Revising U.S. Export Controls: ISIS Network Poses Challenges

As the year 2015 draws to a close, fifteen of the twenty-one categories on the U.S. Munitions List (USML) have been revised as part of the U.S Government’s Export Control Reform Initiative (ECR). For three others— Categories XII (Fire Control/Sensors/Night Vision), XIV (Toxicological Agents), and XVIII (Directed Energy Weapons)—public comments have been received on new Proposed Rules, but have not yet been acted on. The revisions for the remaining three categories—I (Firearms), II (Artillery), and III (Ammunition)—have not yet been published in proposed form. As was the case with previous changes, the new rules are expected to create positive lists for each category and transfer the export jurisdiction for some types of ammunition, ordnance, and other items from State to Commerce. As the State/DDTC web site explains, the ECR initiative “is designed to better protect America’s most sensitive defense technologies, while reducing unnecessary restrictions on exports of less sensitive items.”

Precisely when these last three categories will be revised, and what the changes will be, is not clear. Work on them continues, but the wait shouldn’t be too long, because State has indicated that its goal is to finalize this initial review and revision of the entire USML in 2016.

What are the actual effects of the revisions so far? That’s a natural question at this point, but measuring and assessing the contribution of ECR is complex and challenging.

The Commerce Department has just made that task a little easier, however. On November 2, the Department’s Office of Technology Evaluation (OTE) launched a new BIS Data Portal, which makes available to the public, for the first time, regularly updated aggregate information on the numbers and kinds of export licenses issued and current U.S. export trends. The new web portal offers a valuable analysis of controlled trade with select countries, charting the ongoing impact of ECR, and exporter compliance, with tables, graphs, and Defense Industrial Base studies that users can download in either PDF or Excel format. Among the encouraging data items posted by BIS are numbers showing a steady decrease in the average processing time for a license, despite a dramatic increase in the number of applications processed.

As for the effects of ECR to date, according to the OTE’s early analyses, the regulatory changes that have been made since the initial implementation went into effect in October 2013 are already speeding up the export process significantly and helping U.S. defense companies export more goods, during a period when the U.S. defense budget is being cut and military spending is declining, while military spending in other parts of the world—especially Asia, the Middle East, Eastern Europe, and Africa—on the rise.

At this stage, it is probably fair to say that the shifting of many controlled items from the USML to the less restrictive Commerce Control List (CCL) has made exporting considerably easier for many small and medium-sized U.S. companies. For large firms in the U.S. defense sector, however, the very welcome expansion of export opportunities has been accompanied by an unwelcome sharp increase in compliance expenditures (in the short term, at least) as they grapple with the complexities and uncertainties of adjusting to the ECR changes, reclassifying products and product lines, reevaluating risk profiles and projected compliance costs vs. anticipated sales revenue, and making sure that the continuing stream of new compliance and cybersecurity requirements “flows down” to their subcontractors.

Transitioning has proved to be somewhat more difficult than anticipated. In recognition of this, on October 3, 2015, the DDTC posted an Industry Notice with updated guidance extending the two-year time periods originally permitted to defense exporters for transitioning to BIS export authorizations.

The extent to which some of the other hoped-for benefits of ECR—such forestalling the offshore outsourcing of high-tech production capabilities and generating jobs for U.S. workers— have been realized is harder to assess at this point.

Meanwhile, on the world scene, an in-depth investigative news story entitled “ISIS: The Munitions Trail” by Erika Solomon and Ahmed Mhidi, published in the Financial Times on November 30, sheds considerable light on how and where the militant movement calling itself the Islamic State, or ISIS, gets its guns, artillery, and ammunition—the three categories of military equipment on the USML that are still awaiting revision. It also raises hair raising questions about the effectiveness of the U.S. export control system, and highlights the enormous and growing challenges it now faces after two years of changes under ECR.

