U.S. POLICIES ON ENFORCEMENT OF CONTROLS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100160009-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 21
• Document Creation Date: December 12, 2016
• Document Release Date: August 20, 2002
• Sequence Number: 9
• Publication Date: June 7, 1955
• Content Type: STUDY

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CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Staff Study No. 16
Draft of June 7, 1955
U.S. Policies on Enforcement of Controls
This draft of Staff Study No. 16, on "U.S. Policies on
Enforcement of Controls", is transmitted for your use in connection
with the work of the CFEP Drafting Group on Economic Defense Policy
Review.
In compliance with the request of the Chairman of the
Drafting Group, the Executive Secretary, EDAC, is providing repro-
duction and distribution facilities as a service to further the work
of the CFEP Drafting Group. .
Irving I. Kramer
Executive Secretary
Distribution:
CFEP Drafting Group
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State Dept. review completed. On file Commerce Dept. release instructions apply.
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Staff Study 1E
(MDAC Draft of June 79 1955)
CFEP Drafting Group (in consultation with State and
Commerce)
Economic Defense Policy Review
U0S, Policies on Enforcement of Controls
I, COCOM Enforcement
A, Present Control Arrangements and Understandings
1. Primary controls over the export of strategic goods
It has always been understood in COCOM that the main responsibility
for applying and enforcing strategic controls rests with the country from which
the shipment originates. In the first two years of COCOM,, relatively small
attention was given to the manner in which the participating governments
implemented the International Lists. Member governments were assumed to have
the means of applying and enforcing export controls.
As various ancillary controls and greater emphasis on enforcement
have developed., this has been modified to the extent that the cooperation of
other countries involved in the transaction as importer,, shipper., forwarder,,
etc, may be enlisted (in accordance with IC/DV,, voyage licensing., TAC controls),
However,, it remains a basic principle that, the exporting country must exercise
its export controls (normally based on a requirement for individual export
license) with due care as to the reliability of the exporter and the final
destinee$ including end-use checks when necessary. End-use checks are
particularly important where the destinee is located in a non-PC with sensitive
transshipment areas.
2. Ancillary Controls
a, The1C DV (import certificate =delivery veri icaton) stem
was the first of the ancillary controls adopted early in 1951 with the
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objective of deterring diversions otherwise enabled by transshipment facilities
and assisting export control authorities in determining the legitimacy of an
export application. IC/DV has become an important adjunct of primary export
licensing procedures exercised by QWCOM PC3s and to a limited extent by several
non-COCOM countries.
Operating problems and proposals for improving the effectiveness
of the system have been discussed periodically among COCOM countries, The most
notable improvement has been the government=to-government transmittal of copies
of IC's. This together with other improvements appear to have substantially
eliminated forgery at least of IC's and other fraudulent devices used by illicit
traders,
b, The TAC (transit authorization certificate) system was put into
effect in January 1955 by the COMM countries,, and was the main new enforcement
feature of the 1954 revision of COCOM controls,, providing a basis previously
lacking for preventing transshipments of embargo items to the Soviet bloc,
The TAC scheme has not been in operation long enough to permit a real testing
and evaluation,, but it seems clear that several of the PC's have taken a
narrower view of the TAC system than had been anticipated by the US and others,,
reducing its effectiveness as a means of stopping diversions as well as
raising questions as to the proper operation. of TAC and complicating
considerably present efforts to extend the TAG system to non-COCOM countries,
(as source countries)
c. Transactions controls are in effect in the US,, UK and Canada.
Other COC0M countries have indicated that their existing financial controls
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would accomplish the intent of transactions controls in controlling offshore
transactions between their residents and Sovietbloc countries in goods of
strategic significance. The Dutch have long claimed that they made no
distinction between strategic goods exported from the Netherlands and those
commodities which were purchased abroad and sold by a Netherland's firm to
a third country. In discussions prior to the 1954 revision they refused to
adopt transshipment controls (i.e. TAC) until the UK would agree to exercise
transactions controls. The British agreed to adopt transactions controls as
a result of the 1954 list reduction.
