Illegal Technology Transfer

The U.S. Government -- often in collaboration with its allies -- controls the export of certain technologies and commodities to countries that for various reasons are judged to be inappropriate recipients. The violation of these export controls is commonly referred to as illegal technology transfer and is a serious security concern.

The Arms Export Control Act regulates the export of defense articles and services. Such exports may be licensed only if their export will strengthen U.S. national security, promote foreign policy goals, or foster world peace. The Arms Export Control Act is administered by the Department of State, Center for Defense Trade Controls, through the International Traffic in Arms Regulations (ITAR) and the U.S. Munitions List. The Munitions List is a list of defense articles that require a license prior to export.

The Export Administration Act regulates the export of dual-use items, that is, items that have both military and civilian uses. Dual-use items that would make a significant contribution to the military potential of another country are on the Department of Commerce's Commodity Control List, and a license is required for their export. The Commodity Control List includes items from the Defense Department's Militarily Critical Technologies List and technology that could support the proliferation of chemical, biological, or nuclear weapons or missile technology.

A number of countries conduct major programs to avoid U.S. export controls. The potential magnitude of such programs is illustrated by the program conducted by the former Soviet Union. After the demise of the Soviet Union, the Russian government made public annual reports from the Chief of the KGB (Soviet Intelligence) to the Secretary General of the Communist Party, Michael Gorbachev, for the years 1985, 1986, 1988 and 1989. These reports state that the KGB acquired 12,000 to 13,000 samples of equipment or products each year from the West. Principal customers for these samples were the Ministry of Defense, Military-Industrial Commission, and the State Committee for Science and Technology. Not all these samples were obtained from the U.S., and not all of them were obtained illegally, but a majority probably were.1

In many cases of illegal technology transfer, the intended end-user is a country whose policies are unfriendly to the United States, but this is not always the case. Some friendly countries obtain U.S. technology illegally to seek economic advantage. One study of illegal technology transfer operations during the 12-year period from 1981 to 1993 identified 56 different end-user countries.2 The same study found as follows:

The types of goods being exported illegally were: 38% dual-use equipment (e.g., high performance computers, laser mirrors, oscilloscopes); 31% weapons components (e.g., radar tubes, aircraft parts); 15% entire weapons (e.g., TOW missiles, fighter aircraft); 13% nonlethal military equipment (e.g., night-vision goggles); and 3% commercial commodities (e.g., commercial jet engines).

Various schemes were used to get around the requirement for an export license. In over half the cases, the goods were simply purchased and shipped by another U.S. company (often a front company) without a license in hopes they would get past Customs without incident. Fraudulent end-user certificates were used in many cases. In other cases, military items were declared as civilian, high tech items were declared as low tech, shipping documents were falsified, export licenses were forged, or a partial license was used rather than a full license.

By far the most common means of shipping the goods out of the United States was to export them first to a friendly country, then transship them to a proscribed end-user. Half the transshipments during the time period covered by this study were via Europe, most commonly via Germany, Switzerland or the United Kingdom. The next most common procedure was for goods to be ordered by a U.S. individual or company which then mislabeled them and repackaged and reshipped them illegally to the end-user. Less frequently, goods were concealed in personal luggage, delivered directly to a foreign diplomatic mission in the U.S., or smuggled in a chartered transport.

The initial buyer in illegal technology transfer operations is often a front company in the U.S. set up to acquire technology legally and then export it illegally to an unauthorized recipient.

Security Countermeasures

The best security countermeasure is for a business to know its customers. When a "new company" enters the picture requesting sensitive or classified information or technology, prudent risk management would suggest doing some checking of the company's history.

To help U.S. businesses recognize indicators of possible intent to circumvent export regulations, the Department of Commerce's Bureau of Export Administration developed the following check list: 3

The customer or its address is similar to one of the parties found on the Commerce Department's list of denied persons.
The customer or purchasing agent is reluctant to offer information about the end-use of the item.
The product's capabilities do not fit the buyer's line of business, such as an order for sophisticated computers for a small bakery.
The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.
The customer is willing to pay cash for a very expensive item when the terms of the sale would normally call for financing.
The customer has little or no business background.
The customer is unfamiliar with the product's performance characteristics but still wants the product.
Routine installation, training, or maintenance services are declined by the customer.
Delivery dates are vague, or deliveries are planned for out of the way destinations.
A freight forwarding firm is listed as the product's final destination.
The shipping route is abnormal for the product and destination.
Packaging is inconsistent with the stated method of shipment or destination.
When questioned, the buyer is evasive and especially unclear about whether the product being sought is for domestic use, for export, or for reexport.

The Bureau of Export Administration hotline for reporting suspected export violations is 1-800-424-2980.

Information on export controls is available on the Internet in an up-to-date database at www.gpo.gov/bxa. This website contains the entire Export Administration Regulations (EAR), including the Commerce Control List, the Commerce Country Chart, and the Denied Persons List.

References
1. Raymond L.Garthoff, The KGB Reports to Gorbachev, Intelligence and National Security, Vol. 11, No. 2, April 1996.
2. Extract from controlled report, approved for public release.
3. Bureau of Export Administration web site, www.bxa.doc.gov/redflags.htm.

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