According to the FT investigation, the terrorist group is awash in funds from the sale of oil on the black market and several other sources, and is abundantly furnished with captured light and heavy arms (including a great deal of U.S.-made military equipment). Its most urgent, ongoing need is for vast quantities of ammunition:

ISIS seized weapons worth hundreds of millions dollars when it captured Iraq’s second city, Mosul, in the summer of 2014. Since then, in every battle that it has won, it has acquired more material. Its arsenal includes US-made Abrams tanks, M16 rifles, MK-19 40mm grenade launchers (seized from the Iraqi army) and Russian M-46 130mm field guns (taken from Syrian forces).

“But dealers say despite this, there is one thing ISIS still needs: ammunition. Most in demand are rounds for Kalashnikov assault rifles, medium-calibre machine guns and 14.5mm and 12.5mm anti-aircraft guns. ISIS also buys rocket-propelled grenades and sniper bullets, but in smaller quantities.”

The details of the organization’s operations, as reported in the article, make it evident that any nation or coalition seeking to halt the flow of needed military supplies to ISIS— which (in addition to ammunition) include agricultural chemicals and mining materials that are used to manufacture explosives for the bombs that have made ISIS infamous, and common electronic devices that are made into bomb triggers—faces a nearly impossible task. With a complex, state-like infrastructure, a multinational network of black-market traders, and a sophisticated logistics operation capable of moving large supplies of munitions to its fighting men in many fields with remarkable speed, it would appear that the “world’s richest Jihadi group” is having no difficulty procuring whatever military supplies it requires.

“They buy like mad. They buy every day: morning, afternoon and night,” says Abu Ali, who, like others who have operated inside Isis territories, asked not to be identified by his real name. . . .

These materials come from all over the world, says one Iraqi official: “Just put your finger on a map, and they’ve got something from there.”

Historically, one major stated goal of U.S. defense export controls has always been to make it as difficult as possible for unscrupulous arms dealers, terrorist organizations, and proliferators of weapons of mass destruction to obtain goods that are militarily useful.

A closely related goal has been to deter human rights abuses and prevent the stoking of violent civil disorder in certain countries, or the inflaming of regional instability. For this reason, the State Department has long sought to block the sales of small arms (such as semiautomatic rifles), light weapons (such as artillery rockets), arms parts, artillery shells, and ammunition (i.e., the “less sensitive” defense items controlled by USML Categories I, II, and III), as well as communications and surveillance equipment, and certain other goods, to governments and other entities with a consistent record of committing atrocities.

Still another goal of defense export controls has been to combat illicit arms trafficking and prevent retransfers to transnational criminal organizations via black-market middlemen. Tracking U.S. small arms and other military equipment after export has often led to the apprehension and prosecution of criminals involved in the illicit trafficking of drugs, money, art, and human beings.

Other nations and international organizations are actively involved, along with the U. S., in these arms control, nonproliferation, and international crimefighting efforts.

If the description of the “munitions trail” to ISIS in the November 30 Financial Times report is accurate, however, it plainly casts doubt on the effectiveness of past and present U.S. export controls. It is hard to avoid the conclusion that, whatever measures were taken by the U.S. and other nations to stem the flow of weapons, munitions, and other military equipment to the Islamic State and similar terrorist groups, they have largely been ineffective.

Somehow, an elaborate system of export licensing, re-export and retransfer authorizations, end-user assurances, end-use monitoring, marking, and tracking, not to mention a U.N. arms embargo on ISIS, has failed to prevent the group from acquiring a massive arsenal of weapons and equipment—weapons it has used, and continues to use, to carry out indiscriminate attacks on civilian populations and commit multiple atrocities, posing a dire threat to millions of people in the Middle East region and beyond.

The DDTC has repeated stated that the initial review and revision of the twenty-one USML categories, now in its last phase, is not intended to be the end of reforms to the U.S. export control regime. State readily acknowledges that there is still work to do on ECR; ongoing review and further input from industry and the public is expected and encouraged.

The growing terror threat posed by the Islamic State group strongly underlines the need for a great deal of further thought and discussion of U.S. export controls on arms and munitions with a view to enhancing end-user/end-use controls, ensuring effective monitoring, verification, and enforcement, and minimizing diversion and re-export risks—especially for small arms, light weapons, and ammunition.

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)