Survey
on U.S. Industry Compliance and Export Controls: Executive Summary
Purpose
Export
controls remain an important component of US policy to stem the
proliferation of nuclear, chemical, biological and other weapons.
Corporate export control policies play a key role in the US export
control policy process. As part of a larger program on improving
nonproliferation export control policy by the Center for International
Trade and Security of the University of Georgia (CITS/UGA), the
survey explores the current export control compliance practices
of 120 leading US exporters of strategic munitions and dual-use
items.
Findings
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Violations of export control regulations among US companies
are not rare. 30% of the survey respondents believed that violations
of export controls occur "very often" or "often"
in their industry. Nearly 54% of the companies had self-reported
violations and nearly 27% had received a warning letter from
the US government about violations. More than 81% of the respondents
contend that lack of knowledge about export controls was a "most
important" or "important" cause of violations.
-
Many US companies have adopted comprehensive export control
compliance programs in recent years. In this survey, 78% of
the companies now have such programs and another 13% have plans
to adopt one. Of the 93 companies with comprehensive compliance
programs, more than 47% were created in the last five years.
Nonetheless, a substantial proportion of leading US exporters
of high-tech items currently have no comprehensive export control
compliance program. Overall, industry scored a "C"
(76 out of a 100 possible) on an index of "best practices"
for export control compliance.
-
Comprehensive
company export control systems are expensive. On average, larger
exporters in this survey expended $637,333 per year on export
control compliance, while medium size firms spend an average
of $53,500 annually, figures comparable to expenditures made
during 1985. Smaller exporters, however, averaged $71,000 per
year, an increase of 340% from 1985.
-
Compliance
programs work, although many respondents had some doubts. About
58% of the respondents believed that export controls were an
"effective" or "very effective" means of
stemming proliferation and about 63% asserted that their control
program had helped their company avoid suspicious transactions.
More than 50% indicated that compliance programs had a "positive"
or "very positive" impact on their company.
Survey on US Industry Compliance and Export Controls: Findings
Introduction
Export
controls, however maligned, remain an important tool in efforts
to stem the proliferation of weapons of mass destruction (i.e.,
biological, chemical, and nuclear weapons), their means of delivery,
and advanced conventional weapons.[1] A modern system
of national export controls requires companies to implement effective
compliance practices.[2] In the 1990s, several controversial
cases, such as those involving Hughes Electronics Corporation or
McDonnell Douglas, have focused attention on the gap that may exist
between the best compliance practices and industry compliance efforts.[3]
Unfortunately, very little systematic data on corporate export control
compliance practices exists. More than fifteen years have passed
since the last comprehensive survey of US corporate compliance practices
regarding export controls.[4] In the meantime, the end
of the Cold War, the emergence of nonproliferation as the primary
export control policy rationale, and the movement toward increased
corporate responsibility in implementing export control policies
have radically altered the compliance environment.
To
address this knowledge gap, the Center for International Trade and
Security of the University of Georgia (CITS/UGA) constructed a survey
instrument to measure the export control compliance of US industry
on defense and dual-use items (i.e., goods, services, and technologies
with primarily commercial but also military applications). This
report summarizes some of the key findings from responses by US-based
export control officials in 120 companies during the year 2000.
These companies come from a set of companies most involved in trade
in controlled items, consequently the results likely reflect the
highest levels of US corporate compliance activities for export
controls (for additional information on the survey see the Methodology
and Respondent Demographics section at the end of the report).
Compliance
Efforts
Most
respondents, 78%, indicated that their company had a comprehensive
compliance program, while another 13% indicated that their company
planned to adopt such a program (see Table 1). Although this suggests
that most of these companies take export control compliance seriously,
nearly 8% of the respondents specifically indicated that their companies
did not even plan to have a comprehensive compliance program. As
important, 44 of the 93 companies with programs (around 47%) have
created them in the last five years. This suggests that the increased
complexity of export control policy has pushed companies to create
more comprehensive compliance programs in the late 1990s.
On
average, these compliance activities cost large companies $637,333,
slightly more than what it cost similar companies in 1985 (even
less if controlled for inflation).[5] For medium enterprises,
the average of $53,500 was less than average spending in 1985, but
for small businesses the $71,000 average cost marks a nearly 340%
percent increase over 1985 spending levels, not controlling for
inflation. For the majority of firms, these costs remained the same
during the past five years. While about 51% of the companies employed
between one and five people full-time, more than 26% percent had
no personnel working full-time on export control compliance (although
nearly 97% of the respondents indicated that their company had at
least one person working either full- or part-time on export control
compliance). 80% of the respondents cited avoidance of fines and
government penalties as a "very important" reason for
company compliance, more important than either corporate responsibility
or preserving the corporate image which were also ranked "very
important" reasons.
