UK

Last year President Bush signed defense trade cooperation treaties with Britain and Australia to make trade in military items easier. The treaties are intended to eliminate the many export licenses companies must obtain before they can sell their products. These treaties will create “approved communities” consisting of companies whom can freely buy and sell MOST military items under circumstances. This should eliminate about two-thirds of the export licenses that the US Department will have to issue for military goods going to Britain and Australia.

This week President Bush has made it clear that he wants senate to put a rush on the ratifications of both treaties. Unfortunately, for both Bush and exporters the Senate has made it very clear that they will not be rushed. On May 21, 2008 members of the Senate Foreign Relations Committee explained that they need to see all the treaties details and the implementing regulations before anything will be ratified. Currently these details are being drafted, but will not be ready until the end of the summer. Read More

The Export Compliance Training Institute’s Economic Sanctions and Export Controls Conference at Canary Wharf, London included a keynote address from Secretary of Commerce Mario Mancuso on May 13, 2008. Mancuso discussed US policy efforts to meet US national security challenges targeting financial measures and trade controls.

Mancuso explained, “Globalization is having profound implications for financial markets, technology trade, and national security.”

After attending the Export Compliance Training Institute’s seminar, Mancuso held meetings with the UK government, industry and academic leaders. He hopes that this visit will mark a BIS effort to elevate international engagement and diplomacy with key partners and markets on national security, high technology and strategic trade issues.

More information:

• US alerts banks to ‘legal risk’ of Iran support (Financial Times)
• Under Secretary Mancuso Addresses Global Financial Institutions in London (BIS Web site)
• Information on upcoming Export Compliance Training Institute’s Seminars available at LearnExportCompliance.com

Warning: hopelessly infected with editorial and opinion comments

– And Now We Get to Pay for Great Service: The Directorate of Defense Trade Controls (DDTC) plans on charging exporters for license applications and other submissions. The proposal is for DDTC to charge registrants $250 per application, to include license and agreement applications and amendments. The fees would be charged as part of the registration fees, and DDTC would look to the past two years of licensing activity as a basis for the charge. So if your company submitted 100 applications and amendments over the past two years, you registration fee would go up from $1,750 to $27,500 ($2,500 new higher registration fee + $250×100). The good news is that most exporters will probably wind up passing these costs back to the US Government in the form of higher charges for defense articles, so we’ll wind up with a massive money shell game scheme that will make everyone feel good. In DDTC’s defense, DDTC personnel indicated that the latest Presidential Directive stated that a substantial portion of DDTC’s budget had to be “self-financing” so they have not choice but to institute user fees of some sort. But can’t they just hold on for another eight months for another President? For more information click here: http://www.pmddtc.state.gov/docs/dtag/Federal_Register_Proposed_Rule.doc

– A Cold Bureaucratic Drizzle on the UK Treaty: DDTC is working hard on pushing out a new UK exemption ITAR amendment. It’s actually not really an exemption, but some other form of ITAR mish-mash approval. We have not fully digested the unpublished rule: http://www.pmddtc.state.gov/docs/dtag/Draft_UK_Treaty_Exemption_FRN_11_Jun_1930.doc; it’s one of those that makes you go cross-eyed as soon as you start reading it. But here’s a prediction not found in the press releases: The exemption will probably not be all that helpful to the bulk of exporters and you will still need to obtain approvals for many programs involving the UK. In order to keep things inconsistent, the UK exemption takes a whole different approach from the Canadian exemption. For example the UK exemption uses a positive list of USML categories which are eligible for the exemption, whereas the Canadian exemption uses a negative list of USML categories which can’t be utilized for that exemption. You may only use the UK exemption for an end use in the US or the UK. We’ll write more about it when we start understanding it.

