DEPARTMENT OF STATE POSITION PAPERS ON MANDATORY TRADE SANCTIONS FOR VIOLATIONS OF EXPORT CONTROLS (TOSHIBA/KONGSBERG AND TRADE BILL/EXPORT CONTROL DOCUMENTS).

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90M00004R001000100017-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 15
• Document Creation Date: December 23, 2016
• Document Release Date: February 19, 2013
• Sequence Number: 17
• Publication Date: September 24, 1987
• Content Type: MEMO

STAT
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OFFICE OF CONGRESSIONAL AFFAIRS
Routing Slip
ACTION
INFO
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DD/Legislation
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DD/Senate Affairs
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4. Ch/Senate Affairs
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7. Admin Officer
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Executive Officer
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Constituent Inquiries
Officer
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SUSPENSE~3 Sept 37
Action Officer:
STAT
STAT
STAT
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U/Wn6Nt51 L VAX
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON. D.C. 20503
September 24, 1987
LEGISLATIVE REFERRAL MEMORANDUM
TO: Legislative Liaison Officer-
National Security Council - Courtney - X6534 - GF/WW (OEOB -
Room #381)
Department of Commerce - Levitt - 377-3151 (04)
Department of Defense - Brick - 697-1305 (06)
U.S. Trade Representative - Parker - X3432 (23)
Central Intelligence Agency - STAT
Department of the Treasury - CArro - 566-8523 (28)
SUBJECT: Department of State Position Papers on Mandatory Trade
Sanctions for Violations of Export Controls
_(Toshiba/Kongsberg and Trade Bill/Export Control Documents).
The Office of Management and Budget requests the views of your
agency on the above subject before advising on its relationship
to the program of the President, in accordance with OMB Circular
A-19.
A response to this request for your views is needed no later than
2:00, P.M., MONDAY, SEPTEMBER 28, 1987.
Questions should be referred to Annette Rooney/Sue Thau
(395-7300) the legislative analyst in this office or to
Gary Moser (395-3947).
RONALD K. PETERSON FOR
Assistant Director for
Legislative Reference
cc: Pam Turner
Lyn Withey
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ADMINISTRATION
POSITION PAPER
ON
Mandatory Trade Sanctions
For Violations Of
Export Controls
o.. Legislation mandating punishment in the form of trade
sanctions against individuals and companies in allied
countries for violation of internationally agreed export
controls undermines efforts to improve those countries'
control systems and leaves the U.S. open to retaliation.
o Such punishment now will reduce support abroad for
cooperation in multilateral and bilateral efforts to
strengthen control systems. in addition the incentive to
result cooperate
cooperation gisolikely toube the imposition ofe
costly, foreign sanctions.
o Prom.a broader standpoint, making trade sanctions mandatory
precludes the careful analysis and consideration of their
potentially adverse impact on U.S. domestic economic,
national security and foreign relations concerns. Maximum
flexibility in responding to the particular circumstances
of violations provides greater opportunity to get long-run
progress in export controls.
o In the propeller milling machines illegal sale case, the
U.S. Government worked with the governments of Japan and
Norway to strengthen their control systems. In July all
licensing ancooperation in
control unprecedented
mrVetagreed
d enforcement
improving their export systems.
o The actions of the governments of Japan and Norway, in
particular, and the other COCOM countries, in general, to
improve the COCOM multilateral export control regime are
the most effective way to prevent the recurrence of illegal
sales similar to the propeller milling machines case.
o The conduct of the companies involved in this particular
illegal sale is inexcusable. Japan and Norway have
recognized that they did not have in place sufficient legal
sanctions to punish the violators at a level consistent
with the magnitude of their offenses. Accordingly, the two
governments have now strengthened their national laws,
rarticiptheir inlicensing
COC M-wide enforcement multilateral eral export control regime.
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o To indicate our concerns about the conduct of Toshiba and
Kongsberg, the United States has taken certain actions
under existing legal authorities, including not renewing
Toshiba international Corporation's distribution license,
auditing Toshiba Corporation's internal control program,
providing assistance to Toshiba and Kongsberg in revamping
their international control systems, and tightening U.S.
Government n
contracts forwhich n Toshiba and K ngsberg review Defense
would or have
competed.
o Congress will be reviewing export control enforcement
mechanisms in its 1989 reauthorization of the Export
Administration Act, with a view to increasing the United
States ability to respond appropriately, with flexibility,
to export control violations. This may well mean
strengthening the United States discretionary authority to
impose sanctions, if that solution is deemed appropriate.
