Controlled Goods Program
© 2010 FrontLine Defence (Vol 7, No 3)

Now in its 10th year, the latest iteration of Canada’s industrial security program remains a key element of our efforts to control and, preferably, prevent the proliferation of a broad range of tactical and strategic materiel (potential as well as proven). The challenge for the federal government is balancing the need for security against industry’s need to do business. Too much bureaucracy clearly would be not only an administrative burden, with associated additional costs, but also a curb on investment and trade.

The industrial security program is overseen by the Controlled Goods Directorate (CGD) within Public Works & Government Services Canada (PWGSC) with the principal support of the departments of National Defence and Foreign Affairs & International Trade (DFAIT). Other federal institutions such as the Royal Canadian Mounted Police, the Canadian Security and Intelligence Service, the Canada Border Services Agency, and Communications Security Establishment Canada are brought into play as necessary, as are provincial and municipal police forces.

The CGD’s mandate flows from the 1985 Defence Production Act, which was last updated in 2005 to improve compliance with controlled-goods policy and to provide stiffer penalties for non-compliance.

The Export Controls List, which is managed by DFAIT, also is central to the overall policy, in that it sets out specific details of controlled goods and technologies. A 142-page guide to the list, last updated in 2007, includes a 10-page index of everything from “A to D converters” to “zirconium tubes” – the former being analog-to-digital devices with encryption and other applications, and the latter a key component in nuclear reactors and other installations where high corrosion resistance is critical. Moreover, the listings between them include aircraft, biological weapons, frequency-hopping radios, propellants, radar, reconnaissance drones, submarines, warheads and myriad other technologies that Canada and its allies want to keep out of unfriendly hands.

The CGD, which came into effect in April 2001 – in response to the U.S. tightening its International Trade in Arms Regulations (ITAR) – requires companies to register with Ottawa if they possess, examine or transfer controlled goods domestically, or seek to export them. They also must adhere to strict security conditions, and be open to random inspection. There are stiff penalties for non-compliance (which includes failure to register).

While some American companies have been fined for ITAR violations, no Canadian company evidently has been penalized under the auspices of the CDG. Yet the prospect of doing the wrong thing, even inadvertently, coupled with the fundamental complexity of the program, can be daunting for companies of any size, whether small and new to the defence sector or major players with a track record.

Helping companies deal with the CGD bureaucracy has become fertile ground for companies such as Phirewire E-Business Solutions Inc., a nine-year-old Ottawa startup where Mitch Quinn is senior manager of its professional services group. The retired Canadian Forces officer who has consulted for General Dynamics Canada, among others, is keenly aware of the challenges presented by technology transfers and component use.

Quinn acknowledged that the multiplicity of players involved in Canada’s controlled goods environment can be problematic for companies seeking to expand their trade opportunities. It’s only recently, he added, that Ottawa addressed what he described as a classic Catch-22. On one hand, companies wanting to register with the CGD were told that they first had to have a contract through PWGSC. On the other, they were told that to secure a contract, they first had to be CGD-registered. That’s no longer the case, but it took years for that enormously-frustrating bureaucratic conundrum to be dealt with.

But Ottawa evidently is willing to talk about the direction in which it would like to take the controlled-goods policy. That’s why Jake McDermott, Head of Outreach for the CDG, has been busy explaining it to select audiences with an interest in controlled goods. They include the Ottawa chapter of the Armed Forces Communications & Electronics Association, but while AFCEA usually gives website access to copies of presentations, McDermott’s apparently was withdrawn because it contained “sensitive” material. FrontLine unsuccessfully requested a copy from PWGSC.           

The department did, however, provide a copy of a mid-April presentation by CGD Director Simona Wambera to the Industrial Security Advisory Board (ISAB), which the department set up in 2005 in a bid to secure ongoing private-sector views on how to address an array of issues. ISAB members, who meet quarterly, include AFCEA as well as the Aerospace Industries Association of Canada, the Association of Canadian Search, Employment and Staffing Services, the Canadian Advanced Technology Alliance, the Canadian Association of Defence and Security Industries, the Canadian Business Information Technology Network, the Canadian Construction Association, the Facility Operations and Maintenance Association of Canada, and the Information Technology Association of Canada.

Wambera’s presentation deck – representative of information provided during a series of domestic and export control seminars across the country – outlined evolving security risks such as basic espionage, terrorism and cyber security. She went on to explain how identified security gaps are addressed as part of a more “robust” controlled-goods program which would “ensure equitable continued access and cooperation with industry,” and includes better and more expeditious processing of industry applications.

The slide deck indicates, for example, that in 2009-2010, the processing of new applications improved by 67.3% from the previous year, renewals by 35.2%, and amendments to registration by 11.6%. Since February, application forms and packages have been validated within 48 hours; completed packages processed faster, and incomplete ones have had the missing components flagged for quick remediation.

As part of its “enhanced security strategy,” the CGD is committed to inspecting 100% of new applicants and is putting new suspension and revocation processes for non-compliant companies into effect in July. Renewals will have to be submitted at least 90 days in advance (there will be no extensions), and “expired, suspended, terminated or revoked” companies must become fully compliant to re-enter the program.

The payoff for the private sector, Wambera indicated, is a commitment by PWGSC to complete registration of at least 75% of new companies or individuals within 45 days and to complete at least 75% of new registrants’ controlled goods inspections within 120 days.

Although it was not addressed in the presentation, there has been pressure within some elements of the federal bureaucracy for more centralized management of controlled goods rather than the current multi-departmental structure which has evolved since 2001.

Centralization may streamline how the controls are managed while facilitating registration and compliance, but it also could undermine the checks and balances inherent in the current approach. Until that can be addressed, the pressure is being ­vigorously – and rightly – resisted.

Ken Pole is a Contributing Editor for FrontLine Defence magazine.
© FrontLine Defence 2010