Defense-related articles and services are subject to special export controls contained in the Arms Export Control Act, and its implementing regulations, the International Traffic in Arms Regulations (ITAR). These regulations are intended to safeguard U.S. national security and enhance U.S. foreign policy objectives. The ITAR is contained in Title 22 of the United States Code and Part 121 of the ITAR contains the United States Munitions List (USML). The USML is intended to describe what is a defense article or service, and while it contains many different types of items, from guns to nuclear weapons to toxicological agents, the USML is constantly evolving. If you are not sure that the article you are exporting qualifies as a defense article, you can submit a Commodity Jurisdiction Request (CJR) and DDTC will tell you.
All U.S. manufacturers, exporters, and brokers of defense articles, defense services, or related technical data, as defined on the USML, are required to register with U.S. Department of State, which has jurisdiction over defense exports. The sub-agency within the Department of State which deals with defense-related export is known as the Directorate of Defense Trade Controls (DDTC). Registration does not confer any export rights or privileges, but provides the Department of State with information and is a precondition for the issuance of any license or other approval for export. If you are not sure that the article you are exporting qualifies as a defense article, you can submit a Commodity Jurisdiction Request (CJR) and DDTC will tell you.
Under the ITAR, a “US person” who wants to export USML items to a “foreign person” must obtain authorization from the U.S. Department of State before the export can take place. A "U.S. person" is defined widely to include a U.S. citizen, a permanent resident who does not work for a foreign company, a foreign government, or a foreign governmental agency/organization, a political asylee, a part of the U.S. government, or a corporation, business, organization, or group that is incorporated in the United States under U.S. law. A foreign person is defined as any person who is not a lawful permanent resident of the U.S. and includes any foreign corporation, business association, partnership, trust, society or any other entity or group that is not incorporated or organized to do business in the United States, as well as international organizations, foreign governments and any agency or subdivision of foreign governments.
One of the most significant issues for ITAR compliance is what is sometimes referred to as a “deemed export”, i.e. an export taking place by the transfer not of a tangible article but of information. The ITAR restricts this by defining “export” as sending or taking a defense article out of the U.S. in any manner or transferring registration, control or ownership to a foreign person of any aircraft, vessel, or satellite covered by the USML, whether in the U.S. or abroad; disclosing (including oral or visual) or transferring in the U.S. any defense article to an embassy, any agency or subdivision of a foreign government; disclosing (oral or visual) or transferring tech data to a foreign person, whether in the U.S. or abroad; and performing a defense service on behalf of, or for the benefit of, a foreign person, whether in the U.S. or abroad. Thus, merely showing or describing controlled technology to a foreign national will be an export under the ITAR. The Department of State takes these “deemed exports” very seriously and there have been some high-profile prosecutions of academic personnel in recent years for sharing information with foreign students without proper authorization from DDTC.
There are a number of types of export authorization. The most typical is a DSP-5 (Department of State Publication No. 5), export license which authorizes the temporary or permanent export of defense articles and/or technical data to a foreign person (but not technical assistance or defense services). During the review process, DDTC will screen all parties to the proposed transaction against a watch list of known or suspected export violators, and a hit on this list will mean a full compliance review before any license will be issued. In about 30% of cases, DDTC will also refer applications to other agencies such as the Department of Defense for their comments and recommendations.
However, even if you have obtained a license, you must keep in mind that ITAR also operates to prohibit the “retransfer” (also called “re-export”) of items on the USML by foreign persons unless the retransfer is specifically authorized under the relevant export authorization.
Because any license granted is conditional upon the purported end-user and end-use, DDTC will perform end-use checks on exports that have taken place using the help of U.S. diplomatic posts, U.S. Customs and Border Protection, and foreign governments. Therefore, the responsibility of a U.S. exporter does not end at export; rather the exporter should be taking steps to ensure that the articles arrive at the licensed end-user rather than being diverted.
The Department of State has the option of asking the Department of Justice to prosecute criminally requesting fines and/or imprisonment, or going for civil penalties of up to $500,000 per violation. The U.S. government has substantially increased action against organizations and individuals responsible for breaches of ITAR since 1999, and very significant monetary penalties have been imposed. A mandatory compliance component may be imposed requiring a corporate entity to spend funds on compliance measures and may also require the party to submit to external audit. In serious cases, a party may be debarred from future exporting for a period of time.
Attorneys at Barnes, Richardson are experienced in dealing with ITAR issues. Whether you need counseling on dealing with a deemed export that may already have taken place, procuring a DSP-5 license, or creating a compliance program, our lawyers understand the complexity of the ITAR and can provide guidance to companies looking for help meeting their export regulatory requirements.
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