While there are questions under study in the Executive Branch
as to the adequacy of UK transactions controls, there has not been sufficient
experience with them to identify positively any major problems. Other questions
as to interpretation of transactions control re g alati or,s have arisen in the
context of stoppages under TAC.
d, Voyage Licensing and Bunkering Controls. Viewed in the context
of the comprehensive system of special China.controls9 voyage licensing and
bunkering controls have been of considerable value in restricting the flow of
strategic goods to Conmwaist China and North Korea from countries not cooperat-
ing in the UN embargo by preventing the carriage of embargoed goods to such
destinations in flag vessels of PC's and denying bunkering to any vessels
carrying embargoed goods.
Many of the shortcomings in the voyage licensing system have
been eliminated. However, its effectiveness would be increased were it to
be applied to any shipment known to be destined to Communist China whether or
not they were actually delivered there by the vessel in question. Its
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effectiveness would also be increased were it to apply to voyages to all Far
East Communist ports (and not only Communist China and North Korea) in view
of the possibility of subsequent transshipment. The UK has considered such
extensions of the system to be unwarranted in the absence of conclusive
evidence as to these shortcomings. Thus far the U.S. has not been in a
position to bring forward such evidence as would be necessary for the
negotiation of tightened controls.
3. Multilateral Exchange of Information on Illegal East West Trade
Transactions.
In June 1954 COCOM worked out a procedure for multilateral
consideration of diversion cases (COCOM Doc 1634). This provides for
coordination by interested COCOM delegates of live cases in order to prevent
the diversion of strategic shipments and also for discussion of closed cases
to illustrate loopholes in enforcement techniques. It was the US intent that
this procedure would serve to develop greater awareness in other COCOM countries
of the need for stricter enforcement and would also stimulate direct represent-
ations by them to countries responsible or involved in diversion cases rather
than relying on US representatives as intermediaries.
To date relatively few discussions of cases have been initiated
in COCOM under these procedures. There have been various reasons? including
apathy or reluctance on the part of various PCs and some limitations on
initiation of cases by the U.S. Means to bring about increased discussion of
enforcement cases in COCOM are under consideration in the EDAC agenciesq in-
cluding a proposal for meetings of technical investigative and enforcement
officials of the PCus under COCOM auspices.
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14. Extension of COCOM Agreements and Understandings to Non-COCOM
Countries.
In the enforcement field this is likely to remain a significant
and time consuming exercise. Those third countries which have an export trade
in strategic items have for the most part indicated their intention to
cooperate with the purpose of the International Lists or Battle Act List in
not allowing direct exports of embargo items to the bloc. However, it is in
connection with better application of source controls and adoption of TAC and
IC/DV, so as to prevent indirect shipments to the bloc, that greater success
is needed.
The cooperation of a number of non-COCOM countries appears to be
especially important to the success of the TAC scheme. The US1 with help
from the UK and France, have conducted most of the third country approaches on
behalf of COCOM. A few nonnCOCOM countries have already agreed to cooperate
in TAC.
IC/DV procedures have already been adopted in whole or in part by
Austria, Switzerland (blue certificate), Yugoslavia, Peru, Mexico (Cabre de
c>
Mexico), Chile (some copper exports).
The problem countries comprise those which are significant as
transit points in Europe and the Mediterranean area and a few which have a
significant export trade in strategic items, such as Chile and Mexico. Certain
of these have posed delicate negotiating problems, however, made more complex
by the fact that the Netherlands and possibly other COCOM transit countries
appear to expect fairly complete export control systems on the part of the
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third countries and public identification with the TAC scheme before they can
be recognized as participants in TACO
II. U.S. Enforcement Measures Taken on a Bilateral and/or Unilateral Basis
A. US Measures
1. Battle Act Termination of Aid Provisions (Title I and Title II)
On seven occasions, the President has announced his decision to
continue aid to specific countries when there had been shipments of items
specified under Category B Title I of the Battle Act, on the basis that it
would be contrary to US security interests to terminate aid. These shipments
I .,
have amounted to There has been no instance of termination of
aid under the Battle Act. Most of the COCOM countries have been the subject
of Battle Act exceptions, as well as Austria, Israel, and Iran. Most of the
cases arose from prior commitments, and were discussed in COODM prior to
inclusion in trade agreements.
