(This story is a sidebar to the special report, "How China's weapon snatchers are penetrating U.S. defenses")
By John Shiffman and Duff Wilson
WASHINGTON, Dec 17 (Reuters) - The U.S. government's efforts to police the smuggling of arms and technology have been fragmented for decades - and it is unclear whether a new umbrella office can close the gaps.
"Part of the problem is you have furiously entrenched bureaucracy in all of these departments that want to keep things exactly the way they are," said Robert Gates, the former Central Intelligence Agency director and defense secretary.
Three different law enforcement agencies have primary responsibility: the Federal Bureau of Investigation; the Commerce Department's Bureau of Industry and Security; and Homeland Security Investigations.
Each relies on regulators from the State, Commerce and Treasury departments, with help from the Pentagon, to determine which products can be exported where. The CIA, the Energy Department and the National Security Agency also provide intelligence on smuggling cases.
Agencies approach the task differently. FBI agents view technology smuggling as a counter-espionage challenge. Commerce agents focus on enforcing the licensing of dual-use items, products that potentially have both military and civilian applications. Homeland Security agents tap a global network of customs informants and foreign police.
Each agency also has distinct crime-fighting powers. Only FBI agents can deploy Foreign Intelligence Surveillance Act wiretaps. Only Commerce agents can issue administrative sanctions. Only Homeland Security agents can search packages at the border without a warrant. State and Treasury officials who are not federal agents can issue administrative and financial sanctions for regulatory violations.
The differences have fostered deep and unproductive rivalries, some U.S. officials say.
"There was so much animosity over who is in charge and isn't in charge, rather than over substance," said a White House counter-proliferation official.
THE CREATION OF E2C2
As part of a big export-regulation overhaul in 2010, the Obama Administration created the Export Enforcement Coordination Center - known as the E2C2 - to guide a government-wide approach. The E2C2 is led by a senior Homeland Security official, Craig Healy. The center also includes senior FBI and Commerce agents.
Typical of the turf battles in Washington, the E2C2's opening was delayed nine months while HSI, FBI and Commerce bickered over a formal memorandum of understanding.
After it opened, E2C2 officials say, the new entity produced some quick results. By comparing resources and data, agents say they were surprised to find that in 60 percent of their investigations, two different agencies were investigating the same target. FBI, Commerce and HSI began pursuing more cases together, which they say led to more success and efficiency.
"It's helping us attack the networks, instead of going after these guys one by one," Healy said.
Tensions remain. The Obama plan calls for creating a single law-enforcement agency. Under one proposal, agents from the smallest player, Commerce's Bureau of Industry and Security, will be merged into HSI, which dedicates the most resources to smuggling. But that would take an act of Congress, and some Commerce officials are actively resisting the change.
The E2C2 is just one piece of a four-part export overhaul proposed in 2010. The larger initiative includes changes to export restriction lists, licensing procedures, computer infrastructure and law enforcement coordination.
Today, senior administration officials describe the project as a work in progress. Most changes have been made by executive order, without congressional legislation. White House and State Department officials said the project had a few false starts, but is now progressing well.
On Oct. 15, the first new rules took effect, shifting certain aircraft and engine products from State's more restrictive munitions list to Commerce's more business-friendly civilian commodity list. Similar changes are expected in coming months, and this worries some counter-proliferation agents. In interviews, a dozen agents said they fear the changes will make it easier to smuggle military-grade technology to China.
The White House official and a senior Commerce Department official said this worry is overblown. "It drives me nuts," said Kevin Wolf, the assistant secretary for export administration at Commerce. "We have bent over backwards in all our training materials and preamble material to say we are maintaining the same embargo on China."
Despite the administrative changes and the looming completion of the inter-agency computer project, three other parts of Obama's plan - creating a single control list, single licensing agency and primary law-enforcement coordinating agency - are floundering. Each requires legislation, and there is little interest in Congress, officials say.
Bill Greenwalt, deputy undersecretary for defense industrial policy from 2006 to 2009, said the changes so far are welcome, but don't address fundamental flaws in the U.S. export control system.
"Everyone has declared victory and left it to languish." (Edited by Michael Williams)