Defense Trade Controls

The Associated Press recently outlined seven years of US government trade data and announced that the value of US exports to Iran has rose from close to $8 million in 2001 to nearly $150 million last year. Despite the only exceptions for exports being agricultural, medical and humanitarian it seems that cigarettes, bull semen, bras, golf carts, fur clothing, sculptures, perfume and musical instruments all fall under “humanitarian” exceptions.

What’s worse is that the sanctions we put on Iran are suppose to irritate their military efforts, but somehow they have received at least $13,000 in “aircraft launching gear and/or deck arrestors”. Although this seems like a small amount, it actually is far from it. Older military items are often sold for near pennies. Before Bush signed legislation prohibiting the Pentagon from selling leftover F-14 parts, they would sell the parts that once costs the US roughly $38 million, and would now sell them for around $2,000 to $4,000 to domestic buyers. Read More

Hassan Saied Keshari, owner of Kesh Air International and Traian Bujduveanu, owner of Orion Aviation Corp, both face up to 20 years in prison and fines up to $1 million. The two men, Keshari from California and Florida resident Bujduveanu were indicted for their purchasing and selling US aircraft parts to Iran on numerous occasions.

Records indicate that Keshari would receive email orders from buyers in Iran, he would then request quotes from Bujduveanu and the two worked together to send the shipment to a company in Dubai who would then forward the parts to Iran. Overtime the pair shipped US parts for the CH-53 military helicopter, the F-14 Tomcat fighter jet, and the AH-1 attack helicopter, all notoriously used by the Iran military.

Because all parts were manufactured in the US they are designated as “defense articles” on the US munitions list requiring any exports to be licensed, especially to Iran. Keshari and Bujduveanu have been indicted on 11 counts of violating the International Emergency Economic Powers Act (IEEPA), the United States Iran Embargo, and the Arms Export Control Act. The charges are as follows:

• Charge 1: Conspiracy to export goods to Iran
• Charges 2 through 7: Exporting military aircraft parts from the US to Iran
• Charges 8 through 9: Exporting defense articles from the US to Iran by way of Dubai, United Arab Emirates
• Charge 10: Making false statements by misrepresenting the contents of a package containing military aircraft parts being exported from the US

More information:

• DOJ News Release: Two Munitions Dealers Indicted on Charges of Exporting Military Aircraft Parts to Iran

The Directorate of Defense Trade Controls has issued Guidance for Agreement Rebaselines. An agreement rebaseline is used as a tool to bring currently approved agreements into compliance with new policies and amendments. So, for example, if you have an agreement that was approved a while back and does not contain all the latest DDTC provisos, requirements and burdens, your agreement is a candidate for rebaselining.

Currently agreements officers of the DDTC will be auditing agreement files and will initiate a rebaseline if action is needed to bring the agreement up to par with newly passed policies. Applicants will be notified via a proviso in an approval letter for an amendment. Read More

The Department of State issued a final rule amending section 123.9(e) of the International Traffic in Arms Regulations to allow for NATO and its agencies, the governments of NATO members, and the governments of Australia and Japan to reexport or retransfer US origin components incorporated into a foreign defense article without any prior approval from the Directorate of Defense Trade Controls. Prior to the revision/clarification, 123.9(e) did not authorize retransfers to agencies of NATO-it only authorized retransfers to the member governments themselves, plus Australia and Japan.

To refresh your memory on the ITAR 123.9(e) NATO+ parts exemption, there are several limits however to what components can be reexported or retransferred. First of all, to qualify for the exemption the US origin components must have been initially authorized for export from the US either through license or an exemption. The following are US origin components that are NOT eligible for the exemption:

• Significant military equipment;
• Major defense equipment sold under a contract in the amount of US $14 million or more;
• Defense articles or defense services sold under a contract in the amount of US $50 million or more;
• Identified as items in the Missile Technology Control Regime of ITAR.

Finally the person reexporting the defense article must provide written notification to DDTC about the retransfer no later than 30 days after the transaction, and the notification must identify the articles reexported and the recipient government or NATO entity. After receiving this documentation the DDTC has the option to place restrictions on the component.