COCOM procedures for prior consultation and exceptions have served
to deter the inclusion of embargo items in new trade commitments, and in
bilateral discussions pursuant to Battle Act termination of aid provisions
have also worked toward this end. In addition, there have been reports from
certain non-COCOM countries that improvements were instituted in the application
of local controls following discussions with local officials of cases whichg
had they not arisen from administrative error, would have been the subject of
Battle Act determinations.
2. Administrative Action Pro gram
This program (which is one of withholding certain US privileges
from foreign firms which are reported to have participated in diversions) in
the past year has had some revisions designed to encourage the other partici-
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pating countries to assume their responsibilities in enforcing strategic
trade controls. Solo efforts by the US to police international controls may
have tended to expend goodwill unnecessarily and to "wear out our welcome".
These recisions have also been intended to make the pro gram more adaptable
to the circumstances which generally prevail in individual cases and more
acceptable to foreign governments.
3. Compliance Proc
While criminal penalties are provided in the Export Control Act
of 19149., it is seldom that evidence can be obtained in a form that is required
under US criminal law for the conviction of either a US or foreign national.
Thus, increasing emphasis has been placed on the employment of administrative
sanctions against both US and foreign violators, using the compliance proceeding.
Unlike the black list techniques of World War IIn compliance
proceedings have served to give foreign countries and their nationals an
assurance that the US would give them the same fair notice and hearing, the
same kind of due process., that it would extend to US nationals.
The sanction itself is imposed by a published order issued by the
Department of Commerce. Since the beginning of the cold war about 200 cases
have been instituted, of which about one=third have been against foreign
nationals. (The total of US and foreign nationals suspended is well over 500.)
The decision of whether or not to institute a case against a
foreign national involves consideration not only of the offense itself but
also such factors as the impact of the case on the country of the violator
and the deterrent effects that the case may be expected to have on other
traders and possibly even, other countries.
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4. Foreign Assets Control
5. Controls Over Foreign Sales of Surplus Strategic Equipment
Consideration of the problem of working out control measures to
prevent the diversion to the Soviet bloc of strategic items sold locally from
US overseas surplus was undertaken some time ago when it came to light that
strategic goods from surplus stocks, in particular automotive parts,, were moving
by indirect means to the Soviet bloc following normal overseas surplus disposal
sales. Recommendations for safeguards which should bring about adequate controls
were devised by representatives of USRO/ST, CINCEUR, USAFE, USAREUR,, and USFA
and are under review in Washington. A member of the USRO/ST staff returned to
Washington early in June to participate in an inter-service conference called
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by the Department of the Army on overseas surplus property disposal.
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There have been visits to the US of technical teams from all,
but three of the COCOM countries,, while teams of US experts have now visited
seven of the most prominent COCOM countries. These have served to bring about
better knowledge and mutual understanding of each other's control policies,
licensing procedures,, enforcement techniques,, and inspection methods. There
have also been occasional informal discussions of policy questions in con-
nection with these visits.
Just as greater initiative in enforcement activities by other
PC's is desired., it has long been felt that the most desirable future develop-
ment in exchanges on technical teams would be exchanges between the European
PC's themselves. The most promising field for this appears to be in imple-
menting and improving the TAC scheme.
Analysis of Problems and Deficiencies of Enforcement
The problems and deficiencies in the enforcement program may be placed
into two categories one relating to the multilateral aspects., the other to
the unilateral or bilateral phases. Strictly speaking, it is difficult to
separate the two since activities in which we engage unilaterally cannot fail
to have some effect on our multilateral relationships.
