On April 24, 2007, Secretary of Commerce Carlos Gutierrez announced the Bush administration’s proposal for new legislation to govern controls on dual-use exports. The new bill, entitled “Export Enforcement Act of 2007,” has yet to be formally introduced in Congress, but the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has released a draft of the bill.
The bill has five key elements:
• a five-year renewal of the currently expired Export Administration Act (EAA) of 1979;
• steep increases in civil and criminal penalties for export control violations;
• a significant expansion of the list of criminal violations for which BIS may deny export privileges, including in relation to corporate “affiliates” who may not have violated the law;
• grants of additional authority and more secure funding for enforcement efforts; and
• clarification of provisions to protect confidential business information.
The bill also includes various technical and conforming amendments.
The bill is the latest in a series of efforts – so far all unsuccessful – by the administration and Congress to replace the expired EAA. Elements of the bill were part of an EAA reform package introduced in the last session of Congress by then House International Relations Committee Chairman Henry Hyde (R-IL). The bill is not the major overhaul of U.S. export controls that many experts have called for, however. Rather, it fits within the category of “mini-EAA” that the administration has advocated for over the last several years. It is designed to provide a sounder legal footing for existing export controls and to vastly increase criminal and civil penalties for violations of those controls.
Its emphasis on penalties and enforcement is consistent with the Bush administration’s efforts to step up enforcement of the export control laws over the last several years. According to Secretary Gutierrez, passage of this legislation will provide BIS with the authority it needs to enforce dual-use export controls and fight terrorism. However, in his announcement of the bill, Secretary Gutierrez also spoke of continued efforts toward the “long term, fundamental reform” that is necessary to meet “the national security and economic challenges of the 21st Century.”
Renewal of the EAA
The EAA lapsed in 1990. Since that time BIS has enforced export controls under authority of the International Emergency Economic Powers Act (IEEPA). Section 8 of the draft legislation released by BIS would renew the EAA of 1979 for five years from the date of the bill’s enactment. Thus, if it is enacted this year, the new EAA would remain in force until 2012. Section 7 of the bill would also authorize appropriations for BIS to carry out the EAA through 2011.
Because of concern about future lapses, Sections 4 and 5 of the bill would also ensure that protections for confidentiality of export control information, investigative authority for Office of Export Enforcement (OEE) special agents and exclusions from certain judicial review procedures in the Administrative Procedure Act would remain in force even if the EAA is not renewed again before the end of the five-year period.
Increased Civil and Criminal Penalties
Section 3 of the bill would substantially increase both the civil and criminal sanctions for violations of the EAA. Penalty amounts currently are limited by the maximums in IEEPA at $50,000 for both civil and criminal violations and imprisonment at 10 years for individuals.
If enacted, the new EAA would increase the criminal penalty twentyfold to $1,000,000 and 10 years’ imprisonment for each violation. It also would raise the maximum civil penalty for export control violations tenfold – to $500,000 per violation. In addition, corporate criminal violators could face fines of up to the larger of $5 million or 10 times the value of the exports involved. The high value of many controlled dual-use exports means that such penalties could become quite substantial. Importantly, the bill also introduces a new mandatory forfeiture provision under which anyone convicted of a violation would also forfeit the property that is the subject of the violation.
The above penalties would apply to any violations of the EAA, the Export Administration Regulations (EAR) or any license or order issued under the EAA. They thus would apply to violations of the antiboycott regulations that are part of the EAR, as well as to export control violations, including technical violations and violations of the deemed export and reexport provisions of the EAR. If enacted, the sharply increased penalties should cause most companies engaged in exporting from the United States to review the adequacy of their export control compliance programs to ensure that they are protected.
Additional Bases for Denial of Export Privileges
Whenever a person is convicted of a violation of the EAA or certain other statutes, BIS may revoke any export license held by that person, as well as deny export privileges for up to 25 years. Currently, the violations that can result in denial of export privileges include only violations of the EAA and regulations and licenses issued pursuant to that statute, IEEPA, 18 U.S.C. §§ 793, 794 and 798, Section 4(b) of the Internal Security Act of 1950 and Section 38 of the Arms Export Control Act.
Section 3 of the EAA would add to that list several additional statutes, the violation of which could result in a denial of export privileges for up to 25 years. The proposed additions include Section 16 of the Trading with the Enemy Act and any regulation, license or order issued under that section or under any of the statutory provisions already listed in the EAA as violations for which export privileges may be denied. Also listed in Section 3 of the draft legislation are 18 U.S.C. §§ 371, 1001 and 1956 if in connection with certain controlled exports; 18 U.S.C. § 175; 18 U.S.C. § 831; 18 U.S.C. §§ 2332a, 2332b, 2332d, 2332g and 2332h; 18 U.S.C. §§ 2339A, 2339B and 2339C; 18 U.S.C. § 554; and the Atomic Energy Act of 1954. Thus, for example, actions as diverse as a violation of U.S. sanctions against Cuba under the Trading With the Enemy Act or making misrepresentations to the U.S. government (under 18 U.S.C. § 1001) potentially could result in denial of export privileges.
Further, and significantly, the bill would authorize the Secretary of Commerce to deny export privileges of “affiliates” of any person convicted of a violation only upon a “showing of such relationship with the convicted person.” Thus, sister affiliates, parents and subsidiaries could be penalized for the acts of separately incorporated companies just because they are related.
Additional Authority and Funding for Agents and Investigations
Section 4 of the bill proposes to amend the enforcement provisions in the EAA to clarify that OEE special agents have the authority within the United States to investigate export violations, even if the EAA lapses again in the future. This provision was deemed appropriate because the lapse of the EAA in 1990 required deputization of special agents by the U.S. Marshals Service.
The proposed legislation would also expand investigative authority under the EAA in three ways. First, it would authorize Department of Commerce and Department of Homeland Security agents to conduct investigations outside the United States. Second, it would add both the EAA and IEEPA to the list of statutes under which wiretap authority may be executed. Third, it would ensure funding for undercover investigations.
The bill also includes provisions designed to clarify the types of information that the government must treat as confidential and to ensure confidentiality of information if the EAA lapses again in the future. This confidentiality provision requires that “information submitted or obtained in connection with an application for an export license, other export authorization (or recordkeeping or reporting requirement), enforcement activity,” or certain other export control provisions would be exempt from disclosure under the Freedom of Information Act unless the Department of Commerce determines that the release of the information is in the “national interest.” Protected information includes the export license itself, classification or commodity jurisdiction requests and information obtained in the course of an investigation.
Additionally, as drafted, this provision refers not only to information obtained under the EAA, but also to information obtained under the EAR or IEEPA. Consequently, confidentiality would be required even if the EAA were to lapse again.
Preliminary Reaction from Congress and Industry
How the Democrat-controlled Congress will react to the legislation is not yet clear. Although there is support in principle on both sides of the aisle for renewing the EAA, the track record for translating that wish into action has not been good. Moreover, the administration-proposed bill is unlikely to be a high legislative priority for the Democrat-run committees of jurisdiction. Whether it will stimulate a Democrat-proposed alternative or be folded into other legislation, such as measures calling for increased sanctions against Iran, remains an open question.
Early comments from industry sources suggest private sector opposition is likely to be strong. When BIS released the text of the bill, Reuters reported that National Foreign Trade Council President Bill Reinsch expressed concern that the tougher sanctions in the legislative proposal could create additional hurdles for businesses that sell dual-use goods. The article quoted Reinsch as saying: “I think you’ll be hard pressed to find a lot of enthusiasm for it in the business community….”