More information:

• State Dept. Notices: ITAR Clarified for NATO Re-exports; U.S., Chile to Hold Environment Meeting (WorldTrade Interactive)

The Department of Treasury’s Office of Foreign Assets Control has issued a guidance document to give much need direction banks, importers, and exporters regarding blocked property and interests in blocked property. The main issue the OFAC is attempting to answer in this document is, what if a company is not on the SDN list, but one of its partners/ shareholders/ members is? Can we do business with the company? The answer is not so clear however, it actually is that it depends. If the SDN lists any partners/ shareholders/ members who have 50% or more interest in the company than the answer is no, but if they only have 49% or less interest in the company than you can in fact do business with the company but you should act with strong caution.

This all may sound a bit clear until the fact arises of how to actually find out if the SDN has 50% or greater interest therein the company. The OFAC does not give any opinions or options to generate an answer for this problem. If in fact a company fails to detect a SDN interest in 50% or more in one of their customers and ends up engaging in business the company will be treated by the OFAC as if they dealt with an SDN directly.

OFAC warns and reminds companies, “In certain OFAC sanctions programs (e.g., Cuba and Sudan), there is a broader category of entities whose property and interests in property are blocked based on, for example, ownership or control.”

More information:
OFAC Guidance Document (PDF)

A letter from a group of 12 trade organizations was sent to the Department of Commerce on February 15, 2008 opposing the many proposed changes to the US deemed export control policy. The Deemed Export Advisory Committee outlined these changes in their December 20, 2007 report. The letter argued that many of the approaches are not sufficient with the industry, urging Commerce “to go back to the drawing board” and work closely with industry to develop a more “balanced” approach.

Over the past 20 years the government has not been able to agree on meaningful reductions to the scope of the controlled technologies lists. The DEAC did not attempt to make any recommendations fro narrowing the list because of such criteria and the letter agreed.

The DEAC proposed a “probable loyalty” test in reference to foreign nationals, this test would significantly increase the number of foreign nationals subject to deemed export licensing and restrictions to US origin technological information. The letter argued that would lead to an expansion of both the list of countries whose nationals would become subject to deemed export controls and the number of such nationals that would be subject to licensing.

Overall, the group of 12 stressed the fact that the DEAC’s suggestions would harm US technological competitiveness and would lead to a license “logjam”, there will be increases in both the number of deemed export license applications and an increase in license denials fro nationals of more countries. All in all the US government is not prepared to process this many licenses.

The DOC has already announced that its Bureau of Industry and Security has begun to implement the committee’s recommendations. They has been directed to immediately create an Emerging Technologies Advisory Committee and the BIS is also beginning to improve outreach and engagement efforts to the academic and technology communities about the progress and scope of its deemed export policy efforts. The BIS has begun to work with the departments of Defense, State and Energy to consider other specific DEAC proposals.

More information:
BIS- The Deemed Export Rule in the Era of Globalization (PDF)

On March 11, 2005, in the Niagara Falls courtroom of Judge Robert M. Restaino, a cell phone began to ring. This annoyed Restaino, as is would most of us. However, unlike most of us, he was empowered by the State of New York to punish the offending party. Just one problem - no one stepped forward when the judge asked whose phone had rung. A less courageous bench might have let it go at that, but not the bold Restaino. His solution? Send a total of 46 people to the city jail for the crime of being unfortunate enough to be standing in Restaino’s courtroom that day.

DDTC’s Office of Defense Trade Controls Licensing does not operate its own jail (perish the thought), but it does operate with a great deal of discretion to complicate the international business of exporters. Exhibit A is an obscure-sounding announcement to the DDTC website around the beginning of the year. Despite its title, “Replacement of Section 9.4 of the Guidelines for Preparing Agreements“, this recent missive from Foggy Bottom actually has limited impact on agreement preparation. Its real affect is to complicate the process for applications to export hardware in furtherance of an agreement. Read More

DDTC says its D-Trade2 rollout is scheduled for the end of February or March with multiple updates and changes. The D-Trade2 rollout will incorporate the new amendments forms DSP-6, -62, -74. “Batch” users will continue to use the DSP-119 which will still be submitted through the legacy system for an additional 12 weeks after the end of February rollout. DDTC will give notice when the new amendment forms will be officially be enabled in the batch function.