On the international side the development of the enforcement program
has been achieved only with considerable negotiating delays and difficulties.
Agreement on TAC and UK transactions controls were part of a quid 2Lo uo for
the August 1954 list reduction.
Five months of additional negotiations were
required before these controls actually were implemented.
The lack of enthusiasm for the enforcement program is based on a
number of factors. Possibly the most important of these is the current
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political climate prevailing in Europe at this time which influences the
attitudes of PC governments toward the entire control program. As the hope
for coexistence grows, it can be expected that enthusiasm for the program will
diminish.
More specifically there are the followingo
a) Reluctance of some countries to adopt enforcement measures
unless all interested countries adopt similar measures;
b) Emphasis of foreign government economic agencies on trade
promotion rather than trade control;
c) Confidential nature of controls in some countries;
d) Understaffing of enforcement agencies,- insufficient
orientation of enforcement personnel re the objectives of
the program;
e) Reluctance of foreign enforcement personnel to discuss
mutual problems with US Embassy officers;
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Additional problems arise from the non-uniformity of controls between
PC's and from inadequate legal bases for such controls. Without adequate legal
bases not only is it impossible to exercise satisfactory licensing controls,
including the use of end-use checks and other precautionary measures, but it
is also difficult to impose strong enough punitive action to deter violations
of controls. A corollary problem is the frustration of the officials
responsible for the implementation of controls caused by personnel shortages
and other factors.
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Perhaps the most active and troublesome problem in the enforcement
area is that caused by the differential level of controls over trade with the
Soviet bloc in Europe and Communist China. At the time of the 19511. List
reduction the PC's agreed that the List changes would not be applicable to
trade with China., that exports to the Soviet bloc (Europe) should not
frustrate those covering trade with China., and exports to the Soviet bloc in
Europe should not be approved if it was likely that they would be diverted to
China.. There has been little evidence of denial of exports under these cir-
cumstances. In fact, the quantity and value of known diversions to China
via the European Soviet bloc Europe and Western countries have been
significant. Diversions on non-I/L I goods to China have been facilitated
by the removal from licensing, except to China., of most I/L III and China
Special List items and by the applicability of IC/DV to only Munitions., AE,
I/L I, and II items and of TAC to only Munitions, AE, and I/L I items.
Of the problems referred to above only the last (relating toy the
differential level of controls) is a serious one. however, with the general
resistance by the PC's to any extension of controls, albeit small, plus the
desire on the part of most PCOs to reduce the ]e vel of China controls to the
CDCOM level, it is most doubtful if we can obtain any tightening of enforce-
ment measures applicable to China trade. Our future course of action in this
area is dependent on the outcome of the over-all review of security trade
control policy, in particular that covering trade with China.
For the other problems we can only point out to the PC's deficiencies
as they occur and press for the small modifications required to effect im-
provementse To thir, end the exchanges of teams of technical experts initiated
by the US can go far to impress upon the PC's the importance which we attach
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to effective enforcement and provide an orientation for foreign governments
of US policies., standards,, and procedures.
The US has also experienced certain problems originating in its
unilateral enforcement activities. From the beginning the US has found it-
self in the position of international policeman in the enforcement of trade
controls., particularly in cases involving non-US goods. We have
conducted our own inv estigations$ have pressed for foreign
investigations and appropriate action,, have coordinated action by several PC's,,
and have taken administrative action against foreign firms involved in illegal
trade. Our activities have been received by the PC's with mixed feelings. It
is doubtful whether our interest is ever appreciated by the PC's., but usually
it is ace pted at least passively because of the Battle Act implications. Our
ability to act in the enforcement area varies from country to country., to the
extreme that in certain countries we are restricted to contacts with the
Foreign Offices and may be politely told that investigations involving non-US
origin goods or nationals should not be of concern to us. Our taking of
administrative action is usually resented,, at best only tolerated. This
attitude on the part of foreign governments is especially pronounced when
their firms have actually not violated local laws or regulations and they
accordingly consider US interest and action as unjustified interference.