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ADMINISTRATION
POSITION PAPER
ON
COCOM Countries' Control Standards
o Legislation under consideration in the Congress contains
provisions mandating certain restrictive licensing
practices by the U.S. on exports or reexports of U.S.
technology to a COCOM country if the U.S. determines that
it is not operating its export control system in a manner
consistent with COCOM agreements.
o The provisions are found in HR 3, the omnibus Trade Bill
(Section 332(d)(1)), the Senate amendments to HR 3
(Sections 1004 and 1006(a)), S. 1656, and HR 3047 and HR
3026.
o Mandatory restriction of COCOM countries' access to U.S.
technology, foreign military assistance and foreign
military sales if they do not improve their systems as
determined unilaterally by the U.S. is counterproductive
and will undermine efforts to strengthen COCOM's role and
authority as a multilateral organization for export control
cooperation.
o A rigid detailing of COCOM enforcement and licensing
standards and the consequences of violating them also
reduces U.S. flexibility to respond to COCOM violations as
appropriate and may also give some exporters a set of
guidelines to follow for avoiding U.S. sanctions yet
continuing to export sensitive technology to proscribed
countries. It would be better to keep precise standards
vague and discretion maximal, holding out the possibility
of severe retributuiona against violators.
o Comm governments have made concerted efforts, now bearing
fruit, over the past six years to improve the COCOM regime
both multilaterally and as administered by individual
governments. In addition, the U.S. is making unprecedented
efforts to achieve improvements in COCOM licensing and
enforcement practices.
o Making the imposition of such restrictions discretionary
sends an appropriate signal without thwarting current
efforts of the U.S. Government to improve COCOM.
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FACT SHEET
September 23, 1987
U.S. Government Initiatives_to Encoura eVStren thenin
Fo ow n os a-loon s er version
o? The U.S. Government has taken major stepseto9st 85gthenoand
improve strategic export controls.
the U.S. strategic trade control system was overhauled,
giving it the necessary "teeth" to prevent and deter
violations of U.S. export control laws, and an interagency
process was developed to enforce U.S. laws and pursue more
effective multilateral controls in COCOM.
o The basic enabling legislation, the Export Administration
effectively u.s. export control lawsrastfollows: more
eft Y
Criminal penalties for export violations were
increased, with fines ranging up to five times the
value of the exports or $1,000,000 whichever is
greater, for companies, and up to J250,000yfors in
individuals. Jail sentences of up
prison for each illegal transaction can also be
imposed, and the statute of limitations for export
control violations is five years.
-- To deter potential diverters further by striking at the
profitability of illegal export activity, proceeds from
such activity are now subject to criminal forfeiture.
In addition, attempting to or conspiring to violate the
export control laws of the United States is now a
statutory crime instead of only a regulatory
violation.
The Secretary of Commerce was granted the discretionary
authority to deny export licenses based upon
convictions. Individuals who have been convicted of
crimes such as espionage may now be barred from
receiving an export license for a period of up to 10
years, and Department of Commerce agents have been
granted the powers to execute search warrants, carry
firearms and make arrests.
o Since the Toshiba-Kongsberg diversion became known, the U.S.
Government has consistently urged the Governments of Japan
and Norway to take all appropriate punitive and corrective
measures, and continues to be in close contact with both
poosenmeets osetinvolvedeinmthetdiversioniandctooimprove to
prosecute h
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their ability to prevent and deter strategic expTOShibatrol
violations. {See lists of Jovernmentomeasures~taken to date
Corporation, and Norwegian g
for details.)
o~ Recent bilateral contacts have included the following:
Early in June, Special Assistant to the Presiden*_
Robert Daan net with Prone Minister cessingaforaad
other Norwegian officials in Oslo, p
prompt, effective response to the problems presented by
the Toshiba-lcongsbecg diversion. Later in June,
Secretary of Defense Weinberger fast with prime Minister
Nakasone in Tokaoaneaeddefen$edcoopedratlonion's i~apact
on broad d.S. J p
~1a a follow-up to high-level contacts fn Washington,
Tokyo, Oslo, and Paris, defense officials from the
U.S., Japan, and Norway are oeeting regularly to
explore how bilateral defense cooperation can help to
overcome the lose to allied submarine and antisubmarine
warfare (I-SW) capabilities suffered as a result of the
diversion. J-t the end of June, the Norwegian Minister
of Defense and Onderaecretary of Trade metDSwJ~pan~
officials in Washington in this regard.
Navy-to-Navy =tito i~nproveillSW capability, a joint
research eff
-- The Japanese Minister of Trade and Industry s-et with
Secretaries ealdrige and Shultz in Washington in =owed
Shortly tsttc the foreigntexchangeelawCwhichtwecs then
amendmen
passed by the Diet on Sep*.ember 4. These amendments
are an important control enforcenentorta to strengthen
strategic expor
.._ ~- high-level delegation of Japanese export control
officials visited Washington in acid-Rtouieprovexitsin
the a'teps their government is taking a workin level
export control system. Simultaneously, 9
delegation yet with V.B. officials for briefings on the
OS stratenieoftaome ofnitslaspects for useeinlJapan.
adaptatio
__ In 7-ugust and September, Cosuneree Onder Secretary Smart
and llssiatant Secretary l~reedenberg met with MITI
of~iciala and Japanese business groups in Tokyo.
