VII. Preventing Criminal Exploitation of International Trade

Rapidly expanding commerce helps the American people, but more activity can also provide greater opportunities to criminals to misuse the trade and financial systems that facilitate the flow of goods and services between countries. . . . With the increased sophistication of financial systems, governments must address the vulnerabilities of these systems in a world where it is easier than ever to transfer money from one financial institution to the next, and from one country to the next.

Robert E. Rubin
Secretary of the Treasury
July 23, 1996

More than one trillion dollars of merchandise moves in international trade across U.S. borders each year. Over 400 laws apply to merchandise as it crosses borders. These laws protect the American public from health and environmental threats, trade in endangered species, and violations of fair trade and intellectual property rights. They also ensure U.S. national security interests are advanced by enforcing economic sanctions against hostile regimes and international criminals and by preventing the export of sensitive technology to inappropriate destinations. These laws must be applied quickly and effectively without impeding the free flow of legitimate goods.

International criminals who seek to profit by undercutting America's trade laws may be less visible than drug or alien smugglers, but they remain a significant threat to our national security and economic stability. Investigators have found that trade crime is often one piece in the complex puzzle underlying international criminal offenses, such as arms smuggling, drug trafficking, and money laundering.

A. Goal: Prevent Criminal Exploitation of International Trade

The Strategy seeks to prevent criminals from exploiting legitimate international trade. While legitimate international trade is furthered through voluntary compliance, preventive regulations and civil penalties, serious and repeated violations of trade laws are the appropriate subject of criminal investigations and sanctions. United States national security interests also are advanced by enforcing IEEPA-based sanctions against hostile regimes and international criminals and by preventing the export of sensitive technology to inappropriate destinations.

B. Objectives

Interdict illegal technology exports through improved detection, increased cooperation with the private sector, and heightened sanctions;

Prevent unfair and predatory trade practices in violation of U.S. criminal law;

Protect intellectual property rights by enhancing foreign and domestic law enforcement efforts to curtail the flow of counterfeit and pirated goods, and by educating consumers;

Counter industrial theft and economic espionage of U.S. trade secrets through increased prosecution of offenders; and

Enforce import restrictions on certain harmful substances, dangerous organisms and protected species.

C. Programs and Initiatives

1. Interdicting Illegal Technology Exports

Strong but carefully targeted enforcement efforts will continue to be directed against the illegal export of strategic and sensitive technologies, which can contribute to regional and global instability. Of particular concern are: illegal exports of technologies that can be used to develop and deploy nuclear, chemical and biological weapons of mass destruction (WMD); ballistic missile delivery systems for those weapons; and computer hardware, software, communications equipment and other devices that can be used to facilitate international terrorism and the commission of other international crimes.

Sophisticated automated systems will be used increasingly to target high risk export shipments for scrutiny and to detect illegal outbound shipments. Additionally, government agencies will expand their existing partnerships with companies in the export business to further encourage and facilitate informed, voluntary compliance with U.S. export requirements. In order to enforce our export control laws in a manner that does not impede legitimate trade, the United States employs highly trained, specialized licensing and enforcement officers who know the difference between legitimate and illegitimate export activity.

Selective use and careful targeting of economic sanctions, often including asset freezes against hostile regimes and other groups that threaten U.S. national security, is another weapon in the fight against illegal technology exports. The President already has expanded the use of economic sanctions to target terrorist groups and Colombian drug cartels. Such sanctions place the U.S. financial and economic systems off limits both to the groups themselves and to those conducting business on their behalf.

2. Preventing Unfair and Predatory Trade Practices in Violation of U.S. Criminal Law

The United States has many bilateral agreements imposing quotas limiting the amount of certain products that can be lawfully exported to the United States. Quotas are only established when serious damage to U.S. domestic industry has been demonstrated or threatened. To evade these established quotas, foreign exporters and some U.S. firms illegally import these restricted goods in excess of the agreed limits using falsified visas, bogus letters of credit, or other fraudulent documents.

For example, textile products, primarily apparel, are often imported illegally in excess of agreed limits. The most common type of textile fraud is illegal transshipment, which occurs when textile goods produced in a country that is under quota are shipped through a third country that is either not subject to quota or not using all of its quota. The goods are falsely stated to have been produced in the third country instead of their true country of origin.

Effective action will be taken against those who threaten American jobs and earnings by thwarting textile quotas. The United States has been highly active in investigating and prosecuting textile fraud, establishing new tools to apply to this effort and taking steps to improve our cooperation with foreign governments. A textile clearinghouse established in 1996 gives the Customs Service the ability to identify shipment trends and patterns and improve its targeting of violators involved in illegal transshipments.

United States law enforcement initiatives in cooperative international efforts have also had significant success in stopping illegal textile shipments. In recent months, for example, the government of Hong Kong in cooperation with U.S. law enforcement authorities prosecuted and convicted 39 factories for making false statements to obtain Hong Kong export licenses. The government of Macau also has assessed penalties on 14 factories that made false claims as to the origin of their goods in order to obtain textile visas.