Because of this feeling the US modified its Administrative Action program
last year to-change its basis from one of prejudging liability under foreign
law and to encourage investigations of AAP cases by foreign governments,
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The extent to which U.S. goodwill is expended in pressure for en-
forcement can be evaluated partly in terms as to whether the goods in question
are U.S. or non-US origin. Also it should be emphasized that it is not a
more expenditure of goodwill that should concern us as much as the question of
whether the expenditure is made wisely or wastefully.
With respect to illicit East-West trade in non-US origin goods, the
most serious U.S.,problems come from friendly countries' embarrassment when
we expose inadequacies in particular cases or in the general aspects of their
programs. Much of this, of course, hinges on how we make our approaches. If
we give to the countries concerned the information that we obtain about
diversions so that they can take actions themselves, we will naturally cause
less embarrassment than if we publicize to others their weaknesses. Essentially
our problem for the future would seem to be to find the most diplomatic ways of
bringing pressure so as to persuade friendly governments themselves', to improve
their controls and to take action against violators.
In the case of U.S. origin goods, some countries have taken the
position that U.S. strategic materials which are processed or made components
of products of more or less different nature are "nationalized" (i.e. origin
changed) by those actions; accordingly the U.S. should have no right to object
to shipments to the bloc of the finis}ined product. This brings up, of course,
the whole problem of PD 810 policies, In addition, some countries object
to investigations conducted by U.S. Foreign Service personnel of the
activities of foreign nationals engaged in illegal diversions of U.S. goods
on the grounds that such investigative activities constitute an invasion of
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sovereignty or even commercial espionage. Certain countries have objected to
our imposition of sanctions against participants having only a marginal role
in diversions e. g., freight forwarders., carriers, banks? etc. However.,
since the beginning of security controls we have had only one cause celebrI
involving complaints by a foreign country against the U.S. for imposition
of compliance action against one of its nationals. Under these circumstances
claims of embarrassment and fruitless expenditure of goodwill may not be too
well founded.
On the question of enforcement of U.S. controls over non-IL commodities
we must bear in mind our long time premise that COCOM controls are only the
minimum which any PC is permitted to impose over its commodities. Further., it
has been agreed in COCOM that source countries have primary responsibility
for the control of their own goods. Our problems vary depending on whether
the goods are Positive List items or under only General license control. Our
determination that goods are sufficiently strategic to warrant unilateral
control regardless of COCOM agreement should be made with the realization and
desire to undertake whatever action is necessary to enforce these controls.
Goods under GRO control (i.e., non-strategic or non-short supply) do not
provide similar justification for full enforcement control and the needless
expenditure of goodwill. However., we cannot ignore them completely since
domestic considerations such as political and public relations enter into
even this field. Obviously.. from the U.S. point of views, the problems in
trying to use U.S. export control enforcement in the general license commodity
field are quite substantial; the present U.S. control system as applied to
such commodities represents a number of administrative and public relations
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compromises that have the ultimate effect of making our enforcement in this
area considerably weaker than in the area of Positive List commodities.
Possible Future Courses of Action
It would be desirable if the problems and deficiencies in the enforce-
ment field as described above could be corrected. However., without some
drastic change in the over-all control policy it is unlikely that more than
routine procedural modifications can be effected in existing controls. Such
measures as the TAC scheme., transactions controls and voyage licensing are
not completely adequate in complementing the entire range of primary controls.
We have been unsuccessful in past efforts to extend these controls to cover
a wider range of items., i,e,,, I/L II., III and the China Special List or to
a
have them apply to the China trade area. Without/further downward revision
in the lists or a basic change in the differential levels of control in trade
with China., few PC's will be willing to adopt more rigid enforcement measures.
