Open Arms

While Congress debates the new agreement with Iran to halt its nuclear advances, a series of regulatory changes that took effect last month pose an immediate risk to U.S. and global security — one that policy-makers have done nothing about. In little-noticed changes to U.S. export laws, the Obama administration has made it easier for defense firms to sell weapons abroad. And, although American companies are forbidden from selling arms to Iran, the less strict oversight of arms sales will make it easier for Iranian-backed middlemen and shell companies to acquire weapons from third parties — a tactic that Iran has often used to illicitly obtain U.S. weapons.

Following the questionable sale of some American weapons to Middle Eastern countries in the 1970s — including hundreds of military aircraft to the Shah of Iran — Congress adopted a robust system of export controls. These controls aimed to promote global security and protect U.S. national security by providing stricter oversight of U.S. foreign military assistance and U.S. commercial arms sales. Congress also established strict controls on the supply of spare parts for American-made weapons, parts required on a regular basis to keep sophisticated equipment operating.

After the Iranian Revolution in 1979, Washington embargoed the sale of any U.S. weapons to Iran. Cut off from supplies needed to keep their American fighter jets, such as the F-5 Tiger II, and heavy-lift military transport helicopters, such as the CH-53 Sea Stallion, in the air, Iran began to aggressively seek U.S. military aircraft parts and components — efforts that continue to this day. According to a report from the U.S. Government Accountability Office (GAO), Iran acquired or attempted to acquire U.S. military parts in 30 known cases between 2007 and 2009 alone.

In all of these 30 cases, Iran used middlemen or shell companies as part of its illicit scheme. The majority of these middlemen operated out of Malaysia, Singapore, and the United Arab Emirates. However, Iran also used intermediaries based out of Western countries such as Austria, Canada, France, and the Netherlands. And it didn’t only buy aircraft parts — it also bought U.S.-made night-vision equipment, firearms, missile components, and other items.

The Obama administration has just made this process easier for Tehran.

In order to sell weapons and many other military-related items abroad, U.S. defense companies are required to obtain a license from the federal government — licenses traditionally meted out by the State Department. But four years ago, in response to the economic downturn, the Obama administration launched the President’s Export Control Reform Initiative to increase weapons sales and help the defense industry. As a result, beginning on Oct.15 of this year, control over the sale of thousands of military aircraft items was transferred from the State Department to the Commerce Department, whose export-approval process is significantly less strict. In fact, the Commerce Department allows companies to export many military items without a license, and the White House has said more than 50 percent of items that fall into the "military vehicles" category now overseen by the Commerce Department will likely no longer require an export license.

The administration calls these "common sense" changes. But as one Justice Department letter sent to Congress during the Clinton administration — which raised serious concerns about the unlicensed sale of weapons to England and Australia, two close allies — stated that the export license is a critical tool in preventing the illicit diversion of U.S. military technology, including "terrorist groups and other potential adversaries." And the former lead Justice Department prosecutor of arms-export violations from 2007 to June 2013, Steven Pelak, has also said that, in the Obama administration’s new initiative, the arguments of law-enforcement officials "didn’t win the day." The licensing process allows the U.S. government to check several risk factors that help identify illegal and unauthorized arms transfers, such as high-risk foreign parties, unusual transportation routes, and military items that don’t match buyer inventories. Easing or eliminating that process removes that ability to flag risky sales.

The problems with issuing license exceptions for military items are well documented. A 2002 GAO study on the risks of allowing companies to export most military items under State Department control to Canada using a license exception found that several entities, including some associated with Iran and China, exploited the Canadian license exception to obtain U.S. weapons. In one instance, GAO highlighted that "an Iranian intelligence group established a company in Canada and attempted to acquire U.S. Munitions List controlled klystron tubes, which are specifically used for Hawk missile systems."  The United States eventually had to dismiss the case because it was unable to extradite the alleged perpetrator.  In another case, 58 U.S.-made M-113 armored vehicles originally sold to the Canadian armed forces were illegally exported to Iran via Europe. In addition, the U.S. government found that companies exported arms prohibited for use with the license exception and used intermediaries the State Department had identified as high risk while using the Canadian license exception.

The license exceptions and license-free scenarios available from the Commerce Department are much broader and have fewer protections than those available from the State Department. For instance, companies will be able to export most military items controlled by the Commerce Department to 36 countries (mostly NATO members) using the newly created Strategic Trade Authorization license exception, which includes several allied countries in which Iranian shell companies have operated. It also includes Turkey, which is currently in discussion to purchase weapons from a Chinese company that the U.S. government has sanctioned for violations related to Iran and North Korea. The administration’s new rules also allow scores of relatively mundane but specialized military aircraft parts and components to be exported to over 185 countries license-free, making it easier for middlemen in Malaysia, Singapore, and the United Arab Emirates to acquire them.

On top of that, the Commerce Department does not require companies to register with the U.S. government before exporting weapons, and it allows the exporter to provide much less information on the parties involved in an arms deal (including middlemen) compared to what’s stipulated by the State Department. The State Department’s registration requirement provides an incentive for companies to avoid working with u
nscrupulous shippers, freight forwarders, brokers, or shell companies because they could risk the company’s eligibility to export.

Based on my review of U.S. prosecutions on arms-export violations from 2008 to 2012 and related court documents, Iran has smuggled or attempted to smuggle many U.S. military aircraft parts that are now eligible for the new license exemptions or license-free scenarios, including the following:

• Rotor blades for military helicopters;
• Canopy panels for the F-5 Tiger II fighter jet;
• Modular hydraulic units for the AH-1 Cobra attack helicopter;
• Dial assemblies for the UH-1 "Huey" utility helicopter; and,
• Diaphragm seals for the CH-53 Sea Stallion heavy-lift military helicopter.

U.S. law-enforcement officials have also said that license exemptions make it harder to investigate and prosecute individuals and companies that violate the law. Without the detailed information that the U.S. government gains from an export license request, it can be difficult to determine who and where to investigate when there is a suspected violation. License exemptions also require more foreign law-enforcement cooperation to obtain necessary evidence and extradition, which has proven even more difficult for items controlled by the Commerce Department.

For many of the above reasons, Congress has opposed previous efforts to create broad license exceptions and license-free scenarios for many U.S. military items. In 2004, for instance, it imposed specific requirements before the executive branch could issue such exceptions. But the current Congress has allowed the administration to work around these requirements and has conducted very little oversight into this massive, but largely unpublicized, initiative. The Senate has yet to hold a single hearing on the issue.

As Congress continues to press the administration to take a harder line against Iran to slow or stop its nuclear program, it also should make a concerted effort to at least understand the likely negative consequences of the Obama administration’s export reform, and at best to stop the problematic aspects. With the Senate debating the National Defense Authorization Act, it has an opportunity to better align U.S. efforts to curb Iran’s military capabilities with export reform. Unless some of these regulatory changes are halted or additional safeguards are added, the United States will soon face more cases of illicit U.S. arms transfers to Iran — and it will have less ability to do anything about them.