More information:

www.pmddtc.state.gov/dtrade2_rollout.htm

BAE Systems in South Australia, a defense company, has been granted an exemption from the equal opportunity laws. The company may discriminate on the basis of nationality when selecting employees for US contracts in order to satisfy the US International Traffic in Arms Regulations.

Linda Matthews, the South Australia Equal Opportunity Commissioner argued that basic human rights should not be overridden by commercial considerations. Her strong opposition of BAE’s application was not enough to convince the Department of Justice to deny their application. BAE’s legal counsel is denying all allegations that the company ever violated South Australia Equal Opportunity laws before the date of the approval of the company’s application.

This development allows BAE to comply with US ITAR requirements that certain foreign nationals not access US defense articles without violating the laws of Australia.

More information:

http://www.tradingmarkets.com/.site/news/Stock News/1058903/

Beginning January 22, 2008 the State Department, Directorate of Defense Trade Controls Web site got a new format. DDTC says the changes are designed to assist users in searching for defense trade information. Many of the pages have been updated and most of the content from the current site can be found on the new site.

More information:

www.pmddtc.state.gov/new_look_for_website.htm

President Bush issued an Export Control Directive on January 22, 2008, the directive is presumed to improve the way in which the Department of State responds to the many licenses it receives for the export of defense equipment, services, and technical data. Bush promised, “a more efficient and transparent export license process” and better “dispute resolution mechanisms” but was sure to include that there will remain a strong monitor on protecting national security.

The specific changes include:

1. Additional financial resources and intelligence support to provide timely adjudication of defense trade licenses
2. New guidelines requiring decisions by the U.S. Government on defense trade export license applications within 60 days unless there is strong reason for additional time which must be approved
3. The electronic licensing system will be upgraded to allow all types of defense trade licenses and their submission
4. An interagency will be created to allow for timely resolution of licensing jurisdiction issues under the Commodity Jurisdiction process
5. A multi-agency working group will be created to improve procedures for export enforcement investigations

Read More

Effective December 26, 2007, it is the policy of the U.S. to deny applications for licenses and other approvals to export or transfer defense articles and services to Sri Lanka. The only exception will be that certain licenses will be issued for technical data or equipment made available for the limited purposes of maritime and air surveillance and communications. These licenses will be subject to case by case review.

Legislation explains that the embargo will continue until three conditions are met:

1. members of the Sri Lankan military alleged to have engaged in human rights violations are suspended and brought to justice;
2. journalists and humanitarian organizations are given access to all parts of the country consistent with international humanitarian law;
3. the Sri Lankan government has consented to a field office of the United Nations High Commissioner for Human Rights with sufficient access to monitor and to report allegations of human rights abused in Sri Lanka.

Human Rights Watch, a humanitarian organization, released a report last August giving great details of documented cases of attacks on displaced civilians, extrajudicial executions, “disappearances” and abductions, and failure to take action against the allied Karuna group’s forced enlistment of child soldiers.

More information:

DDTC Policy

Human Rights Watch report (PDF)

Some Canadian companies in the defense industry are finding themselves in a catch-22 situation. If they comply with the U.S. ITARs and restrict access on employees with certain nationalities, then the employees are taking the company to the provincial human rights tribunal. If they do not comply with the U.S ITARs, they cannot obtain U.S business and they may be committing an offence under U.S. law (if there is a connection to a U.S. based company). Read More

On December 19, 2007, an amendment to the ITAR was published that revised the licensing procedures with regards to third party/dual nationals for technical assistance and manufacturing license agreements. It is no longer required that additional approval for a release of technical data, defense services, and access to defense articles for third part/dual national employees from NATO, EU, Australia, New Zealand, Japan, and Switzerland. Read More

“Beware of apparently good news.” — John Black

In the December 19, 2007 Federal Register, the Directorate of Defense Trade Controls (DDTC) of the State Department announced its new policy for dual and third country nationals. The change primarily is related to the requirement that when you apply for a Technical Assistance Agreement (TAA) or Manufacturing License Agreement, you must identify the foreign nationalities of the foreign signatories to the agreement. Read More