International Legal Affairs: Volume 4, Number 4
Policies and regulations regarding exports are constantly changing. With the high degree of compliance required to lawfully export firearms from the United States, it is in the best interests of exporters and arms brokers to know the most current policies and regulations that govern the profession. This article is intended to provide an overview of some (but not all) of the changes that have occurred within the past year. As usual, one should not rely upon this article as legal advice; if specific questions arise, seek the advice of competent legal counsel that is well versed in export law and compliance.
Third Party Nationals
In the past, the State Department has considered the country of birth as the qualifying characteristic in determining whether parties are permitted to perform arms exports or brokered transactions involving US-made munitions. Individuals that may have been born in Iran, entered the United States as an infant, and owe all allegiances to the United States would have been prohibited from involvement in an arms transaction under the old State Department regulations.
The new regulations look to two major characteristics: substantive contacts, and business and personal travel to determine whether a party owes allegiance to the United States.
Under §126.18, “substantive contacts” may include (but are not limited to) the following:
- Regular travel to a foreign location;
- Recent or continuing contact with agents, brokers and foreign nationals;
- Continued demonstrated allegiance to a foreign country;
- Maintenance of business relationships with persons within a foreign country;
- Maintenance of a residence within a foreign country;
- Receiving salary or other continuing monetary compensation within a foreign country;
- Contacts by the Foreign Nationals/Third Country Nationals with government or military officials, agents, or proxies;
- Business contacts (with a focus on the nature of the business and its legitimacy);
- Family contacts with individuals who pose a risk of diversion;
- Non-family contacts with individuals who acquire and sell defense articles for profit or monetary gain, who work for or with front companies, or who work for criminal or terrorist organizations;
- The totality of continuing connections to a third country, including carrying a passport of that country, casting ballots for elections in that country, currently or previously holding an official position within that country, and prior employment with the government of that country; or
- Actions otherwise indicating a risk of diversion
Bottom line: Parties that demonstrate a risk of diversion or other evidence of allegiance to a country other than the United States will be prohibited from engaging in arms transactions. This policy is not perfect – it places a large burden on the employer to investigate and determine whether a party may be prohibited. On the other hand, the policy eliminates a blanket policy of denial for parties that may otherwise be loyal to the United States.
Electronic Payment of Annual Registration Fees
In mid-2011, the State Department updated the DS2031 registration form, and started accepting electronic payment of annual fees for exporters, manufacturers, and brokers. In the past, payment was required in U.S. funds, or paid via check issued by a U.S. bank. This created a major issue for foreign brokers who were otherwise unable to register and pay the annual fees required for registration.
The new format of the DS2031 form is much easier to follow, and prompts the user when required fields are not complete. This aspect of the registration process is much easier. Payment has also gotten a little easier. In mid-2011, the State Department required a type of payment that not all banks were able to perform. In response to the issue, the State Department has provided clear wire transfer instructions; it is very easy for domestic and foreign registrants to wire the required registration funds.
Filing, Retention, and Return of Export Licenses and Filing of Export Information
Under the old policy, exporters were required to return exhausted and expired DSP-5 export licenses to the State Department. Under the proposed policy, there is no requirement to return expired or exhausted licenses to DDTC if the license was issued electronically by DDTC, and the license was filed with Customs and Border Protection via the Automated Export System (AES). This is a proposed rule that is very likely to be implemented. A copy of the full text can be found by searching online for 76 FR 68311.
Defense Trade Cooperation Treaty Between the United States and the United Kingdom
The U.S. and the UK have entered into a trade agreement that allows the export of defense articles to be shipped under exemption. There are many details to this exemption – much more than can be elaborated within this issue’s column. Nevertheless, those that export U.S.-made defense articles to the United Kingdom should know that the regulation creates an exemption for the export of ITAR controlled items to the UK. The exemption only applies to shipments to pre-approved government agencies and companies, and shipments may only be shipped to pre-approved locations within the UK. Not all defense items qualify for the exemption, and re-export or re-transfer of defense articles still requires approval of the U.S. and/or British government.
Debarred Freight Forwarders
The U.S. State Department listed five freight forwarders on the debarred list due to allegations of contract fraud and other irregularities. The five freight forwarders include BAX Global Inc., Kuhne and Nagel, Panalpina Welttransport, Panalpina Inc., and Schenker AG. These five freight forwarders are not permitted to transport U.S.-made defense articles without prior approval from the U.S. State Department.
Exports to Iraq
On December 15th, 2011 an end to military operations in Iraq was officially declared. Effective December 26th, 2011 the United States Department of State will no longer expedite any license application submitted in support of Operation New Dawn (OND).
Exports to Afghanistan
Expedited handling and review of export licenses from the United States are still available for exports to Afghanistan. To be eligible for this expedited handling, the following criteria must be met and the requests must be for defense articles and services to forces or organizations deployed in Afghanistan, or defense articles and services to forces or organizations within 90 days of a scheduled deployment. The export license application must be clearly marked so as not to delay processing, and the transaction ID should begin with the letters “OEF,” as applicable.
The export of fully automatic firearms to private contractors is typically prohibited, but the U.S. State Department will allow that fully automatic weapons may be exported via DSP 73 or DSP 5 to civilian contractors and/or private companies operating in Afghanistan. The applicant must provide justification for the number of weapons being requested, as well as end use assurances on the parties receiving the firearms and the plan to return the firearms to the U.S. once the mission is complete.
Changes to the Commodity Jurisdiction Process
The purpose of a commodity jurisdiction (CJ) request is to determine whether an item or service is covered by the U.S. Munitions List (USML) and therefore subject to export controls administered by the U.S. Department of State pursuant to the Arms Export Control Act and the International Traffic in Arms Regulations (ITAR).
If after reviewing the USML and other relevant parts of the ITAR, in particular ITAR §120.3 and §120.4, you are unsure of the export jurisdiction of an item or service, you should request a CJ determination.
Under the old process, written correspondence to State and Commerce Departments was required to determine which agency had proper export jurisdiction over the item. The new process involves an electronic submission to the U.S. State Department. Applicants seeking a commodity jurisdiction determination are not required to be registered with DDTC – See 22 CFR 120.4(b). Additional information on the new process can be found online at http://pmddtc.state.gov/commodity_jurisdiction/index.html.
Export regulations are changing constantly. The above changes to the export regulations are only a small fraction of the changes made within the past year. This article should not be construed as legal advice. Readers are reminded to seek out the most current version of the ITAR regulations and to seek professional legal assistance if questions arise.
Mr. Wong is a Washington licensed attorney. He regularly provides legal counsel to the firearm and defense industry via his law firm, The Firearms Law Group. Mr. Wong also maintains Hurricane Butterfly, an import/export company that assists U.S. firearm manufacturers and foreign buyers that do not wish to wade into the regulatory morass of U.S. import/export regulation. He may be contacted via email at jmwong@FirearmsLawGroup.com.
The guidance provided within this article was correct and current at the time it was written. Policies and regulations change frequently. The preceding article is not intended as legal advice, and should not be taken as legal advice. If the reader has specific legal questions, seek competent legal counsel.