate having this opportunity to see all of you again this year. I would like to let you know about some recent developments in Export Enforcement since we last met, and to let you know what we are planning for the year ahead.
First, over the past year, Export Enforcement has strengthened its operations. Beginning in 1997, we have continued to build up our personnel strength, concentrating on agents in the field. Following 8% growth in the field in 1997, we increased another 11% in 1998. We now have 92 agents on board in the field. We have 165 personnel in total.
I would like to recognize the Special Agent-in-Charge of the field office nearest us, and that is Randy Sike of the San Jose field office. Randy, please stand.
With all of our new personnel, we have continued to emphasize training. This past summer, we conducted training sessions for our more recently hired agents on those skills necessary for export control investigations. This past fall, we conducted training for all our enforcement personnel on the Chemical Weapons Convention and our role in CWC inspections, encryption, electronic sources of information for law enforcement personnel and high performance computers.
We have generated some important cases. For example, in July 1998, the Russian subsidiary of a U.S. company pled guilty to exporting $1.5 million worth of high performance computers to a Russian nuclear weapons laboratory. The court imposed an $8.5 million criminal fine, the maximum permitted. The Commerce Department ordered the Russian subsidiary to pay the maximum civil penalty of $171,000 and denied its export privileges for two years. Imposition of the denial period, was suspended and will be waived thereafter, provided the Russian subsidiary does not commit any violations of the EAR during the two-year probation period.
We also made an important contribution on the anti-terrorism front. Special agents from BXA's Office of Export Enforcement, working with U.S. Customs agents, stopped a man from boarding plane in Detroit bound for Lebanon. He was attempting to export night vision goggles, global position satellite (GPS) modules, and a thermal imaging camera to the Hizballah in Lebanon by hiding the equipment in his luggage. Based on the arrest for export control violations, the FBI was able to conduct a search that yielded information about other terrorist activities.
While we vigorously pursue cases, we also have major preventive enforcement and outreach programs. We provide firms with specific guidance on compliance with the export control laws, while at the same time giving our office a better understanding of the private sector's needs. In 1998, we completed 1291 outreach visits, up from 562 visits in 1997.
Export Enforcement works closely with Customs. We review Shipper's Export Declarations, focusing on destinations and items of proliferation concern. We conduct end-use checks overseas to determine the disposition of controlled commodities. We have strengthened our review of visa applications to prevent unauthorized access to controlled technology by foreign nationals visiting the United States. We also strictly enforce the antiboycott regulations.
Today, I'll discuss five important initiatives for Export Enforcement: implementation of the National Defense Authorization Act of 1998, reauthorization of the Export Administration Act, coordination with Census on requirements for Shipper's Export Declarations, Hong Kong and China.
First, the NDAA. On January 7 of this year, we submitted the first annual report to Congress on high performance computers as required by the National Defense Authorization Act of 1998. As many of you know, this law requires the Commerce Department to conduct pre-export analytical screenings and post-shipment verifications on high performance computer exports with processing speeds over 2,000 million theoretical operations per second to 50 "Tier III" countries. Four of these countries -- China, Russia, India, and Israel -- accounted for 85% of the exports. The report submitted to Congress describes the results of the Department's post-shipment verifications. Post-shipment verifications are on-site visits by U.S. Government personnel to determine whether items are being used for the licensed purpose. We conducted 104 of these verifications during the reporting period. There was only one negative finding.
Under Secretary William Reinsch, Assistant Secretary Roger Majak and I met with Congressional staff to go over the report. We pointed out that technology has out- paced the computing levels set by law in the NDAA. There were 390 computers over 2,000 MTOPs that were exported to Tier III, and that number is growing rapidly. Most of the exports are to non high-risk end-users. For example, of the 390 high performance computers, over half were to the communications, utilities and financial industries. We are working with Congress to obtain greater discretion in targeting our enforcement resources, so that we can concentrate on high-risk transactions and potential diversions. That is a better way for us to contribute to non-proliferation than visiting low-risk locations.
Now I will turn to reauthorization of the Export Administration Act. We are working with Congress to seek reauthorization of the EAA and, particularly, to seek the authority to impose higher penalties in our enforcement cases. We are asking Congress to pass an updated version of legislation (H.R. 361), which was passed by the House in 1996.
At present, the authority for our export control system comes from the International Emergency Economic Powers Act. This authority imposes serious constraints on our ability to impose the level of penalties that many violations warrant. For example, under the EAA, the maximum corporate fine for criminal violations is $ 1 million; under IEEPA, the maximum fine is $50,000. For administrative violations, the maximum dollar penalty is only $10,000. These penalties are too low by today's standards to provide an effective deterrent or punishment for violations of the dual-use export regulations. We rely on the deterrent effect of stiff penalties for export control violations. The longer we operate under IEEPA, the more the deterrent effect will erode. This current weak penalty structure limits our ability to protect U.S. high performance computers, encryption and other technologies.
The third initiative I will address is the Shipper's Export Declaration requirements. The Census Bureau published proposed changes to the Foreign Trade Statistics Regulations regarding requirements for Shipper's Export Declarations. These changes affect the Export Administration Regulations since they go to the heart of the definition of exporter. We are working with Census on the regulations. Our goal is to make sure that the regulations work together, publish both sets of regulations at the same time, address industry's concerns on ex-works transactions and our concerns about clearly identifying who is responsible for obtaining an export license. Currently, we are working to make changes to the Export Administration Regulations that provide flexibility for the parties to a commercial transaction to set responsibility for obtaining an export license among themselves. But if they do not do so, we will do it for them to ensure that someone is responsible.
Now, to the international front:
I will start with Hong Kong. I have just returned from a week in Hong Kong meeting with export control officials as part of our semi-annual export control discussions. Our primary objective is to support Hong Kong's efforts to maintain an effective export control regime that is autonomous from China. Specifically, we want to prevent diversions of U.S.-origin exports from Hong Kong to China. Last week, our discussions focused on the legal, regulatory, licensing and enforcement mechanisms. We told Hong Kong that renewed vigilance is necessary.
Now I would like to turn to China. With China, our efforts are concentrated on two fronts: implementing an End-Use Visit Arrangement and engaging China on wide-ranging discussions through a series of seminars and "hands on" training.
We reached an end-use visit arrangement with China in June 1998 in connection with the Presidential Summit. It allows the U.S. Government to conduct on-site visits in China to confirm that U.S. products and technology are being used in conformity with the license. Since June 1998, 5 end-use visits have been completed, including 3 on high performance computers.
The arrangement is working, but it is new and fragile. I am worried that the volume of requests that we are required to make under the NDAA will undermine the arrangement. In the NDAA report to Congress, there were 191 HPCs exported to China. The NDAA requires that we conduct post shipment verifications of all HPC exports to China. Given the normal increase in technology, the number of checks we will be required to conduct in 1999 will be huge. Neither we nor MOFTEC has the resources for such a big undertaking. More importantly, it is a poor use of law enforcement resources to be visiting low-risk enterprises such as banks, phone companies and utilities. We have made Congress well aware of this problem and will do our best to obtain a solution in 1999.
That concludes my remarks for this morning. I would be happy at this time to answer any questions you may have. Again, it has been a real pleasure speaking with you on these issues.
Thank you.
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.