3. Protecting Intellectual Property Rights

Aggressive efforts at home and abroad are required to respond to the growing economic threat from counterfeit and pirated U.S. goods. Such trade endangers public safety and robs American industry and workers of the benefits of billions of dollars invested in research, innovation and artistic creation. The Administration, led by the U.S. Trade Representative, uses the World Trade Organization and U.S. domestic laws to discourage the production and trafficking of such merchandise. American companies lose over $200 billion a year because of merchandise counterfeiting. International trafficking of counterfeit goods is also tied to organized crime and to the financing of terrorist activities. Counterfeiting, and copyright, trademark and patent infringement distort international trade, destroy markets and cause extensive losses to both domestic and foreign industries.

Federal agencies will work together and with their foreign counterparts to halt production at the source and to prevent what is manufactured from moving to market. Much counterfeit merchandise is produced overseas and makes its way to the U.S. underground market through illicit means. Customs utilizes the 22 Mutual Assistance Agreements it has with other nations to combat the flow of counterfeit merchandise into the United States. Similarly, the FBI and Department of Justice provide training in intellectual property rights infringement to foreign law enforcement entities. This training includes specific instruction on enforcement efforts against copyright violations and trademark infringement.

The CyberSmuggling Center, led by Customs, targets the use of the Internet by criminals to violate intellectual property rights violations. Officials from the center investigate international syndicates that are turning out millions of pirated audio and video CDs, to the detriment of the multibillion dollar U.S. entertainment industry. The center soon will monitor the Internet for other intellectual property rights violations, particularly those involving computer software.

Government agencies will also continue to work closely with the private sector to find cost-effective solutions and to educate consumers about the threat these counterfeit and pirated goods pose in order to stop the flow of infringing goods across our borders.

4. Countering Industrial Theft and Economic Espionage

One of the most dramatic trends in international crime is the rise of industrial theft and economic espionage, which consists of stealing trade secrets from the U.S. government and U.S. businesses. For example, American businesses lose an estimated $18 billion a year to international high tech robbery. Equally troubling, the culprits are sometimes agents of foreign governments whose intelligence agencies target U.S. entities as a matter of official policy.

The theft of proprietary trade secrets from our industries clearly threatens U.S. interests including our national security. Foreign governments seek to acquire U.S. trade secrets involving sophisticated technologies with military applications. Foreign manufacturers seek to steal U.S. trade secrets to erode U.S. industries' overseas market competitiveness and technology leadership. Tough new action is essential against economic espionage in recognition of the scope of this threat.

Economic Espionage Act

In 1996, Congress passed and the President signed new legislation to outlaw and combat economic espionage. The new law provides for penalties of up to 15 years in prison, a $500,000 fine, or both. The new Act will continue to be strongly enforced through vigorous investigations and prosecutions.

5. Enforcing Import Restrictions on Harmful Substances, Dangerous Organisms and Protected Species

With globalization of the world economy, environmental offenses often are international in scope, posing direct threats to human health, ecosystems and endangered species. The Administration is committed to preventing restricted substances and organisms, such as chlorofluorocarbons (CFCs), dangerous organisms, endangered species, and protected species of fish, wildlife and plants, from entering the United States undetected.

Halting CFC Smuggling

Commonly used as a refrigerant in cooling systems, CFCs are known to contribute to depletion of the ozone layer. Under the Montreal Protocol, the United States and other developed nations agreed to a 1996 phase-out of CFC production and a ban on most CFC imports. Since then, a vigorous black market has developed in these chemicals, still legally produced abroad, for use in older machines not adaptable to other coolants. Estimates put the amount of smuggling at 20 million pounds of CFCs per year.

Particular emphasis is required on collaborative law enforcement efforts and international cooperation in combating the illicit CFC trade. For example, the National Chlorofluorocarbons Enforcement Initiative brings together the Department of Justice, Customs, the IRS, the Environmental Protection Agency and the FBI to stop the flow of these banned chemicals into the United States. Launched by this team, Operation Cool Breeze has led to 44 convictions and seizures of more than 1.9 million pounds of CFCs valued at approximately $30 million. This operation is also responsible for the first international extradition of an individual charged with committing an environmental crime (smuggling CFCs into the United States). United States agencies will continue to work closely with other nations to secure responsible enforcement of trade laws affecting the environment.

Ending Trafficking in Dangerous Organisms and Protected Species

In addition to CFC smuggling, the Administration is committed to fighting attempts to slip dangerous organisms and protected species into the country. Trafficking in endangered and protected species threatens ecosystems around the world. The global illegal trade in wildlife is a billion dollar a year industry with people in the United States leading the list of buyers. This trafficking threatens the survival of species, negatively affects global biodiversity, and may be associated with the transmission of diseases and pests.

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