Using
a composite compliance program score, overall corporate compliance
efforts vary considerably.[6] Out of a possible program
score of 100, the highest was 94 and the average was 76.6, or a
"C" grade (see Table 3). The composite compliance scores
appear to vary positively with company size and the ratio of export
sales to total business activity (see Tables 3 & 4). Only about
29% of these compliance programs have undergone an audit from the
Department of Commerce, which has a voluntary program for exporters
to evaluate their programs. Even fewer, about 4%, have had an audit
by the State Department, which has no parallel program. At the same
time, more than 27% have had a warning letter on export controls
from the US government and more than half (54%) have self-reported
violations.
Given
that these companies represent those firms most aware of their export
control responsibilities, these numbers raise disturbing questions
about the general level of US corporate compliance. Certainly, the
perception of noncompliance exists, as 30% of the respondents asserted
that violations occur "often" or "very often"
within their industry, with 75% saying that violations took place
on more than rare occasions (see Table 5). About 81% of the respondents
believe that a general lack of knowledge about controls is a "most
important" or "important" cause of industry violations,
more significant than any other.
Most
important, 50% of the respondents asserted that export control compliance
had a "positive" or "very positive" impact on
their company during the last five years, while only 18% attested
to a "negative" or "very negative" impact (see
Table 6). Overall, 58% thought that export controls were an "effective"
or "very effective" means of stemming proliferation, with
only 12% viewing controls as "rarely effective" or "ineffective."
About 62% of the respondents stated that the compliance program
had helped the company avoid suspicious transactions. Significantly,
about 57% of the companies encountered at least one suspicious transaction
per year, with the companies with the highest composite compliance
scores naming more suspicious transactions on average. This suggests
that many suspect transactions may go unidentified in companies
without strong compliance programs.
License
Processing
Much
of the criticism of US export controls over several decades has
focused on the problems associated with license processing.[7]
Consequently, the licensing of dual-use items has undergone considerable
reform in the 1990s, particularly as mandated under the Trade Promotion
Coordinating Committee. Nonetheless, processing times have risen
in recent years. The reduction in the number of dual-use license
applications from the Cold War era has stripped the system of the
easiest licenses to process and the 1996 change in procedures has
made more licenses subject to interagency review. At the same time,
the licensing of munitions items has not undergone a parallel period
of reform. The State Department is facing increasing criticism as
the number of munitions license applications escalates dramatically
and licensing difficulties are becoming more common. The survey
indicates that there are significant problems in providing timely
licensing-related responses, especially by the Office of Defense
Trade Controls for munitions items (see Table 7).
Methodology
and Respondent Demographics
The
survey contains 61 questions addressing corporate demographics,
corporate export control compliance, the impact of export controls
on the company, industry views of control policy, and corporate
efforts to influence US export control policies. The original mailing
list was derived from the directory of the attendees to 1998 and
1999 BXA annual "Update" conferences on export controls
and the membership list of the Society of International Affairs
(SIA), a government sponsored association of defense exporters.
We excluded law firms and other exporter service companies and mailed
the survey in late February of 2000 to 481 companies from the first
list and 95 from the second. We sent the first round of post card
reminders in March. We called over 450 non-respondents to remind
them again from May to June. While engaged in this process, we identified
154 invalid cases due to inappropriate business (e.g. consulting
firms rather than manufacturers), company closures, personnel changes,
disconnected and not-in-service phone numbers, etc. As a result,
the original survey population was reduced to 422. 167 of those
we called said that they were willing to fill out a second copy
of the survey. Another 21 were returned as undeliverable, reducing
the survey population to 401. By September, we received a total
of 120 completed surveys for a response rate of nearly 30%, a much
higher than average for mail surveys to industry.
The
sample of 120 companies is not representative of the universe of
more than 200,000 US exporters. The selection of the survey targets
is biased toward larger companies that participate in several US
government export control outreach programs. Since a very small
proportion of US exporters account for the vast majority of US exports,
we sample a larger proportion of these companies. The companies
in this sample are likely to have the highest standards of export
control compliance of US exporters, a useful sample bias.
Acknowledgments
The
author thanks the Japan Foundation Center for Global Partnership,
the Japan United States Friendship Commission, and the University
of Georgia for their support for this research. Several graduate
students at the University of Georgia, particularly Jing Xu and
Chen Yi, made considerable contributions to the survey design, data
collection, and analysis phases of this project. Thanks also goes
to Gary K. Bertsch, Michael Beck and the rest of the staff of CITS/UGA.
The author also benefited from participating in several outreach
events of the US Department of Commerce, the US Department of State,
the Japanese Ministry of International Trade and Industry, and lots
of advice from representatives from several US and Japanese companies. |