– Regulation on Aircraft Parts Jurisdiction Nearing Release: DDTC is poised to release the new regulation on ITAR aircraft parts jurisdiction, which basically states that low level components that are used in both defense and civil aircraft are subject to the EAR. Thanks. Even the new rule does not totally explain how to treat a low level dual use part that was initially designed for a defense application but is later used in a civil application. But what’s left unclear becomes open to interpretation, so here goes another round of aircraft parts jurisdiction debate. The regulation draft can be found here: http://www.pmddtc.state.gov/docs/dtag/17_(c)_DTAG_version_6-12-08.doc

– Agreement Guidelines Rewrite: DDTC has embarked on a comprehensive rewrite of the Agreements Guidelines (”AG” - see http://pmddtc.state.gov/docs/agbook.pdf), which are increasingly taking on the role as a kind of ITAR supplement of ever shifting and half-baked policy and regulatory pronouncements. The current version is admittedly out of date, with various supplements on the website which negate whole sections in the core document which can make for a confusing read. But exporters have come to fear any AG change for what it might add. For example, the latest AG 9.4 rewrite shifted the burden of Agreements tracking from DDTC to the exporter, creating major new headaches for license application drafters. The new 9.4 also created a whole new class of red tape requirements that are making shipments through trading companies to major Japanese and European allies unbelievably complicated. So brace yourself with the new AG rewrite as it is likely create all kinds of unpleasant or unintended consequences. Prediction: The new Agreements Guidelines will be twice as long and twice as convoluted as the current draft. Brace yourself.

– Brokering still Broken For Now: The effort to rewrite and reissue the ITAR Part 129 brokering requirements have stalled and moved to the back burner. The last update we had was that the new revised clarifying rule would be out at the “end of 2007.” Now it seems other priorities have taken hold at DDTC and the new rules seem to be in indefinite limbo, which may not be such a horrible thing as the clarifying rules are unlikely to make things much clearer or easier for exporters.

The Bureau of Industry and Security has issued an order suspending all export privileges for 180 days for several businesses associated with Balli Holdings of the UK. The companies commencing in the UK, Armenia and Iran all knowingly violated the Export Administration Regulations.

The companies are charged with:

• re-exporting three US origin aircraft to Iran and had prepared to send an additional three before being caught;
• making false statements to the BIS in an attempt to conceal the end-user of the aircrafts;
• failing to comply with a BIS order to return the three additional aircraft

More information:

• US Sanctions British, Armenian firms for Iran exports (Iran Focus News)

The US Department of State’s Bureau of Political-Military Affairs, under the Directorate of Defense Trade Controls has published the Implementing Arrangement for the proposed US-UK Defense Trade Cooperation Treaty. This initial review of the arrangement still leaves many questions as to how the treaty will work unanswered.

The main points that were referenced in the Implementing arrangement were:

• Defense articles are termed as being, “articles, services, and related technical data, including software, tangible or intangible form, listed on the Munitions List of the International Traffic in Arms Regulations, as modified or amended. Many will notice throughout the document that no mention of ITAR controlled information is referenced although the Treaty is expected to cover the export controlled ITAR information.
• The bulk of the arrangement procedures focused on what UK participants must do to be eligible to receive US Defense Articles under the Treaty
• The criteria for determining whether a nongovernmental UK entity will be included in the UK Approved Community includes:
  • Entity or facility must be on Her Majesty’s Government’s “List X” of approved facilities
  • UK defense companies under foreign ownership, control, or influence will be handled on a case-by-case basis
  • Previous US convictions of US or UK export control laws or regulations will be considered by the US Government
  • US export licensing history of the entity or facility
    National security risks, for both the US and UK
• Any individuals working at UK companies must have security clearance from the UK, and a need to know to be eligible to have access to US Defense Articles.
• In order to “Retransfer” or Reexport” US Defense Articles to entities outside the UK Approved Community must request approval through the UK MOD process for the approval of the release of classified material, as well as apply US authorities approval.

The approved lists of operations, programs, and US and UK Defense Articles which are exempt under the treaty have yet to be published.

More information:
Implementing Arrangement

This New York based company that constructs police equipment and fabricated uniforms has been convicted of 20 violations of the Export Administration Regulations and the Export Administration Act of 1979.From August 2001 to February 2005 the company exported restraint devices to England and Germany with the required Department of Commerce licenses. During the same timelines Hamburger Woolen Company made false statements to the U.S. Government in connection with the submission of export control documents. The company claimed that the restraint devices were “NLR” and no license was required to export per their filed Shipper’s Export Declarations.