Commerce's Office of Export Licensing is conducting an
audit of Toshiba's co~apliance with reQuiraments for
renewal of its v.S. subsidiary's distribution license,
and advise the company on set*_ing up a progxar to
ensure compliance with strategic export controls.
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-- In October, the Dapartwent of State's sepolic ~111an
gepresen*.ative for strategic Technology Y
irfendt will lead a high-level delegation to Tokyo for
talks with Japanese official8 on across-the-board
export control issues.
o ~ In addition to bilateral contacts, the DS has continued to
pucaue vigorously the ieplementation of COCOM principles for
effective national export control systene.
o The Toshiba-RongBberg diversion has focused intereational
attention on the serious consequences of diversions of
strategic technology to the Soviet Bloc. 71s a result, there
fs now positive momentum toward the kind of cooperation in
COCOM enforcement and tightening of COCOl~ taember national
strategic export eontrol8 the O.S. advocates. Japan and
Norway, in particular, dethesCOCOhdSiecialsMeetingiinent to
the COCOM process during p
?id-July.
o ~-t the Special Meetionei ortOlicen$ingcandtenforeement.to give
greater attention t p
o To supplement the multilateral COCOM process, the OS will
begin in October a series of high-level bilateral *eetinge
with out COCOM partners ko encourage them to review the
adequacy of their national control systems and i~aplement the
principles for ?ffeetive controls.
o In sua+, the OS is mounting a major effort -- in cooperation
with our COCOM partners -- to ensure that all countries
fulfill their responsibilities to COCO!!.
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TOFB IBAf 1COHGi BERG
CHRONOLOGY OF X JAPANESE GOyE1tNMENT ACTIONS
Bari 71 ril 1987: At 0.8. urging, GOJ initiates reinvestigation
o~ Tos a Mach ne Company's role in the diversion.
1- ril 30: Japanese police raid 14 7bshiba Machine offices and
res deuces and collect two roomfuls of evidence.
Ma 15: GOJ announces the following administrative measures
age net Rbshiba Machine, C. itoh and Co. , and Nako 1Coeki for
their role in the diversion:
o Toshiba Machine 1s enjoined from all commerce with 14
countries of the Soviet bloc for one year beginning May
22, 1987. Specifically, the company cannot deliver
gooda, provide spare part8, or service equip~aent in
COCOM--proscribed destinations. Further, Toshiba
Machine is prohibited from engaging in any kind of
commercial contact with COCOM-proscribed countries
during the one year period.
o C. Itoh, one of Japan's largest trading companies, is
prohibited from exporting any machine tools to
proscribed destinations for three months, beginning May
22, 1987.
0 Ilako l~oeki is issued a letter of varninq for its role
in the diversion.
Ma 21: MiTY f orms a deputy director-general level strategic
goods export council, to examine on a weekly basis applications
for export of 'highly strategic' goods to COCOM-proscribed
countries, including high-level computers, machine tools,
semi-conductor manufacturing, and nuclear energy-related
equipment. _-
Ma~26: Japanese Hat~ional Police arrest and charge two senior
~s ba Machine Company officials. x'he maximum penalty for
violations of Article 70 of Japan's Porefgn Trade and Exchange
Control Law would be three years' imprisonment plus either one
:pillion yen or three times the value of illegal exports,
whichever is higher.
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.Tune 30: MITI announces additional measures to beef up its
expo eview and control mechanisms, by:
o Inereaaing the number of licensing officers from ten to
fifteen, and the number of on-the-spot inspectors ?ae
' needs d? j
o Adding about ten outside technical specialists to the
Strategic Goods Export Council created May 21i and
o Revising its Bxport Trade Control regulations to permit
its inspectors to expand investigations by requesting
xeports from persons and companies other than the
implicated manufacturer or exporter.
.Tul 2: Minister Tamura, head of MITI, addressed the four
pr ne pal Japanese trade and manufacturing associations, asking
member firms to tighten internal controls and informing them of
the new GOJ~measures regarding export control review procedures.
Jul 10: The number of examiners in MITI's Security Export
Contro office is increased from t2 to 63.
Jul 15: PM Nakasone, in a speech to the Japanese legislature,
conf rms that Japan will cooperate with the O.S. in antisubmarine
warfare research designed to overcome technology losses from the
diversion. On the same date, MITI announces that a special
inspection team headed by its Deputy Director-General will
investigate all exports to the Eastern bloc to determine if there
Mas any other wrongdoing.