If we were to embark on an extensive program of negotiations with other PC's
we would only antagonize them and dissipate the negotiating goodwill required
for more important problems not only in the economic defense field but also in
the broader area of East-West policy.
If we assume that the need for control of exports will continue for
the indefinite future and that during this time there is little likelihood
of obtaining any substantially tighter and broader international control., the
question arises as to what we should do about US export controls. At the
present time US export control enforcement is admittedly not the most
effective that could be devised] this condition of course has obtained
since the commencement of the cold war. The enforcement program has repre-
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sented a number of compromises which have taken into account business and
administrative limitations and the lack of appropriately trained personnel to
conduct investigative operations abroad, the spot checking on a percentage
basis of shipments by customs, etc. The licensing processes and the size and
position of the enforcement organization are illustrative of what might be
called a realistic evaluation of the relative importance of enforcement in the
over-all program. Consequently when we think of the future we should not only
think of a possible continuation of the present level and kind of enforcement
common
versus a dilution to the lowest /denominator of international controls, but
also give some thought to possibilities of unilateral tightening of US controls,
if it appears that need exists for such. We must always remember that our
control system and enforcement program with all its limitations is at a
substantially higher level than the comparable programs of cooperating countries.
Realizing then that our enforcement program could be tightened, with
justification in the List reduction and (3 agreement for improved enforcement,
let us consider some ways in which this tightening could be accomplished, For
one thing we could consider using additional especially trained personnel I
abroad to supplement the present activities of FSO?s in this field; recognizing
the inadequacies of the TAC scheme to cope with diversions, we could if such
action is warranted, as the British did in World War II9 , institute a system
whereby we would permit US strategic goods to move only to freight forwarders
who would sign written undertakings not to accept or carry out instructions
to divert to the bloc. Since the forwarders are key institutions in the
transit countries this would have a substantial preventive effect. In
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addition we could require the destination control notice on all bills of lading
and commercial invoices.
The advantages of tighter enforcement procedures would be increased
security with less risk of diversion and possibly greater Congressional
approval for the implementation of the export control program. On the other
side, however, would be the additional foreign criticism which would result,
slow up in movement of exports (with probable complaints from the US export
trade), and increased costs of operating the extra controls. These latter
arguments could be used with equal effect in support of lower standards of
enforcement. In favor of maintaining the present level of enforcement we
may state that our current policies and procedures are already known to and
accepted by foreign governments as well as Congressional, trade, and other public
groups; further they are reasonably efficient at an easily assessed cost which
is not out of line with other control operations. On balance, and in the
light of the conclusions outlined above for the international program, it
probably would be preferable to maintain the status quo in U.S. enforcement
policy (except for obvious changes which can be made to plug loopholes)
pending some major change in our over-all economic defense policy.
A second course of action is to continue our efforts to enlist non-
PC cooperation and participation in enforcement measures. The most immediate
problems in this regard are our pending negotiations with certain Latin
American, European, and Near Eastern countries for the institution of the
TAC scheme and IC/DV system. Additional study can also be given to the
inadequacies in the basic control systems of these and other non -PC's.
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Another important course of action is to encow^age cooperation and
multilateral exchanges of information in the handling of illegal East-West
trade transactions. Specifically we should press other PCes to employ the
COCOM procedures outlined in Doc. and to support the activities of
the COCOM Sub-Committee on Export Controls. An additional proposal would
be for the establishment of a COCOM Sub-Conni ttee for the interchange among
the technical investigative and enforcement experts of the PC's of useful
investigative and related information. Such a Sub-Committee would provide
a basis for understanding and cooperation among the investigative and en-
forcement staffs of the various PC's not obtainable through the existing
Sub-Committee structure, Our efforts toward these ends should be with a view
to encouraging more active participation by other PC's and toward a de-emphasis
of U.S. initiative and bilateral pressure. To the extent that other countries
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on l73-tie--J 'the-- P gram he U.S. can
I ?j
withdraw from its unpopular position abroad as policeman and agitator for
increased controls.
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