A civil penalty was assessed at $110,000 against Hamburger Woolen Company for the violations committed. They will not be debarred as long as their penalty is paid as agreed per their settlement agreement with the Department of Commerce.

More information:

BIS Order (e2014.pdf) (PDF)

Hamburg Woolen Website

The first prosecution under the new UK export laws has been recognized. The new laws were designed to prevent the uncontrolled movement of arms by British nationals between countries outside the UK. The laws carry a maximum of 10 years in prison and cover the movement of military and security goods.

John Knight was sentenced to four years in prison after he pled guilty to the illegal sale of 130 MPT 9 machine guns in the Middle East. He was to supply the guns to Kuwait via a procurement company. Knight applied for a license from the Export Control Organization to move the 130 guns, but posted them as MP5 A3 machine guns. None the less his license was denied and later his appeal was denied.

Knight continued with the shipment moving the guns from Iran to Kuwait and even laid a paper trail to make it seem as though he had left the deal. He received $120,000 on account from the Kuwaiti Ministry of the Interior for the machine guns.

When the shipment arrived to Kuwait it was intercepted by the Kuwait Customs Service. Later a search of Mr. Knights home revealed evidence that supported he was involved in the unlicensed export of the guns. Officials were able to uncover documents from Knight’s shredder that led to his conviction.

More information:

Article from BERR (Department for Business Enterprise & Regulatory Reform)

Special Guest Article from Pillsbury Winthrop Shaw Pittman LLP

The U.S. Government recently completed the negotiation of two defense trade cooperation treaties, one with the United Kingdom and the other with Australia. These treaties establish a bilateral framework with each country to enhance defense cooperation and reduce barriers to the exchange of defense goods, services and information. If ratified, the treaties will allow the U.S. to streamline licensing for items subject to the International Traffic in Arms Regulations (ITAR) when exported to members of an “Approved Community” in each country for specified programs. Read More

General Dynamics UK (GDUK) has said that it will be able to produce items that do not contain any content controlled by the US International Traffic in Arms Regulations (ITAR). This is an important development because any items made in the world that contains any amount of US ITAR content, no matter how small the content, is subject to the complete jurisdiction of the ITAR. This means that non-US items with even tiny amounts of US ITAR content require US State Department approval prior to any and every sale or transfer of the non-US items. GDUK announced that is has found an ITAR-free solution for the United Kingdom’s Future Rapid Effect System (FRES).

More information:

About FRES (General Dynamics UK)

FRES UV offering is based ‘exclusively on European design’ (Janes.com)

The U.S. and British governments signed, in a video conference call, a Defense Trade Cooperation Treaty through a joint statement, June 21, 2007. Financial Times’ Demetri Sevastopulo, indicated earlier in June 15, 2007 both the U.S. and British governments are creating controversy in attempting to make a treaty enabling UK to buy U.S. defense products without obtaining export licenses, which would also allow reciprocal opportunities for US exports from Great Britain.

The interesting thing about the treaty is that the Bush Administration can avoid the US House Representatives, which has been a road block to past efforts to relax military export controls on the UK. In the past, the Administration wanted to change the Arms Export Control Act (AECA) to relax export controls for the UK but the House of Representatives has made it clear it would not support any such change. The House, however, has no say in treaties. The US Senate is the legislative body that must ratify a treaty signed by the Bush Administration.

While there is no guarantee the Senate will ratify the treaty, there appears to be some hope that the Senate might be willing to go along with treaty military exports to the UK in a manner similar to how the US regulates military exports to Canada. Read More

Who would have thought that a company right here in my peaceful Shenandoah Valley of Virginia would set the export fine record with a $100 million penalty? (And, no, ITT is not and was not a client of mine). ITT agreed to plead guilty to criminal charges of illegally exporting controlled night vision technology and omitting material facts in statements to the government. The penalties stemmed from ITT’s outsourcing of components for their leading edge night-vision goggles. According to government and published reports, ITT exported technical data without the required licenses to the UK and Singapore. ITT was aware of violations in the mid 1990’s and voluntarily disclosed some limited infractions but omitted large amounts of material information and provided false information to hide the full scope of the problem. It seems like in the course of looking into UK violations it was discovered that there were even more significant violations involving Singapore.