Ju~29-3I: VS Havy and Japanese Maritime Salf-Defense lRorce
repres'en"~a`tives meet in Hawaii to inaugurate the joint ASW
program.
July 31: 11t1 amendment to Japan's Foreign Exchange and Trade
Co ntcoT Law is approved by the full Japanese Cabinet and
introduced in a special session of the Japanese parliament. (See
September 4.)
Au ust 12-14: a team of Japanese export control experts met wlth
.S. o c ais in ~Tashington for briefings on the DS strategic
trade control system and to explore adaptation of some of its
aspects for use in Japan.
Se tember 4s The legislative revision package introduced on July
3 ecomea lea. Provisions of the bill include:
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o an increase in luaYimum prison sentences for export
control violations from three to five years, which
would automatically trigger an increase in the statute
of limitations to 5 years]
o an increase in ?aximum administrative sentences from
one to tbree years, with provisions for illegal ?zport
of services as well as goods: and
o an interagency consultative fra~aework.
Sep tember 10: Trial of accused Toshiba Machine Co. officials
opens n To yo.
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TOSH IBAIRONOSBERG:
CHRONOLOGY ~F TO ?H I BA~POR T ION ACT ION S
May 15, 1987: Toshiba Machine Company President resigns.
-----
.Tune 26: Toshiba Corporation announces that the firm's 1lmerican
eo'uns will conduct an independent investigation of Toshiba
Machine's sole in the diversion, and that atrieter internal
controls, training and review programs will be implemented to
ensure compliance with export control regulations.
Ju~l~ l: The chairman and chief executive officer of Toshiba
Corporation, parent company of Toshiba 1lachine Co. , resign in
apology for the actions of their subsidiary. The entire
management team of the subsidiary bas been replaced, and Toshiba
Corporation has pledged to secure the discharge of any officers
or employees who knowingly participated in the diversionary
activity.
JuI 10: Toshiba Corporation closes down the section of Toshiba
Mac ne Co. responsible for sales to COCOM-proscribed
destinations, to remain closed until effectivQ internal export
control mechanisms are in place.
6e tember 9: Toshiba Corporation announces the results of its
n epen en investigation, stating that there was no knowledge on
the part of the parent company of the illegal activities of its
subsidiary, Toshiba Machine Company. The corporation also
announces institution of an internal compliance program for
strategic exports, the first of its kind in Japan.
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T08H I811 KONGBBERG:
CHRONOLOGY OF R NO GIAN GOVERNMENT MEA$UREB
Februar 27 1987: ~iorwegian Prosecutor General orders Police
nvest ga on nto Kongaberg's role in the diversion.
April 28: '1!'ie seise :manager for Kongsberg Trading Coiapany, the
Kongsb q subsidiary which was involved in the diversion, is
formally charged with providing false infor:aation to the OON
licensing authorities.
A ril 29: GON announces that Kongsberg Tradinq Co~apany,
nc u ing its Moscow office, is beigg closed down. Kongsberg
also terminate$ all software and hardware support activities
for equipment already delivered, and halts all further trade
with Warsaw Pact countries. 1111 individual: who worked on
sales to the Eastern bloc will be barred from future employment
by Kongsberg." In addition, the C80 of the parent company,
Kongsberg Vaapenfabrikk, has been replaced.
Ma GON appoints Commission to conduct an inquiry into their
eternal export control practices and regulations and leaks
recommendations for iAprovesenta.
eid-June: GON investigative team announces at a press
con erence that their investigation is over as of June 3. One
of the eight persons under investigation has been charged.
According to GON officials, the expiration of a two-year
statute of limitations for export control violations on June 4
precludes the possibility of further chargest however, the
individual could also be charged with falsifying o#ficial
documents, for which the statute of limitations has not expired.
June 16: GON announces a new comprehensive export control law
to be ntroduced in Beptember 1987, which will:
o extend the statute of limitations for export control
violations to ten years,
o increase a+axinum penalty for violations to five years'
imprisonment plus fines,
o expand export controls to apply to services and
technologies, transit situations, and exports to third
countries, and
o provide for prosecution of all participants is export
control violations, whether they be corporate entities
or individuals, including accessories to the crime and
those guilty of cri:aes of negligence.
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GON has also recom;nended other measures to strengtban ?Yport
control administration, including:
o random checks of internal company export control
? procedures,
o increased spot checks in limns with a heavy volume of
business in COOOM-controlled products,
o the addition of five to ten export control experts to
the customs service, and
o an upgrade of the Ministry of Trade's licensing
bureau, including the addition of four new licensing
officezs.
June 24: Additional 1CV documents are seised on 'suspicion of
1 egal acts." GON reopens investigations of RV to include ail
Kongaberq 8a1_ea to Eastern European countries since 1970.
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