There are many lessons that export compliance professionals can learn, from this story.

Read More

Britain is threatening to pull out of a $276 billion deal to purchase the Joint Strike Fighter from the United States if the US doesn’t allow them “operational sovereignty”, or access to sensitive technology centered around the advanced mission systems on the aircraft. President Bush and Tony Blair agreed in the summer of 2006 that the UK would have access to the needed information, yet it is still unclear whether it is going to be provided. The Defense Procurement Minister, Lord Drayson, will make a visit to Washington , DC in late December to try to resolve the issue. He says that the deal is contingent on Britain getting the information that it needs. Britain had plans to purchase 138 of the aircraft by the year 2013. Lockheed Martin is the lead contractor in what could be the largest US defense contract to date.

(Sources: Airforcetimes.com: December 8, 2006)

When Congress says “jump,” the State Department responds “we are amending the regulations to spring off the ground or other base by a muscular effort of the legs and feet to an indefinite, indeterminate, and ultimately unknowable height.”

You probably think this is some sort of joke and ordinarily that would be a fair enough assumption, but in this case it would also be an incorrect one. How else to interpret State’s July rule creating a new ITAR provision, Section 126.15, which reads, in part, “Any application submitted for authorization of the export of defense articles or services to Australia or the United Kingdom will be expeditiously processed by the Department of State, in consultation with the Department of Defense.” (The same regulation also makes minor clarifications to the exclusions from the Canadian exemption.)

Read More

I read the July 12 Federal Register notice on expeditious processing of license applications for Australia and the United Kingdom with a chuckle. Just the same day an export administrator had complained to me that their Australia Technical Assistance Agreement (TAA) application was still lying around without staffing after two months, and how her $560 UK license was being pecked at for the most minor technical clarifications by both State and Defense reviewers.

Like the NATO allies mega-license International Traffic in Arms Regulations (ITAR) amendment of years past, which purported to streamline licensing for our closest allies, this notice will probably be inhaled without perception by the licensing bureaucracy. Underneath the well-intentioned words of this rule lies a sluggish Jabba the Hut figure of officialdom whose taste for painfully slow and meticulous license processing will never be satiated.

Read More

Here’s one for those among you with email addresses ending in .au or .uk who have long gazed longingly across an ocean hoping that American-style export controls on defense services would one day reach your tea-drinking shores.  The day you’ve longed for may soon arrive.

Both Australia and the UK are seeking to get a better handle on defense services provided by their private military companies (PMCs, formerly and perhaps less charitably known as mercenaries).  In each case the respective government is motivated in no small part by the rapid increase in firms providing military services in Afghanistan and Iraq.  And in each case proponents of defense service controls are looking to the US International Traffic in Arms Regulations (ITAR) as a positive example.

The Australian Strategic Policy Institute, which gets its funding from the Australian Department of Defense, is recommending in a new report that the government introduce controls on the provision of defense services.  The report’s executive summary makes the case as follows:

“There is an increasing number of unregulated firms providing both paramilitary security services and military training or advice for profit. Without regulation, there’s no guarantee that such firms will act in Australia’s national interest. Consequently, the government should introduce a regulatory regime to control the provision of military, paramilitary and policing services, training and support akin to the export control regime for arms and military technology. The UK is exploring options to regulate firms operating from its jurisdiction, and the US - arguably the world’s most laissez faire economy - already requires export licenses for firms providing such services.”

As the Australian report mentions, the UK is also considering new regulations on defense service exports as reported in The Independent.  The British are actually considering a more expansive regime that includes export controls, but also goes beyond that to include regulation of many aspects of this booming business.  For more details, check out the Foreign Office green paper which kicked off the British debate at http://www.fco.gov.uk/Files/kfile/mercenaries,0.pdf.

Here in the US, of course, anyone providing defense services would ordinarily require a license from the Directorate of Defense Trade Controls (DDTC) unless the export qualified for one of the limited exemptions for NATO countries and other close allies.